California Bankruptcy Lawyer Blog

Maiden Mills Industries Inc., the maker of Polartec fleece, says that it wants to convert from Chapter 11 bankruptcy to a Chapter 7 case. This announcement comes after the textile maker’s lender, General Electric Capital Corp., and the committee of unsecured creditors failed to work out a liquidation plan under Chapter 11.

In its petition to the U.S. Bankruptcy Court in Worcester, Massachusetts, Maiden Mills said the conversion would make the winding process easier for the company. A hearing is set for March 15.

Chapter 11 cases are allowed to convert to Chapter 7 as long as the debtor is still in possession. Debtors who were involuntarily forced to declare bankruptcy are not allowed to convert their bankruptcy cases.

Last month, the textile maker won court approval to sell its assets to Chrysalis Capital Partners, a private equity firm, for $44 million. Chrysalis will run the mill under the name Polartec LLC. Proceeds from the sale will be used to settle remaining costs from the Chapter 11 case and fund the conversion, the Company said.

Maiden Mills had filed for Chapter 11 Bankruptcy on January 10.

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The U.S. Supreme Court says that a Massachusetts man lost his right to convert from one bankruptcy chapter to another because he did not reveal all of his assets. In a 5-4 ruling in Marrama v. Citizens Bank of America, the Court reached its decision because Robert Marrama, who runs a flooring company, did not disclose that he had placed a Maine vacation house in a trust. Marrama had listed that the value of his interest in the property was zero. A bankruptcy trustee, who found out about the home, however, wanted to recover the real estate to help pay back Marrama’s creditors. Marrama then tried to change his bankruptcy case from Chapter 7 liquidation to Chapter 13, which lets a debtor pay their debts over a period of time will keeping their property.

Justice John Paul Stevens, in writing for the majority, stated that while honest debtors were entitled to convert their Chapter 7 cases to Chapter 13, a court is entitled to take away that right because of “fraudulent conduct.” Justice Samuel A. Alito, Jr. in his dissent, however, said that the U.S. bankruptcy code was unambiguous in its provision and that the debtor possesses a “broad right” to make the conversion to Chapter 13. Previous to the Supreme Court ruling, a bankruptcy judge had denied Marrama's request to convert to Chapter 13, with a bankruptcy appellate court supporting the ruling.

Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also called liquidation bankruptcy, allows a debtor to have his or her debts become liquidated. Essentially, a bankruptcy discharge under Chapter 7 frees the debtor from being personally liable for discharged debts while preventing creditors from collecting payments or taking other action against the debtor, such as eviction, foreclosure, or shutting down utilities. A court-appointed bankruptcy trustee then liquidates certain assets owned by the debtor.

In order to qualify for personal bankruptcy under the Chapter 7 bankruptcy code, a debtor must pass the means test- meaning that their current income must be less than or equal to the median in their state. If a debtor does not pass the means test, he or she may have to file under Chapter 13 bankruptcy instead.

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A bankruptcy judge in the U.S. District Court in Sacramento, California, is ordering Your Home Resort, an outdoor furnishing store, to convert to Chapter 7 bankruptcy and sell its assets to pay its creditors. The company was responsible for its customers' loss of thousands of dollars last year when it abruptly shut down its showrooms in Rancho Cordova and Rocklin.

Your Home Resort owes creditors approximately $3.5 million ($2.3 million of this is owed to unsecured creditors—customers that either paid deposits for outdoor furniture or paid for them in full but never received their orders.) Unsecured creditors, however, are generally paid after secured creditors, such as credit card companies and banks, in bankruptcy proceedings. Your Home Resort owes money to about 12 secured creditors.

An auction date has yet to be set. The outdoor furnishing store had sold barbecue islands, gazebos, hot tubs, and other outdoor furniture to customers.

The company had originally filed for Chapter 11 bankruptcy last August in an attempt to stay in business while reorganizing its operation.

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Richard Heltzel, chief executive officer of the U.S. Bankruptcy Court for the Eastern District of California, said he thinks that bankruptcy filings will increase again. The number of bankruptcies filed in the last fiscal year had dropped after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Following the enactment of this law in October 2005, courts in Modesto, Sacramento, and Fresno only took in 8163 cases over the next year—a 79% drop from the year before.

Hetzel believes bankruptcy filings will increase because of a stalled housing market and rising interest rates.

In the Eastern District of California—due to the new bankruptcy law—people who wish to file for bankruptcy must pass a means test in order to file under Chapter 7. If they exceed the median income for this district—$43,107 for a single person or $57,237 for a married couple—they are encouraged to file for Chapter 13 bankruptcy. While Chapter 7 erases debt, Chapter 13 requires that filers repay their debts over a period of time.

