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24 Hour Fitness Seeks Loan Ahead of Potential Bankruptcy Filing

24 Hour Fitness Prepares for Potential Bankruptcy as Gyms Begin to Open

24 Hour Fitness has not been left behind in considering Chapter 11 bankruptcy in this Covid-19 Pandemic.

The company is a privately owned and operated fitness center chain headquartered in San Ramon, California. It is expected to close some gyms permanently and is reportedly preparing for a potential bankruptcy filing soon.

The company, which operates 430 gyms across the US, is seeking a loan to stay in business. 24 Hour Fitness could file for bankruptcy in the coming weeks.

The proposed Chapter 11 filing is to cut 24 Hour’s borrowings by swapping debt for equity and handing control to lenders. The company is getting advice from restructuring lawyers at Weil, Gotshal & Manges LLP, and investment bankers at Lazard as well. Plans are in flux and could change depending on future reopening and ongoing negotiations with creditors and 24 Hour’s landlords.

24 Hour Fitness has kept its position in the business for over 30 years and is facing $1.3 billion of debt from a 2014 leveraged buyout by AEA Investors and the Ontario Teachers’ Pension Plan.

In a statement, 24 Hour Fitness said that it is considering options to stay in business, but would not comment on the specifics. Currently, there are 24 Hour Fitness facilities in Alamo, San Ramon, Pleasanton, and Livermore.

Gyms stayed closed since March in California and Gov. Gavin Newsom was expected to guide reopening for fitness facilities soon.

24 Hour Fitness said that it has been rearranging equipment to ensure social distancing as gyms reopen and thoroughly cleaned clubs. 

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Fraudulent Conveyance Law in California

Is Fraudulent Conveyance a Crime in California?

Penal Code 1-54 PC is a California statute that makes fraudulent conveyance a crime. A fraudulent conveyance is when a person sells, gives away, or otherwise disposes of money or property to prevent a creditor from collecting that money or property.

An example of a fraudulent conveyance is when a bank is suing you for the money, and you decide to transfer the title of your condominium to your brother to stop the bank from getting at it.

There are civil penalties for fraudulent conveyance, including nullifying or undoing the transfer. Penal Code 154 actually makes it a misdemeanor. This means a person could go to jail for up to six months.

However, many innocent people get wrongly charged under Penal Code 154. It may be that you were acting in good faith and not simply trying to hide assets from creditors. You may have sold the property because you needed the money or for legitimate business reasons. The police may have violated your rights and conducted illegal searches in the course of investigating the alleged crime.

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Post-COVID-19 Appraisals and the Burden Of Proof in California Bankruptcy Cases

California Bankruptcy Burdens Of Proof and Effects on the Chapter 11 Process

Bankruptcy cases have been predicted to rise in the next 18 months following the outbreak of the COVID-19 pandemic. In an unprecedented financially stressing situation as has been caused by the economic impacts of government directives aimed at curbing the spread of the deadly disease, experts warn of an exponential increase in recorded bankruptcy cases.

California recently reopened its businesses after a long period of inactivity after the government instituted stiff measures to combat the spread of the virus. Almost a month following the reopening of the economy, businesses are still struggling to recover from the extended period of inactivity.

Others already opted to file for California bankruptcy protection to stay afloat amid the worsening COVID-19 situation. Economic experts now point out that bankruptcy appraisals are set to present a new challenge.

California bankruptcy law dictates that individuals and businesses filing for Chapter 13 or Chapter 11 protection provide sufficient proof to stand any real chance of securing such state protection. Thus the party with the burden of proof stands to lose out and carry its burden should it be denied the bankruptcy claim.

With the COVID-19 pandemic wreaking havoc all across the state; however, the bankruptcy judges and practitioners are set to experience unprecedented challenges in appraising the financial situation of bankruptcy applicants.

Real estate valuation is a critical part in the appraisals for eligibility to bankruptcy under the Bankruptcy Code. The market value has however been unstable for the better part of the first quarter of the year following the outbreak of the coronavirus pandemic. Moreover, the market

The task of appraising the financial value of assets in a bankruptcy case falls on the judges and practitioners. With the uncertainty caused by the economic impacts of COVID-19; however, this task is set to present a big challenge for the involved parties.

Comparable sales usually used to assess the validity of a claim by appraisers is also set to present a considerable challenge, given the instability of the market.

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Documents You Need Before Filing for Bankruptcy

What Documents Do You Need to File For Bankruptcy?

Bankruptcy isn’t the most fun process in the world and document collecting is even more stressful. However, the preparation of documents is a mandatory process, and knowing which documents to prepare for the trustee will make your bankruptcy case much easier.

The documentation you need is generally the same for both chapter 7 and chapter 13 bankruptcies. First, you’ll need your tax returns and your W2s from the previous two years.

You’ll also need to show your income which means copies of your pay stubs from the six months prior to the bankruptcy filing along with any additional income sources like rent collected, disability and social security.

For the self-employed individuals, they will need to need to prepare a profit and loss statement, both year-to-date and for the two whole years prior to the filing of bankruptcy. Business bank accounts may be needed to prove this.

