This paper outlines how the Federal Reserve can use its non-emergency statutory authority to substantially improve the functioning of debtor-in-possession financing markets during the bankruptcy crisis triggered by the COVID-19 pandemic. The authors argue that, contrary to restrictions on the Feds emergency lending authority in Section 13(3) of the Federal Reserve Act, Section 10B permits the Fed to increase support for bank-led debtor-in-possession financing sufficient to meet the scale that this crisis presents. After explaining in detail the Feds statutory authority to intervene in these markets, the authors discuss several important benefits and manageable costs of this approach. The benefits include, first, better facilitation of bank-based financing for bankrupt firms and the reciprocal reduction of financing from the shadow banking sector and, second, better insight for the central bank into this important sector of the financial system for macroeconomic and financial stability purposes. The costs include perceptions of illegality given the limitations on the Feds emergency lending authority, the risk of undermining the Feds independence for monetary policy, and concerns about central bank meddling in the political prerogatives of Congress and the President. They argue that these costs, though real, are manageable and in any case less than the benefits of intervention.

Read the full paper here

The authors did not receive financial support from any firm or person with a financial or political interest in this article. Neither is currently an officer, director, or board member of any organization with an interest in this article.

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Using the Federal Reserves discount window for debtor-in-possession financing during the COVID-19 bankruptcy crisis - Brookings Institution

(Bloomberg) -- Elliott Management Corp. is claiming PG&E Corp. cost the activist investor $250 million by breaking a promise to help the hedge fund get rights to buy equity in the utility giant during its massive bankruptcy case.

PG&E was supposed to help Elliott gain access to as much as $2 billion in equity commitments, as part of a settlement struck in January to resolve competing and sometimes contentious restructuring plans, according to a court filing by Elliott.

Elliott said PG&Es failure to follow through resulted in damages of up to 19.8 million shares valued at about $250 million. Thats based on prices as of June 8, so damages could be higher, Elliott said.

Because PG&E allegedly breached its obligation, and concealed that breach until after the evidence had closed with respect to the confirmation hearing, Elliott is now entitled to seek payment of this administrative expense claim, the firm said.

PG&E emerged from Chapter 11 earlier this month after settling wildfire claims tied to its equipment for $25.5 billion. The company raised more than $5 billion in common shares and equity units in a public offering to finance its bankruptcy exit.

Were aware of the lawsuit and are currently reviewing, according to a PG&E representative. Representatives for Elliott -- founded by billionaire investor Paul Singer -- werent immediately available to comment. A hearing on the matter is scheduled for Aug. 25.

Elliott was part of a group of PG&E bondholders that tried to wrest control of the power company in bankruptcy court last year. The noteholders agreed to back PG&Es bankruptcy exit plan after the company offered the group favorable treatment of its debt in its reorganization.

Backstop Equity

Elliott complained that PG&E failed to use its best efforts to persuade other investors involved in the companys reorganization to give Elliott the investment rights.

PG&E breached its promise when it failed to quickly disclose certain details about new financing parties involved in PG&Es plan to raise money for its bankruptcy exit, Elliott said in court papers.

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Elliott Hits PG&E With New $250 Million Claim Tied to Bankruptcy - Yahoo Finance

2020 hasnt been kind to the energy sector, and a growing wave of energy bankruptcies has started to build.

After a difficult year marred by rising geopolitical tensions in the Middle East and crude prices in the $50-60 per barrel range, analysts warned that the energy sector needed a strong recovery to offset a rising (and expiring) mountain of debt.

Instead, the oil patch has seen one bombshell after another, and the impacts are adding up.

The new year opened with a U.S. attack on a top-ranking Iranian general in Baghdad, followed by an Iranian counterattack on two bases in Iraq that hosted U.S. military personnel.

Then, the energy industry worried that the Organization of the Petroleum Exporting Countries (OPEC) wouldnt renew its production deal with non-member countries, causing increased production and negative pressure on crude prices.

All the while, the threat of COVID-19 grew and started to spread. In March, the new coronavirus hit markets hardest, right as the OPEC+ deal collapsed. Russia and Saudi Arabia subsequently flooded the markets with cheap oil, starting a price war to drive out competition.

What developed was the perfect storm of nonexistent demand matched up against oversupply. Crude prices plummeted and hit a historic sub-zero low on April 20th, with futures for West Texas Intermediate (WTI) Crude closing at -$37.63.

Now, following a renewed OPEC+ deal limiting production agreed upon on April 9th and slowly restarting economies driving up crude demand, prices have started to tick up.

Unfortunately, the damage has already been done and will take a long time to recover. By charting the sectors bankruptcies over the first half of 2020tracked by law firm Haynes and Boone, LLP for the U.S. and Insolvency Insider for Canadawe can see the wave start to swell:

For oil and gas producers, the second quarter of 2020 saw 18 bankruptcies, the highest quarterly total since 2016.

So far, theyre largely centered in the U.S., which saw a boom of surface-level shale oil production in the 2010s to take advantage of rising crude prices. As prices have dropped, many heavily leveraged companies have started to run out of options.

The biggest victim in the first half of 2020 was Chesapeake Energy, a shale giant that declared bankruptcy on June 28 with more than $9 billion in debt.

Canada has also seen an uptick in energy bankruptcies, especially after facing years of stiff competition from U.S. shale producers. However, the number of cases in Canada is far fewer than in the United States.

One reason is that companies staved off bankruptcy or receivership in four of the seven insolvency cases in Canada since January 2020, at least temporarily. Instead, they are seeking protection under the countrys Companies Creditors Arrangement Act, giving them a chance to restructure and avoid insolvency.

Another reason for the discrepancy in bankruptcy numbers is timing. The energy sector faced its biggest challenges in 2015/2016, causing many companies to take on debt.

Unfortunately, much of that debt is starting to expire, or becoming too difficult to pay off in the current market conditions.

Thats why, despite the wave of bankruptcies caused by COVID-19 gaining steam, the wave will continue well into 2020 and likely beyond.

July has already seen more companies declaring bankruptcy or seeking creditor protection. The question is, how many more are waiting to surface?

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Tracking the Growing Wave of Oil & Gas Bankruptcies in 2020 - Visual Capitalist

What Is Bankruptcy?

Bankruptcy is a court proceeding in which a judge and court trustee examine the assets and liabilities of individuals and businesses who cant pay their bills. The court decides whether to discharge the debts, and those who owe are no longer legally required to pay them.

Bankruptcy laws were written to give people whose finances have collapsed, a chance to start over. Whether the collapse is a product of bad decisions or bad luck, lawmakers could see that in a capitalist economy, consumers and businesses who fail financially need a second chance.

And nearly all who file for bankruptcy get that chance.

Ed Flynn, of the American Bankruptcy Institute (ABI), did a study of PACER stats (public court records) from Oct. 1, 2018, through Sept. 30, 2019, and found that there were 488,506 Chapter 7 bankruptcy cases completed in that fiscal year. Of them, 94.3% were discharged, meaning the individual was no longer legally required to pay the debt.

Only 27,699 cases were dismissed, meaning the judge or court trustee felt like the individual had enough resources to pay his or her debts.

Individuals who used Chapter 13 bankruptcy, known as wage earners bankruptcy, were almost evenly split in their success. Slightly less than half of the 283,412 Chapter 13 cases completed were discharged (126,401) and 157,011 were dismissed, meaning the judge felt the person filing had enough assets to handle his or her debts.

The individuals and business who file for bankruptcy have far more debts than money to cover them and dont see that changing anytime soon. In 2019, bankruptcy filers owed $116 billion and had assets of $83.6 billion, almost 70% of that was real estate holdings, whose real value is debatable.

What is surprising is that people not businesses are the ones most often seeking help. They have taken on financial obligations like a mortgage, auto loan or student loan or perhaps all three! and dont have the income to pay for it. There were 774,940 bankruptcy cases filed in 2019, and 97% of them (752,160) were filed by individuals.

Only 22,780 bankruptcy cases were filed by businesses in 2019.

Most of the people filing bankruptcy were not particularly wealthy. The median income for the 488,506 individuals who filed Chapter 7, was just $31,284. Chapter 13 filers were slightly better off with a median income of $41,532.

Part of understanding bankruptcy is knowing that, while bankruptcy is a chance to start over, it definitely affects your credit and future ability to use money. It may prevent or delay foreclosure on a home and repossession of a car, and it can also stop wage garnishment and other legal action creditors use to collect debts, but in the end, there is a price to pay.

There is no perfect time, but one rule of thumb to keep in mind is the length of time it will take to pay down your debts. When asking yourself the question Should I file for bankruptcy? think hard about whether it is going to take more than five years to pay your debts off. If the answer is yes, it might be time to declare bankruptcy.

The thinking behind this is that the bankruptcy code was set up to give people a second chance, not to punish them. If some combination of mortgage debt, credit card debt, medical bills and student loans has devastated you financially and you dont see that changing, bankruptcy might be the best answer.

And if you don't qualify for bankruptcy, there is still hope.

Other possible debt-relief choices include a debt management program or debt settlement. Both of these typically need 3-5 years to reach a resolution, and neither one guarantees all your debts will be settled when you finish.

Bankruptcy carries some significant long-term penalties because it will remain on your credit report for 7-10 years, but there is a great mental and emotional lift when youre given a fresh start and all your debts are eliminated.

