Category: News

Texas Business Bankruptcy Laws Unveiled: Essential Knowledge for Businesses

Navigating Texas Business Bankruptcy Laws

At Ritter Spencer Cheng PLLC, we understand Texas businesses’ complexities and challenges, especially when navigating the uncertain waters of bankruptcy. As a law firm deeply rooted in the intricacies of Texas business bankruptcy laws, our mission is to provide clarity and guidance to businesses grappling with financial difficulties. We believe in empowering our clients with knowledge and legal expertise to make informed decisions about their future.

Bankruptcy, often perceived as daunting, is a legal mechanism designed to aid businesses and individuals overwhelmed by debt. It’s a path towards financial recovery, offering a fresh start to those burdened by unmanageable financial obligations. In Texas, understanding the nuances of bankruptcy court proceedings, the bankruptcy code, and the roles of key players like the bankruptcy trustee is crucial for any business considering this step.

Understanding Bankruptcy: Basic Concepts and Importance

Bankruptcy, grounded in federal laws and overseen by United States Courts, offers a lifeline for businesses grappling with financial difficulties. This legal process provides a structured approach for managing various debts, including unsecured debt, allowing for partial or complete repayment or, in some cases, business dissolution to resolve outstanding liabilities.

In Texas–and throughout the United States–the bankruptcy system is designed to cater to diverse financial scenarios. It’s crucial for businesses, whether small or large, to comprehend the procedures and effects of the bankruptcy code, including the automatic stay and the impact of bankruptcy court orders, which have distinct implications for business and personal assets, strategic decision-making, and overall financial health.

Distinguishing between personal and business bankruptcy is essential. Personal bankruptcy addresses individual debts and liabilities, while business bankruptcy deals with a business entity’s financial obligations. For business owners personally liable for business debts, this distinction can blur, affecting personal financial stability as well.

At Ritter Spencer Cheng PLLC, we view bankruptcy not as a failure but as a strategic decision for business restructuring or orderly closure. We assist our clients in making informed decisions, comprehending the impacts on assets and liabilities, and skillfully navigating the complexities of bankruptcy law, from filing petitions to understanding court outcomes.

Types of Bankruptcy Available for Texas Businesses

In Texas, businesses have multiple bankruptcy options to address specific financial circumstances. Understanding these options is essential to choosing the most appropriate financial recovery or restructuring path.

Chapter 7 Bankruptcy

Chapter 7 is ideal for businesses that must cease operations and address financial obligations that cannot adequately be resolved without wasting assets. In this process, the debtor’s estate is evaluated, and a court-appointed trustee liquidates nonexempt assets from this estate to pay creditors. This path is typically chosen by businesses or individual business owners with no viable future seeking a responsible way to settle the debts of the business.

Chapter 11 Bankruptcy

Chapter 11 is tailored for businesses looking to restructure while continuing operations. This complex form of bankruptcy involves creating a debt repayment plan, often necessitating negotiations to repay creditors over an agreed timeframe. Chapter 11 can be an intricate legal process, but it allows a business to reorganize its debts and operations to become profitable again. It’s particularly relevant for businesses that face temporary financial trouble but have a solid foundation for future success.

Chapter 13 Bankruptcy

While less common for businesses, Chapter 13 is an option for sole proprietors who intertwine personal and business finances. It allows for creating a repayment plan to settle debts over three to five years, keeping personal and business assets intact. This option is suitable for those with regular income who can demonstrate the capability to adhere to a repayment plan.

Subchapter V of Chapter 11

Tailored for Texas small businesses, Subchapter V, under the Small Business Reorganization Act, simplifies the bankruptcy process, making it more accessible and efficient for small enterprises.

At Ritter Spencer Cheng PLLC, we guide clients through these options, focusing on unsecured debts, secured creditors, and the bankruptcy process, providing the necessary guidance and representation for informed decision-making.

Chapter 11 Bankruptcy: A Closer Look

Chapter 11 bankruptcy, complex yet beneficial, allows businesses to restructure while continuing operations, which is ideal for larger enterprises with significant assets. In this process, the business proposes a reorganization plan for court and creditor approval, detailing debt management strategies, such as renegotiating terms with creditors, asset sales, and operational restructuring. The aim is to return to profitability and manage debts sustainably.

As a “debtor in possession,” the business retains control over its assets and operations, although the bankruptcy court supervises significant decisions. An automatic stay during Chapter 11 prevents creditor actions, providing breathing space to negotiate and develop the reorganization plan.

