The largest consumer bankruptcy law firm in Illinois and one of the biggest in the country has filed for bankruptcy after taking millions in taxpayer-backed loans meant to help struggling businesses survive the pandemic.
The Semrad Law Firm LLC, which markets itself as DebtStoppers, filed for Chapter 11 bankruptcy on April 26 in Delaware, blaming the COVID-19 pandemic.
A Chapter 11 bankruptcy allows a company to reorganize under a judge’s supervision and keep operating while paying creditors at least part of what they’re owed.
Records show the law firm received a financial lifeline during the pandemic, obtaining more than $3.8 million in loans through the federal Paycheck Protection Program that Congress launched early in the economic crisis.
The PPP loans were aimed at small businesses that needed help keeping employees on the payroll and later was expanded to also cover some other essential costs. But court filings show Semrad Law was using paralegals and call center workers in Bulgaria while ultimately cutting its U.S. workforce in half. Its Bulgarian vendor, ZenTeli OOD, is partly owned by the two brothers behind Semrad Law.
Patrick Semrad, 44, says the pandemic ravaged the consumer bankruptcy sector, forcing the firm to make the tough decision to file for Chapter 11. Eviction moratoriums, mortgage forbearance and student loan payment pauses helped millions of consumers stay afloat, and the result was that fewer people needed to file for bankruptcy. Semrad said the law firm went from filing 1,112 cases in June 2019 to 486 in June 2021. Last month, it filed 632 cases.
“These figures illustrate how our industry was impacted by the pandemic and the resulting economic uncertainty,” Semrad said. “It wasn’t just a slight dip in business but a major decrease that significantly affected our operations.”
The law firm has about 7,840 clients, some of them years into their bankruptcy cases.
One partner’s license suspended
Semrad Law Firm was founded in 2003 by Patrick Semrad’s brother Robert J. Semrad, 55, of Bannockburn.
It grew to become the No. 1 consumer bankruptcy firm in Illinois, with additional operations in Michigan, Georgia and Florida.
The firm advertises help for consumers struggling with foreclosures, vehicle repossessions and credit-card debt, among other problems. It specializes in “no cash upfront” Chapter 13 bankruptcy filings, which take three to five years to complete, and Chapter 7 bankruptcy filings, which can be completed in less than six months.
Long before the pandemic and Semrad Law’s bankruptcy, Robert Semrad was convicted of a 2015 charge of domestic battery in Lake County and a 2012 DUI charge in Cook County, which led to a misconduct case before the Illinois Attorney Registration and Disciplinary Commission. In January, his law license was suspended for 90 days. To get it reinstated, he would need to petition for a hearing and get court approval. Robert Semrad has not petitioned to do so, according to an ARDC spokesman.
Robert Semrad did not respond to requests for comment.
Patrick Semrad, who lives in Highland Park, now holds a 51% stake in the firm, with his brother owning 49% of the firm, according to court filings.
Luxury cars, cashed checks
PPP loans were established as part of the federal Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act — signed into into law by President Donald Trump. The program began distributing money to small businesses on April 3, 2020.
On April 8, 2020, Semrad Law got a $1.93 million PPP loan through Old National Bank, according to data from the federal Small Business Administration. The firm reported 151 jobs on its payroll. As the law allowed, the loan was later forgiven, meaning it essentially became a grant paid by taxpayers.
Nine months later, in January 2021, the firm got a second PPP loan, for $1.93 million, also through Old National Bank. At the time, it reported having 125 employees. The loan is still pending. An Old National Bank representative won’t comment.
Patrick Semrad says he expects the firm’s second PPP loan also will be forgiven.
After receiving the federal help, the firm made a number of large purchases and payments, court documents show.
After getting its first PPP loan, Semrad Law bought Robert Semrad a 2020 Range Rover HSE sport-utility vehicle in July 2020. The price: $132,419, including sales tax.
Other purchases detailed in the bankruptcy filing:
- A $111,972 Jeep Grand Wagoneer for Patrick Semrad in November 2021 and a Rivian R1T electric truck for $87,637 in August 2022.
