Abitibi, Controladora, Almatis, General Growth, Texas Rangers: Bankruptcy
AbitibiBowater Inc., the largest newsprint maker in North America, is pursuing a fourth and last extension of the exclusive right to propose a Chapter 11 plan.
Although Abitibi has a reorganization plan on file, the new exclusivity motion said there are talks with “key creditor constituencies” about “certain amendments.” Aurelius Capital Management LP and Contrarian Capital Management LLC previously claimed to have a blocking position due to their ownership of notes representing more than a third of unsecured claims against Bowater.
Because bankruptcy law limits a reorganizing company’s right to retain so-called exclusivity to 18 months, the latest motion filed on July 21 would push out the deadline to Oct. 16, if granted at a Sept. 14 hearing.
The hearing for approval of the disclosure statement is on the court’s calendar for July 30. Creditors can’t vote until the disclosure statement is approved. The company says it intends on emerging from bankruptcy reorganization “in the early fall of this year.”
The disclosure statement tells creditors of each of the more than 30 affiliated companies how much they could recover. For details about the plan, click here for the May 25 Bloomberg bankruptcy report.
AbitibiBowater was formed in October 2007 through a merger between Montreal-based Abitibi-Consolidated Inc. and Greenville, South Carolina-based Bowater Inc. Abitibi is a producer of newsprint, uncoated mechanical paper, and lumber. Bowater also makes newsprint along with papers, bleached kraft pulp, and lumber. The Montreal-based company began reorganizing with 24 pulp and paper mills plus 30 wood-product plants. Revenue in 2008 was $6.8 billion. In Chapter 11 petitions filed in April 2009, the combined AbitibiBowater companies listed assets of $9.9 billion and debt totaling $8.8 billion as of Sept. 2008.
The case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Controladora Denied Temporary Halt on Creditor Suits
Controladora Comercial Mexicana SAB, the third-largest food retailer in Mexico, came up short in its first stab at stopping lawsuits and creditor actions in the U.S.
After the Chapter 15 filing on July 16, Controladora held a July 19 hearing on a motion for a temporary restraining order intended to stop creditor actions in the U.S. U.S. Bankruptcy Judge Stuart M. Bernstein denied the TRO, although he scheduled a hearing for July 28 where the company again can ask for an injunction after creditors have had more time to respond.
Bernstein also scheduled a hearing for Aug. 19 where Controladora will ask the judge to declare that the reorganization proceedings in Mexico meet the standards demanded in Chapter 15. If Bernstein finds that Mexico is properly home to the “foreign main proceeding,” creditors’ suits in the U.S. will be halted automatically. Chapter 15 doesn’t have a so- called automatic stay like Chapters 11 or 7.
Controladora’s Chapter 15 petition is intended to help the company in carrying out a reorganization that has support from holders of 85 percent of the debt.
The company operated 231 retail stores and 73 restaurants at the end of 2009. The petition said assets and debt both exceed $1 billion.
The case is In re Controladora Comercial Mexicana SAB, 10- 13750, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Dubai Has New Financing for Revised Almatis Plan
Almatis BV, a producer of specialty alumina products, is expected to file papers today about $535 million in financing for a revised reorganization plan arranged by the owner, Dubai International Capital LLC.
The financing would enable full payment to senior secured creditors led by an affiliate of Oaktree Capital Management LLC. Junior lenders are to have a greater recovery.
Information about the new financing came from two people familiar with the matter. They said that Dubai also intends to inject $100 million of new financing. For Bloomberg coverage, click here.
The filed plan would have given ownership to the senior secured creditors, leaving second-lien creditors with warrants for three percent of the equity value above $325 million. The disclosure statement projected that junior lenders would have recovered 2.2 percent under the existing plan. The junior lenders were opposing the plan and believed that Almatis had a value greater than the $540 million originally claimed by the company.
Almatis told the bankruptcy judge in June that new financing was in the works.
Junior lenders include affiliates of Babson Capital Management LLC, Alcentra Group Ltd., and Permira Advisers LLP.
Almatis filed under Chapter 11 on April 30 with the plan already negotiated with holders of first-lien debt. Dubai International bought the Almatis business in 2007 for $1.2 billion. For details on the existing plan, click here for the April 30 Bloomberg bankruptcy report.
