» Illinois Bankruptcy

Chicago Bankruptcy Court Going Virtual

On May 13, 2020, the Bankruptcy Court for the Northern District of Illinois implemented General Order 20-05, which provides that effective June 1, 2020, all trials and evidentiary hearings will be held by video using the Zoom for Government platform. The court will post on its web site a Model Pretrial Order for use in video trials and evidentiary hearings. Read More
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Pier 1 Bankruptcy Court Abates Payment of Post-petition Rent due to Pandemic

Like other national retailers, Pier 1 Imports filed for bankruptcy in March, hoping to sell its assets and to liquidate under-performing locations. Then the Covid19 Pandemic hit the U.S. with its full force, causing mandatory stay at home orders in a majority of the States. It was just a matter of time before the Pandemic started to impact the ebb and flow of large bankruptcy cases. In the case of Pier 1, in-store sales compared to the prior year fell approximately 65% for stores that were to remain open and approximately 55% for the stores that were closing. Faced with am unanticipated cash crunch, Pier 1 sought and obtained orders from the Bankruptcy Court that permitted the accrual of post-petition rent obligations at certain locations, instead of the current payment thereof. This relief was granted and recently extended to the end of May despite the objection of landlords, who argued the Debtor had to perform all of its obligations under the leases pursuant to section 365(d)(3), including the obligation to pay rent on an as incurred basis. In rejecting this construction of section 365(d)(3), the Bankruptcy Court reasoned that “section 365(d)(3) does not give the Lessors a right to compel payment from the Debtors in accordance with the terms of the underlying leases. Rather, to the extent that the Debtors are obligated to pay rent and fail to timely pay such rent, the Lessors are entitled to an administrative expense claim. Administrative expense claims under sections 507(a)(2) and 503(b) of the Bankruptcy Code, such as post-petition date unpaid rent, must be paid “on the effective date of [a] plan . . . [in] cash equal to the allowed amount of such claim. 11 U.S.C. § 1129(a)(9)(A); see also In re Circuit City Stores, Inc., 447 B.R. at 511. As such, any allowed claims for accrued but unpaid post-Petition Date rent must be paid by the Debtors on the effective date of any plan confirmed in these Bankruptcy Cases. To compel payment by the Debtors now would be to elevate payment of rent to the Lessors to superpriority status…” The question is whether the Pier 1 holding will become the new normal in bankruptcy cases and how aggressively will landlords fight the issue, particularly when the market for re-leasing the space is compromised due to the depressed retail environment. Read More
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New Mexico Court Orders SBA to Make PPP Funds Available to Chapter 11 Debtor

Today the Bankruptcy Court in New Mexico (In re Roman Catholic Church of the Archdiocese of Santa Fe, 18-13027 (Bankr. D. N.M.) ordered the SBA to make PPP funds available to a chapter 11 debtor and stated that if the debtor does not get the funds, the court will entertain an adversary proceeding against the SBA for compensatory and punitive damages. The decision from the New Mexico court comes on the heels of a contrary decision in the Cosi bankruptcy case earlier this week, when the Delaware bankruptcy court ruled that it could not force the SBA to make PPP funds available to a chapter 11 debtor.   Some of the specific findings of the New Mexico Court include: “The Court finds that Defendant’s decision to exclude bankruptcy debtors from the PPP is arbitrary and capricious. While a borrower’s bankruptcy status clearly is relevant for a normal loan program, the PPP is the opposite of that. It is not a loan program at all. It is a grant or support program. The statute’s eligibility requirements do not include creditworthiness. Quite the contrary, the CARES Act makes PPP money available regardless of financial distress. Financial distress is presumed. Given the effect of the lockdown, many, perhaps most, applicants would not be able to repay their PPP loans. They don’t have to, because the “loans” are really grants. Repayment is not a significant part of the program. That is why Congress did not include creditworthiness as a requirement. Defendant’s inexplicable and highhanded decision to rewrite the PPP’s eligibility requirements in this way was arbitrary and capricious, beyond its statutory authority, and in violation of 11 U.S.C. § 525(a). By a separate final judgment, the Court will grant Plaintiff the relief it requests. If Defendant’s actions result in Plaintiff not obtaining the $900,000 it requested, Plaintiff may file an adversary proceeding for compensatory and, if appropriate, punitive damages. Read More
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Trustee's Unlikely to Administer IRS Rebate Checks

The following guidance has been posted by the United States Trustee in respect to the treatment of the IR rebate checks. The federal government will soon begin issuing recovery rebates to qualified individuals under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 (the “Act”).The rebates total at most $1,200 per individual or $2,400 per married couple filing jointly, with an additional $500 paid for each qualifying child under the age of 17. The rebates are payable in full to qualifying individuals earning less than $75,000, $150,000 per married couple filing jointly, or $112,500 for heads of household, and decrease by 5 percent of income exceeding those thresholds until completely phased out. Two bankruptcy questions have arisen about whether the rebates: (1) should be included in the calculation of current monthly income or projected disposable income; and (2) are property of the bankruptcy estate.The Act explicitly answers the first question. Under Sec. 1113(b)(1) of the Act, which amends 11 U.S.C. §§ 101(10A)(B)(ii) and 1325(b)(2), “payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. § 1601 et seq.) with respect to the coronavirus disease 2019 (COVID-19)” are excluded from the statutory definitions of current monthly income and disposable income. Accordingly, recovery rebates received within six months before the filing of the petition should not be included in calculating a debtor’s currently monthly income in a chapter 7 or 13 case, and further should be excluded from projected disposable income available to pay creditors through achapter 13 plan.The Act is silent as to whether the recovery rebate is property of the estate. In chapter 7 cases, the “property of the estate” issue will only arise in cases filed after March 27, 2020, the effective date of the Act. Regardless of whether the rebate is property of the estate, the United States Trustee expects that it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances, including: the modest amount of the recovery rebate; the applicability of state and federal exemptions; any interest of a non-debtor spouse in the recovery rebate; the cost to the estate of recovering and administering the recovery rebate,including litigation with debtors who may seek a judicial determination; and the extent to which recovering the recovery rebate will enable creditors to receive a meaningful distribution.In rare chapter 13 cases filed on or after March 27, 2020, the recovery rebate may be relevant to the confirmation standard contained in 11 U.S.C. § 1325(a)(4). For chapter 13 cases filed before March 27, 2020, the recovery rebate is excluded from that analysis because it would not have been available for payment to creditors in a chapter 7 case.Trustees are directed to notify the United States Trustee prior to taking any action to recover recovery rebates or objecting to a chapter 13 plan based on the treatment of recovery rebates. Read More
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Chicago's Microbusiness Recovery Grants

