Bankruptcy Reader

Bankruptcy has become a sort of national problem. Initially we were only concerned about bankruptcy and the immediate problems associated with it. But now as time passes, we are being introduced to newer aspects of bankruptcy.

For instance, I own a home so bankruptcy for me would mean other things but wouldn’t have much to do with losing the roof over my head. But what do you do if you are a tenant? Do you have to pay your rent once you’ve declared bankruptcy? This and other such issues pertaining tenant bankruptcy need to be examined now. For this purpose, a formal seminar will be held at the upcoming Inside Self-Storage Las Vegas Expo, Feb. 20-23, at the Mandalay Bay Resort & Casino. Insideselfstorage.com reports:

On Wednesday, Feb. 21, industry legal expert Jeffrey Greenberger will coach attendees on what to do when a customer files bankruptcy, including the immediate actions to take and methods of recourse. He’ll also cover recent changes in bankruptcy law and answer important questions such as whether a tenant is supposed to pay rent during his bankruptcy and if an operator is allowed to continue with lien proceedings. For more information, visit the selfstorage website.

Read more: Tenant Bankruptcy to Be Addressed at ISS Vegas Expo

Nobody likes it — neither the people, nor their attorneys and not even some of the judges who pass the ruling. And yet, there’s not much we can do about the new bankruptcy law (not so new seeing that it is almost a year old now). Just about everyone’s got something bad to say about the new law. That got me thinking: if the new law is so bad out here, there must be some place where the law is good, something we can point out to our legislators and say, “Now, that’s what I call a bankruptcy law!” Well that got me checking bankruptcy laws in the European Commission (EC) countries. And guess what I came up with? The laws there suck as well!!

Forgive my swearing, it’s just that I couldn’t help but cheer the fact that those guys are not much smarter than our guys out here. Well, so what’s so bad about their law? Some experts believe that the introduction of the EC Insolvency Regulation was one of the great legislative blunders of all time. This regulation, which primarily deals with corporates, requires judges to decide where a company’s main interests lie. They also have to decide under which jurisdiction’s laws proceedings should be conducted.

As is the case everywhere, the concept is fine. It envisages an insolvency regime that will provide a set of rules for the uniform application of insolvency laws across the European Union (EU). So where’s the problem? The regulation requires judges to go against centuries of deference to corporate form over corporate substance. Earlier, when a company failed, its financiers and other creditors knew that the company would have to subject itself to the insolvency rules applying in the country in which it was incorporated. Now, a court can decide in which jurisdiction an insolvency should take place. Pretty confusing, what? Once I reached this point, I decided that it was futile to study foreign insolvency laws!

Did you hear about the guy who got into jail for declaring bankruptcy? I can bet my last dollar you didn’t. So here’s his story: He (you can call him whatever you wish — Jack for instance) was badly off, his debts were huge and bankruptcy was probably the only way out for him. So what does Jack do? He goes right out and meets his attorney.

All fine up to now. But here’s where the problem begins. Jack decided to play smart and hid some information from his attorney. Well, he didn’t want to lose all his assets. But what happens then? The attorney advised Jack based upon information provided by him. But how long can you live a lie? There was a lot of legalese that followed, and I really don’t think you are interested in all of it. Suffice to say, Jack not only lost the assets he tried to protect, his bankruptcy case was denied, he had to pay fines, AND, he got to go to JAIL. Great isn’t it??

Why am I telling you this: Just so you don’t go out there and make a Jack (Ass) out of yourself.

Nearly a year since the enactment of the new bankruptcy law, Chapter 7 bankruptcy filings are slowly on the rise. However, according to recent reports, at 71 percent, filings remain significantly lower than 2004 filings for the same time period. Accounting.smartpros.com reports:

Chapter 7 and 13 bankruptcy filings are slowly rising since enactment of the law, however, at a much lower pace than in previous years likely due to cost to file; complications with paperwork; the surge in filings prior to the law; and a misperception that Chapter 7 is no longer available. Attorneys are trying to issue appropriate messaging that helps set the record straight.

Read more: Chapter 7 Filings on the Rise

Owens Corning recently gained bankruptcy court approval for its reorganization plan. Judge Judith Fitzgerald accepted their plan, paving the way for Owens Corning to emerge from bankruptcy by the end of next month. Monstersandcritics.com reports:

The agreement assumes a total distributable value of $8.627 billion, consisting of the total enterprise value of $5.858 billion, assumed excess cash of $1.432 billion and Fibreboard trust and asbestos trust assets of $1.491 billion, less existing debt of $55 million and $99 million in assumed value of new shares reserved for employee incentive programs.