Like the economy, bankruptcy filings in the U.S. rise and fall. In fact, the two are as connected as peanut butter and jelly.

Bankruptcy peaked with just more than two million filings in 2005. That is the same year the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. That law was meant to stem the tide of consumers and businesses too eager to simply walk away from their debts.

The number of filings dropped 70% in 2006, to 617,660. But then the economy tanked and bankruptcy filings increased to 1.6 million in 2010. They retreated again as the economy improved and have gone down about 50% through 2019.

That may change significantly in 2020 as the economic impact of COVID-19 forces many individuals and small businesses to declare bankruptcy.

Filing for bankruptcy is a legal process that either reduces, restructures or eliminates your debts. Whether you get that opportunity is up to the bankruptcy court. You can file for bankruptcy on your own, or you can find a bankruptcy lawyer. Bankruptcy costs include attorney fees and filing fees. If you file on your own, you will still be responsible for filing fees.

If you cannot afford to hire an attorney, you may have options for free legal services. If you need help finding a lawyer or locating free legal services, check with the American Bar Association for resources and information.

Before you file, you must educate yourself on what happens when you file for bankruptcy. Its not simply a matter of telling a judge Im broke! and throwing yourself at the mercy of the court. There is a process a sometimes confusing, sometimes complicated one that individuals and businesses must follow.

The steps are:

There are several types of bankruptcy for which individuals or married couples can file, the most common being Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is generally the best option for those with a low income and few assets. It is also the most popular form of bankruptcy, making up 63% of individual bankruptcy cases in 2019.

Chapter 7 bankruptcy is a chance to get a court judgment that releases you from responsibility for repaying debts and you also permitted to keep key assets that are considered exempt property. Non-exempt property will be sold to repay part of your debt.

By the end of the Chapter 7 bankruptcy process, the majority of your debts will be discharged and you will no longer have to repay them.

Property exemptions vary from state to state. You may choose to follow either state law or federal law, which may allow you to keep more possessions.

Examples of exempt property include your home, the car you use for work, equipment you use at work, Social Security checks, pensions, veterans benefits, welfare and retirement savings. These things cant be sold or used to repay debt.

Non-exempt property includes things like cash, bank accounts, stock investments, coin or stamp collections, a second car or second home, etc. Non-exempt items will be liquidated sold by a court-appointed bankruptcy trustee. Proceeds will be used to pay the trustee, cover administrative fees and, if money allows, repay your creditors as much as possible.

Chapter 7 bankruptcy stays on your credit report for 10 years. While it will have an immediate impact on your credit score, the score will improve over time as you rebuild your finances.

Those who file for Chapter 7 bankruptcy will be subject to the U.S. Bankruptcy Courts Chapter 7 means test, which is used to weed out those who might be able to partially repay what they owe by restructuring their debt. The means test compares a debtors income for the previous six months to the median income (50% higher, 50% lower) in their state. If your income is less than the median income, you qualify for Chapter 7.

If its above the median, there is a second means test that may allow you to qualify for Chapter 7 filing. The second means test measures your income vs. essential expenses (rent/mortgage, food, clothing, medical expenses) to see how much disposable income you have. If your disposable income is low enough, you could qualify for Chapter 7.

However, if a person has enough money coming in to gradually pay down debts, the bankruptcy judge is unlikely to allow a Chapter 7 filing. The higher an applicants income is relative to debt, the less likely a Chapter 7 filing will be approved.

Chapter 13 bankruptcies make up about 36% of non-business bankruptcy filings. A Chapter 13 bankruptcy involves repaying some of your debts in order to have the rest forgiven. This is an option for people who do not want to give up their property or do not qualify for Chapter 7 because their income is too high.

People can only file for bankruptcy under Chapter 13 if their debts do not exceed a certain amount. In 2020, an individuals unsecured debt could not exceed $394,725 and secured debts had to be less than $1.184 million. The specific cutoff is reevaluated periodically, so check with a lawyer or credit counselor for the most up-to-date figures.

Under Chapter 13, you must design a three- to five-year repayment plan for your creditors. Once you successfully complete the plan, the remaining debts are erased.

However, most people do not successfully finish their plans. When this happens, debtors may then choose to pursue a Chapter 7 bankruptcy. If they don't, creditors can resume their attempts to collect the full balance owed.

Chapter 9: This applies only to cities or towns. It protects municipalities from creditors while the city develops a plan for handling its debts. This typically happens when industries close and people leave to find work elsewhere. There were just four Chapter 9 filings in 2018. There were 20 Chapter 9 filings in 2012, the most since 1980. Detroit was among those filing in 2012 and is the largest city ever to file Chapter 9.

Chapter 11: This is designed for businesses. Chapter 11 is often referred to as reorganization bankruptcy because it gives businesses a chance to stay open while they restructure the debts and assets in order to pay back creditors. This is used primarily by large corporations like General Motors, Circuit City and United Airlines, but can be used by any size business, including partnerships and in some rare cases, individuals. Though the business continues to operate during bankruptcy proceedings, most of the decisions are made with permission from the courts. There were just 6,808 Chapter 11 filings in 2019.

Chapter 12: Chapter 12 applies to family farms and family fishermen and gives them a chance to propose a plan to repay all or part of their debts. The court has a strict definition of who qualifies, and its based on the person having regular annual income as a farmer or fisherman. Debts for individuals, partnerships or corporations filing for Chapter 12 cant exceed $4.03 million for farmers and $1.87 million for fishermen. The repayment plan must be completed within five years, though allowances are made for the seasonal nature of farming and fishing.

Chapter 15: Chapter 15 applies to cross-border insolvency cases, in which the debtor has assets and debts both in the United States and in another country. There were 136 cases of Chapter 15 filed in 2019. This chapter was added to the bankruptcy code in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act. Chapter 15 cases start as insolvency cases in a foreign country and make their way to the U.S. Courts to try and protect financially troubled businesses from going under. The U.S. courts limit their scope of power in the case to only the assets or persons that are in the United States.

The overriding principle of bankruptcy is that it gives you a fresh start with your finances. Chapter 7 (known as liquidation), wipes away debt by selling non-exempt possessions that have some value. Chapter 13 (known as the wage earners plan) gives you an opportunity to develop a 3-5 year plan to repay all your debt and keep what you have.

Both equal a fresh start.

Yes, filing for bankruptcy impacts your credit score. Bankruptcy remains on your credit report for 7-10 years, depending upon which chapter of bankruptcy you file under. Chapter 7 (the most common) is on your credit report for 10 years, while a Chapter 13 filing (second most common) is there for seven years.

During this time, a bankruptcy discharge could prevent you from getting new lines of credit and may even cause problems when you apply for jobs.

If you are considering bankruptcy, your credit report and credit score probably are damaged already. Your credit report may improve, especially if you consistently pay your bills after declaring bankruptcy.

Still, because of the long-term effects of bankruptcy, some experts say you need at least $15,000 in debt for bankruptcy to be beneficial.

Bankruptcy does not necessarily erase all financial responsibilities.

It also does not protect those who co-signed your debts. Your co-signer agreed to pay your loan if you didn't, or couldn't pay. When you declare bankruptcy, your co-signer still may be legally obligated to pay all or part of your loan.

Most people consider bankruptcy only after they pursue debt management, debt consolidation or debt settlement. These options can help you get your finances back on track and won't have a negative impact on your credit as much as a bankruptcy.

Debt management is a service offered by nonprofit credit counseling agencies to reduce the interest on credit card debt and come up with an affordable monthly payment to pay those off. Debt consolidation combines all your loans to help you make regular and timely payments on your debts. Debt settlement is a means of negotiating with your creditors to lower your balance. If successful, it directly reduces your debts.

To learn more about bankruptcy and other debt-relief options, seek advice from a local credit counselor or read the Federal Trade Commission's informational pages.

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Understanding Bankruptcy: How to File & Qualifications

(This is an abridged version of a story that appears in the July issue of Marijuana Business Magazine.)

In a recession, there are bound to be business casualtiesparticularly in a high-risk, nascent industry such as hemp.

Hemp companies have experienced a perfect storm of obstacles since legalization in late 2018an uncertain regulatory environment, overproduction in 2019, ongoing challenges with access to banking and financial services and, now, COVID-19. In short, the odds are stacking up against hemp entrepreneurs.

Bill Hilliard, CEO of Winchester, Kentucky-based Atalo Holdings, a hemp and CBD company that filed for Chapter 7 bankruptcy protection in April, said the current, challenging state of the hemp market stems from a number of factors that are beyond the control of most hemp companies, including regulatory uncertainty due to a delay of guidelines from the U.S. Food and Drug Administration and the continued struggle to secure financial services from lenders and credit card-processing companies.

Were in good company in our bankruptcy here in Kentucky; four of the primary participants in (Kentuckys 2014 hemp pilot) research program have all sought bankruptcy protection, Hilliard said.

Overproduction during the 2019 crop year was a result of the USDA being aggressive about finding a new agricultural crop for the American farmwith support from the industry, Hilliard said.

We led the charge and we supported that 100%. But they were so enthusiastic that no one contemplated that we would have the massive production that American farmers produced in 2019, he said. At the same time, everyone was expecting that the FDA would come out with some guidance on what the markets were for CBD, and, of course, that hasnt really materialized in a meaningful way so far.