Almatis’ revenue in 2009 was $400 million. For 2010, projected revenue is $534 million. Almatis began defaulting on senior debt in June 2009.
Rotterdam-based Almatis listed total debt of $1.3 billion, including $681 million on first-lien obligations, $77.7 million on second-lien debt, and $200.6 million on mezzanine debt. There is junior mezzanine debt of $80.6 million, plus trade debt of $20 million. Assets were listed for assets $1.53 billion.
The case is In re Almatis BV, 10-12308, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Lake Las Vegas Creditors Sue Bass Brothers for $469MM
The reorganization of the Lake Las Vegas Resort is a vivid demonstration of the value of releases given as part of a confirmed Chapter 11 plan.
The resort, 17 miles from the Las Vegas Strip, implemented the confirmed Chapter 11 plan on July 15. The next day, the trustee for a creditors’ trust sued Sid Bass, Lee Bass, and other former owners of the project for at least $469 million.
The suit contends that a $560 million loan to the project in October 2004 by Credit Suisse Group AG was a fraudulent transfer because $469 million went to the owners, leaving the project insolvent.
As part of a settlement with secured creditors underlying the Chapter 11 plan, the creditors agreed not to sue Credit Suisse. The lenders were owed $626 million.
For details on the resort’s reorganization plan, click here for the June 22 Bloomberg bankruptcy report.
The development is a 3,600-acre master-planned community with a 320-acre man-made lake next to the Lake Mead National Recreational Area. It has three golf course, two hotels, a casino, retail stores and more than 1,600 completed residential units. The Chapter 11 filing was in July 2008.
The case is Lake at Las Vegas Joint Venture LLC, 08-17814, U.S. Bankruptcy Court, District of Nevada (Las Vegas).
Black Crow’s Second Exclusivity May Be the Last
Black Crow Media Group LLC, a closely held owner of 22 radio stations, was given a second and evidently last extension of the exclusive right to propose a Chapter 11 plan even though the case isn’t yet seven months old.
Black Crow explained in the second of its so-called exclusivity motions how it’s been consumed since the start of the Chapter 11 case in litigation with General Electric Capital Corp., the secured lender owed $38.9 million at the outset.
U.S. Bankruptcy Judge Paul M. Glenn extended exclusivity until Nov. 8. Glenn told the Daytona Beach, Florida-based company in a July 21 order that there won’t be another extension “unless truly extraordinary circumstances occur which could not have been reasonably anticipated.”
In March, Black Crow beat back a motion by Stamford, Connecticut-based GECC to dismiss the case or allow foreclosure.
Black Crow filed for Chapter 11 protection in January, two days before a hearing in U.S. district court where GECC was seeking appointment of a receiver following default on the term loans and revolving credit.
Black Crow’s stations are in five markets in Florida, Alabama, Georgia and Tennessee. In addition to the GECC debt, another $6 million is owing to unsecured creditors. Daytona Beach, Florida-based Black Crow had $12.9 million of revenue in 2009, a 23 percent decline from 2008.
The case is In re Black Crow Media Group LLC, 10-00172, U.S. Bankruptcy Court, Middle District Florida (Jacksonville).
General Growth to Arbitrate With Hughes Investors
General Growth Properties Inc. was rebuffed yesterday by the bankruptcy judge, who ruled that an arbitration panel could decide the basis for the claim that former investors of Hughes Corp. will receive under the Chapter 11 plan.
Hughes Corp., some of whose investors include heirs of the late Howard Hughes, owned a master-planned community outside Las Vegas named Summerlin. The 22,500-acre project eventually will have a population exceeding 200,000.
Through a predecessor, General Growth acquired Hughes Corp. under an agreement that provided for paying the purchase price over 14 years. For the last payment at the end of 2009, the Hughes investors were to be paid approximately half of the fair market value of the remaining assets, plus other items such as excess cash flow.
If there were disagreement over the final payment, the 1996 agreement calls for the amount of determined by a panel of independent appraisers.
The Hughes investors filed a motion in June asking the bankruptcy judge to force General Growth into the appraisal proceeding. General Growth responded by urging the judge to estimate the claim in bankruptcy court. At yesterday’s hearing, the judge concluded that an arbitration wouldn’t prevent confirmation of the reorganization plan in October.
At the hearing the judge also approved replacement financing reducing the interest rate by 8 percent on $400 million in debt for the reorganization.
