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NextCard Goes From Reorganization to Liquidation

A judge OKs requests from the U.S. trustee and the FDIC to switch the lender's status.

August 14, 2003|From Reuters

A Delaware judge converted the bankruptcy reorganization of NextCard Inc., which sought to revolutionize credit cards by offering nearly instant approval online, to a Chapter 7 forced liquidation, court filings show.

Judge Jerry Venters of the U.S. Bankruptcy Court in Wilmington on Monday approved requests from the acting U.S. trustee and the Federal Deposit Insurance Corp., NextCard's largest unsecured creditor, to end the company's plan to wind up operations under Chapter 11 of the U.S. Bankruptcy Code.

The conversion of the case to Chapter 7 means a court-appointed trustee may decide how to allocate money among creditors. Alfred Giuliano was appointed NextCard's interim trustee.

In June, seven months after seeking to reorganize under Chapter 11, San Francisco-based NextCard filed a liquidation plan that it said anticipated payments to creditors of $2.9 million to $18.4 million, far less than the $464 million in claims outstanding.

Acting U.S. Trustee Roberta DeAngelis objected to the plan. In a July 15 court filing, she said the plan's costs -- including a $575,000 management bonus and retention plan "despite the fact that it [NextCard] does not have a business" -- would leave less for creditors.

Founded in 1996, NextCard ended up with too many borrowers who couldn't pay their bills, and its credit approval systems were revealed to be prone to fraud.

Federal regulators shut down the company's NextBank unit in February 2002 for being "significantly undercapitalized."

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