Nearly a third of more than 40 large companies seeking U.S. bankruptcy protection during the coronavirus pandemic awarded bonuses to executives within a month of filing their cases, according to a Reuters analysis of securities filings and court records.

Under a 2005 bankruptcy law, companies are banned, with few exceptions, from paying executives retention bonuses while in bankruptcy. But the firms seized on a loophole by granting payouts before filing.

Six of the 14 companies that approved bonuses within a month of their filings cited business challenges executives faced during the pandemic in justifying the compensation.

Even more firms paid bonuses in the half-year period before their bankruptcies. Thirty-two of the 45 companies Reuters examined approved or paid bonuses within six months of filing. Nearly half authorized payouts within two months.

Eight companies, including J.C. Penney Co. Inc. and Hertz Global Holdings Inc., approved bonuses as little as five days before seeking bankruptcy protection. Hi-Crush Inc., a supplier of sand for oil-and-gas fracking, paid executive bonuses two days before its July 12 filing.

$10 million in payouts

J.C. Penney forced to temporarily close its 846 department stores and furlough about 78,000 of its 85,000 employees as the pandemic spread approved nearly $10 million in payouts just before its May 15 filing. On Wednesday, the company said it would permanently close 152 stores and lay off 1,000 employees.

The company declined to comment for this story but said in an earlier statement that the bonuses aimed to retain a talented management team that had made progress on a turnaround before the pandemic.

The other companies declined to comment or did not respond. In filings, many said economic turmoil had rendered traditional compensation plans obsolete or that executives getting bonuses had forfeited other compensation.

Luxury retailer Neiman Marcus Group in March temporarily closed all of its 67 stores and in April furloughed more than 11,000 employees. The company paid $4 million in bonuses to Chairman and Chief Executive Geoffroy van Raemdonck in February and more than $4 million to other executives in the weeks before its May 7 bankruptcy filing, court records show.

Neiman Marcus drew scrutiny this week on a plan it proposed after filing for bankruptcy to pay additional bonuses to executives. The company declined to comment.

Hertz which recently terminated more than 14,000 workers paid senior executives bonuses of $1.5 million days before its May 22 bankruptcy, in part to recognize the uncertainty they faced from the pandemics impact on travel, the company said in a filing.

Whiting Petroleum Corp. bestowed $14.6 million in extra compensation to executives days before its April 1 bankruptcy. Shale pioneer Chesapeake Energy Corp. awarded $25 million to executives and lower-level employees in May, about eight weeks before filing for bankruptcy. Both cited fallout from the pandemic and a Saudi-Russian oil price war, which they said rendered their incentive plans ineffective.

Objections

Reuters reviewed financial disclosures and court records from 45 companies that filed for bankruptcy between March 11, the day the World Health Organization declared COVID-19 a pandemic, and July 15. Using a database provided by BankruptcyData, a division of New Generation Research Inc., Reuters reviewed companies with publicly traded stock or debt and more than $50 million in liabilities.

Such bonuses have long spurred objections that companies are enriching executives while cutting jobs, stiffing creditors and wiping out investors. In March, creditors sued former Toys 'R' Us executives and directors, accusing them of misdeeds that included paying management bonuses days before its 2017 bankruptcy. The retailer liquidated in 2018, terminating more than 31,000 people.

A lawyer for the executives and directors said the bonuses were justified, given the extra work and stress on management, and that Toys 'R' Us had hoped to remain in business after restructuring.

In June, congressional Democrats responded to the pandemic-induced wave of bankruptcies by introducing legislation that would strengthen creditors rights to claw back bonuses. The bill the latest iteration of a proposal that has long failed to gain traction faces slim prospects in a Republican-controlled Senate, a Democratic aide said.

Firms paying pre-bankruptcy bonuses know they would face scrutiny in court on compensation proposed after their filings, said Clifford J. White III, director of the U.S. Trustee Program, a Justice Department division charged with monitoring bankruptcy proceedings. But the trustees have no power to halt bonuses paid even days before a companys bankruptcy filing, he said, allowing firms to escape the transparency and court review.

Dodging bonus restrictions

The 2005 bankruptcy legislation required executives and other corporate insiders to have a competing job offer in hand before receiving retention bonuses during bankruptcy, among other restrictions. That forced failing firms to devise new ways to pay the bonuses, according to some restructuring experts.

After the 2008 financial crisis, companies often proposed bonuses in bankruptcy court, casting them as incentive plans with goals executives must meet. Judges mostly approved the plans, ruling that the performance benchmarks put the compensation beyond the purview of the restrictions on retention bonuses. The plans, however, sparked objections from Justice Department monitors who called them retention bonuses in disguise, often with easy milestones.

Eventually, companies found they could avoid scrutiny altogether by approving bonuses before bankruptcy filings. Dozens of companies have approved such payouts in the last five years, said Brian Cumberland, an executive compensation expert at consulting firm Alvarez & Marsal who advises companies undergoing financial restructurings.

Companies argue the bonuses are crucial to retaining executives whose departures could torpedo their businesses, ultimately leaving less money for creditors and employees. Now, some companies are bolstering those arguments by contending that their business would not have cratered without the economic turmoil of the pandemic.

The pre-bankruptcy payouts are needed, companies say, because potential stock awards are worthless and it would be impossible for executives to meet business targets that were crafted before the economic crisis. The bonuses ensure stability in leadership that is needed to hold faltering operations together, the firms contend.

Some specialists argue the bonuses are hard to justify for executives who may have few better job options in an economic crisis.

With double-digit unemployment, its a strange time to be paying out retention bonuses, said Adam Levitin, a professor specializing in bankruptcy at Georgetown Universitys law school.

Closed stores, big bonuses

J.C. Penney has not posted an annual profit since 2010 as it has struggled to grapple with the shift to online shopping and competition from discount retailers. The 118-year-old chain, at various points, employed more than 200,000 people and operated 1,600 stores, figures that have since been cut more than half.

On May 10, J.C. Penneys board approved compensation changes that paid top executives, including CEO Jill Soltau, nearly $10 million. On May 13, Soltau received a $1.7 million long-term incentive payment and a $4.5 million retention bonus, court filings show.

The annual pay of the companys median employee, a part-time hourly worker, was $11,482 in 2019, a company filing shows.

J.C. Penney filed for bankruptcy two days after paying Soltaus bonuses. At a hearing the next day, a lawyer for creditors argued the payouts were designed to thwart court review. The payouts were timed so that they didnt have to put it in front of you, said the lawyer, Kristopher Hansen, addressing U.S. Bankruptcy Judge David Jones.

Jones who is also overseeing the Whiting Petroleum, Chesapeake Energy and Neiman Marcus cases told Reuters that such bonuses are always a concern in bankruptcy cases. That said, the adversarial process demands that parties put the issue before me before I can take action, he added, emphasizing he was speaking of general dynamics applicable to any case. A comment made in passing by a lawyer is not sufficient.

In its statement earlier this year, J.C. Penney said the bonuses were among a series of tough, prudent decisions taken to safeguard the firms future.

Dennis Marten, a shareholder who said he once worked at a J.C. Penney store, disagrees. He has appeared at court hearings pleading for an investigation of the companys leadership.

Shame on her for having the gall to get that money, he said of Soltau.

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On Eve of Bankruptcy, US Firms Shower Execs With Bonuses - Voice of America

Neiman Marcus may close four of its namesake stores as part of its bankruptcy reorganization, but none in Texas.

