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Garnerville Bankruptcy Law Blog

Chapter 11 bankruptcy ends, creditors and shareholders get little

Most media coverage of corporate bankruptcies in New York and elsewhere focuses on the initiation of the proceeding, especially if the debtor is a major business enterprise. Few stories, however, provide a portrait of how the process ends. The termination of a Chapter 11 proceeding filed by a major department store chain provides an unusual look at how different parties fared in the bankruptcy court.

The debtor is a large department store chain, with headquarters in Omaha and 100 stores in 22 states. The bankruptcy judge recently approved the plan of liquidation. According to the order, creditors with no collateral will receive between 5 and 11 cents on the dollar. As an example, a trucking company that is owed $454,000 but has no collateral will receive next to nothing. Owners of the company's common stock were completely wiped out. Secured creditors will be paid differing amounts depending upon the value of their collateral.

Retail credit cards may trap unwary consumers

Virtually every inhabitant of Rockland County has received at least one offer of a retail credit card - that is, a credit card offered by a retailer instead of a bank. While the cards offer certain advantages, they now come with very high interest rates, some higher than 30 percent per annum. People who accept these offers often find themselves faced with a mountain of credit card debt after a few years of use.

Retail credit cards, often referred to as "store cards," have been around for years, but they have become more popular as attached perks attract shoppers. Some cards offer a 20 percent discount on the first purchase, in-store discounts, free shipping and cash back on future orders. Some even offer deferred interest if the customer's balance is paid in full within a given period. For retailers, the cards are a source of extra revenue. According to one report, Macy's made 39 percent of its $1.9 billion profit from credit card fees.

Clothing retailer trapped in involuntary bankruptcy

Most residents of Rockland County, New York, view the filing of a bankruptcy petition as the voluntary act of someone who is buried in unmanageable debt. Occasionally, however, a person or company may be forced into a bankruptcy proceeding by a creditor who files a petition for involuntary bankruptcy. The impending involuntary bankruptcy of a retailer of upscale resort wear provides an excellent opportunity for exploring this relatively unfamiliar form of business bankruptcy.

Calypso St. Barth was founded in 1992 and once had stores in Paris, Palm Beach, New York City and Santa Monica. It sold simple dresses for $850 and tee shirts starting at $95, and it was favored by a number of high fashion celebrities. On November 1, 2017, six of Calypso St. Barth's creditors filed a petition requesting involuntary bankruptcy based on the allegation that the company has not been paying bills for over a year.

How a famous restaurant fell into bankruptcy

Le Cirque in New York City was a world-famous restaurant, known for excellent food, impeccable service and, of course, high menu prices. When the restaurant filed a Chapter 11 bankruptcy petition in March 2017, most observers expected it to reorganize its finances and continue to operate. These same observers were shocked when the restaurant recently said that it was closing permanently. An October 4 filing in the New York bankruptcy court by Le Cirque's parent company has answered many questions about the decision to close the restaurant.

Increases in two major expenses - rent and labor costs - appear to have played a major role in the company's decision to cease operations. By May, the restaurant was $135,000 in arrears in rent, and monthly rental payments were averaging $50,000.

Bankruptcy may be best remedy for Weinstein Company's problems

The illicit and perhaps illegal sexual exploits of film mogul Harvey Weinstein have been making headlines in New York and elsewhere for several weeks, but often overlooked in the sensationalism that surrounds Weinstein himself is the effect on the company which he and his brother founded, The Weinstein Company.

While the company is vehemently denying that it is looking at an asset sale or a restructuring of the company's debt, bankruptcy is, in the eyes of many experts, the most effective method for dealing with the company's problems.

What happens in a Chapter 13 bankruptcy?

As noted in our last post, the federal Bankruptcy Code provides two types of bankruptcy procedures that are often used by individuals to eliminate or reduce their indebtedness. We summarized the steps in a Chapter 7 bankruptcy, the procedure that is used to eliminate debt through the sale of the debtor's non-exempt property and making partial payments to creditors. At the conclusion of a chapter 7 proceeding, the unpaid portions of all non-secured debts are discharged.

A Chapter 13 proceeding is used by individuals who want to gain additional time to pay their debts without going through the drastic procedures of Chapter 7.

What happens in an individual Chapter 7 bankruptcy?

Most people in and around Rockland County who are contemplating bankruptcy know that the federal Bankruptcy Code provides two types of bankruptcy proceedings for individuals which are commonly used: Chapter 13 and Chapter 7. Few people, however, know what happens during a Chapter 7 proceeding.

A person who files a Chapter 7 petition generally wants to eliminate as much of his or her debt burden as possible. The consequences of doing so may be painful, such as losing a house, but the forgiveness of the debts can make these sacrifices worthwhile. A Chapter 7 debtor must provide a complete list of all debts, all assets, current income and expenses, tax returns and a certificate of credit counseling. Once the financial information is gathered, the court will determine whether the debtor's income is low enough to qualify for Chapter 7 relief. If the debtor passes this "means test," the case will continue as a Chapter 7 bankruptcy.

Buying or renting a home after filing a Chapter 13 petition

New Yorkers who are considering filing a Chapter 13 bankruptcy petition are frequently deterred by fear of the unknown. One of the biggest unknowns is the effect that filing a Chapter 13 petition - frequently called a wage earner or, more generally, a consumer bankruptcy - will have on a person's ability to buy or rent a home. The filing of a Chapter 13 petition does not ipso facto prevent a person from buying or renting, but the process often becomes more laborious.

In both situations, the filing of the bankruptcy petition impairs a person's credit rating, and that negative effect must be overcome in order to rent or buy. Realtors with experience in renting to bankruptcy filers recommend writing a letter to the prospective landlord explaining the circumstances that motivated the decision to file. Obtaining references from a boss or banker or other well-respected member of the community can also help. Any information that will shore up the prospective tenant's reputation as dependable is very helpful.

Shoe retailer plans bankruptcy to shed unprofitable stores

Bankruptcy can serve many purposes for a financially stressed New York business, from restructuring its operations to increase profitability to liquidating its assets and going out of business. The women's shoe retailer Aerosoles is reported to be on the verge of filing a Chapter 11 bankruptcy petition that will allow it to close a number of unprofitable stores in the United States but continue operations.

Aerosoles manufactures and sells flats and wedges that emphasize comfort. The company sells its products in its own stores and in large department stores. Aerosoles has experienced stiffening competition from e-commerce and has experienced difficulty in making its products easily distinguishable from competitive brands.

Toys "R" Us considering bankruptcy protection

The changing retail markets in the United States have affected both large and small merchandisers. As big online retailers such as Amazon gain larger and larger shares of various markets, their competitors are facing dire financial futures. One of the most recognizable chains, Toys "R" Us, has already abandoned its flagship store in New York City and is now reported to be considering bankruptcy because of reduced sales and a heavy debt load.

The toy retailer has long dominated toy sales, and its strength was reflected in its purchase by three private equity firms in 2005. However, in the last decade, both Target and Walmart have expanded their toy sections and have taken customers from the company. Toys "R" Us first showed signs of trouble ahead when it closed its Times Square store in 2015. Now, it has reportedly retained a major law firm, Kirkland & Ellis, to assist it in coping with the twin problems of dwindling sales and enormous debt.

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