The Illinois Business Law Journal

Are Your Gift Cards Safe?

I. Introduction

On February 19th, 2008 the specialty retailer Sharper Image filed for bankruptcy under Chapter 11 and announced that it would no longer be accepting its gift cards. This came as a shock to consumers, who suddenly found their holiday gift cards worthless. "'That is typical of businesses that reorganize under Chapter 11 bankruptcy, which treats gift cards as a loan to the company, not as cash.'" [1] Chapter 11 allows for an automatic stay of recovery for any claim against the debtor that arose before the filing of the bankruptcy claim. [2] In response to this announcement, C. Britt Beemer, chairman of America's Research Group, projected that this would greatly affect Sharper Image's future. "'You will see a lot of frustration among customers. You basically stole [money] out of the customers' pocket. They will never forgive you.'" [3]

Michael Nifong Files for Bankruptcy: Buys Some Time and Maybe More

     Michael Nifong, the former North Carolina prosecutor made controversially famous for his rape accusations against several lacrosse players from the University of Duke, has filed for bankruptcy. [1] After resigning and being disbarred, the former D.A. filed for a Chapter 7 bankruptcy, listing liabilities in excess of 180 million dollars. [2]

Bankruptcy and Student Loans: The “Undue Hardship” Factor

       As tuition rates climb to an all time high, it is not unusual to hear of students leaving college with 40, 50, or even 60 thousand dollars of debt. Many law and medical students are graduating from school with a degree in one hand and 100 thousand dollars in student loans in the other. This continuing increase in tuition has many eager students pursuing community colleges over four year universities. [1] For example, Mott Community College's Michael Kelly states that enrollement has been up 28 percent in the last five years. [2] Kelly says that for some the choice is simple and "[t]he higher the cost is, the more students we get." [3]

A Change in the FICO Scoring System Seals the Gap for Authorized User Accounts

I. Introduction:

     In June 2007, the Fair Isaac Corporation announced its plans to modify the FICO scoring system to better ensure the “continued reliability and predictive power of FICO scores.” [1] These changes were set in motion on September 1, 2007, and are declared to be the most significant alterations made to the scoring system in the last ten years. [2] Analysts are unsure how the new scoring model, known as FICO 08, will affect the overall credit system, but they have “no doubt that [FICO 08] will have a major impact on credit scores across the country.” [3] One of the major changes that will affect over 50 million consumers [4] is that FICO scores will no longer factor authorized user accounts into their credit scoring formulas. [5]

Credit after Filing a Chapter 7 Bankruptcy: how individuals can improve their credit score after a Chapter 7 bankruptcy.

     According to the American Bankruptcy Institute, there were 18,466 non-business Chapter 7 bankruptcy claims filed in the state of Illinois last year.[1] Even though this amount is nearly three times as less as the amount of Chapter 7 claims filed in 2005, analysts at the Federal Reserve indicate that household debt is at a record high relative to disposable income for 2007.[2] Consequently, some analysts are concerned that the high level of indebtedness will lead to more bankruptcies in 2007.[3] Nonetheless, filing for a Chapter 7 bankruptcy is not the end of the world for one’s credit.

New Century Financial Heads Towards Bankruptcy

New Century Financial announced on Monday that its lenders would not continue to provide it financing. [1]  Coming soon after the federal government began investigating accounting errors and stock sales at New Century Financial, this latest news only worsens the problems of the nation’s largest sub-prime lender. [2]  Many analysts predicted that New Century would soon be insolvent after it announced that it would stop lending and this latest announcement seems to confirm their fears. [3]  The collapse of New Century Financial will further damage an already troubled sub-prime mortgage industry.

Legacy of Japanese Civil Rehabilitation Act: Goldman Sachs is Cashing In on Golf Business in Japan

        On October 4, 2006, the Wall Street Journal reported that golf course business in Japan has emerged from its doldrums.[1] Back to the late-1980s, Japan enjoyed a large presence in golf.[2] Golf course members were required to deposit some tens of thousands of dollars with developers before the course was completed and opened. Membership rights were composed of two elements: (1) a right in the deposit and (2) a right to play on the course. These membership rights were traded for incredibly high price far exceeding the deposit amount.[3] Golf club memberships were fetching $2 million-plus at the most prestigious clubs back then.[4] However, golf course business ended in tears when Japan's bubbling economy collapsed by the early 1990s.[5] The market for the resale of golf course membership rights subsequently evaporated. [6]

Going "Stealth": Executive Compensation in Ch 11 After Dana

A rose by any other name may still smell as sweet, but execs at Dana Corp. recently discovered that calling executive compensation by another name did not pass the smell test in court. S.D.N.Y. Bankruptcy Judge Burton Lifland recently denied Dana's proposed executive compensation package as contrary to the provisions of the Bankruptcy Code. [1]  Nearly one year after BAPCPA, has the Dana case finally ushered in a new approach to evaluating executive compensation plans, as envisioned by Congress?

Hedge Funds Active in Bankruptcy Proceedings

Debtors reorganizing under Chapter 11 of the U.S. Bankruptcy Code cannot confirm plans of reorganization without adequate financing.  Increasingly, hedge funds are stepping in to provide such capital.

No One at the Helm: Trustee Appointed to Manage Death Row Records

Suge Knight’s hopes of maintaining control of Death Row Records during its Chapter 11 reorganization were dashed on July 7, 2006, when United States Bankruptcy Judge Ellen Carroll placed the company under the management of a case trustee. Judge Carroll cited gross mismanagement of the record company’s finances, stating, "it seems apparent that there is no one at the helm." [1]

The Death Row case illustrates a pervasive tension in corporate reorganizations: at what point does the interest of the creditors trump the vested control of management, which may have driven the company insolvent in the first place? Under certain conditions, the bankruptcy court has the power to transfer control of the estate from the debtor-in-possession to a trustee under section 1104(a) of the Bankruptcy Code. [2]