Bankruptcy Headlines

Atlantic City Gets 60-day Extension of State Loan

Atlantic City, New Jersey's struggling gambling hub, will get a 60-day extension of a $40 million state loan that was due today, Reuters reported yesterday. A report last week by its state-appointed emergency manager, Kevin Lavin, called for cost-cutting, layoffs and possibly debt restructuring to stabilize the city's budget, which has a projected $101 million deficit. The report also said that without significant state support, the oceanfront resort town "cannot stand on its own." With increased competition from neighboring states, Atlantic City no longer has a monopoly on East Coast casinos. As a result, it lost nearly two-thirds of its property tax base in just five years. It is now down to $7.35 billion. Even with the loan extension, Atlantic City's cash flow is expected to go negative by May, according to Lavin's report. Several state lawmakers are working on a package of legislation aimed at stabilizing Atlantic City's tax base by having casinos make set payments in lieu of taxes.

Illinois Legislation Pushes for Possible Municipal Bankruptcies

Stressed by pension debt, other financial issues and the possibility losing a chunk of their state aid, some Illinois cities want the option to file for bankruptcy, the Associated Press reported yesterday. They've found an ally in Illinois Rep. Ron Sandack (R), who's proposed legislation to allow municipalities to follow in the footsteps of Detroit and other cities in restructuring debt and paying back creditors. Opponents, however, say there are less drastic, intermediate steps than the "dangerous" path of bankruptcy. Twelve states authorize cities to file chapter 9 bankruptcy filings, according to the National Conference of State Legislatures, and another 12 grant conditional ability to file. Twenty-six states either don't have chapter 9 authorization or prohibit it. Sandack is sponsoring legislation in Illinois that would grant authority for communities to file for bankruptcy under chapter 9 of the federal code. He said that it's a "measure of last resort," especially with Gov. Bruce Rauner's proposal in next year's budget to cut in half the local governments' share of state income taxes by 50 percent. "It's just giving time and space to do things right," Sandack said.

Puerto Rico Utility Wins More Time for Creditor Debt Talks

Puerto Rico’s Electric Power Authority, the island’s main supplier of electricity, won an agreement with its creditors to extend negotiations for 15 days over what could be the largest-ever U.S. municipal-debt restructuring, Bloomberg News reported yesterday. Prolonging the discussions allows the junk-rated utility to bargain with banks, bondholders and insurance companies beyond the original deadline scheduled by today, according to a statement yesterday by the power authority. The agency, known as Prepa, signed an agreement in August with its creditors that delayed repayment of $696 million of bank loans through March. “All parties believe advances have been made and there is merit to continue conversations with our creditors to find feasible solutions that will transform Prepa into a modern and sustainable utility,” said Lisa Donahue, the utility’s chief restructuring officer.

RadioShack Judge Extends Hearing with 7,000 Jobs at Stake

A hearing on RadioShack Corp.’s plan to sell about 1,700 stores to its biggest shareholder is set to continue today, with the prospect of thousands of job losses if the deal falls through, Bloomberg News reported today. Standard General LP’s bid to take over the stores and run them in a co-branding arrangement with Sprint Corp. has met opposition from some creditors and been threatened by infighting among lender groups. Standard General said that jobs will be preserved if its plan is approved. Otherwise, the assets will be liquidated and stores closed. “There are over 7,000 jobs and very large business at stake,” Bankruptcy Judge Brendan Shannon said yesterday. A key issue in court is who shall be liable if lower-ranking creditors including Salus Capital Partners LLC successfully sue lenders for pre-bankruptcy actions. The unsecured creditors’ committee is investigating whether some RadioShack lenders could be held responsible for the electronics retailer’s bankruptcy.

Exide Faces $2.45 Million in Texas Penalties as Part of Plan for Former Frisco Plant

Exide Technologies faces more than $2.45 million in Texas penalties over violations at its now-closed plant in Frisco, the Dallas Morning News reported today. The penalties are part of a proposal that will be considered at the April 15 meeting of the Texas Commission on Environmental Quality. The six violations issued in 2013 relate to Exide’s handling and storage of hazardous waste at its site along Fifth Street. The state’s proposed agreed order is the latest step in the cleanup process in Frisco, where extensive contamination exists from the plant’s decades of operations. The order also calls for keeping the hazardous waste in the Class 2 landfill on site for long-term monitoring. State regulators say the other option — digging up the waste and transporting it to another permitted facility — is impractical and carries a risk to people and the environment. The state’s action comes on the heels of Friday’s bankruptcy court ruling in Delaware that confirms the company’s plan of reorganization. The confirmation allows the company to emerge from chapter 11 bankruptcy once it meets all of the conditions set out in the plan. Exide has already agreed to the terms in TCEQ’s proposal, including the $2,451,984 penalty.