Chapter 11 is a vital option for businesses with potential for future profitability. At Ritter Spencer Cheng PLLC, our expertise in guiding businesses through Chapter 11 includes drafting reorganization plans and handling negotiations with creditors and stakeholders.

Subchapter V of Chapter 11: Tailored for Small Business

Subchapter V of Chapter 11, introduced in the Small Business Reorganization Act, offers small businesses a more streamlined, cost-effective bankruptcy process. It simplifies reorganization, making bankruptcy more accessible compared to traditional Chapter 11.

In Subchapter V, debtors maintain control over business operations while collaborating with a bankruptcy trustee overseeing the reorganization. Its benefits include an expedited process and reduced costs. Unique to Subchapter V is the ability to propose a repayment plan without creditors’ approval, provided the plan is fair. This feature allows more flexibility in debt restructuring, including some otherwise non-dischargeable debts.

Eligibility Criteria for Each Bankruptcy Type

Determining eligibility for each bankruptcy type requires an in-depth analysis of the business’s financial situation, including the total amount of business debt. This assessment helps decide whether Chapter 7, Chapter 11, or Subchapter V is the most appropriate path for the business.

  • Chapter 7 Eligibility: To file for Chapter 7, most individuals must pass an onerous means test to assess their income and expenses, but individuals with a majority of business debts, such as guaranties, are exempt from that test. There are very few individuals and businesses that are prohibited from filing a chapter 7 case. This chapter is typically suited for businesses that have shut down or are in the process of shutting down and need a way to resolve multiple creditor claims. Individuals filing chapter 7 are able to obtain a discharge and begin a free start on life.
  • Chapter 11 Eligibility: Chapter 11 is generally available to most businesses, regardless of size. It is also available to individuals but is often cost-prohibitive. Chapter 11 especially suited for corporations, partnerships, and LLCs. However, the cost and complexity of Chapter 11 make it more viable for larger businesses with substantial assets and operations.
  • Chapter 13 Eligibility: For Chapter 13, eligibility is limited to individuals, including sole proprietors, with regular income and whose debts fall within certain limits. This option is not available to corporations or partnerships.
  • Subchapter V Eligibility: To be eligible for Subchapter V, a business must meet specific criteria, including a debt limit and the requirement that at least half its debts are business-related. This option is tailored for small businesses and small business owners.

The Process of Filing for Bankruptcy in Texas

The bankruptcy filing process in Texas involves several steps, each requiring careful attention and adherence to legal procedures.

  1. Consultation with a Bankruptcy Attorney: The first step is to consult with an experienced bankruptcy lawyer. This is where our team at Ritter Spencer Cheng PLLC comes in, offering a free consultation to understand your situation and advise on the best course of action.
  2. Gathering Financial Documentation: Businesses must gather detailed financial records, including lists of assets, debts, income, and expenses.
  3. Filing the Bankruptcy Petition: The bankruptcy process begins with filing a petition in the bankruptcy court. This includes submitting the necessary forms and documentation.
  4. Automatic Stay: An automatic stay goes into effect upon filing, temporarily halting most creditors’ collection efforts against the business.
  5. Meeting of Creditors: The debtor must attend a meeting of creditors, where they answer questions under oath about their finances and bankruptcy filing.
  6. Bankruptcy Trustee’s Role: In Chapter 7 and Subchapter V, a trustee is appointed to oversee the case. In chapter 7, the trustee acts as a liquidator and takes over all aspects of the business. The Subchapter V trustee is designed to facilitate the business in the bankruptcy so that it can exit bankruptcy with a confirmed plan.
  7. Reorganization or Liquidation: Depending on the chapter filed, the business either proceeds with liquidation (Chapter 7) or works on a reorganization plan (Chapter 11 or Subchapter V).
  8. Court Approval and Discharge: In reorganization bankruptcies, the court must approve the proposed plan. Following the completion of the plan or liquidation process, the bankruptcy judge may grant a discharge of remaining debts.

The Role of Legal Counsel in Business Bankruptcy

The complexity of the bankruptcy process underscores the importance of having skilled legal counsel. At Ritter Spencer Cheng PLLC, we play a pivotal role in guiding businesses through each stage of bankruptcy.

