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When a bank holding company files for bankruptcy, it usually occurs after the Federal Deposit Insurance Corp. has taken away its banking subsidiary, according to commentary in the The New York Times's DealBook from Prof. Stephen J. Lubben. In such a chapter 11 case, the only thing left for the company to do is marshal the assets and pay out the results to creditors before liquidating. Washington Mutual provides the most obvious example of this basic model. However, Anchor BanCorp Wisconsin plans to use chapter 11 to recapitalize rather than liquidate, which a judge approved late last week. It filed for chapter 11 on Aug. 12 before its bank, AnchorBank, was taken over by regulators. Indeed, it hopes that its chapter 11 case will avoid such a takeover. By filing for chapter 11, it could take three crucial steps. First, it would be able to pay off more than $180 million in debt owed to other banks for just $49 million. Second, it could convert the U.S. Treasury’s preferred stock into a small equity stake, worth about $6 million, in the holding company. Lastly, Anchor said that it would cancel its existing shares and sell the remaining new equity to investors, leading to the recapitalization of the holding company. Federal regulators still need to officially sign off on the plan, but Anchor said that it had been in contact with those regulators and that they “have not raised any objection.”

Diabetes-medication provider Liberty Medical Supply Inc. is asking the bankruptcy court to extend a critical chapter 11 protection to its former parent company and two employees involved in a $69 million lawsuit that is set to go to trial this summer, Dow Jones Newswires reported yesterday. Liberty Medical, its former parent Medco Health Solutions Inc., Arlene Rodriguez and Carl Dolan are being sued for allegedly failing to return overpayments from Medicare and Medicaid, which allegedly took place between 2004 and 2009. The lawsuit was filed in 2008, but a trial that may last a month is slated for June, according to court documents. The action against Liberty Medical was halted when it filed for bankruptcy. However, it has proceeded against Medco Health, Rodriguez and Dolan because they are not under chapter 11 protection.

The Judicial Conference on Thursday published a notice in the Federal Register that certain dollar amounts in title 11 and title 28, United States Code, will be increased for cases commencing after April 1, 2013. Seven Official Bankruptcy Forms (1, 6C, 6E, 7, 10, 22A and 22C) and two Director's Forms (200 and 283) also will be amended to reflect these adjusted dollar amounts. For a list of the sections in title 11 and 28 of the Bankruptcy Code affected by the increases, please click here:
https://www.federalregister.gov/articles/2013/02/21/2013-03998/revision…

Reps. Steve Cohen (D-Tenn.) and Danny Davis (D-Ill.) on Wednesday introduced legislation that would allow privately issued student loans to be discharged in bankruptcy, InsideARM.com reported on Friday. This is the fifth time a bill like this has been introduced in the House, but Cohen feels it stands a better chance now given the current focus on student loan debt, including a reported rise in student loan debt among members of Congress. The bill, H.R. 532, would amend the U.S. bankruptcy code to allow private student loans to be discharged in bankruptcy proceedings. A report from the Consumer Financial Protection Bureau (CFPB) last year indicated that some $150 billion of the $1 trillion in outstanding student loan debt was from private lenders. But the growth in private student loans is likely to slow in coming years. The Student Aid and Fiscal Responsibility Act, which got attached to and passed with the healthcare reform bill in 2010, effectively killed federally guaranteed private student lending. Going forward, all student loans that would have been previously guaranteed by the government are going to be originated directly by the U.S. Department of Education. Cohen’s bill would not allow federal direct loans to be discharged in bankruptcy.

With its patient census shrinking after news of a Medicare audit, San Diego Hospice filed for chapter 11 protection yesterday, the San Diego Union-Tribune reported today. San Diego Hospice’s financial problems began in mid-November, when it revealed that it faced the possibility of refunding millions to Medicare because its admissions policies did not follow government guidelines closely enough. The hospice, which potentially owes millions to the government, enacted an austerity plan in late November, laying off more than 260 employees and closing its 24-bed hospital in Hillcrest. Read more:
http://www.utsandiego.com/news/2013/feb/04/hospice-files-for-bankruptcy/

For more on financial distress in the health care industry, be sure to pick up a copy of the ABI Health Care Insolvency Manual, Third Edition available now in the ABI Bookstore.

Sen. Chris Coons (D-Del.) yesterday became chairman of the Senate Judiciary Subcommittee on Bankruptcy and the Courts after a vote by the Judiciary Committee, replacing Sen. Amy Klobuchar (D-Minn.), Bloomberg News reported today. The subcommittee also oversees new judgeships, court administration and legal reform. Coons defended Delaware's dominant position for corporate bankruptcy filings, saying that the judges and attorneys in his state have expertise that can speed corporations through bankruptcy and preserve jobs where possible. “For those who like Delaware as a bankruptcy venue, this is a good development,” said ABI Executive Director Samuel J. Gerdano.

Boston Hannah International LLC, a publishing company, filed for chapter 7 liquidation, Bloomberg News reported yesterday. The company listed assets of less than $50,000 against debt of more than $500 million in a chapter 7 petition filed yesterday. The case is In re Boston Hannah International LLC, 1:12-bk- 11645, U.S. Bankruptcy Court, District of Delaware (Wilmington).

American Airlines parent AMR Corp. will explore strategic options that include a possible sale under an agreement with the unsecured creditors committee in its bankruptcy case, Bloomberg News reported on Saturday. The panel pressed for such an accord so AMR's review of its options would include studying a merger with US Airways Group Inc., which is considering whether to mount a takeover bid. The process would begin this summer, before the September expiration of AMR's exclusive right to propose a reorganization plan. Fort Worth, Texas-based AMR said that the accord calls for assessing "potential consolidation scenarios" without committing to pursuing a deal.

Dynegy Inc. posted a narrower quarterly loss as it produced more power from cheap natural gas rather than coal, Reuters reported yesterday. The company last month resolved major disputes with creditors that could put its unit Dynegy Holdings LLC a step closer to emerging from bankruptcy. Dynegy has reached an agreement in principle with creditors holding more than $2.5 billion of claims against the unit, which filed for bankruptcy protection on Nov. 7. A hearing on the settlement agreement has been scheduled for June 1, Dynegy said yesterday.

Pfizer Inc.'s bankrupt Quigley Co. unit will continue its eight-year bankruptcy, and seeks to challenge a federal appeals court ruling, a Pfizer lawyer said, Bloomberg News reported yesterday. Jay Goffman told Bankruptcy Judge Stuart Bernstein yesterday that Pfizer may challenge a higher court's ruling in April that found Pfizer is not entitled to protection from some asbestos claims related to Quigley. Pfizer also plans to proceed with Quigley's bankruptcy, and seeks to have it exit court protection in September. Quigley, founded in 1916, made three products for the steel industry from the 1940s to the 1970s that contained asbestos. Pfizer bought Quigley in 1968, and the company stopped most operations in 1992, filing for bankruptcy in 2004. Pfizer has said that it never made or sold any Quigley products, and some claimants had not released Pfizer from alleged "derivative liability." Judge Bernstein had ruled in bankruptcy court that Quigley's chapter 11 case barred certain lawsuits against Pfizer. A May 2011 decision in district court reversed the order, and Pfizer had appealed that ruling.