Direct Air may move to Chapter 7 bankruptcy

The United State Trustee filed a motion Friday with the U.S. Bankruptcy Court for the State of Massachusetts to allow Direct Air, doing business as Southern Sky Air Tours, Inc., to convert its case from Chapter 11 bankruptcy to Chapter 7.

According to a news release from Direct Air's attorney, Robert Kovacs, the United States Trustee expressed concern that Direct Air will not be able to operate and generate revenue. The airline has stopped all flights and its ability to fly again is in question.

In the motion to a US Bankruptcy Court, the Trustee said Direct Air is steadily incurring liabilities and believes the company will unlikely be able to reorganize.

Kovak says if the case is converted to Chapter 7, all the assets of Direct Air will be sold and the money then used to pay its debts.

Myrtle Beach bankruptcy lawyer, Keith Dame, said Chapter 7 is often referred to as straight bankruptcy.

"Essentially, it's taking all the assets and converting that over to a monetized way to distribute money to creditors," said Dame.

Direct Air shut down its service March 12, stranding passengers.

The company had originally said it would resume flights May 12th.

According to the United States Federal Court Web site, the filing of Chapter 7 bankruptcy "does not involve the filing of a plan of repayment... Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain "exempt" property; but a trustee will liquidate the debtor's remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.