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Bankruptcy

• Kodak Bankruptcy Filing Could Hurt Others in This Economy
  Jan 20, 2012

  As is often the case, bankruptcy affects those other than the debtor filing it; there is always a bit of a “ripple effect.”  This is certainly true of the chapter 11 filing yesterday by industry giant Kodak after months of struggling to raise capital from the sale of patents and bringing patent licensing suits.

  As reported in the Detroit Free Press today, others are worried about the company’s future and what it could mean to them.  Its employees are worried about layoffs, retirees are concerned about the future of their health care coverage, and its creditors are preparing to take a hit financially.

  Fortunately, from a jobs perspective, the ripple doesn’t go too far in the town of Rochester, New York, where Kodak is based.  The Press quoted its mayor, Tom Richards, as saying that the bankruptcy has been more of a psychological blow than a financial one. 

  "We have a broader-based economy which is no longer dependent on one industry and one company. We're better off for it. Not what I wish this would happen, but it has happened, and we're just going to need to deal with it."
  

  There is a bit of room for optimism for the company, though.  Kodak has secured financing for operating costs and is still up and running with a brand name that still means something.  But that doesn’t mean that people will keep their jobs, or that stockholders won’t take a big hit.

  Even companies that are not in bankruptcy have been shedding jobs and closing stores.  Just look at the recent bankruptcies by Friendly’s and A&P.  On the other hand, it is better than a straight chapter 7 liquidation, which would create more of a tsunami than a ripple.  At this point, people surrounding the filing are just hoping for the best.

• Kodak Files Chapter 11 Bankruptcy in NY This Morning
  Jan 19, 2012

  Earlier this morning, Kodak filed for chapter 11 bankruptcy protection in the Southern District of New York.  At the time of the filing, it had more than 100,000 creditors, with debts totaling $6.75 billion.  As I had reported earlier, the company had been facing serious financial problems, and had been attempting to stave off bankruptcy by selling off some of its patents.  In addition, it has closed 13 manufacturing plants and 130 processing labs, and reduced our workforce by 47,000 since 2003.  Even then, it has only had one full year of profits since 2004.  This company, a good example of one that has fallen behind due to advances in technology like Blockbuster Video and Borders Books, must now hope that bankruptcy allows them to reinvent themselves and emerge profitable.

  The reorganization is off to a good start with Citigroup providing $950 million in financing to allow the company to keep going. The thing to bear in mind here is that, unlike a chapter 7 liquidation, the goal of a chapter 11 is to revitalize a business and allow it to emerge as a viable, financially secure, entity.  As such, Kodak plans to continue operating normally during bankruptcy.

  There are many tools available to Kodak in chapter 11, including the ability to modify existing contracts and agreements.  This is good because one of the other financial problems plaguing the company is hundreds of millions of dollars in pension obligations. The company has said that it contributed about $245 million to its U.S. pension obligations last year, and that it has been unable to shrink those liabilities to a more manageable level.  Bankruptcy could also allow Kodak to shed some of this.

  Individuals looking at bankruptcy should take some comfort in this news.  Just as businesses can use chapter 11 to rebuild and reinvent themselves, so should consumers do so through a chapter 13 filing.  In these tough economic times, the stigma of bankruptcy has lessened for businesses (although Kodak’s stock plunged 35% at the start of trading this morning) who are finding much needed relief in bankruptcy.  Thus, what’s good enough for Kodak is good enough for you if you need a better way to pay your creditors and get a fresh start.

• Kodak May File Chapter 11 Bankruptcy
  Jan 05, 2012

  A company synonymous with cameras and photography for 131 years is looking to file chapter 11 bankruptcy in the next few weeks if it can’t sell some 1,100 of its patents to raise capital.  As part of their efforts to stave off the filing, the company had talked to hedge funds about borrowing hundreds of millions of dollars to bridge its finances until the patents sell, but the talks have fallen through.  It is also in discussions with large banks including J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. for money to keep the company operating while in bankruptcy, should that be necessary.

  Many might think that Kodak’s troubles came from the waning use of film cameras, but the situation is more complicated than that and goes back decades.  They actually invented the digital camera in 1975, but ironically were not able to find a way to profit from the new technology.  The company first started hitting financial trouble soon after, in the 1980s, when they had difficulty competing with foreign companies on film sales.  This was then exacerbated by the rise of digital cameras and smartphones.

  During this time, they tried selling chemicals, bathroom cleaners and medical-testing equipment, finally deciding to focus on consumer and commercial printers (which they have done for the past five years).  However, that market has proven very difficult to get into, and a lot of capital was spent to subsidize sales of the printers in order to increase demand for the ink.  These financial woes were further compounded by hundreds of millions of dollars a year in obligations to cover pension and health-care costs for retirees.

  Kodak’s future is uncertain, and it could easily go the way of Polaroid, Borders, and Blockbuster, which succumbed to radical changes in their markets caused by advancements in technology.  If it is to survive, it will have to do a much better job of reinventing itself than it has to date.