The Dallas-based luxury retailer is in the process of closing almost all of its Last Call stores and now could add full-line stores to its permanent store closing list. The stores under consideration are:

A&G Real Estate Partners is marketing the properties, pitching them as good locations for office, residential, hotel and retail uses.

We continue to assess our store footprint to ensure it is optimal to enhance revenues, overall profitability and our omnichannel strategy. This assessment may include marketing of leases for certain locations, said Amber Seikaly, Neiman Marcus spokeswoman.

This is not necessarily an indication that were closing a particular store, but rather a way to monetize the value of the leases at these properties, she said. Funds generated would be used to make investments that drive profitable and sustainable growth.

If the leases arent sold, Seikaly said, those stores continue to be part of our footprint assessment.

Retailers can reject leases in bankruptcy without penalties in Chapter 11 bankruptcy filings. While the companys main reason for seeking court protection was its $5 billion in debt from two leveraged buyouts in less than 10 years, Neiman Marcus was also expected to close some of its namesake stores.

The company was rumored to be closing its Hudson Yards store in Manhattan, which is its newest, but the retailer hasnt made an announcement yet, instead saying that its assessing all of its real estate.

These are long-term leases, with remaining terms ranging from 2026 for Palm Beach to 2040 for Bellevue and options to extend contracts out even further. The lease on Walnut Creek has the option to extend into the next century 2112.

Twitter: @MariaHalkias

Looking for more retail coverage? Click here to read all retail news and updates. Click here to subscribe to D-FW Retail and more newsletters from The Dallas Morning News.

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Neiman Marcus is marketing store leases as part of its bankruptcy reorganization - The Dallas Morning News

On the brink of bankruptcy, as even more restrictions hit restaurants, some might not last if there is another round of closings during the pandemic.

John Buchna with the Erie Downtown Partnership said people need to be responsible to keep the area in the green phase and that it will keep businesses open with many restaurants staying afloat for now, but they might not get hit hard until the end of the year.

There are organizations like ours and many others that are looking to find ways to help, but in this case from a retail standpoint, the best things we can do is, other than practice our safety, is supporting that business, said Buchna.

Buchna said many downtown businesses rely on the people that live there most.

A lot of the downtown businesses are build around the density of a downtown, communities across the nation, its just how it is built. When you dont have the large employers or you dont have the large density of population, from a safety standpoint you dont really have the big customer base, he added.

The owner of Dominicks said his business was on the brink of bankruptcy and may close down for good if there is another round of closings.

Its horrible we were on that brink, we were right there, probably a week or so from shutting down the doors for good and we felt that we owed our customers that due diligence of letting them know where we were at, said Dominicks Diner Owner Tony Ferraro.

Ferraro said that happened a month before the county went green and so far they have not received any funds or loans.

Buchna said some businesses are actually benefiting during the pandemic such as big shopping stores like Walmart.

He added their issue is a lack of inventory, not customers.

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Some Local Businesses on the Brink of Bankruptcy During Pandemic - YourErie

The New York University professor who developed one of the best-known formulas for predicting corporate bankruptcies has a warning for US credit investors: this years spate of mega insolvencies is just getting started.

More than 30 American companies with liabilities exceeding $1 billion have already filed for Chapter 11 since the start of January, and that number is likely to top 60 by year-end after companies piled on debt during the pandemic, according to Edward Altman, creator of the Z-score and professor emeritus at NYUs Stern School of Business.

Global firms have sold a record $2.1 trillion of bonds this year, with nearly half coming from US issuers, according to data compiled by Bloomberg.

While the stimulus-fueled rally in credit markets since March has helped borrowers stay afloat during the coronavirus crisis, Altman and others have warned that many companies are just delaying an inevitable reckoning. Fitch Ratings estimates that worldwide corporate bond defaults this year could exceed levels reached during the global recession in 2009.

There was a huge buildup in corporate debt by the end of 2019 and I thought the market would gain some much needed de-leveraging with the COVID-19 crisis, said Altman, who is also director of credit and debt market research at the NYU Salomon Center. Now, seems like companies again are exploiting what seems to be a crazy rebound.

As new waves of the coronavirus keep planes from flying and curb consumer spending, pressures on the global economy are increasing. The International Monetary Fund downgraded its outlook for the world economy in June, projecting a deeper recession and slower recovery than it previously anticipated.

Chesapeake Energy Corp., the pioneer of the shale gas revolution, and retailer Brooks Brothers have filed for bankruptcy in the United States in recent weeks. Defaults in the Asia-Pacific region include Virgin Australia and Shanghai-headquartered Hilong Holding Ltd., an oil equipment and services firm.

Man Group Plc, the worlds largest publicly listed hedge fund, has warned of the risk to bond buyers. The World Bank has also forecast that more than 90 percent of economies will experience contractions this year, higher than the rate seen at the height of the Great Depression.

The speed and magnitude of the increase in corporate debt this year poses various risks to an already fragile global economic outlook, said Ayhan Kose, director of the World Bank Groups Prospects Group. Countries where a large proportion of the borrowings are in foreign currencies or for shorter periods are particularly vulnerable, as they face risks of fluctuating exchange rates and also having to roll over the debt more quickly, he said.

Xavier Jean, senior director for corporate ratings at S&P Global Ratings, said some firms are being proactive, as they are uncertain if they can raise funds during the second half. But for those that face tremendous stress in their operations, the increased borrowing heightens risks if things dont turn around as quickly, he said.

In the United States, the Federal Reserve has provided unprecedented support, such as buying corporate bonds, including the debt of firms that were cut from investment-grade to junk.

For Altman, some of the debt sold kicks the can down the road for firms that dont deserve support.

Companies are doing the opposite of what they should be doing, which is to de-leverage as the banks did after the global financial crisis of 2008, he said. When there is an increase in insolvency risk, what you do not need is more debt. You need less debt.

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Father of the Z-score predicts a surge in 'mega' bankruptcies - BetaBoston

Even if workers could head to the office right now, chances are they wouldnt be wearing a Brooks Brothers suit.

The 200-plus-year-old retailer best known for what would now be considered formal office attire has filed for bankruptcy, falling victim to the COVID-19 outbreak, which has shuttered stores and stymied retail, and changing styles.

Brooks Brothers had fallen on rough times even before the pandemic, announcing last year that it would explore its strategic options.

It now has a $75 million debtor-in-possession loan and there is interest from a potential buyer, Barneys New York owner Authentic Brands LLC, according to The Wall Street Journal.

Watch: How closing this gap could save the global economy $1 trillion

Brooks Brothers has tried to inject some freshness and a more laid-back vibe into its fashions, with cool & casual styles currently featured on its e-commerce homepage.

However, the casualization of the workplace has outpaced the change at the iconic brand.

[W]hen it comes to tastes and style, Brooks Brothers has been swimming against the tide, wrote Neil Saunders, managing director at GlobalData Retail.

Its formal, old-school approach found favor among mature and more traditional demographics, but it has become increasingly out of step with a new generation of consumers who are looking for a more edgy approach to smart casual.

Moreover, lockdowns to prevent the spread of coronavirus have made athleisure gear like sweats and yoga pants the items people most want to wear. GlobalData numbers show a 74% decline in year-over-year sales of mens formal wear during April, May and June. Mens smart casual saw a 62% decrease.

Among the issues retailers now face are bloated inventory, pressure in the wholesale channel that could last into next year and soaring COVID-19 infection rates in U.S. states that had begun to reopen, according to Wells Fargo.

