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Eddie Bauer Holdings Inc. filed for Chapter 11 bankruptcy protection Wednesday, citing an inability to pay back debt. ( That’ usually the case in a bankruptcy filing.)  Eddie cited costs from the 2005 reorganization and the  combined pressure from the current recession as leaving the company “with no choice but to use this process to reduce the debt load,” said chief executive Neil Fiske in a prepared statement.

“Eddie Bauer plans to sell most of its assets to a private-equity firm CCMP Capital Advisors for $202 million. It expects the sale will be complete in 60 days or less.

CCMP has agreed to keep most of the stores and employees, though the sale is open to other bidders per bankruptcy law. Eddie Bauer has 371 stores nationwide, with 8,600 employees.

Eddie Bauer said it secured financing from Bank of America (BAC, Fortune 500) and CIT Group/Business Credit (CIT, Fortune 500) for a total $100 million based on final court order.

In April the company negotiated with lenders for short-term relief on its debts before “explor[ing] various paths for restructuring its balance sheet,” the release said, but it was ultimately unable to do so.

Eddie Bauer is only one of several retailers to file for bankruptcy during the recession. Circuit City, KB Toys, Sharper Image, Fortunoff, Filene’s Basement, Steve & Barry’s and Linens ‘n Things have all filed for Chapter 11, crunched by low consumer spending power

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In re Ross-Tousey, 549 F.3d 1148 (7th Cir. 2008),  The
U.S Court of Appeals, Fifth Circuit, recently ruled that on the means
test’s Form B22A, a vehicle ownership expense is allowed even when the
debtor has no car payment.  The court’s ruling in In re Tate, No. 08-60953 (5th Cir. June 10, 2009), agrees with the only other circuit court opinion on this issue,

Both Tate and Ross-Tousey agree that such an
expense is allowed, making it easier for a debtor whose motor vehicle
is owned free and clear of lease or car payments to pass the means
test.  Although these decisons are persuasive authoritiy, there does mnot appear to be any ruling on the issue in the Ninth Circuit.

In Tate, the appeals court noted that some lower federal courts had followed wo approaches 1)the Internal Revenue Manual (IRM) approach to the question of vehicle ownership allowance expenses, amd 2) the Plain Language approach.

Under the IRM
approach, a debtor can deduct for a vehicle ownership expense only if
he or she has an “applicable” or “relevant” ownership expense.  These courts say that if you aren’t actually paying it, you can’t deduct it on
the means test., under the IRM approach.

The other approach, followed by the appeals court in both Tate and Ross-Tousey, is the plain language approach,
which simply interprets the bankruptcy code’s section
707(b)(2)(A)(II)(i) to refer to a debtor’s specific geographic location
and the number of vehicles the debtor owns.  Thus,
the debtor’s “applicable monthly expense” for the vehicle ownership
allowance is the expense specified in the Internal Revenue Manual for
the debtor’s location for his or her number of vehicles.  Having an
actual lease or car payment is not required to take an expense for
vehicle ownership allowance on the means test under the plain language
approach.

The appeals court in Tate found the Ross-Tousey
court’s reasoning to be more persuasive because there are “costs associated
with vehicle ownership even when no lease or car payments are due,”
and ”debtors with no car payments may nonetheless need replacement
transportation during the bankruptcy proceedings.”

The court also observed that “disallowing the deduction has
arbitrary results, punishing a debtor who completes paying for their
car before filing for bankruptcy and rewarding those who make purchases
closer to the time of filing.”  The court therefore adopted the plain
language approach allowing deductions without actual lease or car
payments.

In the Eastern District of California, the US TRUSTEE has taken the position that these costs cannot be deducted if they are not being paid.  This appears to be consistent with the IRM approach and probably will result eventually to an appeal to the 9th Circuit.

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Six Flags, owner and operator of amusement parks, filed for Chapter 11 Bankruptcy protection. The New York company seeks to restructure $1.8 billion dollars of debt.  2008 was a record 25 million visitors and posted record revenues.  Six Flags seeks to lighten the load of $2.4 billion in debt which was described as “unsustainable.” According to MSN money, the company lost nearly 113 million last year and had struggled to raise money in advance of an Aug. 15 to pay preferred income shareholders $287.5 million, plus another $31.3 million in accrued
and unpaid dividends.  Failure to meet the deadline would have triggered clauses in other creditor contracts demanding early payments. Six Flags CEO Mark Shapiro said the company wouldn’t close parks or layoff employees, but, without a ruling from the Bankruptcy Court, wouldn’t make any promises.

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