Bankruptcy Basics

Before 2014, cannabis companies of any kind generally were not eligible for bankruptcy protection under federal law, including ancillary businesses that derived any portion of their revenue from cannabis. But that changed for hemp and CBD businesses after hemp cultivation was permitted through state-led pilot research programs under the 2014 Farm Bill and subsequently legalized as a commodity under the 2018 Farm Bill and removed from the Controlled Substances Act.

Today, companies associated with hemp and its derived products can legally file for bankruptcy, but their counterparts in the marijuana industry cannot, because marijuana remains a federally illegal controlled substance.

Filing for bankruptcy protection helps companies that have found themselves underwater financially to either liquidate their assets to pay debts or to reorganize their business and finances to continue operating.

To read more about legal hemp bankruptcy options click here.

Laura Drotleff can be reached at [emailprotected]

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Hemp companies in financial trouble have legal bankruptcy options not offered to marijuana operators - Hemp Industry Daily

BUILDING PERMITS

(Listed by owner, tenant or building name. This weekly update lists new commercial construction, expansions and enlargements of more than $50,000. Information is from initial applications and is subject to change. Dollar amount is valuation declared by owner.)

19-049306 Aeroflex 2, 1660 N. Mingo Road, shell building, $4,113,000.

20-061309 Grand Bank/21 Century Park, 2642 E. 21st St., alteration, $300,000.

20-064195 Tri-Angle, 4555 S. Harvard Ave. alteration, $130,000.

20-061228 Vandever Lofts, 16 E. Fifth St., alteration, $85,000.

19-041634 Vagabonds Inc. RV Park, 123 S. Gilcrease Museum Road, alteration, $75,000.

BUSINESS BANKRUPTCIES

(Weekly update includes filings classified as business in the numerical list of the U.S. Bankruptcy Court, Northern District in Tulsa, and which also list business as nature of debt on bankruptcy document.)

20-11180-R Matthew Wilhelm Bailey, 18740 E. 42nd St., assets and liabilities: not available, attorney: Michael S. Jones, chapter 7.

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For the record: Building permits and bankruptcies | Business - Tulsa World

Neiman Marcus CEO Geoffroy van Raemdonck (Photo by Pascal Le Segretain/Getty Images for The Business ... [+] of Fashion)

During the Covid-19 pandemic, we saw over 3,600 corporations file for bankruptcy protection. These companies include iconic American brands, such as J.C. Penney, Hertz, J. Crew,

Pier 1, Brooks Brothers and Neiman Marcus. Many of them attribute their dire situations to the virus outbreak. It's a convenient scapegoat that deflects the blame. The reality is that a majority of companies were mismanaged, piled on too much debt, engaged in stock buybacks that left them without emergency funds, paid their CEOs and executives lavishly and were not in sync with their customers nor innovated to stay current with the changing climate and trends.

According to Reuters, a large number of the big companies that sought out bankruptcy protection awarded millions of dollars in bonuses to their executives within months before filing. Their reporting shows that a number of companies, including J.C. Penney and Hertz, approved bonuses as few as five days before seeking bankruptcy protection. This may be due to a 2005 bankruptcy law that prohibits companies from paying executives retention bonuses while in bankruptcy. This prepayment looks like exploiting a loophole.

After over 100 years in business, the once-beloved retailer, J.C. Penney, filed for bankruptcy protection and paid out millions of dollars to top executives right before it happened. In a regulatory filing, it was disclosed that J.C. Penney CEO Jill Soltau received a $4.5 million bonus. Three top executives, including chief financial officer Bill Wafford, chief merchant officer Michelle Wlazlo and chief human resources officer Brynn Evanson each received a $1 million payout.

Hertz, the well-known car rental company thats been an enduring American fixture at airports, handed out over $16 million in bonuses days before filing for bankruptcy. Hertz paid a $700,000 bonus to chief executive Paul Stone. Chief financial officer Jamere Jackson was awarded $600,000 and chief marketing officer Jodi Allen received $189,633, according to the Wall Street Journal.

Your fondly remembered childhood pizza and arcade game emporium, Chuck E. Cheese, filed for bankruptcy. The go-to birthday party place for kids CEO David McKillips lamented that the pandemic period has "been the most challenging event in our company's history." However, McKillips is "confident" about its future. He should be, as McKillips was personally taken care of. Despite the challenging times ahead, the company gave around $3 million in retention bonuses to its three top executives before the bankruptcy was announced. McKillips received $1.3 million, President Roger Cardinale got $900,000 and CFO Jay Howell was awarded $675,000.

Shopping-mall mainstay GNC paid out about $4 million in cash bonuses to top executives, prior to its Chapter 11 filings.The rewardsofficially called retention bonusesfor failing included $2.2 million for CEO Kenneth Martindale, who joined the company in September 2017. He was paid $7.1 million in 2019. The chief financial officer received $795,000 and three other C-level executives were awarded a total $918,000.

Despite the decreasing fortunes of large oil and gas producer Chesapeake Energy, CBS News reported that last year its CEO, Doug Lawler, remained the highest-paid CEO in Oklahoma with $15.4 million in compensation. Prior to filing for bankruptcy, the Wall Street Journal reported, Chesapeake also offered 21 high-ranking employees cash-retention payments totaling about $25 million. According to Equilar, Lawlers realized pay through the end of last year totaled more than $48 million.

Upscale-clothing retailer Neiman Marcus is requesting a federal bankruptcy court in Texas to allow about $10 million in pay raises for CEO Geoffroy van Raemdonck and other executives. The compensation is said to be critical to day-to-day operations and will ensure the companys success during the bankruptcy process.

Bloomberg estimates, Out of the 100 companies that have filed for bankruptcy since the Covid lockdowns began, 19 of these companies have committed to paying a total of $131 million in retention and performance bonuses.

The usual excuse is that the management team needs to be financially taken care of to shepherd their companies through the arduous bankruptcy proceedings. They claim that the bonuses could be clawed back under certain circumstances, but that rarelyif everhappens.

Outside observers understandably question the legitimacy of costly retention bonuses, as it's going to the very same management groups that got their respective companies into these messes. Critics also point to the fact that workers are laid off by the thousands and not afforded any enhanced packages. These are the rank-and-file folks who roll up their sleeves and do all of the heavy lifting, interact with customers and are the lifeblood of the companies.

To be fair, running large, diversified global businesses is not easy. Doing this during an unprecedented pandemic is excruciatingly hard, especially if youre in a sector that depends upon human-to-human interactions or were forced to shut down due to the federal and state mandates. It's reasonable to compensate management fairly for their efforts, as well as the anxiety and uncertainty they face.

What infuriates people is that the companies clearly have a two-tier system: the senior executives and CEOs are financially looked after, whereas the average worker is not taken into consideration. Arguably, the top brass have the financial wherewithal to weather the storm and have accumulated enough contacts and connections to land on their feet somewhere else in a high-end, cushy role.

The average worker at a company that is going through bankruptcy confronts a different reality. Theyre unceremoniously tossed out into a cruel and unforgiving job market, in which 51 million Americans have recently filed for unemployment. The competition for a new job is ridiculously competitive. There are hiring freezes and layoff announcements on a nearly daily basis.

The oversized bonus rewards could almost be tolerated if the same consideration was offered to their workers too. Until this happens, confidence in our capitalistic system will continue to erode. The average American will feel that it's rigged against themfavoring the rich and powerful and ignoring the hardworking middle and working classes.

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CEOs And Executives Of Companies Filing For Bankruptcy Make Millions - Forbes

The novel coronavirus continues to spread throughout the country and is showing no signs of cessation. Thats bad news for seniors, and in more ways than one. Everyone knows of the disproportionate health risks the nations elderly face from this virus, but the threat it poses to Medicare the federal health insurance program that those over the age of 65 rely upon for their medical needs has received far less attention.

It shouldnt come as a surprise that COVID is running the government program dry. It was already in dire straits before the pandemic. A 2020 trustee report found that parts of it will run out of money as early as 2023 and become insolvent by 2026. However, with Medicare Part B now covering all coronavirus testing costs, and the Centers for Medicare & Medicaid Services (CMS) also waving Medicare participation conditions, the system could come to a breaking point in a matter of years.

Over 61 million Americans 18-percent of the population depend on Medicare for their health needs. Even with Medicares assistance, approximately 7.5 million seniors still cant afford the out-of-pocket costs of their drugs. Put simply, the nation cant afford to let the system buckle. Congress must come to terms with a solution that ensures this pandemic does not jeopardize the programs solvency. Thankfully, representatives from both sides of the aisle recently crafted a solution that will eliminate a sizable chunk of the added pandemic-induced strains.

This month, Sens. John CornynJohn CornynCongress set for messy COVID-19 talks on tight deadline Mnuchin: It 'wouldn't be fair to use taxpayer dollars to pay more people to sit home' Congress set for brawl as unemployment cliff looms MORE (R-Texas) and Michael BennetMichael Farrand BennetTom Cotton rips NY Times for Chinese scientist op-ed criticizing US coronavirus response Our national forests need protection and Congress can help Hillicon Valley: Facebook considers political ad ban | Senators raise concerns over civil rights audit | Amazon reverses on telling workers to delete TikTok MORE (D-Colo.) introduced the Increasing Access to Biosimilars Act (IABA). This bipartisan bill, previously introduced in the House by Reps. Richard HudsonRichard Lane HudsonHow Congress is preventing a Medicare bankruptcy during COVID-19 Cook shifts 20 House districts toward Democrats American meat producers must leverage new technology to protect consumers, workers MORE (R-N.C.), Angie Craig (D-Minn.), and Brian FitzpatrickBrian K. FitzpatrickOvernight Energy: House passes major conservation bill, sending to Trump | EPA finalizes rule to speed up review of industry permits House passes major conservation bill, sending it to Trump's desk House votes to block funding for nuclear testing MORE (R-Pa.), will create a pilot program that incentivizes providers to use low-cost biosimilar drugs in the Medicare program whenever possible.

