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 and keep operating while paying off creditors under a judge’s supervision.
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, launched early in the economic crisis.
The PPP loans were aimed at small businesses that needed help maintaining their payroll, 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, said the COVID-19 pandemic ravaged the consumer bankruptcy sector, forcing the firm to make the tough decision to file for Chapter 11 earlier this year.
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.
The law firm went from filing 1,112 cases in June 2019 to filing 486 cases in June 2021, he said. Last month, it filed 632 cases.
“These figures illustrate how our industry was impacted by the pandemic and the resulting economic uncertainty,” he said. “It wasn’t just a slight dip in business, but a major decrease that significantly affected our operations.”
The firm has about 7,840 clients, some of whom are years into their bankruptcy cases.
Signs of trouble
Semrad Law Firm was founded in 2003 by Patrick Semrad’s brother, Robert J. Semrad, 55, of north suburban Bannockburn.
It became 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 finish in less than six months.
But even before the COVID-19 pandemic and its subsequent bankruptcy, there was trouble for the firm.
Robert Semrad was convicted on 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. His law license was suspended in January for 90 days, and requires a petition, hearing and court approval to be reinstated. An ARDC spokesman said Robert Semrad has not filed such a petition.
Robert Semrad did not respond to multiple requests for comment.
Patrick Semrad, of Highland Park, now holds a 51% majority stake in the firm, with Robert holding 49%, according to court filings.
Patrick Semrad, majority shareholder of Semrad Law Firm, as shown in his bio at DebtStoppers.com.
DebtStoppers.com
Luxury cars, cashed checks
PPP loans were established as part of the Coronavirus Aid, Relief and Economic Security, or CARES, Act — signed into into law by President Donald Trump — and the program began distributing funds to small businesses on April 3, 2020.
On April 8, 2020, Semrad Law received a $1.93 million PPP loan through Old National Bank, according to data from the Small Business Administration. The firm reported 151 jobs on its payroll. The loan was later forgiven, meaning it essentially became a grant paid by taxpayers.
Nine months later, in January 2021, the firm obtained a second PPP loan for $1.93 million, also through Old National Bank. At the time, it reported 125 employees. The loan is still pending. Old National Bank declined to comment.
Patrick Semrad told the Sun-Times he expects the firm’s second PPP loan will be forgiven.
Court documents reveal the firm made a number of large purchases and payments after receiving federal help.
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 as well as a Rivian R1T electric truck for $87,637 in August 2022.
- The firm also paid Patrick Semrad and his wife, Agueda, $1.47 million for “loans and card transactions” between April 2022 and the time of the bankruptcy filing.
- In the year before filing Chapter 11, the firm paid $884,361 to Robert Semrad — of which $723,938 is identified as money that Robert had previously paid to the firm — and $34,893 to two other family members.
- It also paid $525,000 toward what appears to be a personal loan for Patrick Semrad.
Patrick Semrad said the luxury vehicles were part of his and his brother’s compensation, adding, “We were not planning to file bankruptcy. The bankruptcy was not really in the cards until just before the filing.”
A court document shows an image of a Range Rover similar to the one purchased for Robert Semrad by his namesake law firm. The vehicle was bought for $132,419, including sales tax.
He declined to answer questions about the payments to himself, his wife or other family members or the personal loan but told the Sun-Times 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 wrote in a follow-up email. “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 and overseas workers
The vast majority of PPP loans, including two to Sun-Times Media Productions totaling $4.73 million, have been forgiven. The program has been touted as a life raft for small businesses so they could preserve American jobs during the pandemic. But it has recently come under fire for abuse.
Semrad Law “greatly reduced its workforce by terminating over half of its employees” to reduce costs, according to an April 26 statement it filed with the court.
The law firm now has “around 65” employees, Patrick Semrad told the Sun-Times.
He said the firm “really tried to hold on as long as we could” without cutting U.S. staff.
Court filings also show that the Department of Labor is investigating unpaid 401(k) contributions that were supposed to go to employees, and the Internal Revenue Service is claiming payroll taxes went unpaid.
Patrick Semrad told the Sun-Times the IRS issue arose after the firm claimed an allowed offset against its payroll taxes under the federal Employee Retention Credit program. He said “a few” 401(k) payments to employees were late but said now they are 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. It did, however, pay $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.
DebtStoppers’ Chicago office at 11101 S. Western Ave.
Owen Ziliak/Sun-Times
Meanwhile, for the past several years, the firm has outsourced much of its paralegal and call center work to ZenTeli, the Sofia, Bulgaria-based company co-owned by Patrick and Robert Semrad, their brother Joe Semrad and the law firm’s comptroller, Daniel Rangelov.
ZenTeli employed 42 workers when the pandemic began in March 2020 and now employs 47, Patrick Semrad said.
Semrad Law paid the brothers’ Bulgarian company $1.2 million in the year before the bankruptcy filing, documents show. And 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, said 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.
When 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 laughed.
“Nothing they’re doing is new, but the combination is interesting,” Markell said. “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 allude to his own firm’s Chapter 11 case.
The DebtStoppers.com home page.
DebtStoppers.com
Patrick Semrad maintains that its 7,840 clients will not 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,” he said. “We’re here.”