Robert Collazo: Bankruptcy Lawyer Grantsville Utah

To calculate the size of your household, for purpose of determining your “allowable means test” expenses and deciding whether your Chapter 7 petition is presumptively subject to being dismissed, the bankruptcy court will use a “heads on the bed” approach and to fix household size at two, based on the fact that you and your spouse were living in the same home, without considering whether you provided any support to your spouse, or whether your spouse was dependent upon you. It is inappropriate to consider a household member’s dependency on the debtor when determining household size; and “household” should be understood in the ordinary sense of the word. You are only required to include your roommate’s monthly contributions to pay for household expenses in calculating your current monthly income, not all of the roommate’s monthly income. However, there are conflicting case laws on these issues. Hence it is important that you consult with an experienced Grantsville Utah bankruptcy attorney.

Special Circumstances

To qualify as a “special circumstance,” of a kind sufficient to rebut the statutory presumption arising under the means test that your Chapter 7 case was filed in bad faith, the circumstances need not be of an involuntary nature and have developed due to factors outside your control. Special circumstances are also scenarios that leave you with no reasonable alternative to the expense or adjustment of income. Special circumstances are ones that are out of the ordinary for an average family. An experienced Grantsville Utah bankruptcy lawyer can review your case to see if you qualify as a special circumstance.

If you are in a financial crisis and having to deal with creditors or are facing foreclosure, and you see no way out of your financial mess, consult with an experienced Grantsville Utah bankruptcy lawyer. The Grantsville Utah bankruptcy lawyer can help you file for bankruptcy under Chapter 7. Once you file a Chapter 7 bankruptcy petition, your creditors are legally barred from contacting you regarding the debt you owe them or taking any steps to recover the debts. The Congress enacted the bankruptcy code to give honest debtors a fresh start in life. You should avail of the bankruptcy option if all other options have been exhausted. Consult with an experienced Grantsville Utah bankruptcy lawyer to know your bankruptcy options.

Corporate Bankruptcy and Personal Bankruptcy

Until 2005, retention bonuses of many millions of dollars were paid to management personnel who stayed through a Chapter 11 case. The 2005 Amendments significantly restrict these payments.

Prior to 2005, a debtor’s initial filings with the Bankruptcy Court often included a motion seeking approval of a key executive retention plan (KERP). The 2005 Amendments put an end to that practice. A company is now required to show that each key management employee for which a retention bonus is sought has another offer that they will take if there is no KERP. This standard is nearly impossible to satisfy. It requires that each employee come to court and testify under oath that they have another offer and will leave absent the KERP. In addition, the debtor is required to prove that the services of the key employee are essential to the survival of the business. For many Chapter 11 companies, the crucial issue is not survival but value preservation for their constituents. Even if the company cannot show it will fail due to the loss of the employee, a successful liquidating plan usually depends on maximizing the value of the enterprise, which depends on retention of key managers. In addition, the retention bonus may not be more than 10 times the mean bonus to nonmanagement employees or, if no bonus was paid, an amount that is not more than 25%.

Essentially, the only bonuses available are those in effect prior to a debtor filing for bankruptcy, assuming those contracts can be assumed. A few courts have approved completion bonuses for executives who remain with a debtor, but even those arrangements are under fire.

Success Bonuses

The Bankruptcy Code, as amended in 2005, does not address incentive or success bonuses, other than a general provision that compensation must be justified by the facts and circumstances. Management compensation that includes a bonus based on a revenue or earnings target being achieved or a threshold sale price for an asset obtained appears to be allowed under the 2005 Amendments. The efforts of the manager receiving the bonus must be necessary to achieving the result for which the bonus is paid.

Termination of Employees

When a business is liquidated its employees are either terminated or, if they are lucky, given the opportunity of employment with the purchaser of the business segment for which they work. The termination of an employee can trigger obligations to comply with the federal Worker Adjustment and Retraining Notification Act (WARN Act), individual state WARN Acts, and even local labor laws. Termination of employment agreements give rise to claims against the debtor—some priority, some general unsecured. In this turmoil, the liquidator must do everything possible to preserve information held by such employees and seek their cooperation in future litigation brought by the liquidator.

The WARN Act of 1988 was enacted to protect workers, their families, and communities from plant closings and mass layoffs by requiring companies to give advance notice of termination, so that affected workers have time to seek other jobs or retraining. Usually, 60 days’ notice is required.

Determinations under the WARN Act are extremely fact sensitive. Whether or not the company is required to give notice and if so, to which employees, requires fact-gathering by the liquidator. The exact number of employees and their status as full-time or part-time must be determined before applying the law to the facts to make the relevant determination. Assuming WARN Act notice is required, even for a limited number of employees, the company may be able to take advantage of the faltering company exception in order to provide less than the normal 60 days’ notice of contemplated terminations.

