Buddy Mac Holdings, LLC and its affiliates are facing an emergency motion to convert their Chapter 11 bankruptcy cases to Chapter 7 liquidation proceedings, with their primary secured creditor alleging the debtors are "self-liquidating" using collateral without any viable reorganization strategy.
The Emergency Motion
Phonix RBS LLC, which holds a secured claim of at least $12.8 million against the rent-to-own furniture company, filed the emergency motion on December 30, 2025, in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. The motion, filed as Document 105 in Case No. 25-34839, requests the court convert the cases by January 5, 2026, or alternatively grant relief from the automatic stay to allow Phonix to proceed with foreclosure actions. The motion was prepared by Blank Rome LLP, with attorneys from both the firm's Dallas and Philadelphia offices representing the secured creditor.
Business Decline and Store Closures
According to the motion, the company operated 84 stores at its peak but had closed nearly half of them before filing for bankruptcy in early December 2025, leaving only 47 locations operational with just 33 operated directly by the debtor entities. The debtors admit they have been unable to turn around their multi-year decline, in part because of their reliance on the goodwill represented by the Buddy's franchise, which was owned by Franchise Group, Inc.
Franchise Group itself filed for chapter 11 relief on November 3, 2024. The debtors explain that this bankruptcy created two key problems: it impaired their relationships with vendors, and their inability to restock stores reduced their fill rate and had a significant negative impact on revenues. The franchisor's bankruptcy also impaired the debtors' relationship with customers, as customers associated the company with the Buddy's franchise, and the company experienced increased difficulty collecting payments from customers once the franchisor's bankruptcy case was filed.
Franchise Termination and Critical Timing
The company lost its Buddy's Home Furnishings franchise flag at the end of December 2025, just weeks after filing for bankruptcy protection. On September 3, 2025, the franchisor's counsel wrote to the debtors' principal and affiliates, notifying them that they were in serious arrears with respect to franchise fees and giving them a ten-day cure period. When the default was not cured, the franchisor deactivated the debtors' point-of-sale system and other critical information technology systems and demanded that the stores de-brand and take down signage.
Failed Interim Performance
Central to Phonix's allegations is the debtors' performance during the initial weeks of the bankruptcy case. The motion details what it characterizes as catastrophic failures to meet basic operational targets that were approved as part of the interim cash collateral order. In the week ending December 13, 2025, the debtors purchased zero dollars of the $200,000 in inventory they had budgeted. The following week, they managed to purchase only $196,200 of a budgeted $350,000, representing just 56 percent of their target.
The motion argues that without sufficient inventory averaging at least $75,000 per store, the company cannot generate the rent-to-own contracts and related receivables that form the basis of its business and serve as Phonix's primary collateral. The motion states that average inventory per store is far below this minimum threshold needed to support operations.
According to weekly reporting that the debtors' chief restructuring officer provided to Phonix, the debtors were still "re-engag[ing] with vendors" to explain the inventory shortfall. The total inventory amount purchased is only 56% of the $350,000 the debtors budgeted, which the CRO asserted is the industry standard amount of inventory the debtors needed to purchase just to maintain monthly sales that they project such inventory would generate.
Adequate Protection Arguments
The motion argues that the debtors cannot carry their burden of proof to show that Phonix will be adequately protected moving forward if they are given further interim authority, or final authority, to continue using Phonix's cash collateral. The debtors were unable to purchase any of the $200,000 of inventory they budgeted for the week ending December 13, 2025, and in the next week were only able to purchase 56% of the $350,000 they budgeted through the first three weeks of these cases.
The motion contends that the debtors entered these cases with approximately $3.3 million in trade debt, including significant debt to their vendors. The CRO admitted that the debtors' relationships with their vendors are so strained that their vendors are not "offering the company trade terms," only cash in advance or, "[h]opefully," cash on demand.
Collateral Deterioration
The secured creditor argues that its primary collateral—accounts receivable, commercial paper, inventory, and cash—is rapidly diminishing in value. For 2025 through November, revenues, and particularly rental revenues which are critical to the business, have been in a downward trend. The debtors' projections for December monthly collections were also "significantly" lower than their historical performance relative to 2024, as they were based instead on their October and November 2025 results.
