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Reorganization & Chapter 11

ANAND LAW PC > Reorganization & Chapter 11

No longer need all that space? Termination of Leases in Bankruptcy

[vc_row triangle_shape="no"][vc_column][vc_column_text]What happens to a lease agreement after filing for bankruptcy? Does it automatically terminate or must the obligations in the agreement be upheld? Or can you cancel or terminate it?[/vc_column_text][vc_empty_space][vc_column_text] THE AUTOMATIC STAY [/vc_column_text][vc_empty_space][vc_column_text] Immediately upon the filing of a bankruptcy petition, an “Automatic Stay” goes into effect which prevents creditors such as landlords from commencing eviction proceedings, continuing an eviction proceeding, or collecting past due rent. [/vc_column_text][vc_empty_space][vc_column_text] TENANT PROTECTIONS [/vc_column_text][vc_empty_space][vc_column_text] In addition to this protection, a debtor may also “assume” or “reject” an unexpired lease with court approval. Under a Chapter 11 or a Chapter 13 bankruptcy proceeding, there is no fixed amount of time...

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NEWS : Guitar Center Files for Chapter 11, Ironically as Sales of Guitars Soar

[vc_row triangle_shape="no"][vc_column][vc_column_text] NEWS : Guitar Center Files for Chapter 11 Bankruptcy Protection As Sales of Fender, Taylor, Gibson Guitars Boom The Filing Comes One Week After a Massive Debt-Restructuring Agreement [/vc_column_text][vc_empty_space][vc_column_text] A week ago, Guitar Center announced a debt restructuring agreement which is planned to slash $1.3 billion debt by nearly $800 million.  The Chapter 11 filing indicates that the company seeks to obtain $375 million in Debtor-In-Possession financing from existing note holders and lenders, and an additional $335 million in new secured loans. The company says it will continue operating as normal (as normal as it was in 2020 -- with a majority of its 300...

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The Absolute Priority Rule and the “New Value” Exception

[vc_row triangle_shape="no"][vc_column][vc_column_text]In a Chapter 11 bankruptcy proceeding, if a company or individual filer (the “debtor”) is unable to pay its creditors in full, the absolute priority rule bars owners from retaining their interests unless the owners contribute “new value” to the business.[/vc_column_text][vc_empty_space][vc_column_text] The Absolute Priority Rule [/vc_column_text][vc_empty_space][vc_column_text] The absolute priority rule is codified in section 1129(b)(2)(B)(ii) of the Bankruptcy Code. This section requires that for a reorganization plan to be fair and equitable “the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim...

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The CARES ACT, Small Business Bankruptcy, and Chapter 11 Subchapter V

[vc_row triangle_shape="no"][vc_column][vc_column_text]Subchapter V of the Bankruptcy Code (the “Small Business Reorganization Act of 2019”) was passed to make small business bankruptcies faster and less expensive. On March 27, 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) to aid U.S. businesses following the economic impact of COVID-19. The CARES Act amends Subchapter V, and is effective for cases commenced within the twelve months following March 27, 2020.[/vc_column_text][vc_empty_space][vc_column_text] UPDATE (3/29/2021):  President Biden has signed the "COVID-19 Bankruptcy Relief Extension Act of 2021" which will extend the temporary bankruptcy relief provisions granted by the CARES Act for another year (until...

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[fusion_builder_container hundred_percent="no" equal_height_columns="no" menu_anchor="" hide_on_mobile="small-visibility,medium-visibility,large-visibility" class="" id="" background_color="" background_image="" background_position="center center" background_repeat="no-repeat" fade="no" background_parallax="none" parallax_speed="0.3" video_mp4="" video_webm="" video_ogv="" video_url="" video_aspect_ratio="16:9" video_loop="yes" video_mute="yes" overlay_color="" video_preview_image="" border_size="" border_color="" border_style="solid" padding_top="" padding_bottom="" padding_left="" padding_right=""][fusion_builder_row][fusion_builder_column type="1_1" layout="1_1" background_position="left top" background_color="" border_size="" border_color="" border_style="solid" border_position="all" spacing="yes" background_image="" background_repeat="no-repeat" padding_top="" padding_right="" padding_bottom="" padding_left="" margin_top="0px" margin_bottom="0px" class="" id="" animation_type="" animation_speed="0.3" animation_direction="left" hide_on_mobile="small-visibility,medium-visibility,large-visibility" center_content="no" last="no" min_height="" hover_type="none" link=""][fusion_text][vc_row triangle_shape="no"][vc_column][vc_column_text]The Bankruptcy Reform Act of 1994 added sections to the Bankruptcy Code specifically affecting single asset real estate (“SARE”) cases. The definition of SARE was revised by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) and is...