  • Initial Assessment: Our first task is to thoroughly assess the business’s financial situation, offering insight into the most suitable bankruptcy chapter.
  • Filing Assistance: We assist in preparing and filing the bankruptcy petition, ensuring accuracy and completeness in documentation.
  • Representation: Our attorneys represent the business in all required hearings and meetings, including meeting creditors and court proceedings.
  • Negotiation and Advocacy: In reorganization bankruptcies, we negotiate with creditors and advocate for the business’s interests in developing a feasible repayment plan.
  • Guidance on Legal Obligations: We ensure the business complies with all legal requirements, avoiding potential pitfalls that could complicate the bankruptcy case.
  • Post-Bankruptcy Advice: After the bankruptcy process, we guide rebuilding credit, managing finances, and minimizing the risk of future financial distress.

Ritter Spencer Cheng PLLC: Your Partner in Navigating Bankruptcy

As experienced bankruptcy attorneys, we at Ritter Spencer Cheng PLLC are committed to guiding our clients through the complexities of the bankruptcy process. Our approach is tailored to each client’s unique situation, providing personalized legal strategies and support.

  • Expert Legal Representation: We offer skilled legal representation in all aspects of the bankruptcy process, from filing to discharge.
  • Strategic Financial Planning: Our team helps clients develop strategic plans for financial recovery and stability post-bankruptcy.
  • Ongoing Support: We provide ongoing support and counsel, helping clients navigate the legal and financial landscape after bankruptcy.

Next Steps: Securing a Stronger Financial Future

Understanding Texas business bankruptcy laws and navigating the bankruptcy process can be challenging, but with the right legal partner, it becomes a manageable path to financial recovery. Ritter Spencer Cheng PLLC is committed to providing businesses with the guidance and support they need to make informed decisions about bankruptcy and financial restructuring.

If your business is facing financial difficulties and considering bankruptcy, we encourage you to reach out for a consultation. Our team is ready to assess your situation and advise on the best action. Contact us today to take the first step towards financial recovery and stability.

Ritter Spencer Cheng Associate Rae Guyse Provides Practical Guidance on Risk Management for Hemp and Cannabis Businesses

Rae Guyse, Associate at Ritter Spencer Cheng, recently authored an article in the Texas Hemp Reporter entitled Practical Risk Management Tips for Texas Hemp and Cannabis Businesses. The article can be read here: Practical Risk Management Tips for Texas Hemp and Cannabis Businesses – Texas Hemp Reporter.

Rae joined Ritter Spencer Cheng after spending three years as an insurance recovery litigator, helping companies maximize their insurance payout in claims against their insurers. She now uses her insurance background to help hemp and cannabis businesses understand their risk management and insurance needs.  Rae can assist you in reviewing your insurance policy before you sign the dotted line to ensure proper coverage. You can reach Rae at 214-295-5070, or email to schedule a consultation with her.

Is Kratom Legal in Texas – New Wellness Trend, or Legal Question Mark?

Kratom Industry in Texas – New Wellness Trend, or Legal Question Mark?

Kratom (Mitragyna speciosa) is a plant native to Southeast Asia that has been used in traditional medicine and cultural practices[1] for centuries. It has become increasing popular in Texas (like the rest of the Western world) over the past several years, and is most commonly sold as a powder, tea, or in capsules. Kratom products can be found online, at smoke and vape shops, and at gas stations across the state.  Botanical vendors, often selling both kratom and kava products, are popping up all over Texas, selling kratom infused elixers that tout a range of wellness benefits depending on the different strain of the plant being used: for example, “white vein” kratom, is known for uplifting and energizing effects while red vein kratom is known for its pain relieving and relaxation effects. Kratom has gained popularity over the years in wellness communities, often discussed as a an alternative for chronic pain relief, and a social alternative to alcohol (though, the FDA has cracked down on kratom companies that market products with medical claims). The U.S. kratom industry is estimated to be worth over $1.3 billion, with an estimated 15 million consumers based on a 2021 estimate.[3]

However, there has also been public concern and national headlines calling into question the safety of kratom. The DEA has listed kratom as a Drug and Chemical of Concern[4]. The FDA has not approved any prescription or over-the-counter drug products containing kratom, and the agency has been quite vocal about its concerns regarding the safety of kratom.[5] NPR recently reported on several recent lawsuits targeting kratom that were filed after a series of kratom overdoses.[6]

When kratom is consumed, the compounds in the plant bind to opioid receptors in the brain, mimicking the effect of traditional opioids – which also gives it its pain-relieving effects.[7] While low doses of kratom most often result in a mild euphoric effect, acting as a natural stimulant and pain reliever, high doses can lead to adverse effects. However, rates of addiction and overdose are much lower than other opioid drugs, and there is some scientific evidence supporting kratom’s effectiveness as a treatment for opioid addiction.[8]  There has also been concern about the lack of regulations around kratom products allowing manufacturers to add dangerous additives to products with little consequence.