Since Chapter 11 in April 2009, General Growth has been paying interest on the so-called DIP loan at an interest rate 12 percentage points higher than the London interbank borrowed rate. The new loan from Barclays Bank PLC will have a 5.5 percent fixed rate, saving General Growth $2.7 million a month in interest.
General Growth’s property-owning subsidiaries already have confirmed Chapter 11 plans paying their creditors in full. The four top-tier companies filed a plan this month also promising full payment while preserving some of the stock for existing shareholders. The plan is financed with an $8.55 billion debt and equity commitment from a group led by Brookfield Asset Management Inc. Teacher Retirement System of Texas has a separate commitment to buy $500 million of new stock at $10.25 a share.
General Growth hopes to emerge from reorganization in October and remain the second-largest mall owner in the U.S. with 180 properties in 43 states.
General Growth began the largest real-estate reorganization in history by filing under Chapter 11 in April 2009. The books of Chicago-based General Growth had assets of $29.6 billion and total liabilities of $27.3 billion as of Dec. 31, 2008.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Rangers’ August 4 Auction Won’t Be Delayed, Judge Says
The bankruptcy judge heard three days of testimony before ruling yesterday that the auction for the Texas Rangers baseball team will proceed as scheduled on Aug. 4. Later the same day, the team wants the judge in Fort Worth, Texas, to approve the reorganization plan by signing a confirmation order.
Secured lenders owed $525 million and the chief restructuring officer for the team’s two partnership owners both wanted the auction delayed so competing bidders would have more time.
The chief restructuring officer sustained a second loss when the bankruptcy judge later in the day refused to hold an accelerated hearing on the motion for permission to seek substantive consolidation of the team with the two partnerships that own it.
The judge cited a federal appeals court which said that substantive consolidation is “a rough justice remedy of last resort.” The judge said litigation over substantive consolidation should only occur “after the parties have had an ample opportunity to develop the facts.”
The Rangers reported a $4.83 million net loss in June on revenue of $78.7 million. Interest expense in the month was $4.88 million. Depreciation expense was $2.52 million.
Mark Cuban, the owner of the National Basketball Association’s Dallas Mavericks, was cleared by Major League Baseball to participate in the Rangers auction. Through a lawyer, Cuban said he hadn’t decided yet whether to bid. To read Bloomberg coverage, click here.
The price was raised to $306.7 million cash. The lenders would recover $256 million, according to the team’s disclosure statement based on the original contract for $304 million. The Rangers moved from Washington to Texas in 1972. The team defaulted on payments owing to the lenders in March 2009.
Michael “Buzz” Rochelle, a brother of Bloomberg reporter Bill Rochelle, is a lawyer for an agent for the lenders. The partnership that owns the team is Texas Rangers Baseball Partners.
The case is In re Texas Rangers Baseball Partners, 10- 43400, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).
Sawgrass Marriott Has $1.71 Million June Net Loss
The Sawgrass Marriott Resort in Ponte Vedra Beach, Florida, generated revenue of $3.27 million in June and reported a $1.71 million net loss for the month, according to an operating report filed in bankruptcy court on July 21.
Net operating income in the month was $305,000 and earnings before interest, taxes, depreciation and amortization were $197,000. Interest expense was $1.32 million while depreciation and amortization totaled $584,000.
The resort’s owner estimates the property is worth $90 million. The lender values it at $135.3 million. The resort filed under Chapter 11 on March 1 in Jacksonville, Florida, saying assets and debt both exceed $100 million.
The case is In re RQB Resort LP, 10-01596, U.S. Bankruptcy Court, Middle District of Florida (Jacksonville).
Centaur Allowing Creditor Suit on Lien Invalidity
Casino and racetrack operator Centaur LLC doesn’t object to allowing the official creditors’ committee to file suit over what the panel says are defects in the security interests on $192 million in collateral claimed by the first-and second-lien lenders.
The company doesn’t believe success in the suit would take more than $15 million away from the lenders because their claims are so much larger than those of unsecured creditors. Consequently, Centaur doesn’t want a suit to delay what it hopes will be a Sept. 23 confirmation hearing for approval of a Chapter 11 plan.
While not opposing a creditors’ suit, Centaur doesn’t want the committee to have exclusive right to settle with the lenders. The company wants to retain the right to settle.