The benefit that providers making greater use of biosimilars will provide to preserving Medicares finances is unquestioned. These drugs, developed to be similar to already-existing FDA medicines, cost up to 30 percent less than brand-names, and a 2017 RAND study estimated that they could save the U.S. health care system as much as $150 million over a 10-year period.

In the past, public policy analysts have questioned how the government can encourage doctors and hospitals, which often reflexively prescribe brand-names, to change course. Thats where the beauty of IABA comes in. The bill puts that concern to bed by implementing a shared-savings program to make the use of biosimilars just as beneficial to providers as it is for the Medicare program itself.

The bills focus on extending collective benefits should provide doctors and hospitals with every incentive they need to participate in the legislations pilot program. These care centers have always actively looked for ways to cut costs to make up for underpayments from Medicare, but the COVID crisis has increased their budget consciousness tremendously and for good reason. According to one estimate, the pandemic has already brought them $202 billion in revenue losses over the last four months. It has caused a significant number of hospital closures this year already, while plenty of other care centers are operating on margins and hanging on by a thread. Providers and facilities would be foolish not to take part in IABA when it can amount to the difference between life or death of their businesses and practices.

Beyond the intuitive sense that this shared-savings program makes for both Medicare and hospitals is the historical evidence that these types of government initiatives work. For example, not long ago, CMS created a Medicare Shared Savings Program for providers who participate in Accountable Care Organizations (ACO). It saved ACO participants almost $740 million in 2018 and $1.84 billion from 2013-2015. Given these dramatic results, its no wonder why both Democrats and Republicans are so eager to extend the benefits to seniors and providers that operate outside of ACOs.

In this time of great need and great political division, Congress deserves commendation for formulating a solution to this issue of great public importance for our nations seniors. IABA will benefit the U.S. health care system not only during this pandemic, but in the years beyond it as well. House Speaker Nancy PelosiNancy PelosiWhite House, Senate GOP race to finalize coronavirus package ahead of Monday rollout Congress set for messy COVID-19 talks on tight deadline Sunday shows - Coronavirus relief, stimulus talks dominate MORE (D-Calif.) and Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellWhite House, Senate GOP race to finalize coronavirus package ahead of Monday rollout Congress set for messy COVID-19 talks on tight deadline AFSCME launches ad calling for trillion in relief aid for local governments MORE (R-Ky.) should leverage this rare sign of legislative branch unity to their advantage by calling this important bill for a vote now when it would matter most.

James L. Martin is president of the 60 Plus Association, which represents 5 million seniors nationwide.

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How Congress is preventing a Medicare bankruptcy during COVID-19 | TheHill - The Hill

A bankruptcy judge on Tuesday gave troubled Tomball oil-field services company BJ Services seven days to continue operations and resume negotiations with lenders.

In his order, U.S. Bankruptcy Judge Marvin Isgur put pressure on BJ Services and creditors to return to the negotiating table to save as many jobs as possible and possibly prevent the death of the nearly 150-year-old company.

Unable to reach an agreement with lenders, BJ services filed for Chapter 11 bankruptcy Monday. Under the worst scenario, the case could end in a Chapter 7 liquidation in which the company would be dissolved, broken up and sold off in pieces with more than a thousand workers losing their jobs.

Downturn:BJServices files for Chapter 11 bankruptcy

"I am not prepared to walk away from 1,250 jobs on the first day of the case," Judge Isgur said.

BJ Services, which has oil well cementing and hydraulic fracturing crews deployed in shale plays across the United States and Canada, owes nearly $357 million to lenders and another $134 million to vendors. The company, already hit hard by the oil bust caused by the coronavirus pandemic, saw a $75 million deal that would have saved the company fall apart Thursday.

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Before filing for bankruptcy, BJ Services had offers on the table to sell its cementing business and part of its hydraulic fracturing business in two deals that would have saved more than 500 jobs. Judge Isgur, however, questioned bankruptcy liquidation sales as the only outcome for the case.

"I'm not prepared to limit the range of alternatives that are going to be discussed," Judge Isgur said. "If we're going to save jobs at the company, the company needs to be prepared to consider reorganization."

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Judge gives BJ Services a week to find bankruptcy alternative - Houston Chronicle

As the coronavirus pandemic upends the restaurant industry, some chains that were already struggling financially have been pushed into bankruptcy.

Trade groups estimate that up to 30% of restaurants could permanently close because of the pandemic. While independent restaurants are more at risk, dining room closures and consumers eating more at home has also strained chains, particularly those in the casual dining sector.

The Paycheck Protection Program provided many restaurants, including large chains like P.F. Chang's and Five Guys, with much needed funds to continue operating. But coronavirus cases are once again surging, causing governors to once again close dining rooms to customers.

The crisis will likely change the restaurant industry forever. Experts say that the pandemic and related health concerns may prove to be the death knell for buffet-style restaurants, and the once-thriving "eatertainment" segment is under pressure.

A report from S&P Global Market Intelligence released on Friday identified 15 publicly traded restaurant chains that are most likely to default. Kisses From Italy, a casual dining chain whose shares are trading for 10 cents, topped the list, with a 41.2% chance of defaulting within the next 12 months. Muscle Maker, with a 36.9% chance of default, and Giggles N' Hugs, with a 34.3% chance, came in second and third place.

Starbucks, Denny's and Yum Brands made the S&P list with a much smaller probability of default in a year: all came in under 10%.

But franchisees of large fast-food chains are also struggling.Operators across chains like McDonald's, Wendy's and Yum Brands' Taco Bell received millions in PPP loans. NPC International, Pizza Hut's largest U.S. franchisee, filed for Chapter 11 on July 1 after struggling with its debt burden.

Here are the restaurant chains that have filed for bankruptcy during the pandemic:

A sign is posted on the exterior of a Chuck E. Cheese's restaurant on June 25, 2020 in Pinole, California.

Justin Sullivan | Getty Images

Chuck E. Cheese's parent company filed for Chapter 11 bankruptcy in late June, citing the prolonged venue closures stemming from the pandemic for its financial troubles. The chain had $1.91 billion in liabilities on its balance sheet, as of Dec. 29. The company plans to continue operating as it undergoes the bankruptcy process.

In 2014, private equity firm Apollo Global Management bought CEC Entertainment, which also owns Peter Piper Pizza.

An exterior view of a closed Sweet Tomatoes restaurant amid the spread of the coronavirus on May 10, 2020 in Las Vegas, Nevada.

Ethan Miller | Getty Images

The parent company of buffet-style restaurants Souplantation and Sweet Tomatoes filed for Chapter 7 bankruptcy in May and closed all of its locations permanently. Garden Fresh had an estimated $50 million to $100 million in liabilities, according to its bankruptcy filing. The following month, the company liquidated its assets.

A pedestrian wearing a protective mask walks past a closed Le Pain Quotidien restaurant in Arlington, Virginia, U.S., on Wednesday, May 27, 2020.

Andrew Harrer | Bloomberg | Getty Images

In late May, the U.S. arm of Le Pan Quotidien, PQ New York, sought Chapter 11 bankruptcy protection. The company had planned to file for bankruptcy prior to the pandemic, but restaurant closures nearly caused it to liquidate, according to court filings. PQ New York had an estimated $100 million to $500 million in liabilities when it filed for bankruptcy.

New York-based restaurant operator Aurify Brands bought all 98 U.S. locations of the restaurant and plans to reopen at least 35.

The logo of restaurant chain Vapiano is pictured at a restaurant in Berlin, on April 2, 2020.

Odd Andersen | AFP | Getty Images

In April, the German restaurant chain applied to start insolvency proceedings in Cologne. The company is publicly traded on the Frankfurt Stock Exchange and has six U.S. locations. When Vapiano went public in 2017, it had a market value of about 553 million euros, or more than $630 million.

West Palm Beach, CityPlace, Brio Tuscan Grille outdoor tables.

Jeff Greenberg | UIG | Getty Images

The parent company of Brio and Bravo restaurants filed for Chapter 11 bankruptcy in April and permanently shuttered 48 out of nearly 100 locations. FoodFirst said it had liabilities of $50,000 or less in its bankruptcy filing.

In June, Earl Enterprises, which owns Planet Hollywood and Earl of Sandwich, bought the two Italian restaurant chains in a deal valued at $30 million and plans to assume the leases of at least 45 locations.

Correction: An earlier version misidentified the source of the report. It was from S&P Global Market Intelligence.It also misstated the market value of Vapiano when it went public. It was worth more than $630 million.

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These restaurant chains filed for bankruptcy during the pandemic - CNBC

Travelport has entered a standstill agreement with its creditors, according to people familiar with the matter, as the parties haggle over a drop in the companys value since the start of the pandemic.