The motion states that the debtors are missing their weekly collections targets and have squandered the critical holiday season due to inventory shortfalls. Any purchases the debtors may have made in the third week of the cases, before the Christmas holiday, "were too little, too late in terms of seasonality."
Real Estate Values
Recent appraisals obtained by Phonix value the BMH 95 property in Pemiscot County, Missouri at just $170,000 and the BMH 96 property in Williamson County, Illinois at $380,000. A third property, the BMH One property in Smith County, Texas, presents complications as the debtor holds only a 56.43 percent co-tenancy interest, and there may be a prior mortgage from Independent Bank that may or may not have been satisfied.
These real estate values pale in comparison to the secured debt of at least $12,832,589 as of the petition date, with interest continuing to accrue at $3,326.21 per day plus fees and expenses.
Pre-Bankruptcy Actions
The secured obligations matured on August 31, 2025, and the debtors defaulted on their repayment obligations. INTRUST Bank was unwilling to continue its relationship with the debtors "on any terms," and subsequently assigned such indebtedness to Phonix on September 2, 2025.
After attempts to negotiate with the debtors failed, Phonix served notices of foreclosure on three mortgaged real properties between October 13 and October 24, 2025. The creditor also filed a receivership action in Kansas state court on October 21, 2025.
On October 31, 2025, the debtors signed a term sheet for a consensual asset disposition, with the principal owner promising to close the transaction by November 21, 2025. Phonix agreed to multiple continuances of its receivership hearing based on these representations. However, the principal could not close by the deadline and communications between the parties ceased on November 24, 2025.
On November 26, 2025, the debtors filed a notice purporting to remove Phonix's receivership action to federal court on diversity jurisdiction grounds, which Phonix characterizes as baseless since no diversity exists among the parties. The debtors then filed their bankruptcy petitions on December 1 and December 4, 2025, staying all of Phonix's foreclosure and receivership actions.
Bad Faith Allegations
The motion argues that the debtors' chief restructuring officer admitted at the first day hearing that the company entered bankruptcy unprepared to begin any sale process and had conducted no valuation of the business or its assets. When asked whether a standalone reorganization was feasible, he reportedly responded, "I don't know." The CRO also acknowledged uncertainty about whether the company could secure another franchise flag with comparable goodwill to replace the lost Buddy's branding.
The motion identifies multiple factors that courts have recognized as indicating bad faith filing: the debtors have no ability to sustain a plan of reorganization, the cases were filed to forestall foreclosure and receivership actions, the debtors entered bankruptcy unprepared to start any sale process, and the debtors have no viable reorganization strategy.
Alternative Relief Requests
The motion requests three forms of alternative relief. Primarily, it seeks conversion of the Chapter 11 cases to Chapter 7 liquidation proceedings, arguing this is in the best interests of creditors and the estates as it would allow an independent trustee to wind down the multi-state business and liquidate assets while reducing wasteful administrative expenses.
Alternatively, Phonix seeks relief from the automatic stay under Section 362(d) to resume its foreclosure actions and exercise rights against all collateral, arguing both that cause exists due to lack of adequate protection and that the debtors have no equity in the property which is not necessary for an effective reorganization.
Conference and Opposition
According to the certificate of conference, counsel for Phonix conferred with the debtors' proposed counsel at Kane Russell Coleman Logan PC on December 23, 2025, but no agreement could be reached and the debtors oppose the relief requested. On December 30, 2025, counsel for Phonix conferred with counsel for the Official Committee of Unsecured Creditors. The committee advised that it does not, at this time, have sufficient information to have an informed opinion on the merits of the relief requested.
Critical Deadline
The interim cash collateral order expires on January 5, 2026, the same date by which Phonix seeks emergency relief, setting up an imminent showdown over whether these cases can continue as Chapter 11 reorganizations or must convert to liquidation proceedings.
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