Centaur says the assets aren’t worth enough to pay even the first-lien debt in full.
Centaur has a July 28 hearing for approval for auction and sales procedures pertaining to the Fortune Valley Hotel & Casino 40 miles west of Denver. The initial bid will come from Luna Gaming Central City LLC. The price is $7.5 million cash plus a $2.5 million note, less adjustments.
Subsidiaries Centaur PA Land LP and Valley View Downs LP filed for bankruptcy reorganization in October to keep alive a project to develop a racetrack in Pennsylvania. Centaur LLC and 12 affiliates filed Chapter 11 petitions in March. All of the companies are subsidiaries of closely held Centaur Inc., which isn’t in bankruptcy.
The March filings listed assets of $584 million and debt of $681 million. The newer cases resulted from the failure to make payments due in October on a $382.5 million first-lien debt and a $192 million second-lien credit. The companies have horse racing and gambling facilities in five markets in Indiana and Colorado. They are developing a property in Pennsylvania to be called Valley View Downs and Casino. It is 55 miles from Pittsburg.
The companies own Hoosier Park, a casino and horse racetrack, in Anderson, Indiana, along with three off-track betting parlors in Indiana. They also own Fortune Valley Hotel & Casino in Central City, Colorado, which has a 118-room hotel to complement the casino. The companies generated revenue of $277.5 million in 2009.
The newer case is Centaur LLC, 10-10799, and the first case was In re Centaur PA Land LP, 09-13760, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Brown’s President Takes Most Assets at Auction
Brown Publishing Co., the publisher of the largest- circulation local newspaper on eastern Long Island, named The Delphos Herald Inc. as the winner of the July 19 auction for three of its publications in Ohio. Delphos offered $3.59 million cash.
The winner of the auction for the remainder of the assets was a group including Roy Brown, the president and chief executive. The winning bid was $22.41 million plus $900,000 in assumption or waiver of debt. Before the auction, the Brown group was under contract for $15.9 million.
The hearing for approval of the sale began yesterday and will continue July 29.
Based in Cincinnati, closely held Brown listed assets of $94 million against debt totaling $104.6 million. First-lien lenders are owed $70.2 million on a revolving credit and term loan. Second-lien lenders are owed $24.3 million.
Brown has 15 publications that produced daily, 32 weeklies, and 41 given away for free. It also has 11 business publications in seven states, and 51 web sites. Seventy-eight of the publications are in Ohio.
The case is In re Brown Publishing Co., 10-73295, U.S. Bankruptcy Court, Eastern District New York (Central Islip).
National Envelope Action Set for August 20
National Envelope Corp. will hold a auction on Aug. 20 to learn whether the $134.5 million opening bid from Gores Group LLC is the best offer for the business.
The bankruptcy judge in Delaware approved procedures yesterday requiring other bids by Aug. 16. The hearing for approval of the sale will be Aug. 23.
Competitor Cenveo Corp. unsuccessfully opposed giving Gores a breakup fee if it’s outbid at auction. Cenveo promises to bid more at the auction. For Bloomberg coverage of the hearing, click here.
National Envelope, which calls itself the largest closely held envelope manufacturer in the U.S., filed under Chapter 11 on June 10. The loan agreement with General Electric Capital Corp., the lenders’ agent, required having sale procedures by July 16.
Based in Uniondale, New York, National Envelope has 14 manufacturing plants in 11 states, plus three warehouses. Sales in 2009 were $676 million, resulting in a $44.2 million net loss. The petition says assets and debt are both less than $500 million. Liabilities include $74.3 million on a secured term loan, $70.6 million on a secured revolving credit, and $89 million owing on unsecured debts to trade suppliers.
The case is In re NEC Holdings Corp., 10-11890, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Third Meruelo Maddux Properties Reorganization Plan Possible
Although two plans were already filed for Meruelo Maddux Properties Inc., the official creditors’ committee is supporting a motion by secured creditors for permission to propose a third.
Lenders Legendary Investors Group No. 1 LLC and East West Bank have a motion to be considered at an Aug. 2 hearing. Their proposed plan for the Los Angeles-based developer and manager of commercial and multi-family residential property would include a $5 million cash injection and conversion of $65 million of debt into equity.