  
  

• Bellmawr, NJ Post Office Could Close in 2012
  Dec 07, 2011

  Individual Americans aren't the only ones trying hard to avoid bankruptcy in these hard times; the U.S. Postal Service is as well!  According to an article in the Burlington County Times, the Service is looking to revamp its delivery systems to cut costs.  Since delivery is accomplished through Processing and Distribution Centers, several of them (about 250 nationwide) could be closing, including the one in the Bellmawr Industrial Park (which is one of six in NJ facing this).  The other New Jersey centers on the list for possible closing are in Eatontown (Monmount County), Edison (Middlesex County), Kearny (Hudson County), Pleasantville (Atlantic County), and Teterboro (Bergen County).

  Closing post offices is not the only change being contemplated however.  In an effort to save $20 billion in operating costs, the Service is also going to change its first-class delivery standards from the current one- to three-day delivery time to a two- to three-day standard.  Public hearings on the proposed closings are expected to take place early next year, while closures could happen as soon as March, according to the Postal Service.

  This is certainly not an unexpected decision by the Postal Service, as people move more towards e-mail and other forms of communication to save money.  Documents can be scanned and e-mailed, packages can be sent by FedEx or UPS, and (unfortunately) SPAM has eclipsed junk mailers due to their lower cost and higher response rate.  Like other businesses across the country, the Postal Service is working hard to reinvent itself in order to stay in business.

• Good News for People Looking to Get Rid of a Second Mortgage / Home Equity Loan in Bankruptcy
  Nov 08, 2011

  Last month, a New Jersey bankruptcy judge issued a ruling in a case that could help many people strip off a second mortgage on their homes, even if they have previously filed bankruptcy.

  People sometimes come to my office behind on their mortgage with no way to bring it current.  Due to job loss or income reductions, they can barely make the regular payments even if they were up-to-date, let alone pay crushing credit card debt and medical bills.  They often end up filing a chapter 7 bankruptcy to wipe out other bills and resign themselves to losing their home. But what happens if, a year or two later, things change, and they are able to get current in a chapter 13 plan?  Assuming the mortgage company has not already gone to sheriff sale, is there anything that can be done?  Well, thanks to this recent decision, there is!

  In the case of In re: Gloster, decided on October 13, 2011, Judge Winfield in Newark ruled that, under certain circumstances, people can file a chapter 7, discharge their credit card debt, and then later file a chapter 13 to hold off a foreclosure by paying into a plan to bring the loan current!  Colloquially called a "Chapter 20" (a chapter 7 followed by a chapter 13), this has been around for a long time, but the question has been whether this can still be done after the changes to the law in 2005.  The judge said that this can be done as long as:

  • The chapter 13 was filed in good faith; and
  • The proposed payment plan meets all the requirements of the bankruptcy code.
    

  The best part of all of this is that the debtors in that case were able to remove their second mortgage entirely and only pay the first one!  This is an option in a chapter 13 where the first mortgage balance is greater than the value of the home.  Thus the second mortgage does not have any equity to act as collateral for the loan.  If a debtor completes a plan, the second mortgage can be removed permanently, leaving the homeowner with only one mortgage payment instead of two!

  If you are a New Jersey homeowner who owns a home with more than one mortgage, but only enough value to secure one of them, and needs to file bankruptcy, contact my office today to discuss the possibility of stripping off the second mortgage.  Although this ruling may not be followed by the other judges in New Jersey, it is certainly worth looking into!

  
   
  
  

• Couples Without Children May Now Have a Harder Time Filing Bankruptcy
  Oct 25, 2011

  Since the bankruptcy laws changed in 2005, means testing has been an important factor in whether someone can file a chapter 7 bankruptcy .  Having a gross household income above the median could make your filing more problematic.  Median incomes, however, can be a moving target, as they change periodically.

  The last time this happened was on March 15 of this year, when all of the medians went up.  Well, starting November 1, they are changing.  But the interesting thing is, some of them are going up, while others are going down!
  
  Here are the changes in the gross annual incomes:

  • Household of 1: $59,060 to $60,322 (Increase of $1,262)
  • Household of 2: $70,680 to $67,503 (decrease of $3,177)
  • Household of 3: $85,573 to $84,896 (decrease of $677)
  • Household of 4: $101,106 to $101,957 (Increase of $851)

  These changes mean that married couples without children may well face a more difficult time in filing a chapter 7 bankruptcy.  If you are a New Jerseyan thinking about taking this step, please call my office for a free consultation.  Although this change could be significant, do not assume that you cannot file.  Find out for sure if there is a fresh start in your future!

  
  

• Bankruptcy Filing Fees Going Up in NJ on November 1, 2011
  Oct 18, 2011

  These days, inflation is affecting everything, including the courts.  For the last several years, those filing bankruptcy in New Jersey would pay a court fee of $299 for a chapter 7 and $274 for a chapter 13.  This increases periodically, which is what is about to happen.  The National Association of Consumer Bankruptcy Attorneys (NACBA) has announced that on September 13, the Judicial Conference of the United States adopted a new court fee schedule  which will become effective November 1, 2011. The new filing fees will be:

  • Chapter 7: $306
  • Chapter 11: $1046
  • Chapter 13: $281

  Other fees went up as well, such as the one for adding a creditor ($30 from $26).

