Solar Loan Bankruptcy: What's The Deal?

The solar industry has been facing challenges due to higher interest rates, adverse policy shifts, and changing state incentives and regulations, leading to a wave of bankruptcies. This has left many consumers with solar panels concerned about their investments and potential financial implications. If a solar company files for bankruptcy, it can affect customers' contracts, warranties, and service agreements. Consumers may have the option to submit claims against the company, but recovery can be lengthy and limited. Additionally, those who financed their solar panels through the bankrupt company will likely still need to make payments to the new loan servicer to avoid consequences on their credit scores and potential loss of assets. Understanding the specific bankruptcy chapter filed by the company, such as Chapter 7 or Chapter 11, can provide insights into their immediate operations and ability to honour existing commitments.

Solar company bankruptcy: your rights

Solar company bankruptcies have become increasingly common, with over 100 solar companies filing for bankruptcy in 2024 alone. If your solar panel installer goes bankrupt, it can be a huge headache. Here's what you need to do to protect your rights:

Chapter 7 vs. Chapter 11 Bankruptcy:

Firstly, it's important to understand the type of bankruptcy your solar company has filed for. If the company has filed for Chapter 7 bankruptcy, it intends to immediately stop operating and sell off its assets. You likely won't be able to contact anyone at the company, and they won't be able to help with repairs or warranty work. On the other hand, if the company files for Chapter 11 bankruptcy, it intends to keep operating while restructuring. However, not all companies survive Chapter 11 bankruptcies.

Your Rights and Options:

• Warranty and Repairs: If your solar panels are under warranty, check if the manufacturer is different from the installer. If they are separate entities, you can contact the manufacturer directly for warrantied service on the panels.
• Loan Payments: If you financed your solar panels through the now-bankrupt company, another company will likely purchase the loan, and you will still need to make the payments. Contact the new lender to verify that your loan terms remain the same. Failing to make payments can have serious consequences on your credit score and could even result in losing your home if you funded it with an equity loan.
• Claims and Legal Options: Bankruptcy allows you to submit claims against the solar panel company, but recovery can take years and may be limited. If your system is not performing as promised or you believe you were defrauded, you may have legal options against the lender financing your solar panel system. Consult with a lawyer to explore these options further.
• Alternative Financing: If you're struggling to pay for your solar panels, consider alternative financing options such as unsecured personal loans or escrow arrangements with buyers. However, these options may impact your credit score and require both parties' agreement.

Cancelling a solar loan under the Holder Rule

Cancelling a solar loan can be a difficult process, and often requires some form of legal action. If you have signed a contract without reading it thoroughly, you may be liable for thousands of dollars in fees or be stuck with an agreement you cannot get out of.

The FTC Holder Rule is a federal regulation designed to protect consumers from deceptive conduct by companies lending money for consumer products. The rule requires that the financing company pay your attorney's fees if you win a case against them. This is because most people could not afford an attorney to deal with this kind of case otherwise. The FTC Holder Rule is especially relevant if the company that installed your solar panels went bankrupt, and you are still paying for panels that are not functioning or providing the expected benefits.

If you have not had your solar panel system installed yet, you may be able to cancel your lease contract without incurring a penalty. Many leasing contracts offer a short time frame, often within 30 days of signing, where cancellation is allowed. Additionally, most leasing contracts specify other unforeseen circumstances under which cancellations are permitted, such as unexpected additional expenses. Therefore, it is crucial to read the fine print of your agreement and understand your rights before signing any solar contract.

If you are considering cancelling a solar loan, it is important to explore your options and understand the potential consequences. Cancelling a solar lease can impact your credit score and affect your ability to obtain credit in the future. It is recommended to seek legal advice and carefully review your contract to avoid any unexpected charges or fees.

What to do if your solar company goes bankrupt

If your solar company goes bankrupt, the impact on you as a customer will depend on the type of bankruptcy filed and whether another company acquires it.

Chapter 7 vs Chapter 11 Bankruptcy

If your solar company files for Chapter 7 bankruptcy, it intends to immediately stop operating and sell off its assets. You probably won't be able to contact anyone at the company, and it won't help you with repairs or warranty work. On the other hand, if your solar company files for Chapter 11 bankruptcy, it intends to keep operating while figuring out if it can restructure and stay operational. Chapter 11 bankruptcy sets off a reorganization process that allows the company to continue its business and pay its creditors over time.

