Chapter 11 verses Chapter 7. What is the difference?

-  by Caryn Tijsseling & S. Paul Edwards

Construction-related bankruptcy filings continue to increase in these troubled economic times.  In fact, there seems to be no end in sight.  It is critical in today’s economic environment for contractors, subcontractors and suppliers to understand basic bankruptcy principles so they can protect their potential claims against projects that enter bankruptcy.  

This blog series will address those basic principles so that you are prepared when your construction-related business is suddenly owed money by an insolvent and bankrupt project.

            The first bankruptcy concept to understand is the difference between Chapter 11 versus a Chapter 7 bankruptcy filing.  Federal law governs all bankruptcy proceedings.  The United States Bankruptcy Code’s goal is to provide an insolvent entity the opportunity to reorganize its operations, or to liquidate its assets, while treating all of its similarly situated creditors equally.  The initial notice of bankruptcy will indicate the Chapter under which the bankruptcy is being filed.  There are several types of bankruptcy, but a construction project is most likely to file for protection—become a “debtor”—under either Chapter 11 or Chapter 7 of the Code. 

A Chapter 11 bankruptcy allows the debtor to reorganize its financial affairs and, hopefully, return to economic viability.  Under Chapter 11 bankruptcy protection, the business generally continues to operate while attempting to return to profitability.  If you are owed money from a debtor that has filed a Chapter 11, there is a good chance you can recover at least a portion of what is owed.

The goal of a Chapter 7 bankruptcy is significantly different.  In a Chapter 7 bankruptcy, the business comes to an end.  The bankruptcy trustee marshals the debtor’s assets, sells them to pay the business’ creditors to the extent possible, and the business closes its doors.  If the debtor files for Chapter 7 protection, it is less likely that there will be any recovery.

Understanding these basic differences is important in order to determine the likelihood of recovery and the appropriate actions to take in order to maximize any potential recovery. 

Ms. Tijsseling is a partner in the Lewis and Roca LLP Litigation group. She focuses primarily on construction, bankruptcy and creditors’ rights, and employment matters.

Mr. Edwards is a senior associate in the firm's Litigation and Bankruptcy Practice Groups. His practice focuses primarily on complex commercial 

litigation in federal and state courts throughout Nevada.

We Have a New 2012 Board!

The Builders Association of Northern Nevada (BANN) elected new leadership for the association’s board for 2012. BANN represents the collective interests of the construction industry in Northern Nevada. The association offers programs of information, training and education to all construction professionals. Because of its active approach to the region's housing needs, the Builders has grown to become the largest construction trade association in the state of Nevada.

The BANN Board for 2012:

President – Travis Means, Homecrafters

Vice President – John Krmpotic, KLS Planning & Design

Associate Vice President – John Brown, NV Energy

Secretary/Treasurer- Teresa DiLoreto, DiLoreto Homes 

Immediate Past President – Curtis Rowe, Aspen Developers

Additional Board Members

Jack Byrom, TMWA

Mike Douglas, Q & D Construction

Victor Rameker, Desert Wind Homes

Kraig Knudsen, Tanamera Development

Greg Peek, ERGS

Ray Pezonella, Pezonella Associates

Rob Dunbar, Ryder Homes

John Tolbert, Toll Brothers

Robb Wong, Guidenby

John Schroeder, J & N Nevada

Michael Ellis, Reno Truss

Jeff Codega, Codega Concepts

Randy Walter, Places Consulting

Gary Duhon, Downey Brand

Garrett Gordon, Lewis & Roca

Ty Windfeldt, Hometown Health

Membership Chair – Victor Rameker

Legislative Chair – Greg Peek

Codes, Infrastructure & Planning Chair – John Krmpotic

Sales & Marketing Council & PR Chair– Teresa DiLoreto

Remodelers/Built Green Nevada Chair – Robb Wong

City of Sparks Council Takes Giant Step to Promote Economic Recovery

At a recent City of Sparks Council retreat, the City Council requested staff to look at amendments to the development codes to remove barriers to development and job creation.  In response, the city staff prepared a resolution to amend fees for development services such as Special Use Permits, Site Plan Reviews, Code Amendments, and Tentative Maps. 