  People oftentimes delay the decision to file bankruptcy (maybe after Christmas) or do not know when it is time to do so.  This can sometimes cause a problem with issues like means testing, especially where median incomes go down in the interim.

  If you are thinking about filing, contact my office right away to schedule a free consultation.  You do not want to risk making a bad situation even worse!

   

   

   

• Friendly’s Files Bankruptcy; Closing One NJ Location
  Oct 07, 2011

  A long familiar iconic restaurant in New Jersey, Friendly's, filed for chapter 11 bankruptcy on October 4.  Citing the economy, and increasing competition from other casual dining and ice cream chains, it states that it expects to emerge from the bankruptcy reorganization "stronger and more competitive."  Fortunately for us, only one store is closing, one in Trenton, although 62 others are going in other states.  424 restaurants will remain open, however, including 31 in New Jersey.

  
  According to a story posted yesterday on NewJersey.com,
  
  
  "The company plans to sell itself at auction, with an affiliate of the owner, Sun Capital, as the lead bidder. . . . The company requested court permission to hold a Dec. 1 auction followed by a Dec. 5 hearing to approve the sale. Under the proposed timeline, all bids must be submitted by Nov. 24. Potential buyers would have to offer at least $122.6 million in cash to qualify for the auction."
  
  

  The chain goes back to its first restaurant, opened during the Depression, in 1935, in Springfield, Massachusetts, and grew to a national chain.  For many here in South Jersey, going out for ice cream meant going to Friendly's, whether it was just for dessert or a Happy Endings sundae following a Supermelt or a Fishamajig sandwich.
  
  Hopefully, this great chain will continue on after the bankruptcy.  Other places like Ben & Jerry's and Coldstone Creamery are nice (and oftentimes more expensive), but they cannot replace our childhood memories of ice cream at Friendly's.

  
  

• Will the Jersey Devils End Up in Bankruptcy?
  Sep 12, 2011
  Fox Sports reports today that the financial difficulties of the New Jersey Devils hockey team could end up with it being forced into bankruptcy, with them having missed a September 1 loan payment.  The Devils' past-due payment of roughly $100 million is owed to a CIT-led lending group. Devils Arena Entertainment (the team-owned company that operates the arena and guarantees the teams' loans) owes $180 million.  Although they are three-time NHL champions, the article describes them as "attendance-challenged."  This situation is then complicated by two things:
  
  

  1. The principal owners, Jeff Vanderbeek and Ray Chambers, who each own 47 percent of the team, are on the way out. Chambers has been trying to sell his non-controlling stake for a year.
  2. Vanderbeek's relationship with the lenders is "as frosty as the rink surface," with a bank group that wants nothing to do with him.  This does not help, with the team technically in default on financing.

  
  The problem is that the Devils owe 15% more in debt than the team is worth (according to Forbes). This makes it even more difficult to sell.  However, if they are declared bankrupt, lenders cannot seize the team and force a sale for at least 180 days.  With the season about to kick off with a game against the NY Rangers on September 21, this could not have come at a much worse time.
  
  

• Gay Couple Ruled Allowed to File a Joint Bankruptcy in California
  Jun 17, 2011
  Individuals can file a bankruptcy singly, or jointly with a spouse, paying the same filing fee, and usually the same attorney fee, as if they had filed singly. The question becomes, with same-sex marriage being such a hot topic, can gay couples file joint bankruptcies? The definition of the word "spouse" in the bankruptcy code comes from the Federal Defense of Marriage Act (DOMA), which states that it is "a person of the opposite sex who is a husband or a wife." 1 U.S.C. § 7. Therefore, one would think that the answer is "no."
  
  However, according to 20 bankruptcy judges in the Central District of California, the answer is "yes." In the case of In re Balas and Morales, the U.S. Trustee moved to dismiss the joint chapter 13 filing of Gene Balas and Carlos Morales because neither met the definition of "spouse" under DOMA, and as such, the cases had to be either dismissed or severed and administered as separate cases. The matter was heard, and on June 13, 2011, the court held that DOMA was unconstitutional in its definition of the word "spouse" and deferred to state law on the issue. The court stated that the debtors had been legally married under California law, which should be controlling, and as such, the bankruptcy filing could proceed as is.
  
  This ruling is by no means authoritative in other federal districts, but if the logic is followed, it would still not spread very far. As of this writing, there are 5 states (Connecticut, Iowa, Massachusetts, New Hampshire, and Vermont) plus Washington DC, and many foreign jurisdictions, where same-sex couples can legally marry. In addition, there are 3 more states (New York, Rhode Island and Maryland) that recognize same-sex marriages validly performed elsewhere. Thus, ironically, the ability to file a joint petition in bankruptcy would be determined by state, and not federal, law.

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