Real estate owners will have to provide the fair market value of their property as well as mortgage statements and depending on your trustee maybe even the mortgage or deed of trust and home insurance.

For vehicles, a legitimate proof of value and, if applicable, a recent car loan statement should suffice. However, the trustee may also request copies of car registration and insurance.

Finally, statements of personal bank and retirement accounts, along with documentation of financial obligations such as alimony or child support will be required.

Always remember to carry your photo ID and proof of social security to any hearing.

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How Do You Know If You Qualify For Chapter 7 Bankruptcy?

Under the new laws, there is a lot of requirements for filing bankruptcy chapter 7 bankruptcy. Primarily, you have to pass what is called the means test. A means test is basically a way of evaluating whether your current monthly income falls below certain levels.

These levels are called the family medium income. For example, for a family of two people, the family medium income in California is $62,970. For a family of four people, it is $78,869.

A second requirement before you can file your bankruptcy petition under Chapter 7 is a mandatory credit counseling course.

When filing for bankruptcy, you must submit your credit counseling certificate to the court. This certificate indicates that you have taken the course and you understand what your responsibilities are to the bankruptcy court as well as to your creditor.

You have to understand that in Chapter 7 bankruptcy, the bankruptcy court appoints a bankruptcy trustee whose responsibilities include making sure that you have complied with the requirements such as the certificate and the means test.

The trustee will also ensure you have filed your taxes and submitted your last two years of your tax returns in addition to making sure that there are no assets that can be sold off to pay off your creditors.

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Are Bankruptcy Laws The Same in All States?

Most bankruptcy laws are set by the federal government. However, there are different components of these laws that are set by the states.

The biggest one that you need to be concerned about is your property exemptions. This is because your state determines the amount of each category of property that you’re allowed to keep.

However, this gets more complicated when a state has more than one set of rules, like California.

Some states don’t have their own rules and solely rely on the default federal laws.

All of these are primarily determined by where you live, how long you have lived there, and where you might have lived in the past. It can get complicated if you’re somebody who has moved around from state to state.

For example, in California, you’re allowed to keep an automobile that’s approximately $3,500. In another state, this figure could be higher or lower.

California also has better homestead exemption than most states. Therefore, you really have to consider which state you are allocated when you file for bankruptcy, depending on where you’ve been living over the last several years.

If the bankruptcy laws in that state don’t favor your situation, you might want to delay your bankruptcy or make some changes to your assets so that you’re able to keep more of them.

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California Bankruptcy Cases and the Fate of Employees

Retail Giant JC Penney Struggles with Debt Restructuring Plan

Following the initial preventive measures taken by the US government, several states instituted partial lockdown measures as a means to combat the spread of the COVID-19 pandemic. With the restrictive measures in place, an unprecedented number of companies have sought bankruptcy protection within the past three months.

As states reopen and resume their businesses, the financial strain caused by the raft of measures instituted to combat the pandemic is still being felt across the various economic sectors. Businesses are still tittering on the edge of bankruptcy as they struggle to strike a balance between creditors and their employee’s benefits.

The latest among retail giants struggling with bankruptcy as a result of the COVID-19 combating measures is J.C Penney. The retail store’s lawyers are currently pushing for a speedy exit from bankruptcy proceedings following prolonged closures in their numerous stores.

California bankruptcy law allows companies that are pursuing Chapter 11 bankruptcy to continue operations during its bankruptcy proceedings. Such a step is essential to ensure JC Penny’s operations as the state opens following the prolonged lockdown.

JCPenney employs a substantial number of California residents in its various branches across the state. Its pursuit of Chapter 11 bankruptcy protection is in line with California bankruptcy laws that protect such businesses as they restructure their loans and debts with creditors.

It is expected that the company will resume its operations in California while undertaking the restructuring plan with its creditors. The company already obtained the go-ahead from bankruptcy courts to continue paying its staff and vendors delivering merchandise to their retail stores.

In a move to hasten the Chapter 11 bankruptcy reorganization plan, the company obtained clearance to use over $500 million of its cash on hand to clear the debts from its employees and vendors.

The move will be beneficial to California residents employed in JC Penney’s stores all across the state as well as the vendors affiliated with the brand. This comes as employment claims soared early May in the employees’ following the prolonged lockdown.

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Cram downs in California Chapter 13 Bankruptcy

Asset Loans and Restrictions under California Bankruptcy Laws

One of the main advantages of filing for a Chapter 13 bankruptcy protection as compared to Chapter 7 is the ability to cram down debts secured by a property. Cramming down of a debt involves the reduction of the balance owed in line with the value of the asset that is attached to it.

Any debt secured by the property under California Chapter 13 bankruptcy laws can be crammed down. These include investment property, mortgages, furniture as well as household items. The term is, however, commonly associated with car loans as such assets are easy to evaluate.

Cramming down of debts under California Bankruptcy law is subject to eligibility assessment. Mortgages for principal residences, for instance, cannot be crammed down unless they meet the court’s requirements. This makes these types of debts the harder to cram down as compared to car loans and other similar assets.