Same-Sex Couple Deemed “Spouses” for Purposes of the Bankruptcy Code

By: Michael Rich

St John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In Re Matson, the court held that a same-sex couple who filed for bankruptcy as joint debtors were “spouses” for the purpose of the Bankruptcy Code even though the petition was filed in a state that did not recognize their same-sex marriage. In Matson, the debtors were legally married in Iowa but resided in Wisconsin, which does not recognize same-sex marriages. Upon the filing of the case, a creditor moved to dismiss the bankruptcy case or, in the alternative, to bifurcate the case. The creditor argued that a joint bankruptcy case could only be commenced “by an individual that may be a debtor under such chapters and such individual’s spouse.” Further, the creditor claimed that “the definition of marriage and the regulation of marriage . . . has been treated as being within the authority and realm of the separate States.” Thus, the creditor argued that since Wisconsin did not permit or recognize same sex marriages, the debtors should not be deemed “spouses” for the purpose of a joint bankruptcy petition. In the response, the debtors relied on the Supreme Court’s holding that the federal Defense of Marriage Act, which defined marriage as a union between one man and one women, was unconstitutional because it “violate[d] basic due process and equal protection principles applicable to the Federal Government.” In particular, the debtors argued that following Windsor, the definition of marriage could no longer be restricted to “a union between one man and one woman.” Therefore, the debtors claimed that Wisconsin did not have the authority to deny a lawfully wedded couple any federal benefits, which would include same-sex couples right to file as spouses in a joint bankruptcy case. Ultimately, the Matson court denied the creditor’s motion to dismiss or, in the alternative, bifurcate the case because the court found that it was required to give full faith and credit to the Iowa marriage.

A Self-Employed Chapter 13 Debtor Cannot Deduct Ordinary and Necessary Business Expenses When Calculating His Current Monthly Income

By: Arthur Rushforth

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re Hoffman, a bankruptcy court denied confirmation of the joint debtors’ plan after the chapter 13 trustee objected to the plan, which had a three-year applicable commitment period, holding that the debtors improperly deducted ordinary and necessary business expenses when calculating their current monthly income. Instead, the court held that the debtors should have used the gross receipts from the business. In Hoffman, a married couple filed a joint petition under chapter 13 of the Bankruptcy Code. The husband was self-employed, and pursuant to Official Bankruptcy Form 22C, the debtors deducted the husband’s ordinary and necessary business expenses from his gross receipts when they calculated their current monthly income. Based on these calculations the debtors’ annualized current monthly income was lower than the applicable median family income of in Minnesota, where they resided. Accordingly, the debtors proposed a plan that provided for them to pay $175.00 for thirty-six months. The chapter 13 trustee objected, arguing that the debtors improperly deducted business expenses when calculating the husband’s current monthly income and that the debtor’s current monthly income was above-median after eliminating that deduction, thereby triggering a five-year applicable commitment plan rather than the three-year period proposed by the debtors. In particular, the trustee argued the plain language of section 1325 did not provide for the deduction of ordinary and necessary business expenses when calculating current monthly income. The debtors responded by claiming their applicable commitment calculation conformed to the calculation scheme provided for by Official Form 22C. The court ultimately agreed with the trustee and denied the confirmation of the debtor’s plan.

In re 56 Walker LLC—The Resurrection of the Gifting Doctrine?

By: Brianna Walsh

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re 56 Walker LLC, a bankruptcy court overruled a debtor’s objection a secured creditor’s proposed order providing for the distribution of the proceeds from the sale of real property that was the debtor’s sole asset pursuant to the debtor’s confirmed plan of reorganization even though the secured creditor “gifted” a portion of its recovery to a junior class because, among other reasons, the court found that the distribution scheme would not violate the absolute priority rule. In 56 Walker, the debtor pledged a six-story mixed-use building, its sole asset, as security for an $8 million mortgage loan. After the debtor defaulted one year later, the bank that had acquired the mortgage loan from an FDIC receivership commenced a foreclosure action in New York state court. Subsequently, the debtor filed for bankruptcy under chapter 11 of the Bankruptcy Code in order to stay the foreclosure proceeding. This first case was ultimately dismissed. Following dismissal of the debtor’ first chapter 11 case, the bank resumed the foreclosure action in state court and moved for summary judgment. The debtor then crossed-moved for summary judgment, arguing that the bank had not provided adequate proof that it was the assignee of the mortgage or the note and that the bank was liable for certain lender-liability claims. The state court granted the bank’s motion for summary judgment of foreclosure and denied the debtor’s cross-motion. The debtor timely filed a notice of appeal. Prior to the state court entering the bank’s proposed judgment of foreclosure, the debtor filed a second chapter 11 case. Ultimately, the debtor confirmed a consensual plan of reorganization and sold the property for $18 million. After selling the property, the debtor objected to, among others, the bank’s claim. In its decision, the court overruled the debtor’s objection and directed the bank to settle an order to provide for the distribution of the sales proceeds. The bank then filed a proposed order, providing that (i) the bank would have a distribution in the amount of $15.1 million, (ii) another mortgage lender would have a distribution in the amount of $150,000, (iii) a mechanic’s lien holder would have a distribution in the amount of $400,000, (iv) another mechanic’s lien holder would have a distribution of $350,000, (v) the debtor’s counsel would have an administrative claim for fees and expenses capped at $250,000, and (vi) the remaining funds would be distributed to the debtor’s unsecured creditors. Equity would not receive a distribution under the proposed order. The debtor objected to the proposed order, arguing, among other things, that the proposed distribution to a mechanic’s lien holder was premature because the debtor’s previous objection to the mechanic’s lien holder’s claim was still pending. The court, however, overruled the debtor’s objection to the proposed order, noting that the only reason the mechanic’s lien holder would receive anything was the bank’s willingness to forgo part of its claim and “gift” it to the junior secured creditors.