Analysts say global athletic brands like Nike Inc. NKE, +1.84% and Adidas AG ADS, +3.23% are among the most attractive names in our universe.

Read:Nikes COVID-19-related sales decline is a bump on the path to long-term growth, analysts say

In the long term, Wells Fargo favors the off-price channel, which includes TJX Cos. TJX, +5.55% and Burlington Stores Inc. BURL, +6.06%

See:TJX results show shoppers will head back to stores if the price is right, analysts say

Warmer weather is spanning much of the country, allowing consumers to extend their mostly homebound routines to the outdoors, and expanding their apparel needs beyond comfort and above-the-keyboard dressing, said Maria Rugolo, apparel industry analyst at The NPD Group, in a recent report.

Activewear snapped up 28% of apparel dollars spent for the 12 months leading into May 2020, according to NPD data. And before the coronavirus pandemic, nearly half of consumers who worked from home (48%) would wear the same thing for work, working out and on the weekend.

Even with the inclusion of more casual items, Brooks Brothers still has a large collection of $1,000 suits and dresses priced $200 to $400 on its website.

With the current work-from-home situation, many shoppers are now even more relaxed in their attire even executives are wearing T-shirts and polos on conference calls, said Hilding Anderson, head of retail strategy at business consultancy Publicis Sapient. We see this as a sustained shift in expectations the days of formal attire five days a week or even one are fading.

Anderson suggests Brooks Brothers needs a transformation, including its merchandise and marketing.

Dont miss:Lululemon acquisition Mirror could generate $700 million and reach 600,000 subscribers by 2023: Bank of America

A change like that will require a mighty effort and a big investment from a buyer.

The brand has a solid foundation on which a new owner can build, and it has a good digital business that has the potential for future growth, wrote GlobalDatas Saunders. [T]he process of reinvention will not be easy; it will take time, capital and effort to reconfigure Brooks Brothers into a retailer ready to serve the needs of modern consumers.

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Brooks Brothers files for bankruptcy as its take on office gear falls out of step with more casual trends - MarketWatch

Neiman Marcus Group, which filed forChapter 11 bankruptcy reorganization in May, has put four of its store leases up for sale as part of the process.

Theleases are for stores in California, Washington, Florida and Washington, D.C., and are being marketed by Melville, New York-based A&G Real Estate Partners. All of the leases are for long periods with options to extend. In one case, the options would carry the lease into the 22nd century.

The leases represent an opportunity for retailers or investor to enter high-traffic markets that are also high barriers to entry, A&G co-President Emilio Amendola said in a statement.

"Additionally, some of these locations are particularly promising for conversion tohotel, office or residential use," he said.

Neiman Marcus declined to offer further detailabout theofferings, with a spokesperson telling Bisnow that ongoing discussions with landlords are confidential.

We are always assessing our store footprint to ensure it is optimal to enhance revenues, overall profitability, and our omnichannel strategy," the spokesperson said by email. "This ongoing assessment may include marketing of leases for certain locations. This is not necessarily an indication that we are closing a particular store, but rather a way to monetize the value of the leases at these properties.

The leases are a 48K SF store at 151 Worth Ave. in Palm Beach, Florida, with options available until 2051; the 87K SF 1275 Broadway Plaza in Walnut Creek, California, with options available until 2112; the 124K SF Shops at Bravern in Bellevue, Washington, with options available until 2090; and the 126K SF Mazza Gallerie in Washington, D.C., with options available until 2051.

At the time of its bankruptcy, the carriage-trade retailer operated 43 Neiman Marcus stores, two Bergdorf Goodman stores and 22 Last Call discount stores, though it was already closing the Last Calls as part of a plan to focus on its upmarket business. The coronavirus pandemic forced Neiman Marcus to close most of its other stores temporarily.

Private equity firm Ares Management Corp. and the Canada Pension Plan Investment Board bought Neiman Marcus in 2013 for $6B, including debt.

Even before the current economic crisis, the company struggled under a debt load of about $5.1B, the legacy of two leveraged buyouts. Servicing the debt has been eating up most of the retailer's profits in recent years, Neiman Marcus CEO Geoffroy van Raemdonck told The Wall Street Journal.

The goal of its bankruptcy is to wipe away at least $5B of the company's debt. Neiman Marcus didn't announce any permanent store closures when it filed, but buyers are still interested in some of its locations, along with those of other retailers going through bankruptcy, Evergreen Commercial Realty President Lilly Golden told Bisnow.

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Neiman Marcus Puts 4 Leases On The Market As Part Of Its Bankruptcy - Bisnow

Posted: Jul 12, 2020 / 02:20 PM CDT / Updated: Jul 12, 2020 / 02:20 PM CDT

LUBBOCK, Texas A bankruptcy judge on Friday approved the final plan for Reagor Dykes. The Lubbock-based chain of auto dealerships filed for bankruptcy in August 2018 amid accusations of fraud and default.

The case was originally filed as Chapter 11 reorganization. Technically, the plan is still filed under Chapter 11 of the U.S. bankruptcy code, but no reorganization is still on the table. Instead, the plan approved on Friday is for liquidation.

All of the remaining assets, claims, accounts payable and so forth will be placed into the hands of a trustee. The trustee will then pay the Reagor Dykes creditors in order of priority set out in the plan.

Taxes are the highest claim followed by secured debts.

For all practical purposes, Bart Reagor and Rick Dykes are at the bottom of the list of people to get paid.

The judge noted in his order on Friday that the Reagor Dykes bankruptcy estate has pending claims against nearly 50 businesses or persons. Among them is a claim by the Reagor Dykes estate that Ford Motor Credit Company allowed fraud to occur. As such, Ford should be held responsible for about $315 million, according to the claim.

Ford has not responded to the $315 million claim in court records.

CLICK HERE to read a copy of the plan.

CLICK HERE to read the judges order.

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Reagor Dykes liquidation plan approved, bankruptcy case is (kind of) over - KLBK | KAMC | EverythingLubbock.com

A real estate portfolio that stretches across Flushing, Manhattan and Long Island has been pulled from the auction block as its owner filed for bankruptcy.

Flushing developer and supermarket owner Jeffrey Wu threw three LLCs holding mezzanine debt on his properties into bankruptcy Wednesday. The loans, which total $15.3 million, had been put up for sale in an auction scheduled to close at 10 a.m. Wednesday. The auction was postponed.

Wu, who also goes by the name Myint J. Kyaw, also filed for personal bankruptcy in New Yorks Eastern District court.

Wu did not immediately respond to a request for comment.

The properties covered by his mezzanine loans include 41-60 Main Street in Downtown Flushing a 100,00-square-foot office and retail building and 50 units remaining in the 99-unit condo development at 133-38 Sanford Avenue.

The pledge interests also include a 28,000-square-foot commercial condo in Chinatown at 80 Elizabeth Street thats leased to Hong Kong Supermarket a chain of groceries Wu helped found. The final piece of the portfolio is a 184,000-square-foot industrial complex in Deer Park at 377 Carlls Path.

Wus personal bankruptcy filing lists assets under $50,000 and liabilities from $50 million to $100 million.

Its not clear what caused the loans to fall into distress, and the problems predated the coronavirus. Wus lenders filed their notice of their creditors interests in his properties in January 2018.