Continue reading "California Court Official Predicts More Bankruptcy Filings In 2007" »

After filing for Chapter 7 bankruptcy last month, the World Trade Club of San Francisco will hold a liquidation auction on January 7.

Founded in 1957, the club closed its doors on October 29, 2006 because of financial problems. Membership had dropped to 800 from 2000 after it had moved from the San Francisco Ferry Building on the Embarcadero to One Ferry Plaza.

The World Trade Club owes over $2.7 million to secured and unsecured creditors, with assets at approximately $575,000. Among the debts the club owes:

· A disputed $158,476.20 owed to City National Bank.
· $1,108.75 in trade debt owed to A Touch of Class Entertainment of San Jose.
· $50 in membership credit owed to the Hon. Richard Collier Sears of the New Zealand Consulate General.

Ferry Plaza, LP, the club’s landlord, is expected to be the estate’s largest creditor in these bankruptcy proceedings.

Continue reading "The World Trade Club of San Francisco Files For Chapter 7 Bankruptcy Protection" »

Symphony Silicon Valley, a smaller organization that emerged after the San Jose Symphony filed for Chapter 7 protection in 2002, is growing as it hits its fifth season this year. It's success is due in large part to a new business model.

Rather than hiring famous conductors to reside at the symphony, Symphony Silicon Valley is only working with guest conductors, with each show presided over by a different conductor. The new model is a cost saver, as celebrity conductors are very expensive to have in-house. The reduced budget now goes toward paying the musicians’ salaries. In addition, the orchestra’s 12-week seasons are two-thirds shorter than the old orchestra’s seasons. There are only four members on staff, and a musicians’ committee decides which conductors should join the orchestra.

Symphony Silicon Valley’s slow-growing success has started to draw national attention, especially since 9 out of 250 American Symphony Orchestra League orchestras have filed for bankruptcy protection since 2002.

When a company becomes bankrupt and there is no way they can continue in operation, they may file under Chapter 7 bankruptcy. This means that the company ceases operations immediately and must work with a court-appointed trustee to liquidate their assets to pay legal and administrative expenses, as well as their creditors. Secured creditors will be paid first. If there isn’t enough money to pay secured creditors, then secured creditors will join the ranks of the unsecured creditors. Unsecured creditors can then file claims to be paid in case any money remains at the end.

Continue reading "Emerging After San Jose Symphony's Chapter 7 Bankruptcy Filing, Symphony Silicon Valley Strikes A Positive Note With New Business Model" »

he American Bankruptcy Institute and the Dow Jones' Daily Bankruptcy Review are saying to expect a wave of corporate bankruptcy filings in the next six to eighteen months. Bankruptcy experts are attributing the expected rise of loan default rates to be one reason for the predicted increase of filings.

In general, there are two major types of bankruptcies that a company will file. Chapter 7 bankruptcy and Chapter 11 bankruptcy.

Chapter 11 bankruptcy allows a debtor to stay in business and avail of bankruptcy protection while they work out a plan to increase their profitability and decrease their debts. They are also required to work out and follow a bankruptcy reorganization plan that they must develop while working with an appointed committee.

Public companies will usually file under Chapter 11, because it allows them to run their business while supervising its reorganization as they implement a plan to pay their debts. Should their efforts fail, however, a company could be forced to liquidate its assets so that the debts still are paid.

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In California, Fremont-based Curon Medical Inc. has shut down its operation, fired all of its employees, and filed for Chapter 7 bankruptcy.

In the bankruptcy statement that the East Bay life sciences company filed with the SEC on Wednesday, Curon said that their board had met Monday and decided to voluntarily file for bankruptcy protection. This decision led to the firing of all 32 employees and the resignation of the entire board.

When a company files for Chapter 7 bankruptcy, this generally means that the company has agreed to cease operations and shut down its business. An appointed trustee will then sell, or liquidate, the bankrupt company’s assets to pay off the company’s debts.

Secured creditors, meaning the investors who’ve taken the least risk, are paid first. These are creditors whose credit is usually backed by collateral and who know they will be paid first should a company go bankrupt.

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Last Week in California, SLO Med and Central Coast Laser filed for protection under Chapter 7 Bankruptcy at the Santa Barbara office of U.S. Bankruptcy Court for the Central District, Northern Division. Both companies are owned by Jeff Lemoine, who is scheduled to be arraigned on charges that he practiced medicine without a license and injured others in the process. He was also arrested in August on suspicion of grand theft.

Under Chapter 7 Bankruptcy Protection, the companies will be discharged of all debts. Chapter 7 bankruptcy, sometimes called "liquidation" bankruptcy, cancels most of your debts, but you have to let the bankruptcy trustee liquidate (sell) your nonexempt property for the benefit of your creditors.

Continue reading "In California, San Luis Obispo Med Spa and Central Coast Laser Center Both File For Chapter 7 Bankruptcy" »