The attorneys at Ritter Spencer Cheng have represented kratom clients across the nation and in Texas for many years. Our team is experienced in navigating federal issues impacting kratom, such as FDA issues impacting import, and Texas kratom regulations. Texas recently joined several states across the nation in passing kratom regulations.


Kratom has not been scheduled federally, however, products containing kratom are subject to United States Food and Drug Administration (“FDA”) oversight and compliance with applicable Food and Drug Cosmetic Act (“FD&C Act”) regulations.

While kratom has been largely unregulated in Texas, Texas passed the Texas Kratom Consumer Health and Safety Protection Act (the “Act”) in May 2023.  The Act becomes effective on September 1, 2023. The Act prohibits the sale of kratom to anyone under the age of 18 in Texas and puts in place standards to increase the safety of available products.  The Act will require kratom product labels to include direction on product use and the recommended serving size, and prohibits any kratom product that: is contaminated with any “dangerous non-kratom substance affecting the quality or strength of the product…”; is ”contaminated with a “poisonous or otherwise deleterious non-kratom substance”; has a level of 7-hydroxymitragynine in an alkaloid fraction greater than two percent of overall alkaloid composition; or that contains any synthetic alkaloid. [9] Violating the chapter will result in a $250 for first violations, $500 for a second violation, and $1000 for each subsequent violation. The Act does not define what will qualify as a “dangerous,” “poisonous,” or “deleterious” substance.

Recently, there have been a number of seizures of kratom products across the nation by the FDA.  In May 2023, the FDA seized more of than $3 million worth of kratom products in Oklahoma from Botanic Tonics.[10] And in July, the FDA reissued an import alert for kratom[11] allowing for the detention of supplements and bulk dietary ingredients containing kratom, which it identifies as an unapproved drug”. The FDA has issued similar import alerts for kratom since 2012. Under the FDA’s view, there is an absence of history of use or other evidence of the safety of kratom as a dietary ingredient. Kratom products intended for use as a dietary supplement may be refused admission at a port of entry. Specifically, advertising products containing kratom in conjunction with medical claims regarding diagnosis, cure, treatment, mitigation, or prevention of disease places the product under section 201(g) of the FD&C Act. Because the FDA’s stance is that kratom has not been recognized as safe and effective for diagnosis, treatment, mitigation, cure or prevention, the product qualifies as a “new drug” under FD&C Act § 321(p). Under FD&C Act §§ 331(d) and 355(a), “new drugs” are prohibited from introduction into commerce absent prior FDA approval. This reveals the tension between the FDA and kratom manufacturers and distributors. The FDA has issued numerous warning letters to kratom companies that are making claims related to pain treatment, palliative treatments, blood pressure treatment, and others.[12]

While it is uncertain if and when federal regulations will be put in place for kratom, it wouldn’t be a surprising development. The DEA issued a temporary ban of kratom and urged that it be placed on Schedule I of the Controlled Substances Act back in 2016.[13] The ban was delayed indefinitely after public outcry, particularly by kratom industry associations.[14] However, as the popularity of the product continues to grow, we continue to follow federal and state developments.


It is important for your Texas kratom business to ensure that it is compliant with the new Texas kratom regulations. There are also special considerations for risk management in kratom product labeling, claims formulations, and  other kratom business considerations. The kratom lawyers at Ritter Spencer Cheng PLLC have worked in the kratom industry for years and are experienced in navigating the complex regulatory landscape governing kratom products.


Rae Guyse is an associate attorney with Ritter Spencer Cheng PLLC who handles matters in alternative and psychedelic medicine in addition to cannabis and hemp regulatory matters. Chelsie Spencer, a founding principal with Ritter Spencer Cheng PLLC, represents kratom companies and other companies in the alternative substance industries in all areas of compliance. The lawyers at Ritter Spencer Cheng are prepared to advise your kratom business in all facets of the industry, including regulatory and compliance issues. Contact Ritter Spencer Cheng or give us a call at 214.295.5070 for more information.