On October 10^th the Council approval the resolution with an added specific review period of six months and fee caps which limit collects not to exceed current amounts.

Currently, there are three types of Special Use Permits:

• Major
• Routine
• Minor.

These three delineations are based on the amount of staff time typically devoted to the type of special use permit. For example, a major Special Use Permit for a new casino in the TC (Tourist Commercial) zoning district. A minor Special Use Permit might be an amendment to a previously approved Special Use Permit. A major requires a $10,000 deposit, a routine is $13,385 and a minor is $7,495. 

Sparks will eliminate the different types of Special Use Permits and simply charge applicants a fee of $120 per hour of staff time. They will require a deposit of $1250  for a Special Use Permit. Staff will be required to track time associated with the entitlement and charge toward the deposit. If the project requires more time than the deposit provided staff will bill the applicant for the remaining fees. 

This is the process used when reviewing Planned Development Handbooks. If less time and materials are required the remainder of the deposit will be refunded (as is with a handbook review process.)  Under no circumstance will the fees exceed the current fee schedule.

The Site Plan Review fee is very similar to that of the Special Use Permit. Currently there are two types of Site Plan Reviews: routine and minor. The fee associated with a routine Site Plan Review is $6,975 and a minor is $4,250. The purpose of a Site Plan Review is to determine whether a proposed use, building, structure addition or change to any building, structure or use will conform to the zoning ordinance, building and fire codes. 

The Site Plan Review insures development provides an acceptable project serving the interests of public health, safety and general welfare. The Site Plan Review process is an administrative process and does not include public hearings. The Council approved removal of the two types of Site Plan Reviews and will require a deposit of $1,250 to move through the process. Again, this $1,250 deposit would be time and material based and requires staff to track time to charge against the deposit. If City costs exceed the deposit amount the applicant would be billed for the remaining charges.

Lastly, the Council approved revising the fee for review of an expired Tentative Subdivision Map. The fee is currently $16,050. As described above with Special Use Permit and Site Plan Review, staff is proposing a fee for review of an expired Tentative Subdivision Map based on time and materials with a deposit of $1,250.

The Builders Association of Northern Nevada applaud the City of Sparks for the insight and leadership in promotion of the economic stability and job creation.

Recharge Nevada Summit on Economic Development

Leaders from the City of Reno, City of Sparks, Washoe County, Nevada Office of Economic Development,  Nevada State Office of Energy, UNR and EDAWN are coming together tomorrow the Recharge Nevada Summit on Economic Development.

The Summit is taking place November 17, 2011 at the Reno-Sparks Convention Center from 4:00p to 7:00p. 

The round table discussion is seeking concrete, actionable advice that can  be incorporated into the planning for a regional approach to economic development. 

The intent behind Recharge Nevada is to:

• Create formal and informal structures and processes to pursue economic development effectively and collaboratively on a regional basis; and
• Cooperate on the preparation of a regional economic development plan to respond to the economic challenges and opportunities facing northwestern Nevada; and
• Develop regional and public-private partnerships and responses to Assembly Bill 449 and to work in close cooperation with the State of Nevada.

To learn more about the submit, visit http://www.rechargenevada.com/. 

Congress Needs to Reinstate Higher Loan Limits

Statement from NAHB Chairman Bob Nielsen on the Need to Reinstate Loan Limits

Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev., issued the following statement regarding the need for Congress to pass legislation to reinstate the higher loan limits for the Federal Housing Administration that expired on Sept. 30:

"Legislation pending in the House and Senate will restore the higher mortgage loan limits for the Federal Housing Administration and is essential to help stabilize the nation's housing financial markets.

"The FHA program is fully self-supporting, and a great example of a public-private partnership with lending institutions. Restoring the loan limits will provide millions of potential consumers in markets throughout the nation access to safe, affordable mortgage financing.

"To help mend the struggling housing market, stabilize home values, provide constancy while private investors re-enter the market and ensure that millions of creditworthy home borrowers can access the best possible mortgage rates, Congress must support this bill to help American families and get the lackluster economy moving forward."