While the committee hasn’t finished its analysis of the merits of the three plans, the panel sees the lenders’ plan as “far superior” because it would pay unsecured creditors in full “shortly after” confirmation. The company’s plan would pay unsecured creditors over five years, with 4 percent interest.
The other plan is by existing shareholders Charlestown Capital Advisors LLC and Hartland Asset Management Corp. The creditors’ committee admits that the shareholders’ plan would give the reorganized company more liquidity from a $30 million cash infusion at confirmation.
The company opposes allowing a third plan, saying there would be “chaos.”
The bankruptcy court in Woodland Hills, California, began allowing other plans in May. The Chapter 11 petition filed in March 2009 listed assets of $682 million against debt totaling $342 million.
The case is In re Meruelo Maddux Properties Inc., 09-13356, U.S. Bankruptcy Court, Central District California (Woodland Hills).
Point Blank Loan Amendment Requires Sale in September
Point Blank Solutions Inc., a manufacturer of soft body armor for the military and law enforcement, admitted violating some of the financial performance requirements in the $20 million loan provided by Steele Partners LLC to finance the Chapter 11 case. Steele is a New York-based private equity fund.
Steele and Point Blank agreed to an amendment of the loan agreement committing the company to a schedule for selling the business. The amendment would also waive the covenant violation. Steele, according to the creditors’ committee, controls the Point Blank board.
If the amendment is approved by the bankruptcy court at a hearing Point Blank hopes will be held on Aug. 3, the revised loan will compel the company to have a letter of intent laying out terms of sale by Sept. 15 and a motion by Sept. 30 to approve an asset-purchase agreement. Alternatively, Point Bank could file a Chapter 11 plan and disclosure statement by Sept. 30.
A sale must provide for full payment of the loan for the Chapter 11 case, the amended loan agreement says. Point Blank said the schedule is “achievable” absent “unforeseen circumstances.”
At the Aug. 3 hearing, the creditors’ committee will argue in favor of its motion for the appointment of a Chapter 11 trustee. The company said the motion was based on “reckless accusations with no factual basis whatsoever.”
Point Blank has a plant and head office in Pompano Beach, Florida, and a second plant in Jacksboro, Tennessee. Revenue in 2009 was more than $153 million. The petition listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan to be paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers. Three former officers were indicted on charges of securities fraud.
The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware.
Harrah’s Cash Flow ‘Insufficient,’ Moody’s Says
Harrah’s Entertainment Inc., the casino owner acquired in January 2008 by Apollo Management LP and TPG Inc. in a $27.2 billion transaction, is burdened with “significant debt” that leaves the company with “insufficient free cash flow for maintenance of existing assets or growth initiatives,” Moody’s Investors Service said in a report yesterday.
Moody’s predicts that Harrah’s “will likely need to reduce debt by selling assets, going public, or restructuring its debt burden.” Moody’s believes restructuring “would likely result in impairment to debt holder claims.”
Harrah’s $19.25 billion in long-term debt consumes about 90 percent of earnings before interest, taxes, depreciation and amortization, “leaving insufficient free cash flow for debt reduction or capital spending,” Moody’s said. Moody’s also said that Harrah’s “isn’t investing enough in its properties.”
Harrah’s had a $193.6 million net loss in the first quarter on net revenue of $2.19 billion.
Harrah’s properties include Caesar’s Palace, Bally’s, Flamingo, Harrah’s, Paris and Planet Hollywood in Las Vegas. There are seven other properties in Nevada plus 21 in other markets around the U.S.
Moody’s has the corporate credit rating at Caa3.
Boston Generating Has ‘Too Much Debt,’ S&P Says
Boston Generating LLC, the owner of 3,000 megawatts of generating capacity, has “too much debt to be supported by the current and prospective market economics,” in the judgment of Standard & Poor’s.
The company is in restructuring discussions with holders of first-lien, second-lien and mezzanine debt, S&P said in a report yesterday. S&P warned that it may lower the current CCC+ rating on the $1.13 billion first-lien debt. The rating for the $350 million second-lien debt is CC.
S&P said there is “increasing uncertainty” about the outcome of the restructuring talks.
Boston Generating is a unit of New York-based US Power Generating Co.
Bank Owner Nexity Files Prepack in Delaware
Nexity Financial Corp., describing itself as a leading provider of capital and support services for community banks, filed a prepackaged Chapter 11 petition yesterday in Delaware to implement a reorganization that was already accepted by holders of 96 percent of the $22 million in trust preferred securities who voted on the plan.