Read more:Owens Corning nearly out of bankruptcy

Most of us have suffered from this unnerving urge to buy something knowing well enough that we don’t have the means to pay for that expensive item. We bill it to our cards, or we take loans with hefty interest rates and hope the enjoyment of the object will help us forget its price. Of course, we may well be able to forget, but your lending company does not, and very soon you will be saddled with a debt so huge, you wouldn’t know how to begin repaying.

One of the most difficult questions to answer is how to keep your debt under control. But when you think of it, it is not such a difficult task. Try this little trick that some people have used successfully. Only spend how much you can afford to. Don’t overspend and keep a check on your balance sheet. Try to avoid going into the red and the minute you feel that your balances are diminishing, exercise some self-restraint and control your expenditure.

It is heartening to note that quite a few firms are trying to make a break for freedom from bankruptcy. Though bankruptcy is an option when you are down and out, it definitely isn’t good in the long-term interests of any company and the sooner you are out of bankruptcy, the better. Computer maker Silicon Graphics Inc or SGI as it is known today, was one of the market leaders for high-powered graphics systems, which conducted tasks such as visualizing 3D automobile models or underground oil reserves. However, not only did it lose its position, SGI was forced into bankruptcy due to many causes.

However, the company is firmly on the route to exiting bankruptcy. With this view in mind, SGI recently created a reorganization plan, which has been accepted by a bankruptcy judge recently. This will set the stage for the company to emerge from Chapter 11 bankruptcy protection in October.

This new plan envisages an entire relaunch of the company with new top management and an entirely new board of directors. The company aims to return to profitability in fiscal 2007. Another new feature will be the leaner, fitter look of the company. Before restructuring, SGI had an employee base of over 2000. Now, only 1,600 remain — this contributes to a cut of around $150 million in annual expenses. As the market expands, the company aims to grow from high-end systems with Intel Itanium processors to lower-end models using Intel’s Xeon.

For its restructuring plan, SGI has managed to obtain financing to exit bankruptcy. According to SGI officials, Morgan Stanley has provided the firm with a loan of $85 million, while General Electric Capital has given them a $30 million line of credit.

While we have been witnessing a trend of rise and fall in bankruptcy filings ever since the new bankruptcy law came into effect, we are yet to know the long-term impact of the law. According to a report by the Administrative Office of the US Courts, one thing that is certain is that there may be a 10 percent increase in staff for federal bankruptcy courts. Communitydispatch.com reports:

Most of that impact was felt in clerk of court offices. The Act’s impact on bankruptcy judges is less clear, the report said, but the AO and the Federal Judicial Center continue to monitor case filings, workloads and case law developments.

Read more: Long-term Impact of New Bankruptcy Law Largely Unclear

A federal bankruptcy judge recently indicated that she approved of Owens Corning’s plan for emerging from bankruptcy. Over five years ago, the building materials maker sought protection from creditors over health claims related to its asbestos products. The judge also overruled objections from alleged asbestos victims and a lawyer for one bondholder. Msn.com reports:

The plan shifts Owens Corning’s $7 billion in asbestos liabilities off company books and into a trust that will be established for the plaintiffs. As part of the plan, the Toledo, Ohio-based building-products company will pay more than $5 billion to asbestos claimants and as much as $2.27 billion to holders of bank debt.

Read more:Judge OKs Owens Bankruptcy Exit Plan

Now, how bad can it get? Just because a few big corporates have filed for bankruptcy, most other big companies are suspect. If there is so much as a rumor about one of them having cash flow problems, it doesn’t take too long for the bankruptcy rumor to do the rounds. The latest rumor going around is that Air America was set to declare bankruptcy and that the network was cutting Jerry Springer loose.

While neither statement was true, it is true that Al Franken recently said on the air that his paychecks had stopped. He is reportedly paid $2 million. In a recent interview with Associated Press, Franken acknowledged the network has "a cash flow problem." Air America spokespersons were quite emphatic in their denial of the bankruptcy rumors. Nj.com reports:

According to Air America spokeswoman Jaime Horn, "If Air America had filed for bankruptcy every time someone rumored it to be doing so, we would have ceased to exist long ago; it may be frustrating to some that this hasn’t happened. No decision has been taken to make any filing of any kind, we are not sure of the source of these rumors and frankly can not respond to every rumor in the marketplace."

Read more: Air America refutes bankruptcy rumor