That was when Wu received a $109 million financing package a $94 million first mortgage and a $15 million mezzanine loan for 41-60 Main Street from Eli Tabaks Bluestone Group. Wus personal bankruptcy filing lists Bluestone as a creditor with a $7 million claim.

Contact Rich Bockmann at [emailprotected] or 908-415-5229.

Correction: A previous version of this article incorrectly identified the address of the property on Sanford Avenue.

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Flushing developer throws mini-empire into bankruptcy - The Real Deal

Editors note: This piece was updated July 7, 2020, to clarify the reference to U.S. Steel operations in Fairfield, Alabama.

On May 19, the city of Fairfield, Alabama, filed for bankruptcy, becoming the first U.S. city or county to file for Chapter 9 in close to a year. The 10,500-person town is seeking protection from creditors while it comes up with a plan to adjust its debt.

Fairfield, located just southwest of Birmingham, has struggled to keep up with its funding obligations since U.S. Steel closed portions of a facility in 2015 and Walmart closed a Supercenter in 2016. After the closures, the local transit authority stopped bus service, the city faced a shut-off of water service for failure to pay, and the county took over the police force.

Fairfields financial woes started well before the coronavirus pandemic. But as the economic effects of COVID-19 threaten municipal finances nationwide because of lost tax revenue and increased costs, more localities may look to bankruptcy as a means of extending the terms of debts, reducing the amount of principal or interest, or refinancing.

Municipal bankruptcies under Chapter 9 of the federal code are relatively rare; the process can be costly and time-consuming and can cause long-term damage to a localitys reputation. Bankruptcies also commonly result in increased taxes, higher fees for services, reduced benefits for workers, payments to receivers and emergency managers, lawyers fees, and elevated future borrowing costs. Although bankruptcy can be one way for a town or city to address financial distress, policymakers should strongly consider the potential costs.

Pews research has found that bymonitoring local fiscal conditions, states often can identify problems early and provide assistance to local governments to try to avoid bankruptcy altogether.

Note: Pew researchers gathered Chapter 9 bankruptcy filings from the Public Access to Court Electronic Records database as of May 2020. Researchers limited data collection to 2001 or later because some cases filed before then are sealed or archived by the court and do not show up in the database. Researchers excluded the Puerto Rico Chapter 9 bankruptcy filings in the database because those cases, filed in 2017 and 2019, are being dealt with through Title III of the Puerto Rico Oversight, Management, and Economic Stability Act. They also excluded mistaken filings, test filings, and transfers in the database. The number of filings includes cases that were later dismissed.

Jeff Chapman is a director, Adrienne Lu is a manager, and Logan Timmerhoff is a senior associate with The Pew Charitable Trusts state fiscal health project.

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A Look at Municipal Bankruptcies Over the Past 20 Years - The Pew Charitable Trusts

As the pace of extraordinary intervention by regulators and lawmakers to help consumers and businesses stave off economic collapse slows, and the economy begins to open up, the initial fallout of the crisis will become clearer. Many businesses that do not survive may simply stay closed, paying their creditors (either in full, or under renegotiated terms) and shutting down. According to one new study, the number of incorporated business owners has fallen from 5.8 million to 4.7 million,[1] which suggests this has already begun. Bankruptcy filings also are likely to increase dramatically, as consumers and businesses seek either to restructure their debt or to turn over their assets to the court and leave their current obligations behind.

An earlier report, released a few weeks after the start of the coronavirus crisis, considered some of the bankruptcy implications of the crisis.[2] After discussing evidence that bankruptcy courts are less effective when they are congested, the report suggested a variety of strategies regulators and lawmakers might use to adapt the bankruptcy process to the coming wave of cases. The report also advocated measures (such as temporary new bankruptcy judgeships) to expand the capacity of the bankruptcy system, a recommendation also made by other bankruptcy scholars.[3]

This report begins with an update on the question of whether a bankruptcy wave is in fact materializing. The report then takes a closer look at two key features of the bankruptcy process: the standstill that goes into effect when a debtor files for bankruptcy and the debtors access to financing for the bankruptcy process. In each context, scholars and other commentators have advocated COVID-19-specific adjustments to the ordinary bankruptcy rules. The report will briefly assess the current proposals, concluding that an expanded standstill is not necessary but enhanced access to financing is.

Read the full report here.

The author did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. He is currently not an officer, director, or board member of any organization with an interest in this article.

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Bankruptcy and the coronavirus: Part II - Brookings Institution

Attorneys for a manwho alleges he was preyed upon by a New Orleans priest wants a federal bankruptcy judge to unseal reams of confidential documents outlining how the Archdiocese of New Orleans handled accusations against the cleric.

The plaintiffs attorneys first asked an Orleans Parish Civil District Court judge in early March to allow for the public release of those documents, and The Times-Picayune | The New Orleans Advocate, along with WWL, WDSU and WVUE, joined in the request, arguing that the documents held information which community members could use to protect themselves from the still-living priest, Lawrence Hecker.

But the archdioceses decision to file for Chapter 11 bankruptcy protections halted that push indefinitely, along with lawsuits from the plaintiff and dozens of others whose cases were automatically stayed and transferred from state court to federal court.

Late Thursday, the plaintiffs legal team filed a motion requesting that U.S. Bankruptcy Judge Meredith Grabill, whos presiding over the archdioceses reorganization filing, make the documents "immediately available to the public.

Knowing the whole truth without limitation is an important part of clergy abuse survivors ability to retake control of events that caused so much pain they have been forced to carry in silence for so long, said the motion, prepared by attorneys Richard Trahant, John Denenea and Soren Gisleson, who represent dozens of clerical molestation claimants.

The motion acknowledges that bankruptcy judges can protect scandalous or defamatory matter contained in any paper.

Though information on priests accused of molestation may be embarrassing for the church, the motion argues, the plaintiff says that Grabills releasing the documents on Hecker would be appropriate because the content of the documents is true and relevant to the case.

Archdiocese attorney Mark Mintz late Friday filed a response opposing the motion, calling it an attempted "end run" around a protective order previously imposed by Civil District Court Judge Nakisha Ervin-Knott. Among other things, Mintz argued it is Ervin-Knott who should decide whether the Hecker documents should stay sealed.

Grabill hasn't ruled on the plaintiffs motion. Hearings in the bankruptcy cases are tentatively scheduled July 16 and Aug. 20.

In his lawsuit, the plaintiff who is not named in the court filings said Hecker fondled him and other boys at St. Joseph School in Gretna in 1968. Though Hecker was a serial pedophile who abused countless children, supervisors never turned him over to law enforcement authorities to be prosecuted for crimes that have no statute of limitation and for which he could still be punished, the plaintiff argues.

The plaintiffs legal team says the evidence against Hecker lies in documents that the archdiocese handed over in the discovery process but which they marked confidential to place them under seal. Law enforcement could subpoena those documents from the plaintiff's lawyers, but they say that hasn't happened.

Hecker denied the plaintiffs claims and skipped a scheduled deposition, saying he would simply invoke his right against self-incrimination. The claimant's lawyers asked that Hecker be held in contempt.

Before the bankruptcy filing stopped the case in its tracks, a church attorney disclosed in open court that church officials first learned of a molestation allegation against Hecker in 1988, and that the archdiocese has since paid out at least four abuse settlements involving him.

Yet it wasnt until 2002 that Hecker retired from the ministry. Though transparency policies which U.S. bishops had adopted by then appear to have required his immediate unmasking, it wasnt until 16 years later that the archdiocese publicly acknowledged it suspected Hecker was a child molester when it listed him in a 2018 roster of dozens of clergymen who had faced credible sex abuse allegations.

