Articles Posted in Bankruptcy

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Hi, I’m Rob Chewning. I work with the firm of McLaughlin & Nardi, LLC.  At the firm we practice several different types of law, including bankruptcy law.  I am here today to talk to you about The Small Business Reorganization Act and Subchapter 5 bankruptcies.

As a result of COVID-19, millions of small businesses have been forced to shut down and cease business operations indefinitely with no end in sight.  Some of these small businesses have tried to hold on in the hope of getting federal stimulus money that can carry them through this tough time.  However, there are several million other businesses which will not be eligible or will not be able to get their hands on this federal stimulus money which is causing them to consider the options that they have.

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As a result of the Coronavirus (COV-19), millions of small businesses have been forced to close their business operations entirely with seemingly no end in sight. small-business-300x200 Naturally, this has led to a spike in bankruptcy filings.  However, many small businesses have held out hope for federal stimulus aid before deciding on whether bankruptcy is the right option for them.

The enactment of a new bankruptcy law, the Small Business Reorganization Act, may provide small businesses suffering from COV-19 related financial issues with relief.  The purpose of the act was to make the benefits that larger business entities may take advantage of when filing for a Chapter 11 reorganization bankruptcy easier to access for smaller business entities seeking relief from debt without going out of business.  The Act simplifies the process by allowing small businesses to file a Subchapter 5 bankruptcy reorganization.

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national-gallery-of-art-1380105-m-300x248Since the COV-19 outbreak began, more than 22 million Americans have filed for unemployment.  The increase in unemployment filings have been the result of businesses of all sizes being forced to shut down entirely or significantly limit their operations.  As a result, many people, both employers and employees, are seeing less income or no income at all while still being expected to pay their monthly payments such as rent, mortgage, car loan, credit card bills, and insurance.  These financial obligations are especially devastating for people and businesses that were already having trouble making those monthly payments prior to the COV-19 outbreak.

If a person and/or business is experiencing financial trouble, has significant debt, and/or is subject to collection actions such as a foreclosure or a collections lawsuit, bankruptcy may be a potential remedy.  One of the major benefits of filing for bankruptcy is the immediate automatic stay of collection actions and lawsuits.

The type of bankruptcy that may be appropriate for an individual and/or business depends on several factors.  For more information on the different types of bankruptcies, check out our posts on Chapter 7, Chapter 11, and Chapter 13 bankruptcies.

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The Coronavirus (COV-19) has had a negative impact on everyone physically, mentally, and financially.  Businesses are no different.  Small and medium sized businesses are especially vulnerable in these troubled times.  They are faced with difficult decisions such as whether to temporarily lay off their employees or which bills to pay when little or no revenue is being received.

At McLaughlin & Nardi, LLC, we focus a portion of our practice on advising small and medium sized businesses when faced with these difficult financial decisions.  When a business becomes overwhelmed and unable to meet its financial obligations, filing a Chapter 11 bankruptcy may be a great means to get the business back on track.

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As a result of the Coronavirus (COV-19), the unemployment rate has increased rapidly and reports suggest that the unemployment rate may reach 30% in the country.   This immediate loss of income for many individuals and families have left them unable to meet their continuing financial obligations such as paying for their mortgage, credit card bills, medical bills, etc.

If an individual or family is in a position where they are behind on their mortgage or other bills, filing a Chapter 13 bankruptcy may be good option for getting them back on track financially.

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signature-962364__340-300x225Representing parties negotiating contracts and litigating over breach of contracts are some of our attorneys’ main practice areas.  New Jersey contract law recognizes both contracts and “quasi-contracts.”  This post examines what these are and the differences between them.

Contracts

New Jersey contract law defines a contract as a voluntary agreement for mutual obligations based on a common understanding resulting from “offer and acceptance.”   New Jersey’s Model Civil Jury Charges have laid out the required elements to create a binding contract: (1) a meeting of the minds between the parties to the contract, (2) offer and acceptance, (3) valid consideration, ie., mutuality of obligations,  and (4) certainty — clear and definite terms.

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worried-30148__340-217x300In the case of In re Linear Electric Company, Inc., the Third Circuit was presented with whether construction liens filed by a supplier under New Jersey law were valid and enforceable against a contractor who filed a petition for Chapter 11 bankruptcy protection prior to when the construction liens were filed.

New Jersey’s Construction Lien Law, N.J.S.A. §2A:44A, et seq., provides contractors, subcontractors, and suppliers with the right of filing a lien for work, services, or materials provided pursuant to a written contract.   These protections are limited based on several factors including but not limited to whether the person or entity filing the construction lien is defined as a “claimant” under New Jersey’s Construction Lien law, what the unpaid portions of the contract price is, and compliance with strict time restrictions for filing the lien itself and a subsequent lawsuit based on the lien.

Under the Federal Bankruptcy Code, a debtor who files for bankruptcy is afforded the relief of an automatic stay that prevents most collection actions from continuing including acts to create, perfect, or enforce liens against property.  The protections of an automatic stay are broad and expansive but do include several expectations and limitations for certain debts.

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Our bankruptcy attorneys represent debtors and creditors in New Jersey in Chapter 7, 11, or 13 bankruptcies.   Recently, a Bankruptcy Court within the Third Circuit had the opportunity to clarify the cap placed on landlords’ bankruptcy claims under 11 U.S.C. 502(b)(6).

In the case of In re Filene’s Basement, LLC, the Bankruptcy Court reviewed the reach and application of 11 U.S.C. 502(b)(6) on a landlord’s potential claims.  The Code section provides a cap to a landlord’s claim for “rent reserved” as a result of a debtor’s termination of a lease.  The claim for “rent reserved” is capped at the greater amount of either one year of rent or fifteen percent of the remaining term of the lease – not to exceed three years.  The time to calculate this claim for damages is from the earlier date, either the date of the filing of the petition or the date on which the landlord repossesses the property and/or the tenant surrenders the property.  The landlord also retains a claim for unpaid rent prior to the earlier of those two dates.

This cap does not apply to all landlord claims as a result of a breach of a lease.  In fact, courts are typically faced with determining whether landlord claims should be subject to the cap.  The Bankruptcy Court in In re Filene’s Basement, LLC was faced with deciding whether the additional claims asserted by the landlord should be considered outside of the cap.  The claims were for: (1) the cost to remove furniture left by the tenant; and (2) the cost to remove a mechanic’s lien as a result of the tenant’s nonpayment to a contractor.  In reviewing these claims, the Court adopted the Ninth Circuit’s narrow interpretation of the 11 U.S.C. 506(b)(6) in In re El Toro Materials Co., Inc., which asked: “Assuming all other conditions remain constant, would the landlord have the same claim against the tenant if the tenant were to assume the lease rather than rejecting it?”

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town-sign-96612__340-300x225Bankruptcy provides relief to a debtor who may be struggling to keep a house, keep the lights on, or pay credit card or medical bills.  The relief provided is in the form of an automatic stay, exemptions to protect your most essential assets, and a discharge of a portion of the debtor’s debts.  It is important to determine to understand the benefits and limitations of the relief that bankruptcy provides before you make the decision to file for bankruptcy.

  1. Benefits of an Automatic Stay.

The automatic stay is the first form of  relief provided after a debtor files for bankruptcy.  The stay stops almost all collection actions by creditors to allow the debtor time to reorganize, rehabilitate, and prepare for the fresh start that bankruptcy provides.  The following are examples of the actions which a debtor’s creditors must cease as a result of the automatic stay:

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