- The firm paid Patrick Semrad and his wife Agueda $1.47 million for “card transactions and loans” between April 2022 and the time of the bankruptcy filing. The filing says the couple previously provided the firm with $1.95 million.
- In the year before filing Chapter 11, the firm paid Robert Semrad $884,361 — of which $723,938 was identified as money he had previously paid to the firm — and $34,893 to two other family members.
- It paid $525,000 toward what appears to be a personal loan for Patrick Semrad.
Patrick Semrad says the luxury vehicles were part of his and his brother’s compensation.
“We were not planning to file bankruptcy,” he says. “The bankruptcy was not really in the cards until just before the filing.”
He won’t answer questions about the payments to himself, his wife or other family members or the personal loan but says he did not collect a salary for a year and a half before the bankruptcy filing.
“We relied on our savings and made the difficult decision to liquidate our retirement accounts,” he says in a follow-up email after being interviewed by the Chicago Sun-Times. “Additionally, we have relied on my wife’s salary and sold a rental property and reinvested most of the proceeds back into the firm.”
PPP loans, overseas workers
The vast majority of PPP loans — including two to Sun-Times Media Productions totaling $4.73 million — have been forgiven. The federal program has been touted as a lifeline for small businesses so they could preserve American jobs during the pandemic. But it also has come under fire for abuses.
In an April 26 court filing, Semrad Law said it “greatly reduced its workforce by terminating over half of its employees” to reduce costs.
The law firm now has “around 65” employees, Patrick Semrad says.
He says the firm “really tried to hold on as long as we could” without cutting its U.S. staff.
Court filings show that the federal Department of Labor is investigating unpaid 401(k) contributions that were supposed to go to employees, and the Internal Revenue Service says some payroll taxes went unpaid.
Patrick Semrad says the IRS issue arose after the firm claimed an allowed offset against its payroll taxes under the federal Employee Retention Credit program. He says “a few” 401(k) payments for employees were late but that the firm now is current.
The firm fell behind by $504,888 on rent for its downtown Chicago office at 20 S. Clark St., which it vacated, according to documents. But it paid $260,304 in the year before its bankruptcy to Semrad Properties LLC, from which it leases its South Side office at 11101 S. Western Ave.
For the past several years, the firm has outsourced much of its paralegal and call center work to ZenTeli, a Sofia, Bulgaria-based company co-owned by Patrick Semrad and Robert Semrad, their brother Joe Semrad and Daniel Rangelov, the law firm’s comptroller.
ZenTeli employed 42 workers when the pandemic began in March 2020 and now employs 47, according to Patrick Semrad.
Semrad Law paid the brothers’ Bulgarian company $1.2 million in the year before the bankruptcy filing, documents show. ZenTeli is in line to receive additional money as a creditor in the bankruptcy.
Bruce Markell, a bankruptcy law professor at Northwestern University and a former federal bankruptcy judge, says many law firms outsource support services, but most do it in countries such as India that, like the United States, use a common law system. Bulgaria’s legal system is modeled on civil law, which originated in ancient Rome.
Asked about the use of paralegals at a Bulgaria-based company that’s part-owned by the law firm’s owners who also accepted PPP money, Markell says: “Nothing they’re doing is new, but the combination is interesting. Interesting in the sense of dark and evil.”
What’s next?
Chapter 11 bankruptcy allows many businesses to reorganize and thrive, including General Motors and United Airlines. Sun-Times Media Group filed a Chapter 11 bankruptcy case in 2009, and today the Sun-Times is part of one of the largest nonprofit newsrooms in the country.
The law firm’s bankruptcy advice blog at DebtStoppers.com has been updated 13 times since the filing but does not mention its Delaware court proceedings.
Patrick Semrad wrote a May 18 blog post titled “How to File for Bankruptcy and Is It Really Worth It?” that replied “yes” but didn’t refer to his own firm’s Chapter 11 case.
Patrick Semrad says its 7,840 clients won’t see any interruptions.
He says he is working on getting private exit financing to get the firm back on its feet as soon as possible.
“We’re not going anywhere,” Semrad says. “We’re here.”