The travel technology company, which is co-owned by activist investor Elliott Management, has a deal to hold off lenders for a couple of months in a $1.15 billion dispute over alleged debt defaults. Creditors will refrain from making payment demands that could risk tipping the U.K.-based company into bankruptcy.

On the one side of the billion-dollar fight are the lenders, including GSO Capital Partners, Canyon Partners, and Mudrick Capital Management.

On the other is Travelport which provides ticketing and other services for travel agencies, airlines, and other companies and its shareholders, Evergreen Capital (an arm of Elliott) and private equity firm Siris Capital Group.

The existence of the agreement previously unreported should be reassuring news to Travelport employees and partners. It signals that Travelport will operate business as usual for the next couple of months. Creditors and management will haggle, with Travelport hoping lenders knock down the value of a broader array of outstanding loans worth about $2 billion to a smaller total amount, sources said.

Register now for Skifts Online Travel Summit on July 23

At a big-picture level, Travelport is working with what could approximately be considered two different buckets, worth about $500 million each. The first bucket of money comes from the companys existing access to liquidity and cash. The company has drawn at least $220 million from that bucket.

At risk is a second bucket of money thats also $500 million.

Some backstory, first: Maine-based payments tech firm Wex backed out in May from a planned $1.7 billion deal to buy Travelports shares in eNett and Optal, payment solutions providers.

The day after Wex said it wanted to drop the acquisition, Travelports private equity sponsors interpreted the terms of its credit documents to say it had the right to transfer Travelports intellectual property assets worth about $1.15 billion to a subsidiary beyond the reach of its secured creditors.

Travelports owners moved the assets to a new subsidiary, which they used as collateral to raise $500 million in new loans.

That additional liquidity could help keep the company out of bankruptcy and focused on its reorganization, slimming down, and tech modernization strategy. But the company may not need it if its 2020 revenue levels continue to follow the rebound theyve seen, sources familiar with the company speculated.

Some lenders call the move a trap door in the contract and allege that Travelports financial sponsors arent allowed to effectively remove Travelports intellectual property as loan collateral, sources said. Lenders have threatened to allege a breach of contract and other violations in lawsuits, sources said. Bloomberg News first reported in May that Travelports lenders had threatened to claim default.

The so-called trap door move isnt common and is considered by financial experts to be an assertive move. But it does have similar precedents in recent disputes between creditors and companies like J. Crew and Neiman Marcus.

A UK court has set a September trial date to decide if Wex can get out of buying eNett and Optal.

Travelport can continue to pursue its modernization strategy and service customers even if it loses that battle, sources familiar with the company said.

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Photo Credit: A man wears a protective mask as he walks on Wall Street during the coronavirus outbreak in New York City, New York, U.S., March 13, 2020. Travelport is in a standstill agreement with its Wall Street creditors, holding off lenders until September in a $1.15 billion dispute over alleged debt defaults. Lucas Jackson / Reuters

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Travelport Strikes Deal With Creditors That For Now Could Save It From Bankruptcy - Skift

David R. Eastlake and Joshua A. Lesser, attorneys in the Houston office of global law firm Greenberg Traurig, LLP, have been elected to positions in the Bankruptcy Law Section of the State Bar of Texas.

HOUSTON, July 22, 2020 /PRNewswire-PRWeb/ -- David R. Eastlake and Joshua A. Lesser, attorneys in the Houston office of global law firm Greenberg Traurig, LLP, have been elected to positions in the Bankruptcy Law Section of the State Bar of Texas.

Eastlake was recently elected Secretary of the State Bar of Texas Bankruptcy Law Section. Eastlake had previously been serving on the Bankruptcy Law Section's Executive Council as an At-Large member. Eastlake will continue to serve on the Executive Council in his new role as an Officer.

Lesser was elected Membership Liaison for the Bankruptcy Law Section's Young Lawyers Committee.

July 1, 2020, marks the start of their two-year term.

"We are proud of David and Josh for their involvement with the Bankruptcy Law Section of the State Bar of Texas," said Shari L. Heyen, co-chair of the firm's Global Restructuring & Bankruptcy Practice and co-managing shareholder of the Houston office. "Greenberg Traurig encourages attorneys to continuously grow in their legal field, while being active and giving back to the community."

"We are honored to serve in our newly elected positions in the Bankruptcy Law Section, which aligns and educates those with similar professional aspirations. We welcome the challenge and are grateful to the Bankruptcy Law Section and Greenberg Traurig for affording us this opportunity," Eastlake and Lesser said in a joint statement.

According to their website, the goal of the Bankruptcy Law Section is to provide an opportunity for all practitioners of bankruptcy law licensed in Texas to meet and exchange information and ideas on a regular basis, including practitioners in both the consumer and business bankruptcy arenas, for those who represent creditors and debtors, and those who live in any geographic region.

Eastlake is a Shareholder in the firm's Restructuring & Bankruptcy Practice. He focuses his practice primarily on the representation of debtors in possession, official and ad hoc committees, significant creditors and secured lenders in complex Chapter 11 reorganization cases, Chapter 7 liquidations, out-of-court restructurings, and commercial and bankruptcy-related litigation matters. His representations have ranged across a wide array of industries, including energy, oil and gas, retail, manufacturing, real estate, financial services, health care, telecommunication and cable.

Lesser is an Associate in the firm's Restructuring & Bankruptcy Practice. He has represented corporate debtors, secured and unsecured creditors, and committees at all stages of corporate debt restructurings, Chapter 11 and Chapter 7 sales and liquidations, and out-of-court workouts.

About Greenberg Traurig's Restructuring & Bankruptcy Practice: Greenberg Traurig's internationally recognized Restructuring & Bankruptcy Practice provides clients with deep insight and knowledge acquired over decades of advisory and litigation experience. The team has a broad and diverse range of experience developing creative and effective solutions to the highly complex issues that arise in connection with in- and out-of-court reorganizations, restructurings, workouts, liquidations, and distressed acquisitions and sales. Using a multidisciplinary approach, the firm's vast resources and invaluable business network, the team helps companies navigate challenging times and address the full range of issues that can arise in the course of their own restructurings or dealings with other companies in distress.

About Greenberg Traurig, LLP Texas: Texas is important to Greenberg Traurig, LLP and part of its history. With more than 130 Texas lawyers in Austin, Dallas, and Houston, Greenberg Traurig has deep roots in the Texas business, legal, and governmental communities. Greenberg Traurig Texas works with clients to address their interdisciplinary legal needs across the state utilizing the firm's global platform. The Texas attorneys are experienced in industries key to the state's future, including: aviation, chemicals, construction, education, energy and natural resources, financial institutions, health care, hedge funds, hospitality, infrastructure, insurance, media, medical devices, pharmaceutical and biotechnology, real estate, retail, sports, technology and software, telecommunications, transportation, and video games and esports.

About Greenberg Traurig, LLP: Greenberg Traurig, LLP (GT) has 2200 lawyers in 41 locations in the United States, Latin America, Europe, Asia, and the Middle East. GT has been recognized for its philanthropic giving, diversity, and innovation, and is consistently among the largest firms in the U.S. on the Law360 400 and among the Top 20 on the Am Law Global 100. Web: http://www.gtlaw.com Twitter: @GT_Law.

SOURCE Greenberg Traurig, LLP

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David R. Eastlake and Joshua A. Lesser Elected to Bankruptcy Law Section of the State Bar of Texas Positions - Yahoo Finance

(Reuters) - 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 few 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.

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 bankruptcy. Both cited fallout from the pandemic and a Saudi-Russian oil price war, which they said rendered their incentive plans ineffective.

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 trade 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 stock 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.

The 2005 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.

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 creditors lawyer 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.

Reporting by Mike Spector and Jessica DiNapoli; Editing by Brian Thevenot

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On eve of bankruptcy, U.S. firms shower execs with bonuses - Reuters

The billionaire Sacklers who own Purdue Pharma, maker of the OxyContin painkiller that helped fuel Americas opioid epidemic, are among Americas richest families. And if they have their way, the federal court handling Purdues bankruptcy case will help them hold on to their wealth by releasing them from liability for the ravages caused by OxyContin.

The July 30 deadline for filing claims in Purdues bankruptcy proceedings potentially implicates not just claims against Purdue, but also claims against the Sacklers. The Sacklers may yet again benefit from expansive powers that bankruptcy courts exercise in complex cases.

So far, the bankruptcy court has granted injunctions stopping proceedings in several hundred lawsuits charging that Sackler family members directed the aggressive marketing campaign for OxyContin; it and other opioids have been implicated in the addictions of millions of patients and the deaths of several hundred thousand.

The Sacklers have offered $3 billion in the hope that the bankruptcy court will impose a global settlement of OxyContin litigation. Under this settlement, all claims against the Sacklers, even by families who lost loved ones to opioids, would be forever extinguished.

The Sacklers would walk away with an estimated several billion of OxyContin profits while leaving unresolved a crucial question asked by victims and their families: Did the Sacklers create and coordinate fraudulent marketing that helped make their best-selling drug a deadly national scourge? With that question left unanswered, many of those injured by OxyContin would feel victimized again.

In a bankruptcy filing, debts are forgiven discharged, in legal terms after debtors commit the full value of all of their assets (with the exception of certain types of property, like a primary home) to pay their creditors. That is not, however, what the Sacklers want, and indeed the members of the family have not filed for bankruptcy themselves.

