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Garnerville Bankruptcy Law Blog

What happens to employees' claims for wages in a bankruptcy?

When a business files a petition in bankruptcy, it may have a number of employees who are owed payment for work performed prior to the filing of the petition. One of the most pressing questions for Rockland County individuals who work for firms entering into bankruptcy is the fate of their earned but unpaid wages, health care benefits and retirement plan contributions. The answer to this question depends in part on whether the employer has filed a Chapter 7 petition and intends to cease operations or whether the employer has filed a Chapter 11 petition and intends to remain in business.

In either case, employees should immediately file claims with the bankruptcy court. These employees become creditors of the bankrupt business upon the filing of the bankruptcy petition. In a Chapter 7 proceeding, employees with claims for unpaid wages have priority over general unsecured claims, but they generally have a lower priority than secured claims, administration expenses and priority unsecured claims. Unpaid wage claims are usually included in the class of priority unsecured wage claims. The priority of unpaid wage claims is more or less the same in a Chapter 11 proceeding.

Scandal-plagued restaurant on Hudson files for bankruptcy

Many factors can force a business into bankruptcy. The most common reasons for a business to seek bankruptcy protection is too many debts and insufficient revenue. Shoddy business practices can also be an underlying cause. A popular restaurant on the Hudson River, La Marina, recently filed a Chapter 11 bankruptcy petition amid a blizzard of unpaid claims and allegations that its manager was involved in a city hall scandal involving Mayor Bill DeBlasio.

La Marina's liquor license was suspended last fall, and one of its managers was arrested on drug-related charges. The restaurant is located on city parkland in Inwood, and a number of critics have been calling attention to the fact that the restaurant's owner made several sizable donations to de Blasio's recent campaign.

Saving your house in bankruptcy

Many people in Rockland County view bankruptcy as, among other things, as a sure-fire way to lose their home to the bank that holds the mortgage. The reality is exactly the opposite. If a person is seriously delinquent on mortgage payments, a bankruptcy proceeding maybe the only way to prevent the mortgage holder from foreclosing on the mortgage and reclaiming the house.

Several provisions in the Bankruptcy Code must be used to achieve this result. First, the homeowner must decide to proceed under Chapter 13 by commencing what is called a "wage earner bankruptcy." Unlike Chapter 7, sometimes called a "straight bankruptcy," Chapter 13 allows the debtor to prepare a plan of reorganization which, if approved by the court, will provide time for the homeowner to renegotiate the terms of the mortgage. Chapter 13 also gives the homeowner time to bring all delinquent payments current.

Time Hotel nears deadline for submission of reorganization plans

The Time Hotel opened in Nyack in May 2016. The owners saw the property as a boutique hotel that would attract urban tourists and business travelers, but the plan has not succeeded. Several of the Hotel's investors filed an involuntary bankruptcy petition against the Hotel in July 2018 (This blog took note of the filing on July 26, 2018). The business bankruptcy has not been resolved, and the trustee set Friday, February 15, 2019 as the deadline for interested parties to file proposals for resolving the bankruptcy.

The bankruptcy process has been complicated by allegations of fraud and mismanagement on the part of the hotel's managers. Also, many investors have sued each other in the hope of keeping the hotel open and preserving a portion of their investments. The original group of investors is forming a new entity in the hope of being able to purchase the hotel from the bankruptcy estate. A number of other parties are expected to put in bids. Some bids will propose liquidation of the hotel, while others will propose a restructuring of debt and the continued operation of the hotel. Dream Hotel Group, the hotel's original management firm, is expected to put in a bid.

What happens in a Chapter 13 bankruptcy?

A previous post here reviewed Chapter 7 bankruptcy, which usually results in the discharge of most of a debtor's financial obligations, but does not necessarily protect a person's home from foreclosure. Also, many residents of Rockland County earn too much money to qualify for Chapter 7 relief. Chapter 13 of the Bankruptcy Code is the procedure that is most frequently used by persons who cannot pass the means test for Chapter 7 bankruptcy.

