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Legislators Move To Repeal Some 2005 Bankruptcy Rules

Posted By admin || 15-May-2009

Congressmen Jerrold Nadler and Steve Cohen introduced a bill in the U.S. House of Representatives to repeal some sections of the 2005 Bankruptcy law that governs Chapter 11 bankruptcy.  Critics of the 2005 bankruptcy law claim that the rules make it too difficult for large retailers to successfully reorganize in Chapter 11 bankruptcy.

The proposed bankruptcy bill would make four changes to Chapter 11 bankruptcy:

Repeal 11 U.S.C. § 365(d)(4), which imposes a 210-day cap on the period that debtors have to decide whether to keep their leases with landlords. The current cap allows for one 90-day extension but does not afford any additional flexibility.

The new changes would allow bankruptcy judges to grant extensions with no time period cap.  Currently retailers in Chapter 11 bankruptcy have too little time find the scarce financing needed to keep their lease and by extension their business operation or to find a buyer.

Repeal 11U.S.C. § 366(c), which requires a debtor wishing to continue utility service to pay a deposit of cash or some other security.

The new change would require the debtor to only prove that they could make the utility payments with no deposit required. This makes keeping utilities on easier for cash strapped businesses in Chapter 11 bankruptcy who want to continue operating their business.

Repeal 11 U.S.C. § 503(b)(9), a 2005 provision that effectively requires a debtor to pay in full for any goods it received in the 20 days before filing its bankruptcy. Section 503(b)(9) gives vendors of such goods and services an administrative claim that is entitled to full payment through the bankruptcy.

Repealing this bankruptcy rule would once again free up more cash for the debtor in Chapter 11 bankruptcy giving them a fighting chance to save their business and successfully complete the Chapter 11 bankruptcy process.

Repeal 11 U.S.C. § 546(c), which governs a seller's right to recover goods delivered to an insolvent buyer.

If this rule is repealed the seller would have the right to assert a recovery goods claim within 10 day after the debtor receives the goods.  If the debtor's bankruptcy case has already begun then the seller will be allowed to file a claim of recovery of goods within 20 days after the debtor receives the goods.

It is imperative that retailers are allowed to use Chapter 11 bankruptcy effectively to save their businesses.  Millions of workers depend on the retail industry for their livelihood.  Making it too difficult for retailers to save their businesses and by extension many families' source of income could jeopardize the health of our economy.

Categories: Chapter 11 Bankruptcy
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