Separately, the church continued providing him with the financial support usually given to retired priests, including money for living expenses.

Grabill ordered a stop to those payments after the archdiocese filed for bankruptcy, claiming financial strain from litigating abuse cases as well as the onset of the coronavirus pandemic.

The request for Grabill to release the archdioceses records on Hecker was part of an objection to the churchs recent request of the judge to let it pay certain attorneys who had done work prior to the bankruptcy filing.

The plaintiff says the conduct of the attorneys whose names are redacted is at issue in separate filings under seal. Without elaborating, it alleges the attorneys are accused of helping the church cover up the truth about Hecker and other alleged clergy predators.

The plaintiff argues that unsealing the Hecker documents would let him share them with a committee of mostly clergy abuse survivors representing the interests of creditors in the archdiocese's bankruptcy case.

Whatever the church was to pay these professionals would be better served paying sexual abuse claims, the plaintiff said.

Note: This post was updated to add Mintz's response after filed into the court record late Friday.

Read more from the original source:

'The whole truth': Bankruptcy judge urged to unseal records of alleged abusive New Orleans priest - NOLA.com

Brooks Brothers filed for Chapter 11 protection. Photo: Alex Edelman/Bloomberg via Getty Images

Thousands of businesses have been driven to bankruptcy by the coronavirus, and youve likely never heard of most of them. But a handful of household names, many of them already struggling before the pandemic, are among the firms closing stores, laying off employees, and restructuring due the economic turmoil created by the virus. And while bankruptcy doesnt often spell death for large companies, it can sometimes lead to liquidation of the business.

In the first half of 2020, more than 3,600 companies filed for bankruptcy, according to Epiq. Just over 600 filed in June, up 43 percent from June of last year. And experts predict that things are only going to get worse, the Times reports:

Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies at least $100 million to challenge the record set the year after the 2008 economic crisis.

Here are some of the biggest name firms to file for bankruptcy in 2020:

Diamond Offshore and Whiting Petroleum: The two oil companies cited a steep decrease in demand during lockdown and the oil price war between Saudi Arabia and Russia.

J.Crew: The Times called J.Crew the coronaviruss first major retail casualty when its parent company filed for Chapter 11 protection in early May. The company has said day-to-day operations will continue.

Golds Gym: The gym chain proactively closed 30 company-owned gyms in April before declaring for bankruptcy in May. It said the decision will not prevent us from continuing to support our system of nearly 700 gyms around the world.

Neiman Marcus: After years of building an unsustainable debt burden, Neiman Marcus was brutalized by the coronavirus, which caused all of its 43 stores to temporarily close. The luxury chain is now considering closures around the country, including in Manhattan, where it opened a three-story, 188,000-square-footbehemoth at Hudson Yards just last year.

J.C. Penney: Prior to coronavirus, the footprint of the once-iconic mall retailer had fallen to less than a quarter of what it was in 2001. After its mid-May bankruptcy filing, its going to fall more. The company is planning to shutter 154 stores.

Hertz: If no one is traveling, no one needs to rent a car. Car rental giant Hertz was dealt a rapid, sudden and dramatic blow by the coronavirus, the company said in May, leading to the biggest bankruptcy filing of 2020.

Tuesday Morning: Pandemic-inspired shutdowns created an insurmountable financial hurdle for the off-price retailer, which is planning to close more than 200 of its 700 stores.

PQ New York: The owner of Le Pain Quotidien closed all 98 of its U.S. locations during the pandemic and sold them to another restaurant company that will reopen 35 of the locations and, presumably, close the rest.

GNC: The 85-year-old vitamin retailer saw 30 percent of its stores in the U.S. and Canada temporarily close during the height of the pandemic. The dramatic negative impact of these closures led to a bankruptcy filing in late June. Roughly 20 percent, or 1,200 of its 5,800 retail stores will close.

24 Hour Fitness: After its bankruptcy filing on June 14, 24 Hour Fitness will transition 133 of its locations to Zero Hour Fitness. That is to say, theyre closing.

Chuck E. Cheese: On the same day that CEC Entertainment, which owns 550 Chuck E. Cheese and Peter Piper Pizza locations, reopened 266 venues, it also filed for bankruptcy. The company said the filing will allow it to strengthen our financial structure as we recover from what has undoubtedly been the most challenging event in our companys history.

Lucky Brand: Founded in 1990, the denim company Lucky Brand will close 13 of its 200 stores after filing for bankruptcy brought on by the coronavirus. The COVID-19 pandemic has severely impacted sales across all channels, interim CEO Matthew Kaness said in a statement. It also announced plans for a sale to SPARC Group, which owns the brands Nautica and Aeropostale.

Brooks Brothers: The iconic clothing company isnt calling it quits, but it is up for a major restructuring after a bankruptcy filing on July 8. Owner Claudio Del Vecchio told the Wall Street Journal that the pandemic ravaged revenues for a company already struggling amid a national shift to more casual dress. Its three U.S. factories are slated to close in mid-August and the company will search for a new buyer.

Daily news about the politics, business, and technology shaping our world.

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All the Household-Name Companies That Have Filed for Bankruptcy Due to Coronavirus - New York Magazine

The financing deal comes after AMC theaters have been shuttered for months due to the coronavirus pandemic. (iStock)

AMC is trying to stave off the final curtain.

The movie theater chain is close to hammering out a restructuring deal that would save it from bankruptcy, according to the Wall Street Journal.

The deal involves bondholders providing a $200 million senior loan and exchanging their unsecured claims for second-lien debt at an undisclosed discount. Meanwhile, Silver Lake Group, a private equity firm that has a seat on AMCs board, will move into a first-lien position with its $600 million in convertible bonds.

AMCs senior lenders, a group that includes Apollo Global Management, submitted their own counterproposal. Their deal would see the lenders fork over an additional $200 million in senior debt, in addition to the $200 million from bondholders, and block Silver Lakes exchange into a first-lien position. But AMC is close to rejecting that proposal, according to the Journal.

The financing deal comes after AMC theaters have been shuttered for months due to the coronavirus pandemic. The chain expects to reopen most of its 600 U.S. theaters by July 30. [WSJ] Erin Hudson

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AMC nears deal to avoid bankruptcy - The Real Deal

Happy Friday! This was another big week for bankruptcies, as well as a rough week for retail workers forced to face off against anti-mask customers.

If this e-mail was forwarded to you, welcome to The Drive-Thru, BI Retail's weekly newsletter that fills you in on everything you need to know in retail from the c-suite to the checkout cashiers. Subscribe here to get me, Kate Taylor, and my colleague, Shoshy Ciment, in your inbox every Friday.

Here's what you need to know this week.

Alex Tai/SOPA Images/LightRocket via Getty Images

It was another week packed with bankruptcies including:

The pandemic played a significant role in all four bankruptcies. However, COVID can't completely explain the companies' financial troubles. People may have ditched "hard pants" and suits while in quarantine, but as Bethany and Madeline report both Lucky Brands and Brooks Brothers have struggled to stay relevant in recent years as trends shift.

To quote Neil Saunders, managing director of GlobalData Retail, on Brooks Brothers: "Its formal, old-school approach found favor among mature and more traditional demographics, but it has become increasingly out of step with a new generation of consumers who are looking for a more edgy approach to smart casual."