[1] The History of Kratom: Origins, Cultural Significance, and Traditional Use – Programming Insider


[4] Drug Fact Sheet: Kratom (

[5] FDA and Kratom | FDA

[6] Kratom at the center of a spate of wrongful death lawsuits : NPR

[7] Is Kratom an Opioid or a Narcotic? No! (

[8] Wilson, L. L., Chakraborty, S., Eans, S. O., Cirino, T. J., Stacy, H. M., Simons, C. A., … & McLaughlin, J. P. (2021). Kratom alkaloids, natural and semi-synthetic, show less physical dependence and ameliorate opioid withdrawal. Cellular and molecular neurobiology, 41(5), 1131-1143

[9] 87(R) HB 1097 – Introduced version (

[10] FDA seizes $3 million worth of kratom (

[11] Import Alert 54-15 (




Sativa versus Indica: What is the Difference?

As marijuana products become more accessible than ever before, the number of cannabis consumers grows worldwide. However, as the market expands, many are unable to identify the major differences or similarities between strains such as cannabis sativa and cannabis indica. This uncertainty is largely due to the disparity between public knowledge and current research. Although the sativa and indica strains are among the most recognizable in the marijuana market, research around benefits and effects is comparatively limited to other substances. Several experts believe that the stigma against marijuana research is due to the plant’s federal Schedule 1 status as an allegedly dangerous and addictive drug. 

FDA and CDC Warrant Federal Warnings about Delta-8 THC

On September 14, 2021, the Center for Disease Control (“CDC”) and the U.S. Food and Drug Administration (“FDA”) warranted federal warnings against the usage and marketing of Delta-8 THC. In similar reports, these federal agencies warned against the use of Delta-8 because of the lack of research on the rare cannabinoid and the growing accessibility of these products in the market. 

3 Benefits of Hiring a Cannabis Lawyer

As cannabis continues to gain significant recognition and the market expands, businesses specializing in both recreational and medical cannabis are growing in popularity across the country. Accordingly, various provisions are set at both the federal and state level to regulate the manufacturing, sale, and distribution of cannabis. Today’s cannabis companies need to hire a lawyer who specializes in the legislation, risks, and trends associated with the industry to ensure compliance and maximize success. Below we explain three of the most important benefits of hiring a cannabis lawyer. 

Financial Due Diligence for Hemp-Related Businesses: Banking Update

In June of 2020, the Financial Crimes Enforcement Network (“FinCEN”) issued updated guidance regarding the Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) regulations for hemp-related business consumers. Financial institutions must do their due diligence for customers, but especially for hemp-related businesses, as the legalities and recommended practices are continually changing. Additionally, the National Credit Union Administration (“NCUA”) recently put forth further guidance for credit unions serving hemp-related businesses. As the hemp industry continues to progress, the banking industry is actively organizing their expectations and guidelines to keep up and simplify hemp-related interactions. Below, we summarize each of these resources to give you the straightforward essentials. 

DSHS Proposed Rules

On June 10, 2019, Texas Governor Greg Abbott signed HB 1325, legislation pertaining to hemp growth and consumable hemp products, into law in the state of Texas. To conform with Texas Health and Safety Code, Chapter 443, as amended by HB 1325, Texas Department of State Health Services (“DSHS”) has published its proposed rules to govern the Texas consumable hemp program (the “DSHS Proposed Rules”) in the Texas Register. Under the DSHS Proposed Rules, a “consumable hemp product” is defined as 

Coronavirus and Cannabis: Force Majeure Litigation

Rocky, troubling, tumultuous, uncertain, uncharted, unprecedented, and unpredictable times: due to the novel coronavirus, COVID-19, we continue to see these ominous descriptions in coronavirus coverage. Society has had to adapt as this pandemic ravages our way of life. Businesses throughout the world are dealing with the economic fallout COVID-19 has caused, and the cannabis industry is no exception. Numerous cannabis companies, already plagued by financial woes prior to this pandemic, are struggling or are unable to perform contract obligations. A prime example of this is illustrated in the ongoing lawsuit between Kentucky hemp company Third Wave Farms, LLC (“Third Wave”) and Oregon CBD processor Pure Valley Solutions, LLC (“Pure Valley”). Third Wave sued Pure Valley to get out of their contract based on obligations Pure Valley allegedly was unable to meet and based on the force majeure clause of the contract coming into effect.

Legalizing Cannabis May Generate Tax Revenue Post-Pandemic

As the devastating impacts of the novel coronavirus, COVID-19, continue to ripple throughout the United States, this country has reached a moral dilemma: to open certain facets of the economy and risk further infections and human lives, or maintain state or locally implemented lockdowns and risk further economic fallout.