American Apparel Files for Bankruptcy

While American Apparel was once the go-to source for cool, Made in America shirts and jeans, in October of 2015 the retailer filed for bankruptcy protection. This comes after a string of lawsuits, the firing of its founder, and a steady decline of sales.

From Stylemaker to Struggling Label

In the 90’s and early 2000’s, American Apparel had come to define the alternative look of those decades’ youth. They also scored points with young people for keeping their garment construction factories in Los Angeles and championing many progressive causes.  The founder of the company, Dov Charney, brought his energy into his business dealings, which unfortunately started to cross a line.

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Russia’s New Wave of Bankruptcies

A new law allowing people to file for bankruptcy has just recently come into law in Russia. It will enable individuals to declare bankruptcy and no longer be pursued over debts. The law will bring Russia into line with most other countries’ bankruptcy court systems and ease the burdens of consumers who are having difficulties paying back their loans.

Prior Laws Only Protected Legal Entities

While Russian bankruptcy law is continuing to evolve, it has been observed that the bankruptcy procedure has been characterized by transparency in their insolvency cases. This enables interested parties to find out about the insolvent debtors. However, before this new law, the only bankruptcies could be declared by legal entities: companies or business partnerships. This left no recourse to ordinary individuals affected by the recession caused by dropping oil prices in 2014.

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50 Cent Files Bankruptcy, Builds New Home In Africa

Rapper 50 Cent, well known for his saying “Get Rich or Die Tryin’” has apparently nearly finished building a new home in Africa—and this after declaring Chapter 11 bankruptcy protection in July.

Flaunted His Wealth

While it would seem that declaring bankruptcy would be a sign of financial troubles, 50 does not seem to have any problem flaunting his wealth. His rap songs were often filled with references to the things his talent brought him, like houses, cars and jewelry.

One year ago, he said he would donate $75,000 to charity if Floyd Mayweather, the boxer, would read from Harry Potter aloud without making a mistake, though Mayweather did not accept or respond to the challenge.

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Paul Hansmeier Bankruptcy – Call it Karma

Paul Hansmeier, the attorney who became well-known for suing smaller businesses who cannot afford to fight him, has claimed Chapter 13 bankruptcy. Some would call this karma, as it seems he would bring lawsuits on behalf of people with disabilities in order to make money for himself.

Motives Under Question

The current troubles come with around 70 lawsuits against small businesses, alleging that they are discriminating against people with disabilities. Hansmeier and his law firm Class Justice has brought many lawsuits against small businesses in Minnesota, claiming violations of the Americans with Disabilities Act, violations such as the lack of ramps, or tables being too high. Though some the lawsuits may have a valid case, many more seem to be merely a quest for a settlement payout. The lawsuits not only sue for the changes to be made, but also ask for monetary recompense.

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Caesar’s Bankruptcy Update

Caesar’s Entertainment Operating Company filed for Chapter 11 bankruptcy in January of 2015 and luck certainly seems to not be going their way.

The group runs Caesar’s Palace resorts as well as many other properties in the U.S. and offshore. The bankruptcy proposal will cut their debt by $10 million, and the company will be split into two separate entities. One will run the casinos, and one will be a property trust.

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Litigation Financing

Litigation Financing is the practice of funding lawsuits by a third party unrelated to the case in exchange for a share of the proceeds. Currently, a new venture is hoping that this will also be applied to bankruptcy proceedings.

The Start of Litigation Financing

This began in the mid to late 1990’s, with some companies providing legal funds to plaintiffs with personal injury cases. The idea continued to grow and appeal to larger companies, who in turn formed more standards and offer lower pricing to consumers.

Legal funding has become popular among bigger corporations of all types. Despite some inevitable failures, the investments have been mostly successful.

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A&P Bankruptcy

A&P, once a leader in the grocery store business, is declaring Chapter 11 bankruptcy for the second time in five years. They are currently facing 2.3 billion dollars of debt, and many of their stores are losing money.

Although they have tried to cut costs and bring in revenue by reducing labor and vendor costs, engaging in aggressive advertising initiatives and reducing prices, the grocery chain has asked Judge Robert Drain for permission to close 25 stores that are no longer making money.

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Do Your Research Before Filing For Chapter 7

While bankruptcy is one route many consumers take to get out of debt, the paperwork can be long and complicated. The cost of hiring a bankruptcy lawyer can be daunting, and it can be tempting to try and do it yourself, or hire someone cheaply to do the same thing. However, before you decide who to hire for help, be sure to do some thorough research.

Often you will find ads in the paper or on Craigslist that sound legitimate, offering aid with bankruptcy paperwork for very little cost. This can be attractive for people who are in dire straits, for whom the costs of hiring a lawyer or paralegal seem prohibitive. However, if you do not check into their track record, or if they’re not willing to submit a Declaration of Non-Attorney Bankruptcy Petition Preparer form, they can end up costing you more money than you have to lose.