You can keep track of the more than 20 retailers and restaurant companies that have filed for bankruptcy so far this year here.

People dine out in Austin, Texas, June 28, 2020. Sergio Flores/Reuters

As BI's science team reports, masks are crucial in stopping the spread of the coronavirus. But, convincing customers to wear masks is creating its own set of problems.

This week, I covered viral tantrums in stores like Costco and Target as customers refused to wear masks. Late last week, I spoke with a McDonald's worker in California who was assaulted and had to go to the hospital. She told me she asked a customer to wear a mask, and he responded by grabbing and hitting her through the drive-thru window.

What are some solutions? Starbucks announced a national mask policy on Thursday, becoming the first restaurant chain to do so and following in Costco's footsteps. The chain is emphasizing de-escalation and promoting other ways anti-mask customers can place orders, in an effort to avoid conflict.

But, some restaurants have decided the harassment is simply too much. Restaurants in states including Texas, California, and Michigan have announced plans to once again shutter dining rooms, blaming rude customers who refused to wear face coverings.

Read the full story on restaurants and masks here.

Graham Johnson

Whole Foods is facing backlash after sending workers home from a Milford, Connecticut store for wearing shirts printed with the phrase "racism has no place here."

"We believe we are being targeted for speaking up about the injustices that are going on right now," Graham Johnson, one of the reprimanded workers, told Hayley. "We've never had an issue with dress code at our store before now."

The backlash in Connecticut is on top of the reports of almost daily protests at a store in Massachusetts over its dress code.

Read the full story here.

Melanie Stetson Freeman/The Christian Science Monitor via Getty Images

Irene wrote about a type of business that can have a direct impact on police brutality corner stores that have often been sites of conflict and police violence. She talked with the Inner-city Muslim Action Network, or IMAN, about how the group tries to start conversations that make communities safer.

"We're agitating storeowners to, in this moment, not be people who just self-identify as Muslim, but to really live that out in the way they practice their business, to be advocates for restorative justice in their neighborhoods at a time like this," said IMAN deputy director Shamar Hemphill.

Read the thoughtful piece here.

Courtesy of McDonald's

Irene also took us inside the solar-powered McDonald's that just opened in Disney. Disney World isn't quite open yet, but the solar-powered McDonald's is already open for drive-thru and delivery service.

The photos are fantastic take a look here.

Burger King

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The Drive-Thru: Mask drama at Starbucks, Costco, and more bankruptcies - Business Insider - Business Insider

Early in the pandemic, it was clear that retailers would struggle as the coronavirus halted foot traffic and forced temporary store closures. Industry experts expected a tidal wave of bankruptciesthen did a double take when it didn't happen.

Well, its happening...and its hitting the apparel sector especially hard. In the last week a laundry list of apparel companies whose clothes you shouldnt put in the laundry filed for bankruptcy.

Sales in retail overall have rebounded a bit, up 1% year over year, but clothing and accessories have been the hardest-hit category by far. Just-Style reports May sales in the sector were still down -63% year over year.

In total, U.S. retailers are expected to permanently close between 20,000 and 25,000 stores this year.

Zoom out: Even though apparel has been the weakest link, the broader retail industry is definitely still riding the struggle bus: Kitchen goods retailer Sur La Table filed for bankruptcy yesterday, while Bed Bath and Beyond experienced a 49% drop-off in Q2 sales. And the hits keep coming: Walgreens announced plans to cut 4,000+ jobs in its Boots UK business in the United Kingdom after an 85% drop in foot traffic in April.

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The Wave of Bankruptcies That Many Expected Is Finally Here - Morning Brew

Many companies, both large and small are filing for bankruptcy.

Hertz, Neiman Marcus, Golds Gym, Apex Linen and Piquero Leasing.What do all of these companies have in common?They have all filed for bankruptcy under Chapter 11.While the first three are grabbing all of the headlines, there is a greater likelihood that your company has done business with one of the 500 smaller companies that have filed for reorganization.Most likely, these companies have filed because revenues are down and expenses have stayed the same.If your company was doing business with a company that is now in bankruptcy, you are a creditor.Here are the top 8 things you should know.

1.The Automatic Stay. Small companies are facing more pressure than ever to pay their bills.As soon as a company files for bankruptcy, there is an automatic stay of any collection efforts against it (whether it is a demand letter, a lawsuit or anything else).The purpose of the automatic stay is to give the company breathing space to figure out what it is going to do.You dont have to do anything proactively, such as dismissing an existing lawsuit, you just cant continue trying to collect, unless you ask the court for relief to continue with your collection efforts.However, unless you are a secured creditor, you will most likely not be granted relief.

2.First Day Motions.As soon as a company starts the bankruptcy case, it files motions known as first day motions.These are motions that will let the company continue to operate, by paying wages owed to employees just before the filing, permitting the company to utilize cash to pay its post filing bills and so forth.Even though you will get formal notice of the filing, that will not happen for a few weeks.By then, the first day motions have already been ruled on.If you hear a rumor that a company you deal with has filed, contact your lawyer immediately.Your attorney will be able to go onto the federal court dockets to see whether the case was filed.Why is this important?There are a number of reasons.For example, if you are what is known as a critical vendor, you may be able to get paid what you were owed when the case was filed.The standard to be a critical vendor is high, but if the company files that kind of a motion, you should try and have your business included.

3.Cash Collateral.If a company borrows money before bankruptcy, the lender will insist on some type of security.This security normally will include, among other things, liens on real estate and accounts receivable.Once the company files for bankruptcy, it can only use cash either with permission of the lender or with the approval of the court.One of the first day motions will be a request to use cash collateral.The motion will include a budget.You should have your lawyer ask the debtors attorney for a copy of the budget, to see if the debtor intends to pay you going forward.

4.File a Request for Notices.It is difficult for a non-lawyer to monitor a bankruptcy case.If your lawyer files a request for notices, they will receive everything filed in the case via email.

5.Schedules.Early on in the case, a debtor must file what are called the Schedules. The Schedules are a listing of what a debtor owns and what it believes it owes.It is very important for your attorney to review the Schedules to make sure (1) your claim is included and (2) it is for the right amount.If the amount your company is owed is either not included or included for the wrong amount and you do nothing, what the debtor says in the Schedules will form the basis for the amount you will receive.If your debt is listed as disputed, unless you file a proof of claim, you may get nothing.

6.Proof of Claim.In order for you to tell the debtor how much you believe you are owed, you will need to file a proof of claim.This is not something that has to be done immediately and you will receive formal notice of the deadline of when to file, as well as how it is filed.

7.Reclamation. If this applies to you it is important because there is a narrow window for you to act. Reclamation refers to the right of a seller to reclaim goods sold to a debtor while the debtor was insolvent.The Bankruptcy Code sets out the specific process and timing that has to be followed in order to be able to reclaim your goods.If your company is in this position, it is important that you notify your attorney immediately of the bankruptcy.

8.Executory Contracts and Unexpired Leases of Nonresidential Real Property.One of the things the debtor gets to do is to decide is which of its contracts it wants to keep and which ones it wants to get rid of.Keeping a contract is called assumption and getting rid of one is called rejection.The debtor has until the end of the case to make this decision.If the debtor is going to assume a contract it has to pay all of the money that was owed when the case filed or show how it will pay those amounts.If your company is a party to a contract, it has to continue to perform and the debtor has to pay for the work during the bankruptcy.If the debtor doesnt pay, you can ask the Court to have the debtor decide what it is going to do before the end of the case.Landlords fare better.The debtor has to decide within 120 days if it going to assume or reject the lease (this deadline can be extended for 90 days).If the debtor does nothing by the deadline, the lease is deemed to be rejected.

