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Cleveland TN Bankruptcy Law Blog

Toys R Us planning a comeback

One of the most publicized bankruptcies of the summer was the decision by Toys R Us to end its business operations. Perhaps because so many people had beloved memories of visiting the stores with their parents, the business bankruptcy filing struck an emotional nerve in eastern Tennessee and other states. Now, the company's secured creditors have announced plans to attempt to resuscitate the brand.

Toys R Us was being crushed by $5 billion in debt and stiff competition from Amazon.com, Target and Walmart when its management decided to liquidate the company. The bankruptcy filing led to the closing of 800 stores and the loss of 30,000 jobs. The bankruptcy had an effect throughout the toy industry, including the decision by Mattel to trim 2,200 jobs because of lost sales to Toys R Us.

Selling the debtor's assets in bankruptcy

Companies who find themselves in a bankruptcy proceeding often decide to sell a portion of their assets to generate cash that can be used to pay creditors' claims. Some debtors even sell all or a substantial portion of their businesses while in bankruptcy. For buyers of such assets, the bankruptcy code provides a powerful incentive: such sales generally result in the transfer of assets free and clear of all liens and encumbrances. The starting point for such sales is Sec. 363 of the bankruptcy code.

Section 363 allows the trustee to sell assets of the debtor free and clear of any interest if the sale satisfies the conditions in Sec. 363(f), which include obtaining the consent of the debtor, showing that applicable non-bankruptcy law permits such sales free and clear of other interests, and the sale price exceeds the aggregate value of all liens on the property. The advantage of such sales for purchasers is the statutory guarantee that all liens and claims will be resolved in bankruptcy court and that the asset is transferred free and clear of such claims. Sec. 363 sales require notice to all creditors and approval by the court via motion.

Reviewing Tennessee's bankruptcy exemptions

Many people in eastern Tennessee who are contemplating bankruptcy are unaware of how the state's list of bankruptcy exemptions can help them. Under federal bankruptcy law, states are given the choice of requiring debtors to select either federal prescribed exemptions or accept the state's list. Tennessee has passed legislation requiring debtors to use the state's list of exemptions and precluding anyone from selecting exemptions from the federal list.

The most important bankruptcy exemption is the family homestead. The exemption may not exceed $5,000 for one person or $7,500 for a couple. For individual who are 62 or older, the exemption is $12,500 for one person and $25,000 if the two people are married and both are over 62. The real estate exemption applies only to the equity in the homestead and does not affect the balance on any loan that was used to purchase the property.

What is a voidable preference in bankruptcy?

Most entries in this blog are aimed at persons or businesses who are suffering from financial misfortune and are contemplating bankruptcy. This post is aimed at the creditors of persons and businesses on the verge of bankruptcy. When a businessman hears that one of his customers is going to file bankruptcy and leave him holding a significant unpaid debt, the first instinct is to demand payment in full. Unfortunately, the bankruptcy code includes a concept called "preference." The provision prevents debtors from giving preferential treatment to certain creditors by invalidating the payment of any pre-existing debt occurring 90 days before the bankruptcy petition filing.

Sec. 547 of the Bankruptcy Code provides a trustee with the power to set aside the transfer of interest of the debtor's property for the benefit of a creditor for an account owed by the debtor before the transfer is made. In order to be voidable, the transfer must be occur when a debtor is insolvent and on or within 90 days prior to the filing of the petition. The trustee has the power to make the creditor return the money or other consideration to the bankruptcy estate.

What are the differences between Chapter 7 and Chapter 13?

Residents of eastern Tennessee who are considering filing a bankruptcy petition have two basic options: Chapter 7 or Chapter 13. The differences between the two chapters are significant and should be understood by anyone who is close to making a final decision about whether and how to file for personal bankruptcy.

The essential difference between the two chapters is the difference in outcomes. Filers under Chapter 7 are usually looking to have all unpaid debts discharged, that is, unsecured debts such as credit card balances, bank loans and medical bills will be declared beyond the reach of creditors. Under Chapter 13, the debtor must submit a plan to the court showing how existing assets will be liquidated to pay current debts and how the unpaid portion of those claims will be paid off over time. Chapter 13 does not usually result in the discharge of a significant number of debts.

Tennessee-based health system seeks bankruptcy protection

Business mergers and acquisitions are often profitable if the merged entities have sufficient revenue to pay the expenses of the merger and handle any debt that was used to finance the merger. In 2016, Tennessee-based Curae Health bought three Mississippi hospitals from Franklin, a Tennessee.-based Community Health System. Now, Curae and its three hospitals are seeking bankruptcy protection because the merger failed to meet the financial projections that were used to justify the acquisition.

The president of the merged firm explained how pre-merger projections made the transaction seem prosperous. The projected EBITDA or earnings before interest, taxes, depreciation and amortization, appeared sufficient to pay the purchase price and retire corresponding debt. Curae executives also thought that its operating model would save the merged firm from 1-3 percent annually in operating expenses.

Senior citizens turning to bankruptcy in growing numbers

Unfortunately, financial troubles can happen. When a person finds themselves in this situation, no matter their age, it is important to consider what options they have to deal with their growing debt and whether they can obtain a fresh financial start.

A recent study is highlighting the growing number of senior citizens who are filing bankruptcy petitions. The Consumer Bankruptcy Project in New York City says that bankruptcies filed by older people are increasing at an "alarming" rate. While the number of bankruptcies in Tennessee has actually fallen in recent years, the state as a whole is regularly ranked in the top five states for the total number of people filing bankruptcy petitions.

Personal bankruptcy help with foreclosures

The mere idea of losing a family home to foreclosure can be overwhelming. There are certain personal bankruptcy options that can help that struggling homeowners and consumers should be aware of and understand.

The foreclosure process can sneak up on struggling homeowners at first and then may grow into a concern they do not know how to face. When facing the threat of losing their home, struggling homeowners should know what to do and be familiar with the options available to help them. Foreclosure defense options may be available through home loan modification or the Chapter 13 bankruptcy process, as one example, which may allow the struggling homeowner time to get caught up on payments and keep their home.

Bankruptcy help for businesses to get back on their feet

When a business is financially struggling, it is important for business owners to be aware that there are bankruptcy options that may allow them to address their debt-related concerns and remain in business. Chapter 11 bankruptcy provides an option to allow the business to continue to operate while restructuring its debt so it can meet its goal of returning to profitability.

Business bankruptcy options are available to both small businesses and larger corporations. Once the business has filed for Chapter 11 bankruptcy protection, an automatic stay goes into effect which prevents creditors from pursuing collection actions during the bankruptcy process and can provide some initial relief to a struggling business. Following the initial filing, the company will work out a reorganization plan with the bankruptcy court to repay their debts with the goal of developing a plan that allows them to remain in business.

Company's restructuring leads to restaurant closing

Chapter 11 bankruptcy protection provides businesses with an opportunity to stop, restructure and repair problems that are threatening the company's financial health. It can mean the difference between saving the company and having to shutter the doors.

That doesn't mean it's easy, however. The story of a Tennessee restaurant helps illustrate one of the painful aspects of Chapter 11.

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