Business & Commercial Bankruptcy Archives

Changes in Bankruptcy Preference Laws

When a business files a bankruptcy, under certain circumstances the bankruptcy trustee can assert a preference claim against certain creditors and take back from those creditors money previously paid to the creditor by the debtor. For example, if within 90 days of the filing of a Chapter 11 bankruptcy a payment is made on a past due invoice, in certain circumstances the trustee can assert that the creditor received a preference which is unfair to the other creditors and therefore, even though the money was owed, they must give it back to the debtor so the money can be redistributed to treat creditors equally. Trustee's would take advantage of this power by filing suit in order to try and get a settlement even though there may be valid defenses such as new value or contemporaneous exchange. In addition, if a company in, say Maple Shade NJ files a chapter 11 and the the debtor paid a company in Bozeman, Montana within 90 days before filing, the company in Bozeman could be forced to litigate in New Jersey. Under the new law, a trustee must do reasonable due diligence  and consider defenses before they can file a suit. In addition, all lawsuits for less than $25,000.00 must be filed in the District where the defendant business is located. Both changes were badly needed.

The New Small Business Reorganization Act

The new Small Business Reorganization Act was signed into law by President Donald Trump on August 23, 2019 and goes into effect in February 2020. The changes are long over due. Filing a Chapter 11 bankruptcy for a small business has been problematic because it is more designed for a large company rather then a small one. Because of certain rules which could make it more difficult for the owners to retain their ownership in certain circumstances, chapter 11 was sometimes avoided even though it could provide relief. Now the debtor can elect to be treated as a subchapter V debtor as of February 19, 2020. The new Chapter streamlines the process and avoids the potential loss of ownership. It is more cost effective. It also allows the debtor to have his bankruptcy plan confirmed over objections as long as certain criteria are met. Overall it should allow a number of small businesses to successfully reorganize

Retailers Struggle to Avoid Bankruptcy

On line shopping and high rent costs, among other things has caused multiple retailers to seek protection in Chapter 11 bankruptcy or file Chapter 7 bankruptcy and close. Competition from on line sellers combined with high operating costs are the leading causes. It seems like another large retailer may soon be in bankruptcy. According to USA Today , the retailer Barney's is considering filing a bankruptcy.  https://www.google.com/amp/s/amp.usatoday.co/amp/1728925001 The reasons given are pretty typical of the problems facing many retailers today. A combination of high rent and online competition. The final straw may have been a rent increase at the Madison Avenue location which according to USA Today went from$16 to $30 million in January. The impact on the Philadelphia Pennsylvania Barney's is still unclear. Choices of retailers may soon be a thing of the past.

Gymboree Reported to Soon Be Filing Bankruptcy

The Wall Street journal reports that Gymboree is on the verge of filing a bankruptcy with the likely closure of their stores. Locally there are several stores including at the Cherry Hill Mall in Cherry Hill New Jersey, The Promenade at Sagemore in Marlton NJ and the Deptford Mall in Deptford NJ. In Philadelphia Pennsylvania the store at the Philadelphia Mills Mall would be impacted. The bankruptcy will be just another reminder of the difficulties retail chains face today.

Sears Bankruptcy Includes Closing NJ Stores

Sears filed bankruptcy on October 15, 2016. According to Wikipedia, Sears was the largest retailer in the US until 1989 when it was passed by Walmart and was now 23rd largest. Recent financial changes led to the closing of the Sears at the Hamilton Mall in Atlantic County. With the filing of the Chapter 11 Bankruptcy, three more New Jersey locations are being closed: The Sears at the Deptford Mall in Deptford New Jersey, the Sears in Middletown NJ and the KMart in Glassboro NJ on Delsea Drive. The closure of the stores is a major blow for those areas because of the loss of so many jobs.

Toys R Us Bankruptcy Closing New Jersey and Pennsylvania Stores

Toys R US, which is in a Chapter 11 bankruptcy, announced Tuesday that they are closing up 182 stores, according to a story on USA Today at https://www.usatoday.com/story/money/business/2018/01/24/toys-r-us-plans-close-up-182-stores/1060674001/

Defending Preference Claims in Bankruptcy

When a business files for bankruptcy, the trustee will sometimes sue creditors to get money back from them if they received a payment within 90 days of the filing of the bankruptcy. This is known as a preference action since the idea behind it is to avoid a debtor that is about to file bankruptcy from preferring certain creditors over others. However, there are defenses that can be used that may allow the creditor to retain the money they received within 90 days. For example, if the payment was made in the ordinary course of business such as within 30 days of invoicing, that may be a valid defense. If, after receiving payment, the creditor extended new credit, to the extent the new credit extended is not repaid, an offset will be allowed. There are other defenses as well. If a demand is received from a debtor or a trustee, it is important to immediately consult with an experienced attorney as there are time limits in responding once the complaint has been filed.

What is an Involuntary Bankruptcy

An Involuntary Bankruptcy is filed not by the individual or company that has the debts, but instead by creditors of that individual or company. The involuntary bankruptcy can either be a Chapter 7 or Chapter 11 bankruptcy. Three creditors with combined claims totaling $15,775 or more can force a company into bankruptcy. The claims cannot be contingent or subject to a bona fide dispute. The filing must be in good faith or the case will be dismissed and the creditors could be responsible for fees and costs incurred by the debtor. The requesting parties must show the debtor is not paying its debts as the debts become due. Creditors will file an Involuntary Bankruptcy for various reasons including trying to force liquidation of the assets to pay its claims or to get the trustee appointed to review the books and records to make sure the debtor is not improperly favoring some creditors over other creditors.

GYMBOREE APPEARS TO BE ON VERGE OF BANKRUPTCY

Gymboree appears to be on the verge of bankruptcy according to The Denver Post. http://www.denverpost.com/2017/05/05/gymboree-stores-closing/ A number of stores will likely close as part of the bankruptcy process. A number of brick and mortar retailers have struggled in recent years. According to the Gymboree website, southern New Jersey has stores in Cherry Hill, Deptford, Marlton and Blackwood NJ. There are also stores in Philadelphia Pennsylvania. It is not yet clear which stores will be closing.

Conversion of Chapter 11 business bankruptcy to Chapter 7 bankruptcy

When a business is struggling, often it will turn to a Chapter 11 bankruptcy in order to reorganize its debts. Through Chapter 11 a business can often reduce unsecured debts like claims of suppliers, restructure secured debt and pay priority tax debts over time, among other things. Often these changes are enough to allow the business to again be successful. But sometimes, for various reasons, it is not enough. What happens then? One possibility is the case is dismissed. Another possibility is the case is converted to Chapter 7. In that case, a trustee will sell the assets to the highest bidder. This is exemplified by the South Jersey bankruptcy of Geets Diner in Williamstown New Jersey. The restaurant had filed Chapter 11 in 2015. In August 2016 the case converted to a Chapter 7 bankruptcy. In January 2017 the assets, which included the land, building, equipment and liquor license were sold to the highest bidder. The restaurant will now be reopened by the new owners and the proceeds from the sale will be used to pay creditors of the debtor.

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