As you can see, there are things you need to know if you are a creditor.While you probably dont want to spend more money chasing your debt, you should consider having your lawyer do those things to protect your company and the money it is owed.

Originally posted here:

Top 8 Things You Should Know As A Creditor In Bankruptcy - Forbes

On 11 May 2020, the President of Kazakhstan Kasym-Zhomart Tokayev ordered the suspension of the initiation of bankruptcy proceedings against legal entities and individual entrepreneurs until 1 October 2020 to prevent pressure from creditors acting in bad faith.

In accordance with this order, the Ministry of Finance of the Republic of Kazakhstan developed a draft Resolution of the Government of the Republic of Kazakhstan "On Suspending the Initiation of Bankruptcy Proceedings" (the "Resolution").

It should be noted that currently Kazakhstan laws do not establish any clear criteria to be used by the court to determine a creditor acting in bad faith at the time when the creditor applies to the court to declare the debtor bankrupt. Apparently, this is why the publicly available draft Resolution does not itself refer to "creditors acting in bad faith".

According to the draft Resolution, the state revenue authorities and quasi-public entities shall not file with the court applications to declare legal entities and individual entrepreneurs bankrupt during the period from 11 May 2020 until 1 October 2020.

Thus, should the Resolution be adopted, it will impose a temporary moratorium on initiation of bankruptcy proceedings by state revenue authorities and quasi-public entities.

The notion of "quasi-public entities" includes:

Adoption of the Resolution in its current version will not result in a ban on initiating bankruptcy proceedings at the request of the debtors themselves and (or) other creditors (including international financial organisations and second-tier banks).

We understand that as of the date of this publication the Resolution has not been adopted yet.

We are closely monitoring the situation and will keep you updated on any developments.

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Moratorium on initiation of bankruptcy proceedings to be introduced in Kazakhstan - JD Supra

An attorney for the Weinstein Co. told a judge on Thursday that he hopes to wrap up the bankruptcy case in December, pending approval of a $46.8 million settlement.

The settlement, announced on June 30, resolves most of the civil litigation surrounding Harvey Weinsteins sexual misconduct. Under the agreement, $18.9 million would go to claimants in a class action case and their attorneys, and another pool of $5.4 million would be set aside for plaintiffs who filed individual lawsuits. The funds will be paid out of insurance policies.

The deal still must receive approval from Judge Alvin Hellerstein, who is overseeing the class action case, and Judge Mary Walrath, who is handling the Weinstein Co. bankruptcy.

Attorneys Douglas Wigdor and Kevin Mintzer, who represent plaintiffs who have refused to settle, have said that the deal is a complete sellout of Weinsteins survivors, and have said they will vigorously object in court.

Paul Zumbro, an attorney for the Weinstein Co. bankruptcy estate, gave Walrath an update on the settlement in a telephonic hearing on Thursday morning. He conceded that the deal was by no means perfect, but said it represented the best compromise that could be achieved. He also laid out the next steps in the class action suit and in the bankruptcy case, and said he aimed to get confirmation of the Weinstein Co. liquidation plan in December.

The Weinstein Co. declared bankruptcy in March 2018, following revelations of decades of Weinsteins sexual assault and harassment. Lantern Capital, a Dallas private equity firm, bought the companys assets for $289 million, and subsequently rebranded the firm as Spyglass Media.

The sale proceeds went to the companys secured lenders, leaving only the insurance policies to pay out Weinsteins victims. Under the settlement agreement, $7.3 million will go to the companys unsecured trade creditors.

Another $12.2 million goes to attorneys who defended Harvey Weinstein and the directors and officers of the Weinstein Co.

Wigdor and Mintzer have objected that Weinstein is paying nothing into the settlement, and that the insurance companies will be absolved from covering the claims of the holdout plaintiffs. They also contend that the class action attorneys will be seeking millions in fees for an objectively unsuccessful result.

Weinstein is serving a 23-year sentence for rape and sexual assault at Wende Correctional Facility near Buffalo, N.Y.

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Weinstein Co. Aims to Wrap Up Bankruptcy Case in December, Amid Objections - Variety

What Is Bankruptcy?

Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts.The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.

Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply cannot be paid while giving creditors a chance to obtain some measure of repayment based on the individual's or business's assets available for liquidation. In theory, the ability to file for bankruptcy benefits the overall economy by allowing people and companies a second chance to gain access to credit and by providing creditors with a portion of debt repayment. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations that were incurred prior to filing for bankruptcy.

All bankruptcy cases in the United States are handled through federal courts. Any decisions in federal bankruptcy cases are made by a bankruptcy judge, including whether a debtor is eligible to file and whether they should be discharged of their debts. Administration over bankruptcy cases is often handled by a trustee, an officer appointed by the United States Trustee Program of the Department of Justice, to represent the debtor's estate in the proceeding. There is usually very little direct contact between the debtor and the judge unless there is some objection made in the case by a creditor.

Bankruptcy filings in the United States fall under one of several chapters of the Bankruptcy Code, including Chapter 7, which involves the liquidation of assets; Chapter 11, which deals with company or individual reorganizations; and Chapter 13, which arranges for debt repayment with lowered debt covenants or specific payment plans. Bankruptcy filing costs vary, depending on the type of bankruptcy, the complexity of the case, and other factors.

Individualsand in some cases businesses, with few or no assetstypically file Chapter 7 bankruptcy. It allows them to dispose of their unsecured debts, such as credit card balances and medical bills. Those with nonexempt assets, such as family heirlooms (collections with high valuations, such as coin or stamp collections);second homes; and cash, stocks, or bonds must liquidate the property to repay some or all of their unsecured debts. A person filing Chapter 7 bankruptcy is basically selling off their assets to clear their debt. People who have no valuable assets and only exempt propertysuch as household goods, clothing, tools for their trades, and a personal vehicle worth up to a certain valuemay end up repaying no part of their unsecured debt.

Businesses often file Chapter 11 bankruptcy, the goal of which is to reorganize, remain in business, and once again become profitable. Filing Chapter 11 bankruptcy allows a company to create plans for profitability, cut costs, and find new ways to increase revenue. Their preferred stockholders, if any, may still receive payments, though common stockholders will not.

For example, a housekeeping business filing Chapter 11 bankruptcy might increase its rates slightly and offer more services to become profitable. Chapter 11 bankruptcy allows the business to continue conducting its business activities without interruption while working on a debt repayment plan under the court's supervision. In rare cases, individuals can also file Chapter 11 bankruptcy.

Individuals who make too much money to qualify for Chapter 7 bankruptcy may file under Chapter 13, also known as a wage earner's plan. It allows individualsas well as businesses, with consistent incometo create workable debt repayment plans. The repayment plans are commonly in installments over the course of a three- to five-year period. In exchange for repaying their creditors, the courts allow these debtors to keep all of their property, including otherwise nonexempt property.

While Chapter 7, Chapter 11, and Chapter 13 are the most common bankruptcy proceedings, especially as far as individuals are concerned, the law also provides for several other types:

When a debtor receives a discharge order, they are no longer legally required to pay the debts specified in the order. What's more, any creditor listed on the discharge order cannot legally undertake any type of collection activity (such as making phone calls or sending letters)against the debtor once the discharge order is in force.