Any individual can file for relief under Chapter 13 as long as their unsecured debts are less than $394,725 and secured debts are less than $1,184,200. These limits are occasionally adjusted to reflect changes in the consumer price index. Along with the petition, the debtor must file schedules of assets, liabilities, current income and expenses and executory contracts and unexpired leases. A Chapter 13 debtor must also file a statement of financial affairs. The debtor must also file the most recent tax return and any tax returns filed while the case is pending. Married individuals must provide this information for their spouses, even if the spouse is not joining in the filing. As with Chapter 7, the filing of a petition under Chapter 13 automatically invokes a stay of proceedings that halts all collection actions and prevents creditors from attempting to collect the amounts owed to them.

What happens in a Chapter 7 bankruptcy case?

Most residents of Rockland County who have never filed a bankruptcy petition view the process as a long, dark journey during which they will be forced to sell most of their assets in exchange for having many of their debts declared uncollectible by the bankruptcy court. Individuals who are contemplating bankruptcy usually file a petition under either Chapter 7 or Chapter 13. A Chapter 7 petition is a request for the bankruptcy court to discharge and declare uncollectible most of their debts. A Chapter 13 petition asks the court for more limited relief by presenting a plan for reorganization of the debtor's finances that proposes paying those debts over five years. The two proceedings have many differences, and this post will explore Chapter 7.

The filing of the petition invokes a court order called the "automatic stay." The automatic stay freezes all collection actions that have been brought or that could have been brought. Not all debtors are eligible to seek relief under Chapter 7. If a person's net income is greater than the median income for New York residents, the person will not be allowed to file a Chapter 7 petition.

NYC coffee shop chain uses Section 363 sale to find another owner

The coffee shop chain Fika opened in New York City in 2006. The company was known for its sleek modern ambience, and its shops became very popular. 10 years after it opened, Fika had 17 locations in the city, and its owner was telling people that the company intended to expand into more U.S. cities and countries overseas

Two years later, Fika is down to 6 shops and it has filed for Chapter 11 bankruptcy. Unhappily for the original owner, the company has been sold to a third party using the procedures of Sec. 363 of the Bankruptcy Code. The company was brought down by an overly ambitious expansion plan. The company issued a press release stating that each new location incurred significant start-up and operating costs that could not be covered by operating revenue. The company was therefore unable to secure additional investors to fund the expansion costs.

Can the New York homestead exemption save a debtor's home?

Previous posts here have discussed New York's statutory exemption of an owner's equity in a homestead from creditors' claims in a bankruptcy proceeding. In order to fully understand this topic, a review of the automatic bankruptcy stay is also important.

New York, like all other states, has passed laws that protect the property of its citizens from attachment by creditors. One of the most important of these protections is the exemption that is provided to protect a person's homestead. The protection provided by this exemption is limited to a specific amount, depending upon which county the debtor lives in.

Sears' CEO buys company assets in bankruptcy auction

In a recent post about the status of the Sears bankruptcy, the efforts by the company's CEO Eddie Lampert to secure financing for a purchase of the company's assets received significant attention. The other shoe has apparently fallen, because recent reports from the bankruptcy that occurred on Jan. 14 indicate that Lampert's hedge fund ESL Investments has submitted a revamped bid for most of the company's stores and assets. The bid must still receive approval from the bankruptcy court in White Plains, N.Y., but Lampert appears to be the clear front-runner in efforts to feast on what is left of the formerly giant retailer.

According to a post in the Wall Street Journal, Lampert had round-the-clock negotiations over several days with lenders and a committee for the company about the details of a revised plan to purchase the assets. Lampert's proposal was reported to be about $5 billion, together with assumption of vendor claims and tax obligations. Also, Lampert agreed to make a $17.9 million deposit on the sale that was non-refundable.

American Chopper host caught in tangled bankruptcy

Personal bankruptcy can be a smooth process that can provide significant relief from overburdening debt. Occasionally, however, the real world intervenes, and the bankruptcy process becomes extremely tangled. Paul Teutel, the host of the Discovery Channel's popular program "American Chopper," is embroiled in a personal bankruptcy in the Southern District of New York that involves at least two significant complications.

Teutel is the owner of a 2009 Corvette ZR1 that is currently in the possession of a firm that was hired to customize it. The car is now able to reach 60 miles per hour in 3.2 seconds and reach a top speed of 200 miles per hour. For these and other improvements, Teutel was charged $51,000, which he has not paid. Now, Teutel wants his Corvette to be returned, in part, at least, because he doesn't want to pay the storage fee of $50 per day. The hearing on Teutel's motion to regain possession of the car will be heard by the bankruptcy judge.

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