What they propose instead is to be shielded from all OxyContin lawsuits, protecting their tremendous personal wealth from victims claims against them. Whats more, a full liability release would provide the Sacklers with more immunity than they could ever obtain in a personal bankruptcy filing, which would not protect them from legal action for fraud, willful and malicious personal injury, or from punitive damages.

Appallingly, legal experts expect the court to give the Sacklers what they want. The precedent is a 1985 case in which the A.H. Robins Company, the manufacturer of the Dalkon Shield contraceptive device, filed for bankruptcy protection.

Plaintiffs charged that members of the Robins family and others had fraudulently concealed evidence of the Dalkon Shields dangers. None had themselves filed for bankruptcy, but the court discharged all of them from liability.

The releases even went so far as to prohibit injured women from suing their doctors for medical malpractice claims. Other bankruptcy courts have since embraced this concept of a shield from liability for those who have not filed bankruptcy.

The Constitution vests only Congress with the power to enact bankruptcy law, the essence of which is prescribing by statute how much wealth a debtor must surrender to creditors in order to obtain a discharge. But Congress has never given a green light for the courts to create a liability discharge process for those like the Sacklers who have not submitted all of their assets to the control of a bankruptcy court by filing bankruptcy.

This extraordinary practice presents serious obstacles for those injured by OxyContin. If granted, it will be nearly impossible to get a full and transparent assessment of the Sacklers role in the opioid crisis without either the appointment of an independent examiner in the bankruptcy case or congressional investigations.

Allowing the bankruptcy court to impose a global OxyContin settlement may at first appear to be an efficient way to resolve litigation that could drag on for years. But the Sacklers will benefit from this expediency at the expense of victims.

At stake is whether there will ever be a fair assessment of responsibility for Americas deadly prescription drug epidemic. Protection from all OxyContin liability for the Sackler family would be an end-run around the reckoning that justice requires.

Gerald Posner (@geraldposner) is the author of Pharma: Greed, Lies and the Poisoning of America. Ralph Brubaker teaches bankruptcy law at the University of Illinois.

The Times is committed to publishing a diversity of letters to the editor. Wed like to hear what you think about this or any of our articles. Here are some tips. And heres our email: letters@nytimes.com.

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The Sacklers Could Get Away With It - The New York Times

By Cullen Browder, WRAL anchor/reporter

Raleigh, N.C. The coronavirus pandemic has wreaked havoc on North Carolina's economy:

WRAL Investigates found that those investments have paid off on at least one front so far personal bankruptcies are down in North Carolina. But that safety net could soon run out.

"We're seeing a big uptick in Chapter 11 filings, the corporate reorganizations," said Ciara Rogers with Campbell University's Norman Adrian Wiggins School of Law.

Rogers, who studies bankruptcy trends in North Carolina, said many of those companies were already on shaky ground before the coronavirus. Big brands like GNC, Brooks Brothers and Chuck E. Cheese recently filed for bankruptcy protection. Small businesses are also feeling pinched, she said.

"Some restaurants have started to file," she said.

Despite the struggling economy, there hasn't been a spike in consumer bankruptcy cases yet.

WRAL Investigates went through bankruptcy cases across North Carolina from mid-March, when restaurants were first shut down, to the end of June. During that time, there were 2,612 bankruptcy filings in North Carolina, compared with 3,683 during the same period last year.

"A lot of that has to do with the various federal, state and local government programs that are still helping people get through," Rogers said.

Those programs include the federal mortgage protection program, the Paycheck Protection Program, extended unemployment benefits and the extra $600 a week in unemployment that is set to on Saturday.

Rogers predicted personal bankruptcies could explode later this year if some of those programs aren't extended.

Congress continues to debate plans to extend relief.

One proposal in the Senate would continue the $600-a-week aid package but reduce it based on the unemployment rate in individual states. Protection on federally backed mortgages is also set to expire in September unless lawmakers take action.

Rogers said she hopes people have been smart with their money.

"That [extra unemployment benefit] allowed people to hopefully plan ahead and allow them to stay afloat for a little longer than they otherwise would have been able to do," she said. "What I think we'll see toward the end of 2020 is interest rates will remain low, but credit may become more unavailable or difficult to get, and that's going to push more people into bankruptcy."

With no end in sight for the pandemic, she said people need to look for financial solutions now.

"Don't stick your head in the sand," she said. "Now is the time to make those tough decisions. Now is the time to see if this business model you've been using is working."

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Unemployment is up in NC, but bankruptcies are down - so far - WRAL.com

This article was coproduced with Williams Equity Research.

At iREIT, we are on the cutting edge when it comes to REIT research, and this article is just one example of how we are taking our platform to an all-new level. If utilized correctly, technology can become a powerful differentiator for unlocking value in real estate, and this article is one such example. We hope you enjoy the timely content and thoughtful research report.

Source

Per Bloomberg, CBL & Associates Properties, Inc (CBL) is filing for bankruptcy. That's no surprise to our subscribers as we've been deterring curious distressed REIT prospectors from investing in the name for several quarters.

Before discussing updates pertaining to CBL, well put the rarity of this event into context by briefly reviewing the bankruptcy of General Growth Partners ("GGP"). With CBL's filing finalized, these two firms are the only recent equity REIT bankruptcies in the modern era.

For those interested in an in-depth analysis of CBL, please see our previous article. We will not rehash all the details.

CBL and GGP combined excessive leverage with mall properties of mixed quality.

Source: Q1 Supplemental Filing

CBL's properties are self identified at 20%, 34%, and 26%, Tier 1, 2, and 3 caliber properties, respectively.

Here's a quick summary from WERs previous work:

GGP went on a massive buying spree in the 2000s resulting in $25 billion in debt. As leverage ratios entered the teens, a figure that is unheard of in today's market, the CEO was removed but remained the Chairman of the Board. There is a long list of corporate governance failures within GGP's story. In 2009 and in the midst of the greatest modern liquidity crunch, GGP missed a $900 loan payment backed by two Las Vegas properties. By the time that occurred, GGP's stock was down 98%. Bill Ackman of Pershing Square, a name many of us are familiar with, owned a 25% stake in GGP prior to its demise. The resulting bankruptcy was and still is the largest in real estate history.

This led to a recapitalization and dissection of GGP's massive asset base.

By February 2010, the "smart money" arrived in the form of a $2.625 billion equity investment by Brookfield (BAM). These assets would later become the bedrock of Brookfield Property REIT (BRP) and Brookfield Property Partners (BPY). Despite the bad news and much in part due do Brookfield's investment in the troubled firm, GGP's creditors were paid in full with even equity investors receiving a favorable recovery rate. This is as rare as GGP's bankruptcy itself.

Firms we follow and have investments in were intimately involved.

GGP stayed around in one form or another until it was acquired by Brookfield Property Partners in August of 2018. Before the final transaction, GGP's leverage remained elevated and issues cropped up as a result. Brookfield diversified out of the properties by selling large stakes to TIAA and the CBRE Group.

Our continued financial analysis of CBL indicated that it was "highly likely" that not one, but multiple covenants had been breached by early Q2 of 2020. Given the disdain for mall properties by the public and private markets, our deep understanding of the firm's financial situation, and a struggling high yield credit market, our certainty that CBL would not remain solvent was nearly absolute.

A few days after our piece was published to subscribers, CBL warned on June 5 that "its ability to continue as a going concern is in doubt."

This announcement is because CBL did not pay an $11.8 million interest payment due June 1. An already tough situation was made impossible with government lockdowns, heightened concern surrounding big box department stores, and an accelerated shift toward online shopping.

With nearly 50 J.C. Penny stores (OTCPK:JCPNQ) in its portfolio, a retailer that recently declared bankruptcy itself and cut another 1,000 jobs a few days ago, and the collection of 25%-30% of rent in both April and May, CBL's fate was sealed.

In the midst of an active redevelopment campaign and saddled with mid-quality mall assets, CBL never really had a chance once governments began shutting down their local economies.

Source: Seeking Alpha

Speculators betting on equity REITs' nearly impeccable track record of avoiding Chapter 11 or Chapter 7 watched as CBL absorbed an 80% loss year-to-date. Investors often confuse a low dollar price with lower principal risk, a 50% loss is a 50% loss whether the stock falls from $1,000 a share to $500 or $1.00 to $0.50. In WERs experience, many individual investors' largest losses are on low dollar value stocks.

While performing institutional operational and investment due diligence on a variety of managers, WER obtains exceedingly rare behind-the-scenes understanding of how top asset managers function. This includes discovering these firms' competitive advantages and evaluating their durability over time.

Wide Moat Publishing (parent company of iREIT and Dividend Kings) recently established a business relationship with Orbital Insight, a leader in geospatial data collection and analysis. This type of resource is often called the "secret weapon" of hedge funds and private equity firms.

We had Orbital Insight aggregate cellular data associated with 62 CBL properties. This is a well-established strategy among more sophisticated institutional investors that we now incorporate into our process to the benefit of our subscribers.

With that introduction, let's evaluate the data pertaining to CBL and incorporate that into our updated outlook on commercial real estate and REITs.