However, not all debts qualify to be discharged. Some of these include tax claims, anything that was not listed by the debtor, child support or alimony payments, personal injury debts, and debts to the government. In addition, any secured creditor can still enforce a lien against property owned by the debtor, provided that the lien is still valid.

Debtors do not necessarily have the right to a discharge. When a petition for bankruptcy has been filed in court, creditors receive a notice and can object if they choose to do so. If they do, they will need to file a complaint in the court before the deadline. This leads to the filing of an adversary proceeding to recover money owed orenforce a lien.

The discharge fromChapter 7 is usually granted about four months after the debtor files to petition for bankruptcy. For any other type of bankruptcy, the discharge can occur when it becomes practical.

Declaring bankruptcy can help relieve you of your legal obligation to pay your debts and save your home, business, or ability to function financially, depending on which kind of bankruptcy petition you file. But it also can lower your credit rating, making it more difficult to get a loan, mortgage, or credit card, or to buy a home or business, or rent an apartment.

If you're trying to decide whether you should file for bankruptcy, your credit is probably already damaged. But it's worth noting that a Chapter 7 filing will stay on your credit report for 10 years, while a Chapter 13 will remain there for seven. Any creditors or lenders you apply to for new debt (such as a car loan, credit card, line of credit, or mortgage) will see the discharge on your report, which can prevent you from getting any credit.

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Bankruptcy Definition - Investopedia

Bankruptcy is a legal process overseen by federal bankruptcy courts. It's designed to help individuals and businesses eliminate all or part of their debt or to help them repay a portion of what they owe.

Bankruptcy may help you get relief from your debt, but it's important to understand that declaring bankruptcy has a serious, long-term effect on your credit. Bankruptcy will remain on your credit report for 7-10 years, affecting your ability to open credit card accounts and get approved for loans with favorable rates.

Bankruptcy can be a complex process, and the average person probably isn't equipped to go through it alone. Working with a bankruptcy attorney can help ensure your bankruptcy goes as smoothly as possible and complies with all the applicable rules and regulations governing bankruptcy proceedings.

You'll also have to meet some requirements before you can file for bankruptcy. You'll need to demonstrate you can't repay your debts and also complete credit counseling with a government-approved credit counselor. The counselor will help you assess your finances, discuss possible alternatives to bankruptcy, and help you create a personal budget plan.

If you decide to move forward with bankruptcy proceedings, you'll have to decide which type you'll file: Chapter 7 or Chapter 13. Both types of bankruptcy can help you eliminate unsecured debt (such as credit cards), halt a foreclosure or repossession, and stop wage garnishments, utility shut-offs and debt collection actions. With both types, you'll be expected to pay your own court costs and attorney fees. However, the two types of bankruptcy relieve debt in different ways.

Chapter 7 bankruptcy, also known as "straight bankruptcy," is what most people probably think of when they're considering filing for bankruptcy.

Under this type of bankruptcy, you'll be required to allow a federal court trustee to supervise the sale of any assets that aren't exempt (cars, work-related tools and basic household furnishings may be exempt). Money from the sale goes toward paying your creditors. The balance of what you owe is eliminated after the bankruptcy is discharged. Chapter 7 bankruptcy can't get you out of certain kinds of debts. You'll still have to pay court-ordered alimony and child support, taxes, and student loans.

The consequences of a Chapter 7 bankruptcy are significant: you will likely lose property, and the negative bankruptcy information will remain on your credit report for ten years after the filing date. Should you get into debt again, you won't be able to file again for bankruptcy under this chapter for eight years.

Chapter 13 bankruptcy works slightly differently, allowing you to keep your property in exchange for partially or completely repaying your debt. The bankruptcy court and your attorney will negotiate a three- to five-year repayment plan. Depending on what's negotiated, you may agree to repay all or part of your debt during that time period. When you've completed the agreed repayment plan, your debt is discharged, even if you only repaid part of the amount you originally owed.

While any type of bankruptcy negatively affects your credit, a Chapter 13 may be a more favorable option. Because you repay some (or all) of your debt, you may be able to retain some assets. What's more, a Chapter 13 bankruptcy will cycle off your credit report after seven years, and you could file again under this chapter in as little as two years.

Throughout bankruptcy proceedings, you'll likely come across some legal terms particular to bankruptcy proceedings that you'll need to know. Here are some of the most common and important ones:

While bankruptcy can eliminate a lot of debt, it can't wipe the slate completely clean if you have certain types of unforgivable debt. Types of debt that bankruptcy can't eliminate include:

Perhaps the most well-known consequence of bankruptcy is the loss of property. As previously noted, both types of bankruptcy proceedings can require you to give up possessions for sale in order to repay creditors. Under certain circumstances, bankruptcy can mean losing real estate, vehicles, jewelry, antique furnishings and other types of possessions.

Your bankruptcy can also affect others financially. For example, if your parents co-signed an auto loan for you, they could still be held responsible for at least some of that debt if you file for bankruptcy.

Finally, bankruptcy damages your credit. Bankruptcies are considered negative information on your credit report, and can affect how future lenders view you. Seeing a bankruptcy on your credit file may prompt creditors to decline extending you credit or to offer you higher interest rates and less favorable terms if they do decide to give you credit.

Depending on the type of bankruptcy you file, the negative information can appear on your credit report for up to a decade. Discharged accounts will have their status updated to reflect that they've been discharged, and this information will also appear on your credit report. Negative information on a credit report is a factor that can harm your credit score.

Bankruptcy information on your credit report may make it very difficult to get additional credit after the bankruptcy is discharged at least until the information cycles off your credit report. Lenders will be cautious about giving you additional credit, and they may ask you to accept a higher interest rate or less favorable terms in order to extend you credit.

It will be important to begin rebuilding your credit right away, making sure you pay all your bills on time. You'll also want to be careful not to fall back into any negative habits that contributed to your debt problems in the first place.

Just as bankruptcy can hinder your ability to obtain unsecured credit, it can make it difficult to get a mortgage, as well. You may find lenders decline your mortgage application, and those that do accept it may offer you a much higher interest rate and fees. You may be asked to put up a much higher down payment or shoulder higher closing costs.

Rather than give up your home and try to get a new mortgage after bankruptcy, it may be better to reaffirm your current mortgage during bankruptcy proceedings. You would be able to keep your home, continue paying on your current mortgage free of other debts and stay in your current home.

When you're struggling with unmanageable debt, bankruptcy is just one solution; there are others to consider. Most will also affect your credit, but probably not as badly as a bankruptcy plus, these alternatives can allow you to keep your property, rather than having to liquidate it in bankruptcy proceedings.

Some bankruptcy alternatives you might consider are:

Be aware that whenever you fail to honor the debt-repayment terms you originally agreed to, it can affect your credit. That said, bankruptcy will still have a more significant negative impact on your credit than will credit negotiation, credit counseling and debt consolidation.

Whenever you fail to repay a debt as you originally agreed to, it can negatively affect your credit. Some types of debt relief come with consequences that are more damaging and long-term than others. Before you make any decision about debt relief, such as declaring bankruptcy, it's important to research your options, get reliable advice from a qualified credit counselor, and understand the impact your choices can have on your overall financial well-being.

Regardless of what type of debt relief you choose, you can begin taking better care of your credit immediately by putting simple, responsible, credit-positive actions into practice such as:

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Bankruptcy: How it Works, Types & Consequences - Experian