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Colt Defense Bankruptcy

Colt Defense, LLC, a maker of firearms for 179 years has filed for Chapter 11 bankruptcy in the U.S. Bankruptcy court in Wilmington, Delaware. Officials say they plan to financially restructure as to allow for an “accelerated sale” of business operations in the U.S. and Canada.

Financial Woes

According to Bloomberg, the firearms maker has been struggling financially due to delays in government and foreign sales, as well as a change in the demand for sport rifles and commercial handguns. One of the chief suppliers of M4 rifles to the U.S. Military for decades, they lost their contract with the military in 2013 and the company has never recovered.

Problems in quality were a contributor in the demise of the company. Soldiers who relied on the M4 criticized the guns for malfunctioning once they got dirty, as they did in Afghanistan and Iraq. Though the gun came in dead last in a comparison “extreme dust test” in 2007, the Pentagon declared their support for the Colt model. However, special operations and other special forces who had more money began selecting other guns more often for their use before the Pentagon finally broke off their contract with Colt.

Other Challenges

Another trouble that Colt faced was the rejection by many law enforcement agencies of their 1911 gun, citing a long line of complaints about the gun jamming, and selecting Glock pistols as sidearms instead. And still other problems stemmed from the corporate structure, divided between military and private gun owner interests, that prevented them from taking advantage of a surge in gun sales that coincided with the election of President Obama in 2008.

Stirred by NRA-fueled rumors that the Democratic President would soon heighten gun control, many rushed to buy guns, sweeping gun dealers’ shelves of ammo and weaponry. While many better-prepared gun manufacturers were able to see a rise in profits, Colt had to sell their rifles to the manufacturing arm of the company, and then get the rifles to the distributors, an extremely slow process.

The Company Will Remain Open

Though the company is declaring Chapter 11 in its bankruptcy proceedings, it will still remain open to restructure the company financially. The company took out an emergency $70 million loan from Morgan Stanley to pay interest in November of 2014, but they were not able to meet their first interest payment in June. It also took a $33 million restructuring deal with a hedge fund agency this year to free up more of its liquid assets.

The company currently plans to restructure financially and keep their commitments to consumers, vendors, suppliers, and staff. The manufacturer will stay open, and has selected a “stalking horse bidder” of Sciens Capital Management, LLC for their assets and liabilities and will keep Colt’s current management team.

Though their consumer confidence and their ability to meet consumer manufacturing demands is fragile, there is optimism that the restructuring of the company will help the company keep their production and financial commitments.

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Supreme court rejects second lien stripping

In an unanimous decision by the Supreme Court of the United States, a decision was passed down that prevents a debtor in a Chapter 7 bankruptcy proceeding from voiding a junior mortgage (or second mortgage) if the debt on a senior (or first) mortgage exceeds the current value of the home or collateral. This is in effect when the claim by the creditor is secured with a lien and allowed in the code.

This means that the junior mortgage is not considered an “unsecured” loan, and will not be permitted to be discharged in a bankruptcy proceeding. This will primarily benefit commercial lenders, and will allow junior lien holders to collect on loans in the event that a debtor files for bankruptcy.

In its decision, the court ruled for Bank of America against two debtors – Edelmiro Toledo-Cardona and David Caulkett – who wanted to pay off their junior loans out of the money borrowed in second loans. The ruling by the Supreme Court reverses a 2014 decision that would allow the stripping off of the second mortgages where the first mortgage is under-secured at the time of the bankruptcy. The lien holders argued that the 2014 decision would allow debtors to void certain liens on their homes.

Judge Clarence Thomas wrote that this interpretation on the code would be difficult to apply to the framework of bankruptcy, given the fluctuating state of the real-estate markets. Justice Thomas writes, “Given the constantly shifting value of real property, this reading could lead to arbitrary results.”

Tension Between First and Second Mortgage Holders

While voiding a junior lien can make it easier for a primary mortgage holder to sell a property it can be a great economic worry for junior lien holders. A decision against the second mortgage holder could inflate the prices of credit across much of the economy.

With many housing markets on the upswing after the doldrums of the 2008 slump, houses need only appreciate a few thousand dollars for many second mortgages to be in the money. Simply discharging those loans would make it more difficult for future consumers to acquire second mortgages, as they would be considered too high a risk for lenders to take.

What This Means For Future Bankruptcy Cases

If you declare bankruptcy and have a senior and junior loan, and you declare bankruptcy, you may not be able to discharge a second mortgage, even if the collateral is not worth the amount left on the loan. You may only prevail if the lien holder is not secured according to the rules of the court, since in that case, the value of the lien to the bank would be zero.

However, in most junior or second mortgages, the loans are secured and cannot be stripped or made void in a bankruptcy proceeding.

This only seems to be in effect for Chapter 7 proceedings as it has been stated that this ruling does not effect Chapter 13 bankruptcies.

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