Nextity also owes $14.2 million to the secured creditor Bank of America NA. The bank also accepted the plan.
The plan will pay 15 percent in cash to holders of the trust preferred securities, unless they elect to take new stock instead. Bank of America is to receive $3.82 million unless it too elects stock instead.
The plan is to be financed by the sale of at least $175 million in new stock through a private placement.
Nexity is aiming for the bankruptcy court to approve the disclosure statement and the plan at one hearing on Aug. 27.
Birmingham, Alabama-based Nexity had net losses of $26 million in 2009 and $13 million in 2008.
Nexity hasn’t filed quarterly reports with the Securities and Exchange Commission since the quarter ended September 2008. The bank subsidiary, Nexity Bank, is operating under a cease and desist order issued by regulators.
The stock sporadically traded after May around 15 or 16 cents a share in the over-the-counter market.
The case is In re Nexity Financial Corp., 10-12293, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Charlotte’s EpiCentre Owner Files in Chapter 11
Pacific Avenue LLC and an affiliate, the owners of EpiCentre in Charlotte, North Carolina, filed a Chapter 11 petition yesterday in their hometown, owing $87.1 million to the secured lender Regions Bank.
The office, retail and entertainment complex has 302,000 rentable square feet, a court filing says.
Financial problems result in part from the bankruptcy of the developer that was to construct residential housing using air rights on the project.
For other Bloomberg coverage, click here.
The case is In re Pacific Avenue LLC, 10-32093, U.S. Bankruptcy Court, Western District of North Carolina (Charlotte).
Mexico’s Vitro, Lehman’s $19 Billion Cash, Rangers: Audio
Public disputes in the workout for Vitro SAB, cash for Lehman Brothers Holdings Inc. and subsidiaries growing to almost $19 billion, and predictions about the outcome of the Texas Rangers reorganization are discussed in the new bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.
Leverage Over Shareholders No Basis for Chapter 11
Although a company need not be insolvent to file in Chapter 11, the reorganization can be dismissed if the primary purpose is to obtain an unfair advantage in shareholder litigation, U.S. District Judge Sim Lake in Houston ruled on July 21.
The bankruptcy judge had confirmed a Chapter 11 plan. On an appeal taken by shareholders, the district judge reversed the confirmation order approving the Chapter 11 plan and remanded the case so the bankruptcy judge could decide whether to appoint a Chapter 11 trustee or dismiss the case.
After a hearing following remand, the bankruptcy judge concluded that the Chapter 11 petition was designed “to gain an unfair advantage in the shareholder litigation.” The bankruptcy judge also determined from the facts that there was “the absence of any clear need for financial reorganization.”
The bankruptcy judge dismissed the case, and Lake affirmed based on the conclusion that the Chapter 11 filing was not in good faith.
Although the Bankruptcy Code does not have a specific requirement that a bankruptcy filing must be in good faith, courts traditionally rule that a bankruptcy case can be dismissed for lack of good faith.
The case is Antelope Technologies Inc. v. Lowe (In re Antelope Technologies Inc.), 10-0205, U.S. District Court, Southern District Texas (Houston).
Hamilton v. Lanning Applies on Expenses Too, 6th Says
The U.S. Court of Appeals in Cincinnati answered a question the U.S. Supreme Court didn’t directly address last month in a case called Hamilton v. Lanning. Where the Supreme Court held that actual income must be taken into consideration in deciding how much an individual must pay unsecured creditors in Chapter 13, the 6th Circuit ruled yesterday that actual expenses must be in the calculation.
The case involved a husband and wife who owned two homes, both with mortgages. They intended during bankruptcy to turn the homes over to the lenders, thus eliminating $2,700 in monthly mortgage payments.
The bankruptcy judge, in confirming a Chapter 11 plan before the Supreme Court decided Hamilton v. Lanning, deducted the mortgage payments in calculating projected disposable monthly income.
Although this year’s Supreme Court case only involved income, the 6th Circuit said the same rule must apply to expenses. The case was reversed and sent back to the bankruptcy court to determine the bankrupts’ actual income and expenses.
The case is Darrohn v. Hildebrand (In re Darrohn), 6th U.S. Circuit Court of Appeals (Cincinnati).