 

Charity Golf Tournament to benefit the Steven M. Yoder Children's Trust and the ABI Endowment Fund

Golf Club

 

The Hartefeld National Golf Club in Avondale, Pa., will host the 5th Annual Steven M. Yoder Memorial Golf Outing on Monday, May 4, 2015. Join us as we celebrate the life of our friend and ABI member, Steve Yoder, who passed away in 2011. Included in the cost: golf, boxed lunch, complimentary beverages and beer, with a cocktail hour and buffet dinner to follow. Proceeds of the golf outing benefit the Steven M. Yoder Children's Trust and the ABI Anthony H.N. Schnelling Endowment Fund.

Event Sponsors

Ashby & Geddes, Bill Bowden
James Bird, Polsinelli
Buchanan Ingersoll & Rooney PC
Cozen O'Conner, Mark Felger
DLS Claims Administration, Ty Workman
DLS Discovery, Jeremy Luzader
Epiq Systems, Lance Wickel
Gavin/Solmenese LLC
Gellert Scali Busenkell & Brown LLC

Reliable, Larry Taylor
Rust Omni, Brian Osborne / Paul Deutsch
Potter Anderson & Corroon LLP, Jeremy Ryan
Mitch Ryan, personal friend of Steve Yoder
Trial Transport Logistics, Mike Schierbaum
UpShot Services LLC, Travis K. Vandell
Christopher A. Ward, Polsinelli
Chuck Ward, Data Medical
Young Conaway Stargatt & Taylor, LLP
A. Jeffrey Zappone, Conway MacKenzie

 

To get the information about Sponsorship Opportunities please click here (PDF file)

 

Cost:

  • $175 for golfers
  • $100 for non-golfers
  • $600 for foursomes
For more information, contact Sharisa Sloan at ssloan@abi.org

 

 

 

 

 

 

 

 

 

Conference Address

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Defining Residency Under the Federal Homestead Exemption

By: Sally A. Profeta

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re Abraham, a bankruptcy court held that debtors living in Iran could not claim the federal homestead exemption for their real property located in New Jersey because the property did not qualify as their “residence” under section 522(d)(1) of the Bankruptcy Code. In Abraham, the married debtors moved to Tehran, Iran from New Jersey in 2011, seeking employment after the husband’s business income started to decline. Their children, however, continued to occupy the debtor’s New Jersey home, making payments for the mortgage, utilities, and the general maintenance of the property. In 2012, the debtors filed for bankruptcy in New Jersey and claimed an exemption for the New Jersey property. In their original Schedule C, the debtors claimed a $10,505.76 exemption in the New Jersey property. Subsequently, the debtors amended their Schedule C and claimed a $43,250 exemption in the property. The chapter 7 trustee objected to the debtors’ proposed exemption. The trustee argued that the property did not qualify as their residence, and the debtors filed their amended exemption in bad faith. In the husband’s certification, he indicated that, while the debtors lived and worked in Iran, they intended to return to the New Jersey property in the future. Yet this assertion contradicted the debtors’ previously filed certification in support of a motion to compel abandonment of the property, where they stated they did not intend to return to the United States in the near future. In addition to the husband’s certification, the husband offered his New Jersey driver’s license as proof of residency during a section 341 meeting of creditors. Therefore, the debtors argued that the New Jersey property was their “residence” under section 522(d)(1) of the Bankruptcy Code. Ultimately, the bankruptcy court agreed with the trustee and denied the homestead exemption.

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