For a secured debt to be eligible for cram down, the lender has to be receiving a security interest in the asset which the debtor owns. The creditor also has to have the right to take back the asset if the debtor is unable to keep up with the loan repayments under the California laws.

There are several different reasons why people seek to cram down their debts to a creditor. Cram downs for instance, increase the payment periods by reducing the monthly payment that you make on loan. In such a manner, the debtor will gain some degree of relief in their monthly obligations especially when they are dealing with several different debts.

Crammed down debts have been known to last up to five years, the entire period of a Chapter 13 bankruptcy stay. In other instances, bankruptcy courts may intervene to have your interest rate reduced and ensure that you own the asset after successful loan completion.

Cram downs, however, are not without their limitations. California bankruptcy law, for instance, prevents cram downs for recent purchases to protect lenders’ interests. Thus one would be required to have owned the asset for at least a specific length of time before filing for bankruptcy.

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Bankruptcy and Family Law – Does One Affect the Other?

Bankruptcy can be helpful for family finances, especially in this current economy. Consumer credit debt can be erased, leaving more money for day-to-day necessities and other important commitments such as child support.

There are other reasons bankruptcy can be helpful. You can eliminate debt from old taxes, and if debt issues are solved before filing for divorce, the dissolution proceedings often go far more smoothly.

A married couple needn’t file for bankruptcy as a couple, but there may be consequences to community property if one spouse files alone. Non-exempt assets are automatically included in the bankruptcy estate of one spouse files for bankruptcy protection alone. The sale of these non-exempt assets ensures that money received from the sale can go toward outstanding debts.

However, most chapter 7 bankruptcy petitions have no assets, so most of the time, none of the assets are counted because all property is considered exempt. However, if one spouse files for bankruptcy, the automatic stay will not apply to the spouse who did not file.

The 2005 amendments to the bankruptcy law changed the law so that the debt originating in divorce proceedings will not be discharged in a chapter 7 bankruptcy. However, bankruptcy law states that all debt, even if it is not dischargeable, must be included in the bankruptcy petition paperwork.

Debts to a current or former spouse must be listed on bankruptcy filings, but this does not mean that the debt will be discharged or that the filing party is trying to discharge the debt. If your spouse is filing for bankruptcy, you must know this fact and take action to defend your property and your interest.

When one spouse is personally responsible for a debt, and the other spouse has filed for bankruptcy protection, creditors can come after non-exempt assets and sell those assets to pay debts. Community property the couple has together during the course of the marriage can be held responsible for debts incurred during the marriage.

Assets such as inheritances received by one spouse during the marriage, property owned by one spouse prior to the marriage, and gifts to one spouse during the marriage are not property. Earnings and income of either on both spouses, real estate and other assets acquired during the marriage are considered community property.

If a couple seeks a divorce during a bankruptcy, family courts will not be able to divide any assets that are in the bankruptcy estate, except where the assets are exempt. Community property gets divided during a divorce proceeding. When the assets are divided, the property is no longer community property as it becomes personal property. Creditors are no longer allowed to go after community property to satisfy debts because community property has ceased to exist.

Although credit reporting agencies are not supposed to list the bankruptcy on your credit report if your spouse filed for one and you did not, the bankruptcy may be noted on your report anyway. Whether this practice is proper from a legal standpoint, however, is still unclear.

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Tax Refunds in California Chapter 13 Bankruptcy

Exclusion of Tax Refunds in California Bankruptcy Cases

Filing for Chapter 13 bankruptcy protection comes with its requirements just as in any other form of individual or business case, among the basic requirements in Chapter 13 bankruptcy case is the need to provide tax refunds. 

When filing for a Chapter 13, the courts would require you to hand over your tax refunds to the appointed trustee to pay off your creditors. This is unlike a Chapter 7, which does not take into consideration your tax affairs as being part of your bankruptcy estate.

In Chapter 13, all of the debtor’s disposable income is channeled towards repaying their creditors through the court-appointed trustee. In some situations, however, California bankruptcy courts would excuse one from having to include their tax refunds in the bankruptcy estate.

The inclusion of the tax refunds in the bankruptcy estate stems from the fact that the trustee may not have included it in the calculations of your necessary expenses when formulating the Chapter 13 bankruptcy plan.

Thus one can dispute its inclusion when it comes up after Chapter 13 protection is underway.

To do that, however, you would have to submit the proof in a California bankruptcy court that you will depend on that tax refund to make your repayment plan work.

One way to do this is to argue that your necessary expenses increased, which the initial plan would likely not have taken into account, thus requiring you to keep the refunds to meet daily expenditure.

An alternative way of getting your tax refund excused is to include a provision in the initial version of the repayment plan excusing you from having the tax refunds in the calculations.

However, you would have to be careful in this strategy to avoid objections of the creditors and trustees, who may view the refunds as being surplus cash. Asking for a limited amount of the tax refunds, in this case, could increase your chances of being excused from having to use it in debt repayment.