The City of Chicago has established the Microbusiness Recovery Grant Program, which will distribute $5,000 grants to up to 1,000 eligible businesses. In order to qualify for this grant, a business must have no more than four employees, less than $250,000 in annual revenue, have been in business for one year, have suffered a 25% decrease in revenue due to COVID-19, and be located in a low or moderate income part of the city. Online applications are due on May 4 (https://app.smartsheet.com/b/form/6c163da4b4de4f18a281a76f550d89a0), and grant recipients will be selected on a lottery basis on May 11. For more information about this program, see the program website (https://www.chicago.gov/city/en/depts/bacp/supp_info/smallbusinessresiliencyfundgrantprogram.html). Read More
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SBA Vetoes PPP Loans for Chapter 11 Debtors

One would think that a chapter 11 debtor has a strong need for a PPP loan, but the SBA believes otherwise. Guidance issued on 4/24 by the SBA rejects the use of such financing for companies in chapter 11, which is not surprising since bankruptcy was a disqualifying event on the PPP application. Further, if a company enters bankruptcy after applying for a loan but before the funds are disbursed, it is the company’s responsibility to contact the lender and cancel the loan. Late last week, at least one court in Texas issued a TRO in favor of the debtor with respect to a PPP loan. The SBA’s new guidance, which is embodied in a new Interim Final Rule issued just after the new funding was approved, is in the following Question and Answer format. Will I be approved for a PPP loan if my business is in bankruptcy? No. If the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan. If the applicant or the owner of the applicant becomes the debtor in a bankruptcy proceeding after submitting a PPP application but before the loan is disbursed, it is the applicant’s obligation to notify the lender and request cancellation of the application. Failure by the applicant to do so will be regarded as a use of PPP funds for unauthorized purposes. The Administrator, in consultation with the Secretary, determined that providing PPP loans to debtors in bankruptcy would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans. In addition, the Bankruptcy Code does not require any person to make a loan or a financial accommodation to a debtor in bankruptcy. The Borrower Application Form for PPP loans (SBA Form 2483), which reflects this restriction in the form of a borrower certification, is a loan program requirement. Lenders may rely on an applicant’s representation concerning the applicant’s or an owner of the applicant’s involvement in a bankruptcy proceeding. Read More
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PPP Funds Replenished

FactorLaw previously reported on the trials and tribulations of small businesses trying to stay afloat by accessing (or not being able to access) funds from the Payroll Protection Program (PPP). We are pleased to note that this afternoon, President Trump signed a bill that provides an additional $484 billion for coronavirus relief, including $321 billion in additional funding to replenish the PPP, and $60 billion for small business disaster loans and grants (see https://www.npr.org/2020/04/22/838870536/read-whats-in-the-latest-coronavirus-relief-bill). The PPP was initially introduced with $349 billion in funding, which was disbursed quickly. For more information about the PPP, click here: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program. And for more information about small business disaster loans and grants, click here: https://www.sba.gov/disaster-assistance/coronavirus-covid-19. Read More
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Governor Issues Executive Order Temporarily Suspending Service of Garnishment Summonses for Consumer Debt

Gov. J.B. Pritzker’s office has issued an executive order temporarily suspending the service of garnishment summonses, wage deduction summonses, and citations to discover assets on consumer debtors and consumer garnishees for the duration of the Gubernatorial Disaster Proclamations. It is effective as of April 14, 2020. Read More
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PPP Funds Almost Exhausted

An article in the New York Times today reported that funding for the Paycheck Protection Program could be exhausted within the next day or two. “As of Wednesday evening, more than 1.4 million loans had been approved at a value of more than $315 billion, according to the Small Business Administration.” Congress originally allocated $350 Billion to this program, although there are serious talks about infusing an additional $250 Billion. There are approximately 30 million small businesses in the U.S. UPDATE: The SBA announced that as of 9 p.m. Wednesday, there were more than 1.5 million small-business loan applications approved totaling more than $324 billion with more than 4,900 lending institutions participating in the program. Additionally, Republicans and Democrats are working on more funding, but those efforts seem to be stalled over disputes about Democrat provisions that call for at least $60 billion in small-business lending for women, minority and veteran-owned businesses in underserved urban, rural and tribal areas, $100 billion for hospitals and $150 billion for state governments. Read More
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PPP Funds begin Flowing

The SBA reported on 4/13 that approximately 65% of the $350 Billion allocated to the Payroll Protection Program (there is talk of an additional $250 Billion in funding) was already committed. Similarly, Crain’s reported on 4/13, that locally CIBC and Wintrust approved 9,000 PPP applications. Consistent with those announcements, we have heard from several businesses that their PPP applications have been approved and funding has started. Read More
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