Source: Orbital Insight

Keep in mind this data is derived from CBL's 62 properties located primarily east of the Mississippi River but concentrated in more affordable markets which exclude the likes of Chicago, New York, and New Jersey. CBL also has significant exposure to Texas

Source: Orbital Insight

Despite the diversification across over a dozen states, CBL's foot traffic completely evaporated between late February and mid March. After decreasing approximately 90% over that quick period, foot traffic quickly recovered to down 25% year-to-date. The nearly real-time data showed a quick retreat to down 60%-plus from early June through July 18. Well explore that decline in more detail.

Source: Q1 Supplemental Filing

For context, CBL's portfolio of malls maintained approximately 90% occupancy at the end of Q1 2020, in line with Q1 2019's statistics and making that variable fixed for most of the period. To better evaluate the contributors to the sharp changes in foot traffic, we need to close in on where the most valuable properties are by sales per square foot.

Source: Q1 Supplemental Filing

Based on reporting by the NYT, all states where CBL has key assets were fully locked down as of April 30. Let us move to July 21 and see what has changed.

Source: NYT

Outside of Florida, Texas, and Michigan, all the states where CBL has meaningful exposure are reopened or reopening. Given the complexity and randomness associated with states' economic policies due to the coronavirus, it's necessary to identify how individual sectors are impacted.

Source: NYT

Using this more granular data, effectively all the states where CBL has properties are open for retail stores and restaurants. While the sharp drop in foot traffic at CBL's malls occurred alongside the onset of widespread state lockdowns, the recent decrease in visitation doesn't correlate well with this variable. Investors expecting a rapid recovery in CBL foot traffic strictly due to the easing of lockdowns are likely to be disappointed.

Source: Orbital Insight

Every region showed a recent collapse in visits to mall properties independent of local policies. Other factors, such as news coverage, infection rates, and treatment availability may be more important at this stage.

Source: Orbital Insight

We can rule out asset quality as foot traffic has been effectively identical across Grade A, B, and C properties.

Source: Orbital Insight

Foot traffic in the states CBL has exposure are down significantly across the board. California and New Jersey stand out with the heaviest decreases (>60%) with Michigan, Wisconsin, and Minneapolis the next worst performing group (>47.5%). Coincidently or not, New Jersey has the highest mortality rate of any U.S. state (177 per 100,000 as of July 20th) with California leading the nation in total cases at 391,538 as of July 21.

While no definitive conclusion can be reached, it appears that the hard data on coronavirus infection and mortality rates is at least as important as government policy surrounding lockdowns. In fact, some of the states with the longest and harshest lockdown policies are among the worst performing even after the lockdowns are put in place. Logical arguments can be made on both sides, but as investors, our unemotional take is to remain skeptical about any one variable saving or destroying foot traffic at retail real estate.

What CBLs One Bright Spot Tells Us

Source: Orbital Insight

This chart is year-to-date with each column representing a week's worth of data. The rows are CBL's individual properties. The chart completely changes in the second week of March as blue goes to dark orange reflecting a major drop in foot traffic from Orbital Insights cellular geospatial data. That's not too surprising but let's zoom in on that one bright spot.

Source: Orbital Insight

Interestingly, CBL's outlet centers standout as the strongest performers. These properties experienced way above average visitation rates throughout June and the first week of July. These numbers collapsed again during the second week of July but fared much better than the enclosed properties.

This suggests two potential considerations: i) There's pent-up demand for physical retail shopping and ii) outlet centers, with much lower population densities and greater separation between shoppers, seem uniquely positioned to outperform while coronavirus fears still percolate society.

We will be using Orbital Insight research for a granular research report on Tanger Outlets (NYSE:SKT) and other mall REITs - stay tuned.

This article was previously published for iREIT on Alpha members.

Author's note: Brad Thomas is a Wall Street writer, which means he's not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: Written and distributed only to assist in research while providing a forum for second-level thinking.

We just launched iREIT Earnings Headquarters:

* Limited to first 100 new members * 2-week free trial * free REIT book *

Disclosure: I am/we are long SPG, SKT, BPYU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Excerpt from:

The First REIT Bankruptcy Since 2009, A New Institutional Data Source, And Our Updated Sector Outlook - Seeking Alpha

Recent revisions to the U.S. Bankruptcy Code might open the door to headaches and heartaches for landlords that rent to small businesses.

In August 2019, Congress created whats known as Subchapter 5 of the Bankruptcy Code. Subchapter 5 is designed to streamline the Chapter 11 bankruptcy process for small businesses and slash their legal bills, according to Robert Dremluk, a partner in the New York City office of law firm Culhane Meadows Haughian & Walsh PLLC who specializes in bankruptcy cases.

Subchapter 5 went into effect this February. A month later, Congress tweaked Subchapter 5 as part of the federal CARES Act, aimed at helping the U.S. recover from the coronavirus pandemic. A major change in Subchapter 5 that will be on the books till next spring raises the cap on secured and unsecured debts for a small business to qualify for Chapter 11. The threshold jumped from a little over $2.7 million to $7.5 million. The idea was to create an easier path for companies to reorganize, Dremluk says.

Legal observers say the re-engineered Subchapter 5 could invite even more small businesses to file for Chapter 11 bankruptcy reorganization and, therefore, entangle more landlords in bankruptcy proceedings.

Other provisions of Subchapter 5 might also entice small businesses to head to bankruptcy court. They include:

The debtor-friendly Subchapter 5 makes no mention of landlords, notes Katey Anderson Sanchez, a bankruptcy attorney in the Phoenix office of law firm Ballard Spahr LLP. However, she adds that some businesses that in the past might have shied away from Chapter 11 bankruptcy now might find this path more worthwhile. In turn, that could put more landlords in the crosshairs of small business bankruptcies. How so? For one thing, Subchapter 5 weakens the power of a landlord or any other creditor to stop a reorganization plan from being finalized.

Sanchez notes, though, that landlords retain a lot of rights in Chapter 11 cases filed by tenants. She sees nothing in the Subchapter 5 language itself that should give a debtor a definitive edge over a landlord.

Landlords are in a really good position to say, Hey, you know youve got to pay us, Sanchez says. Theres no additional ability for a small business owner to change the terms of a lease or anything like thatnot any more than there is any other chapter of the code.

Through the lens of Subchapter 5, Dremluk sees some positives for landlords. Primary among them is that letting a small business restructure its debt under Subchapter 5 means that a tenant might stand a better chance of keeping its doors open and keeping up with its lease obligations, he notes. He adds that Subchapter 5 paves the way for more small businesses to negotiate with landlords, since some cash-strapped tenants previously found it too expensive to plow through the Chapter 11 bankruptcy process.

From his perspective, Neal Salisian, founder and co-managing partner of Los Angeles law firm Salisian Lee LLP, says the recent changes in the Bankruptcy code could lead to debtors leases being ripped up. He frequently represents commercial real estate landlords and lenders.

The way that would work is that the tenant could be in a particular space, not paying rent during a moratorium, and have other financial issues during that time that result in a bankruptcy filing. At this point, the whole lease would fall under the proceedings and likely get invalidated, Salisian says. Ultimately, this could be very bad combination of factors for a landlord, leading to months and months of unpaid rent and unoccupied space.

The result of that sort of scenario could be bankruptcy declarations on the part of the landlords themselves, Salisian says.

It remains to be seen how widely Subchapter 5 will be used by small businesses, according to Rory Vohwinkel, a bankruptcy attorney with Las Vegas law firm Vohwinkel & Associates Ltd. For the most part, small businesses are holding off on bankruptcy filings due to uncertainty over their current and future finances, attorneys say. However, legal observers anticipate a near-tsunami of small business bankruptcies to start when that uncertainty subsides.

Once those impediments go away, I think youll see an upsurge in the use of Subchapter 5, Dremluk says. I think a lot of small businesses that have hung on though COVID will see this as an opportunity to clean up their balance sheets, reorganize their business and go forward. But currently, the environment is not really suitable for that.

Vohwinkel and other attorneys are closely watching a Chapter 11 case thats already being pursued under Subchapter 5. Texas-based restaurant chain Texas Root Burger hopes to reorganize through Chapter 11 and to walk away from some of its locations, the Wall Street Journal reported. The newspaper points out that Subchapter 5 might force creditors like landlords to quickly head to the negotiating table with tenants that have filed for bankruptcy under Chapter 11.

We are all waiting to see how that case proceeds, as it could be precedent-setting, Vohwinkel says.

As the business community at large adopts a wait-and-see attitude about the coronavirus pandemic and corporate finances, Dremluk suggests that landlords educate themselves about Subchapter 5.

My recommendation would be for landlords to understand the process, become familiar with how it works, how its different from what you might have understood the process to be, he says. A landlord whos asleep at the wheel potentially could end up losing their rights, whatever they may be.

Original post:

How Will Revisions to the US Bankruptcy Code Impact Landlords? - National Real Estate Investor

Legendary German Formula One driver Michael Schumacher took Ferrari to five world championships on ... [+] BBS wheels, to add to his two championships with Benetton. Photo by Martin Rose/Bongarts/Getty Images

Formula One and Indycar supplier BBS GmbH filed for bankruptcy protection in Germany today for the third time in 13 years, on the eve of its 50th anniversary.

Its contract to supply wheels for next years entire Nascar Cup Series field is not believed to be at risk, with BBS purchasing them off its key Formula One supplier, Japans Washibeam.

BBS, which made the poster wheels for every race- and sports-car fan in the 1990s, has taken some of the worlds most famous drivers to victory everywhere from Le Mans and Indianapolis to Formula One.

