Recent Entries

Commercial Real Estate Slump Likely To Result In Uptick In Bankruptcy Filings

Published on February 10, 2010 in Bankruptcy Filings, Chapter 11, Commercial and Real Estate. 0 Comments

With the commercial real estate market in a continued pattern of free fall, coupled with the still-lagging economy overall, creditors are likely to see a continued increase in overall bankruptcy filings for the foreseeable future.  For every strip mall or office park that watches as long-time, valued tenants vacate their spaces, there are landlords who cannot service the debt on their property due to an overall decrease in rental income, and there are small business owners now joining the ranks of the newly-unemployed, along with their employees.

The unfortunate trickle down sees both employees and small business owners seeking bankruptcy protection, along with a growing number of commercial property owners who are unable to find replacement tenants to make up the shortfall in rental income.

Additionally, those tenants remaining behind may see a lag in business as a result of the loss of “anchor stores” which attracted casual shoppers to the area.  This point was driven home by the recent Chapter 11 filing by Movie Gallery, Inc., the operator of the Hollywood Video chain.  Preliminary indications are that a “significant number” of Hollywood Video stores will be shuttered in the coming months, leaving hundreds of strip malls across the country without a valued tenant.

The Bankruptcy Department at Weltman, Weinberg & Reis will continue to monitor trends in bankruptcy filings and will update you as data becomes available.

Business Bankruptcies: Outlook for 2010 and What You Should Know

Published on February 5, 2010 in Bankruptcy Filings and Chapter 11. 0 Comments

While they became stronger in 2009 (yes they became stronger), the financial institutions were more willing to write off the bad debts of companies and were less likely to restructure debts when companies became delinquent.  The result became a substantial increase in business bankruptcy filings in 2009.  The number of businesses filing for bankruptcy in 2009 increased by 38% from the numbers reported in 2008(1). 

The other factor that contributed to the substantial increase in business bankruptcy filings is the economy.  With the high costs of gas, materials and food coupled with low consumer turnout in the marketplace, businesses’ profit margins were unable to meet the demands of the companies’ debts. 

Along with the increase in business bankruptcy filings in 2009, companies’ default rates hit a record high in 2009(2).    While some experts predict that the growth of business bankruptcies will taper off in 2010, the majority of experts think otherwise.  Such factors as being unable to find financing, being unable to instill consumer confidence due to high unemployment and foreclosures and being unable to handle defaults in the commercial real estate industry, means that a slowdown in business bankruptcy filings is unlikely.  The industries that are most suspect to seeing business bankruptcy filings are retail, media, commercial real estate and transportation. 

With the increase number on business bankruptcy filings, creditors need to monitor accounts closer.  The following are some general tips to make sure you are on top of the situation.

Tips for Chapter 11 Creditors with Claim:

  1. Have a game plan on what you as a lender want from the company.  What will yield the best return for you- liquidation or being patience to see if the company will become viable
  2. If you have a first lien on all the business assets, you will need to seek attorney representation to begin negotiations with the debtor in possession(3).   Many times these negotiations may take place prior to the filing.  The most important items as a first lien holder are to protect your first lien position post bankruptcy filing as well as receiving adequate protection payments while waiting for the Chapter 11 Plan to be confirmed.  Look out for a Motion to Use Cash Collateral, which generally is one of the first motions filed after a bankruptcy petition
  3. All creditors holding a secured claim need to make sure that the Debtor in Possession does not attempt to modify the loan contrary to bankruptcy law.  Consult an attorney if you do not agree with any treatment of your claim.  Look out for Disclosure Statements, Chapter 11 Plans or any Motions that might affect your claim (Motion to Sell Property, Motion to Avoid Lien)
  4. File your Proof of Claim
  5. Be on the Creditor’s Committee, if applicable

—————————–

(1)Information pulled from Automated Access to Court Electronic Records (AACER)

(2)Information pulled from Standard & Poor’s

(3)Debtor in Possession is a technical term used in bankruptcy.  In essence, the Debtor in Possession is the debtor

Chapter 13 Trustees in the Southern District of Ohio Requiring Secured Debt Payments Through The Plan

Published on February 3, 2010 in Chapter 13. 0 Comments

In the Southern District of Ohio, bankruptcy courts are now requiring debtors that file a Chapter 13 bankruptcy to pay secured debts through their bankruptcy plan.  Ordinarily, debtors have the option to pay these debts outside or inside the plan as a conduit payment.

Chapter 13 trustees in the Southern District of Ohio adopted a new policy regarding mortgage payments made outside the plan.  The current policy is that a debtor in Chapter 13 who previously paid their mortgage payment outside the plan will be required to amend their plan to include the payment inside the plan if the mortgage becomes delinquent post-petition.  At this time the rule is only the policy of the 13 offices, not an official rule. 

With regard to car loans, the Southern District of Ohio added a local rule requiring that all vehicle payments, whether lease or loan, be paid inside the plan.  The policy behind this rule change is to increase the percentage of completed plans in the district.  Forcing debtors to pay secured debts through the plan is likely to become the norm in most jurisdictions.

From a creditor’s perspective, there are both positives and negatives with this change.  On the positive, creditors are more likely to receive payments through the 13 than if the debtor pays outside the plan.  Debtors will want to keep their plans from failing and more likely pay their plan payments then skipping on a car payment to catch up their plan payments.  On the negative, creditors will need to stay on top of trustees for disbursements, as trustees do not disburse prior to confirmation and some Chapter 13 plans can take several months to confirm, thereby delaying payments to the creditor.