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New Jersey Hospital Struggles to Settle with Creditors in Bankruptcy

November 29, 2011 Jason Krueger Medical, Bankruptcy, News

It's well known that lots of money is spent on healthcare in America. But all that spending does not necessarily insulate healthcare corporations from financial problems that may require debt relief. So a New Jersey hospital may sometimes need a New Jersey Chapter 11 bankruptcy attorney.



The Garden State's oldest running hospital, Hoboken University Medical Center (HUMC), has been in financial trouble for quite some time. In December 2006, the city of Hoboken created the Hoboken Municipal Hospital Authority in order to take over ownership of the hospital and passed a $52 million bond to finance the hospital. In August 2009, HUMC's Chief Executive Officer petitioned the city for emergency "stabilization funds."

Finally, in August 2011, the not-for-profit manager of the Hoboken University Medical Center, Hudson Healthcare, Inc., filed bankruptcy and the city approved the sale of the hospital to a for-profit company. Before the sale could go through, the hospital's creditors needed to agree to a debt settlement deal. The hospital's on-going saga reveals some of the issues that arise when trying to settle with creditors in a business bankruptcy.

Hospital Creditors Settlement

HUMC owed creditors over $34 million dollars by the time Hudson Healthcare filed for bankruptcy. Hudson and its creditors negotiated for weeks before creditors finally accepted a $10.4 million settlement offer. In an effort to speed negotiations, the governor of New Jersey added $5 million of state funds to Hudson's initial settlement offer to the creditors. As part of the agreement, the creditors had to agree not to seek more money from the hospital or the hospital authority in the future.

The hospital's creditors finally agreed to the settlement offer, in an eleventh-hour meeting. Hoboken Mayor Dawn Zimmer said that if the creditors had not accepted the offer, the hospital would have had to close.

Issues in Settling with Creditors in Bankruptcy

HUMC's bankruptcy negotiations illustrate some of the issues that arise when businesses try to negotiate with creditors in bankruptcy proceedings. When a business files Chapter 11 bankruptcy, the business needs to provide a disclosure statement and a reorganization plan. The plan has to classify various creditor claims against the business and explain how the business will satisfy those claims. When the business is drafting the plan, it needs to consider various issues such as:

· Which creditors have priority?

· In what order does the business pay unsecured claims?

· How much will the creditors settle for, if less than the full amount?

Creditors who will be receiving less than the full amount of their claims need to vote to approve the plan.

The Bankruptcy Court does not usually appoint a trustee in Chapter 11 cases, as the business owners often continue to run the business during the bankruptcy period as "debtors in possession" and fulfill many of the duties a trustee does in other types of bankruptcy.

If there is a trustee involved, however, the trustee plays a vital role in the bankruptcy proceeding. The trustee supervises the implementation of the reorganization plan and makes sure the business is submitting the proper reports and fees. The trustee also oversees the required meeting with the business' creditors.

As part of the Chapter 11 bankruptcy proceedings, the bankruptcy trustee appoints the business' creditors to a creditors committee, usually made up of the creditors who hold the seven largest unsecured claims against the business. The creditors committee can be involved in formulating the reorganization plan and supervising the implementation of the plan.

Trying to dig a business out of a financial hole can be an overwhelming process. When a business is struggling and needs time and assistance in reorganizing its financial situation, Chapter 11 bankruptcy is one way to do so. If your business is having difficulties, contact an experienced bankruptcy attorney who can discuss your situation with you and advise you of your options.

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