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[vc_row triangle_shape="no"][vc_column][vc_column_text]One in four restaurants won’t reopen after the coronavirus pandemic, according to OpenTable’s CEO.[1] Indeed, businesses within the hospitality industry such as restaurants and bars are especially vulnerable in the current economic crisis caused by COVID-19. Even in times of fairer weather, opening and maintaining a successful restaurant or bar is no easy feat. Chapter 11 protections allow struggling businesses to take a step back and reorganize. By filing for Chapter 11 protections a struggling business may take advantage of the following benefits.   [1] https://www.marketwatch.com/story/1-in-4-restaurants-wont-reopen-after-the-coronavirus-pandemic-opentable-ceo-warns-2020-05-15?mod=article_inline[/vc_column_text][vc_empty_space][vc_column_text] The Business May Operate Normally During Proceedings [/vc_column_text][vc_empty_space][vc_column_text] An “automatic stay” goes into effect as soon as a...

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[vc_row triangle_shape="no"][vc_column][vc_column_text] CRAM DOWNS & LIEN STRIPPING (REMOVAL) [/vc_column_text][vc_empty_space][vc_column_text]‘Cramming down’ refers to reducing the amount of the lien to the market value — in other words, if a mortgage balance is greater than the market value of a property, the balance can be reduced down to the market value amount.  Cramming down of liens can be done through Chapter 11 on properties that are not a primary residence.  Liens that may be crammed down include mortgage, HELOC (home equity line of credit), HOA (Homeowners’ Association), and judgment. In a Chapter 11 bankruptcy, you can also remove fully unsecured liens from your rental properties (i.e....

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[vc_row triangle_shape="no"][vc_column][vc_column_text] Real property valuations are used in Chapter 11 and Chapter 13 bankruptcy proceedings to determine if liens are unsecured or secured, and thus whether or not they can be removed.  Valuations are also used to determine if the debtor (the filing party) falls within the debt eligibility limits—if a lien is fully unsecured, it will go toward the unsecured debt limitation, and if it is fully secured or partially secured, it will go toward the secured debt limitation limit. Property values change constantly, making a critical question, when does the court value the property for the purposes stated above?  Unfortunately,...

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[vc_row triangle_shape="no"][vc_column][vc_column_text]This depends on a variety of factors, including what your score currently is, what chapter you file for, and if you successfully complete your bankruptcy.  While filing for bankruptcy may lower a credit score, it will not necessarily do so. In fact, if you already have a low credit score, filing can actually increase your score, especially after successful completion of a Chapter 13 or Chapter 11 bankruptcy plan in which you pay off some of your debt. Chapter 7 bankruptcy can also, in certain instances, increase a low credit score, after successful discharge.  It is also important to...

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[vc_row triangle_shape="no"][vc_column][vc_column_text]As of April 2019, in order to be eligible to file for a Chapter 13 Bankruptcy (for individuals only), you must owe less than $1,257,850 in liquidated, noncontingent secured debts, and less than $419,275 in liquidated, noncontingent unsecured debts.  11 U.S.C. §109(e).  The debt limitations are adjusted every 3 years, with the next adjustment set to occur in 2022.  11 U.S.C. §104(b). Secured debts include home mortgages, judgment liens, and car loans.  Unsecured debts include credit card bills, medical bills, and personal loans (if a personal loan is secured by property, it will count towards the secured debt limitations). It is important to keep in mind that a Chapter...

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