WARN applies to a business or enterprise that employs (i) 100 or more fulltime employees or (ii) 100 or more employees who work in the aggregate at least 4,000 hours per week, exclusive of overtime. A part-time employee, for purposes of WARN, is an employee who (i) works fewer than 20 hours per week on average or (ii) who has been employed for fewer than 6 of the 12 months preceding the date on which WARN notice is required. Two events are covered by the WARN Act—plant closings and mass layoffs, both of which frequently occur when a business is being liquidated.
Plant Closings

A plant closing is defined as the temporary or permanent shutdown of a single site of employment, if such shutdown results in an employment loss for 50 or more full-time employees (excluding part-time employees, as defined by WARN) during any 30-day period. The term “single site” has been litigated in several contexts. When the duties for the workers in question require point-to-point travel or where the workers are stationed or work primarily outside of the employer’s regular employment sites, the single site to which such employees are assigned, work out of, or report to is generally accepted as the single site they are covered under for WARN Act purposes. Foreign sites of employment are not subject to or covered by WARN.

As far as a debtor is concerned, each regional location would be considered a single site of employment and WARN notice would only be required to the extent that the debtor terminates 50 or more full-time employees at each such site. Put another way, if fewer than 50 full-time employees are terminated at each regional location which the debtor plans to close, WARN Act notice is not required.

Mass Layoffs

The second event covered by the WARN Act is a mass layoff. A mass layoff occurs when, in the absence of a plant closing, an employment loss at a single site of employment for any 30-day period is (i) at least one-third of the employees at the site and (ii) at least 50 full-time employees, or (iii) at least 500 full-time employees. In other words, a mass layoff occurs when a very substantial of the workforce occurs at a particular location.

The WARN Act requires 60 days prior written notice of the plant closing or mass layoff. Notice of the decision to engage in a plant closing or mass layoff must be provided to (i) each representative of the affected employees as of the time of the notice (i.e., their respective unions) or, if the affected employees have no such representative, to each affected employee, and (ii) (a) the state in which the dislocated worker unit is located and (b) the chief elected official of the unit of local government within which the plant closing or mass layoff is to occur. If multiple local government units exist, the unit to be noticed is the one to which the debtor paid the highest amount of taxes for the year preceding the year for which the decision to terminate is made.

An employer who violates the WARN Act by ordering a plant closing or mass layoff without providing the requisite notice is liable to each aggrieved employee for back pay for each day of violation and benefits under an employee benefit plan (as defined in Section 3 of ERISA). This amount is then reduced by the sum of (i) wages paid for the period of the violation, (ii) voluntary and unconditional payments which are not required by any legal obligation, and (iii) payments to a trustee or third party on behalf of the employee for the period of the violation.

A liquidator who is required to provide notice under the WARN Act and terminates the requisite number of employees without doing so, would be liable for 60 days of back pay to each aggrieved employee, with reductions as set forth above. Any such liability has been held to constitute wages and is entitled to both an administrative expense (for postpetition terminations) and a priority (for prepetition terminations) in bankruptcy. However, any priority for prepetition wages (i) is limited to $10,000 and (ii) would be reduced by amounts employees receive on account of prepetition wages paid pursuant to the first-day employee wage motions. An employer is only liable for each day of a violation. So, if the company gives no notice and terminates everyone immediately, the potential liability would be for a full 60 days of back pay to each aggrieved employee. However, if the company gave notice, but, for example 30 days later decided that enough was enough and let everyone go, the potential liability would only be for 30 days of back pay.

The strategy of firing the employees immediately prior to bankruptcy and rehiring them immediately thereafter has been considered. No WARN Act liability would be incurred by the debtor for this action, because the employment loss has not continued for the requisite 30-day period. Once the employees are rehired, however, the WARN Act notice period runs anew for any subsequent plant closings or mass layoffs, requiring a 60-day notice period.

If you are planning to liquidate your large business through bankruptcy, speak to an experienced Grantsville Utah bankruptcy lawyer.

Bankruptcy-Related Exceptions

The so-called faltering company exception provides that the 60-day notice period may be reduced if certain conditions are met. Specifically, if as of the time notice would have been required the employer (i) was actively seeking capital or business which, if obtained, would have avoided or postponed the shutdown and (ii) had a reasonable good faith belief that had notice been provided, it would have precluded the employer from obtaining the required capital or business, the notice period may be reduced. In this situation, the employer may provide less than 60 days’ notice but must provide as much notice as is practicable and must give a brief statement of the basis for the shortened period. This exception applies only to plant closings, not mass layoffs, is narrowly construed by courts, and a causal connection between the shutdown and the failure to obtain the business or capital must be shown.