They were the aftermarket wheel of choice for generations of performance-car owners and made of the poster wheels for every race- and sports-car fan in the 1990s.

Most of the Indycar Series field uses BBS wheels. Photo: Stacy Revere/Getty Images

Famous for their invention of three-piece racing wheels and criss-cross spoke patterns, BBS GmbH announced its bankruptcy on its website today, describing it as a necessary step to prevent an imminent insolvency.

Blaming its troubles on the Coronavirus pandemic, BBS stated it found itself in financial trouble due to the sudden omission of confirmed payments.

The ancestors of the BBS Super RS design graced thousands of sports car posters in the 1980s and ... [+] 1990s. Photo: BBS

This is not new territory for BBS, which declared bankruptcy in 2007 as well, before being rescued by Belgiums Punch International, and then declared bankruptcy again in 2011 before being taken over by South Koreas Nice Corp.

BBS wheels are found on road cars from Ferrari, Porsche, Mercedes-Benz, Audi, BMW, Volkswagen, Toyota, Volvo, Lexus, Jaguar, Infiniti, Rolls-Royce and Subaru.

BBS went in a different design direction for the Lexus ISF wheel. Photo by Spencer Weiner/Los ... [+] Angeles Times via Getty Images

It once dominated high-end performance car wheels, including the Ferrari F40, the Lexus IS-F and an untold numbers of Porsches.

The market slowdown that came with the Covid-19 pandemic forced BBS to shutter both of its production plants, leading to the bankruptcy filing in the court in Rottweil (yes, like the dog).

Being traceable to the currently tough market environment in the automotive branch, BBS situation deteriorated further due to the Corona(sic)-Lockdown which led to a temporary shutdown of the production at both BBS plants, the companys statement read.

However, the key message we want to deliver to you is that the BBS production keeps on running the supply of all our OE and AM customers with BBS wheels is secured!

Prior to the insolvency BBS already initiated an extensive turnaround strategy for the whole company. This new strategy based on BBS AM wheels as focal point will be continued under the guidance of the insolvency administrator.

One of its two administrators, Thomas Oberle, has been here before with BBS, having been appointed as an administrator of BBS International GmbH in 2011, before BBS became BBS GmbH.

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Another Bankruptcy For Germanys BBS Wheels As It Turns 50. - Forbes

Dear Lawyer Mark: I have a question about bankruptcy.

I got stuck with a mortgage payment that went way up last year and couldnt pay my other bills.

Well, the bank took my house and sold it at the courthouse, and we rent now. The thing is, I put a bunch of medical bills and groceries, utilities and what-nots on my credit cards when I was paying my mortgage payment and so I cant pay those no more.

My other problem is that my mom is dying and wants to give me her house, but the credit card companies told me they would take it if I dont pay them and bankruptcy dont matter.

The house aint worth much, but it looks like that and my old beat up car is all Ill have, since the government wants to bail out everyone but me. Can I file bankruptcy and get rid of the credit cards? WORRIED IN SOUTH POINT

Dear Worried: Whether bankruptcy will work for a person is entirely dependent upon that persons unique set of circumstances.

There are several types of bankruptcy, but the most common one for individuals is called Chapter 7. The first thing that you need to know is that Chapter 7 generally gets rid of unsecured debts, like credit cards, and it sounds like the collection agent who spoke to you was not being truthful.

Debt for which you have given collateral, such as a mortgage on a house, or a title for a car loan, are called secured debts. With secured debts, you generally have three options: surrender, reaffirmation, or redemption. Surrender means giving the collateral to the creditor, and the debt is then forgiven.

Reaffirmation means you keep the collateral and agree to keep paying the debt under either the same terms as you were, or under new terms negotiated by your lawyer. Redemption means you pay the creditor a lump sum and keep the collateral.

Of course, you cant keep a mansion and walk away from the debt (unless you got part of that bailout you were talking about), so the law says how much you can keep. These are called exemptions, and vary state to state. In 2008, Ohio greatly increased some of its exemptions. For example, you can now have equity, which is the amount something is worth minus what you owe on it, in the amount of $20,200 per individual in residential real estate. That means that a married couple could have $40,400 of equity in a house, and still save it in a bankruptcy. Previously, the maximum would have been $10,000 for a couple.

Likewise, a person can now have $3,335 of equity in a car, and $10,725 worth of furniture and appliances.

The most important part of the law is the fact that it is tied to the consumer price index. This means that the amount of exemptions will increase automatically every three years.

I highly recommend you speak to a bankruptcy lawyer about your individual case. Most dont charge for an initial consultation, and he or she can better advise you according to your total financial situation.

Its The Law is written by attorney Mark K. McCown in response to legal questions received by him. If you have a question, please forward it to Mark K. McCown, 311 Park Avenue, Ironton, Ohio 45638, or e-mail it to him at LawyerMark@yahoo.com. The right to condense and/or edit all questions is reserved.

The rest is here:

Mark McCown: Bankruptcy works in certain circumstances - The Tribune - Ironton Tribune

In the restaurant industry, bankruptcy has long been seen as a last resort for small business owners, indicative of admitting defeat and likely resulting in liquidating assets and closing up shop for good.

But thanks to a new law passed shortly before the coronavirus pandemic began the Small Business Reorganization Act its easier and less expensive for small businesses with less than $2.7 million in debt to file for Chapter 11 bankruptcy.

We spoke with Joseph Pack, a New York and Florida-based bankruptcy attorney and founder of Pack Law, about destigmatizing bankruptcy for small businesses, and what restaurant owners can and should do if they find they cant pay their rent, vendors, or lenders during the ongoing COVID-19 pandemic crisis.

Get on the phone and renegotiate with your lenders

When trying to get out of the hole of massive debt, the most important skill is clear and honest communication with your landlord, vendors, bank and investors.

Owners should be getting on the phone with their bank and other lenders, Pack said. If they can afford to pay off their debt, they might want to enter a new modification of the loan than they had before thats subject to realistic projections. Get on the phone with your lenders, even the person you bought your stove or espresso machine from, and figure out what their attitude is toward your reduced revenues.

Pack broke it down with a simple example: If youre paying off a high-end commercial espresso machine with $400 in monthly payments and now, because of the COVID-19 pandemic, you are unable to make your monthly payments, then get on the phone with the espresso machine seller and ask for a modification of obligation.

The lender is thinking, I could get $5,000-$6,000 for this $10,000 machine, or this restaurant owner could go into bankruptcy and their assets will be auctioned and then Ill be lucky if I get $250 from that, Pack said. Then the lender will be probably more likely to work with you than ever before.

He warned, however, that business owners should be careful to not just ask for payment forgiveness because thats just temporary.

Its not just about making payments; its also about debt covenants [agreements that a debtor will operate within the paradigms of a loan], Pack said. You have to make certain requirements on a monthly basis. The loan could still be in default even with payment forgiveness. There needs to be a sit-down and discussion about renegotiating obligation.

Do not consolidate your debt

One of the most common solutions struggling business owners consider is to consolidate debt. Even though that might sound like a smart way to mitigate a growing mountain of debt, Pack said, I have never met a business operator who said, Boy, Im glad I consolidated my debts! That was a real lifesaver!

Lets say you have a loan at 1% interest, and you have another loan at 10% interest, and you go to a loan consolidation company and they combine those two loans into one $2 million loan at 5% interest, Pack said. Now, if you somehow come into $1 million and can pay down your debt, instead of paying off the original loan with 10% interest and only having to pay the loan at 1% interest, now youre stuck with paying off half of a loan at 5% interest.

Pack added that leaving your loans unconsolidated also benefits businesses filing for bankruptcy because its always in the debtors favor to have multiple lenders to pick off obligations and debt. With one large debt, you are basically at their whim and dont have room to negotiate.

If you have to file for Chapter 11 bankruptcy, do so under the new Subchapter V of the bankruptcy code

Pack said that he wanted to destigmatize the concept of filing for bankruptcy, which contrary to popular belief does not mean you have to sell your business or close your doors completely. Filing for Chapter 11 has previously been mostly associated with larger companies that can afford federal court proceedings. But a new law, the Small Business Reorganization Act, which was passed in August 2019 and went into effect in February, helps small business approaching bankruptcy options.

The new Subchapter V of the Chapter 11 bankruptcy code allows small businesses with up to $7.5 million in debt to seek reorganization with the goal of keeping control of their business and their equity. Before the pandemic, the maximum debt was $2,725,625, but the eligibility standard was temporarily expanded under the Coronavirus Aid, Relief and Economic Security, or CARES Act, in March.

Small businesses dont have to pay their lenders in full as long as they create a payment plan based on their balance sheet and cash flow within 90 days of filing, give their discretionary income to their creditors, and pay off as much of the loan as they can within three to five years.

The [bankruptcy court] knows no one can run your Italian restaurant other than you and that you need to be there to make the pizza, Pack said. If the business is sold off to some private equity firm who have no idea what theyre doing, no one is going to want to eat the pizza and the restaurant will close anyway. [This plan] lets you keep your equity and your restaurant as long as you do your best to pay what you can over the next few years.

Contact Joanna Fantozzi at [emailprotected]

Follow her on Twitter:@joannafantozzi

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Struggling with debt? Here's what to consider before filing bankruptcy - restaurant-hospitality.com