Impact on Customers

If your solar company files for bankruptcy or is acquired by another company, you should receive a letter notifying you of the situation and any changes to your contract. It is important to carefully read and respond to any deadlines in these notifications. For example, if the company said it would repair your system but didn't do so before filing for bankruptcy, you may have a limited window, such as 90 days, to file a claim for financial damages.

Even if your solar company goes bankrupt, your solar panels will likely continue to produce energy as long as they are properly connected and working. However, you may need to find a new company to handle repairs and maintenance, especially if your installer is also the manufacturer of the panels. In this case, bankruptcy could affect your manufacturer warranty. If another company acquires your bankrupt installer, they may or may not honour existing warranties.

If you financed your solar panels through your now-bankrupt solar company, another company will likely purchase the loan, and you will still need to make payments to avoid negative consequences on your credit score and the risk of losing your home if you funded with an equity loan. However, if you financed with an external bank, your loan should not be impacted.

To navigate this situation, you can consider reaching out to your solar panel manufacturer to get a list of installers certified to work on their equipment. Additionally, investing in a solar panel operations and maintenance (O&M) plan from a separate company can provide ongoing support for diagnosing and repairing issues, even if your installer goes bankrupt.

The impact of solar company bankruptcies on the industry

The solar industry has witnessed a wave of bankruptcies in recent years, with a range of economic and policy-driven factors contributing to this trend. The Federal Reserve's decision to raise interest rates to combat inflation has inadvertently affected the solar sector, making it more expensive for contractors to borrow capital to finance their operations. This has discouraged consumers from investing in solar energy systems, hitting contractors hard as they rely on a steady flow of new installations.

The reduction in active contractors has multiple impacts. Firstly, it can lead to decreased competition, potentially affecting pricing and service quality. Secondly, it can slow down the rate of new solar installations, with the supply chain for solar components experiencing fluctuations in demand. Industry consolidation is also a potential outcome, with larger companies absorbing the client base and assets of defunct smaller companies.

Homeowners with solar systems may face uncertainty regarding the longevity and maintenance of their systems, particularly concerning warranty claims and service continuation. Over 17,000 job losses in the solar industry in 2023 have also contributed to financial instability within the industry, with major companies posting substantial losses.

To address these challenges, solar companies must diversify their business models, ensure robust financial planning, and innovate to remain competitive. Relying solely on incentives and rebates can make a company vulnerable to policy shifts, so expanding into new markets or offering additional services can help stabilize revenues. Despite the current difficulties, the solar industry is expected to evolve and showcase resilience, with analysts predicting a shift towards more localized projects and fewer door-to-door sales.

Chapter 7 and Chapter 11 bankruptcy: what's the difference?

Chapter 7 and Chapter 11 bankruptcies are two common forms of bankruptcy available to individuals and businesses in the US. While both aim to provide debt relief and a fresh start, the key differences lie in the liquidation of assets and the reorganization of debt.

Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of assets to pay off creditors. This process applies to both individuals and businesses. In the case of a business, it indicates that the company is beyond the stage of recovery and must close its doors. A court-appointed trustee ensures that creditors are paid off following the rules of "absolute priority", where secured debts take precedence over unsecured debts. Chapter 7 bankruptcy typically results in a complete discharge of pre-petition debts, but it can remain on an individual's credit record for up to 10 years.

On the other hand, Chapter 11 bankruptcy is a reorganization or rehabilitation process that allows businesses to continue operations while restructuring their debt. The company operates under the supervision of a court-appointed trustee, with management making significant decisions approved by a bankruptcy court. The goal is to emerge as a viable business while seeking protection from creditors. This type of bankruptcy is generally more complex and expensive, making it more suitable for corporations, partnerships, or LLCs rather than individuals. Chapter 11 can also take longer, typically ranging from six months to a year in court.

The Small Business Reorganization Act of 2019 added a new subchapter V to Chapter 11, making it easier and faster for small businesses to navigate the bankruptcy process. This includes greater flexibility in negotiating restructuring plans and the appointment of a private trustee.

When considering bankruptcy, individuals or businesses must carefully evaluate their current income, future goals, and the specific circumstances of their debt situation. While bankruptcy can provide a path towards financial relief, it should not be taken lightly due to its potential long-term impact on credit and financial stability.

Regarding solar loans, bankruptcy can be an option of last resort if you are unable to pay for solar panels. Chapter 7 bankruptcy, in particular, could wipe out the debt for the solar panels, but it may require selling assets, including your home, to satisfy the debt.

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