Law Commons^™

No Mention Of “Cure” In Section 363 Means Default Interest Rate Applies, Caitlin Cline

Bankruptcy Research Library

(Excerpt)

In General Electric Capital Corp. v. Future Media Productions, Inc., the Ninth Circuit addressed the issue of whether an oversecured creditor is entitled to the contracted-for default rate of interest when the creditor has been paid in full pursuant to an asset sale governed by § 363 of the Bankruptcy Code. Despite prior precedent to the contrary, the court answered the question in the affirmative. In its previous decision in Great Western Bank & Trust v. Entz- White Lumber and Supply, Inc. (In re Entz-White Lumber & Supply, Inc.), where the debtor had paid the creditor in …

In Re Kara Homes, Inc., Anna Drynda

Bankruptcy Research Library

(Excerpt)

Recently, the United States Bankruptcy Court for District of New Jersey held in In re Kara Homes, Inc., 363 B.R. 399 (Bankr. D.N.J. 2007) that secured construction lenders of affiliated chapter 11 debtors were entitled to expedited relief from an automatic stay of foreclosure pursuant to section 362(d)(3) of the Bankruptcy Code because the court determined each debtor constituted single asset real estate case under section 101(51B) of the Code. The significance of expedited relief under section 362(d)(3) is it imposes an “expedited time frame for filing a plan” of reorganization in chapter 11 for single asset real estate …

Lien Preservation Does Not Give Trustee Right To Collect All Debt, Elizabeth Filardi

Bankruptcy Research Library

(Excerpt)

In Morris v. St. John National Bank, 516 F.3d 1207 (10th Cir. 2008), the Tenth Circuit addressed the issue of whether a bankruptcy trustee who successfully avoids a lien and preserves the in rem security interest for the bankruptcy estate under the powers granted to him by the Bankruptcy Code automatically assumes all the rights the original lienholder may have against the debtor. The Court, affirming the decisions of the bankruptcy court and bankruptcy appellate panel, concluded the trustee did not automatically assume all the rights the original lienholder may have against the debtor. Id. at 1212. …

Effect Of Debtor’S Pre-Petition Election To Apply Tax Refund Toward Liability For Petition Year In Determination Of Property Of The Estate, Timothy Fox

Bankruptcy Research Library

(Excerpt)

Establishing what property of the debtor will pass into the bankruptcy estate is critical to effectuating the dual purposes of the Bankruptcy Code: to grant the debtor a fresh start and to divide assets of the estate equitably among creditors. In a chapter 7 proceeding, this threshold determination divides the debtor’s assets into those that the debtor will retain and those that will be liquidated to satisfy creditors’ claims.

In determining what is property of the estate, an issue arises when before filing for bankruptcy, the debtor files a return for a pre-petition tax year and elects to apply …

Negligent Vehicular Homicide Caps A Debtor’S Homestead Exemption, Christine Knoesel

Bankruptcy Research Library

(Excerpt)

In an expansive reading of the homestead exemption cap added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the First Circuit Court of Appeals, in Larson v. Howell, held that criminal negligence is sufficient to trigger the section 522(q)(1)(B)(iv) homestead exemption cap. 513 F.3d 325, 328 (1st Cir. 2008). In Larson v. Howell, Larson was found guilty of negligent vehicular homicide. In Larson’s bankruptcy case, the homestead exemption cap was applied because the debt arose from a criminal act. Id. at 327. The Court of Appeals reasoned that the cap should apply …

United States V. White, 365 B.R. 457, Robert Griswold

Bankruptcy Research Library

(Excerpt)

In U.S. v. White, 365 B.R. 457 (Bankr. M.D. Pa. 2007), the U.S. Bankruptcy Court for the Middle District of Pennsylvania addressed the issue of whether the Internal Revenue Service (“IRS”) may setoff the entire pre-petition debt against pre-petition claims that have been declared exempt, or whether the IRS is only allowed to setoff up to the amount of the priority claim. The court held that the IRS may setoff the entire debt and is not limited to the amount of the priority claim.

The proper treatment of the IRS’ setoff right in bankruptcy is unclear because of …

In Re Kagenvaema: An End-Run Around The “Applicable Commitment Period”, Christopher Hunker

Bankruptcy Research Library

(Excerpt)

Imagine a debtor who lives in New York State, where the median household income for 2007 was approximately $53,000. The debtor is a doctor and receives $80,000 of income from the hospital where she works. The good doctor, however, has gotten in over her head. She purchased a gigantic home she could not afford, has too many student loans to pay back, and regrets buying that expensive car. Her credit card debt is staggering, and she incurs thousands of dollars each month in interest and fees. She decides she can no longer handle the financial pressure and wants to …

Bapcpa’S Exception To The Absolute Priority Rule For Individual Chapter 11 Debtors, Christina Kormylo

Bankruptcy Research Library

(Excerpt)

Under the absolute priority rule of 11 U.S.C. § 1129(b)(2)(B)(ii), a reorganization plan that gives a junior class of creditors an interest in the estate will not be confirmed unless each senior class receives full payment or gives its consent. The absolute priority rule was amended in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) by adding an exception that allows individual chapter 11 debtors to retain property included in the estate under newly added section 1115. This amendment furthers the congressional intent of allowing chapter 11 to function more like chapter 13, under which there …

Trustee's Ability To Waive Individual Debtor’S Attorney-Client Privilege, Rebecca Leaf

Bankruptcy Research Library

(Excerpt)

Courts disagree about whether a trustee may waive an individual debtor's attorney-client privilege. Although the Supreme Court has addressed the issue in the case of corporate debtors, it has not done so in the case of individual debtors. Thus, lower courts have adopted three approaches to cases involving individual debtors: allowing the trustee to always waive privilege, never allowing the trustee to waive privilege, and a balancing approach.

This memo explores the importance of the attorney-client privilege, its relevant statutory bases, Supreme Court precedent, and the three approaches mentioned above. This memo also considers the advantages and disadvantages of …

Chapter 13 Plan Must Pay Adequate Protection Payments Prior To Attorney’S Fees, Brian Lacoff

Bankruptcy Research Library

(Excerpt)

In In re Dispirito, a decision of importance to Chapter 13 debtors’ attorneys, the Bankruptcy Court for the District of New Jersey ruled that an undersecured creditor was entitled not only to adequate protection payments, but that the section 507(b), 11 U.S.C. § 507(b) (2006), “super-priority” status of the inadequate adequate protection provided during the case meant that the Chapter 13 plan had to pay those amounts before paying any of the debtor’s attorneys fees. 371 B.R. 695, 695 (Bankr. D.N.J. 2007). This article will compare how the Dispirito court’s ruling compares to other bankruptcy court’s rulings. It …

A Prime Brokers Good Faith Defense To Fraudulent Transfers, Michael Maffei

Bankruptcy Research Library

(Excerpt)

The exposure of Madoff Ponzi scheme, and others like it, will undoubtedly have an impact on the way that bankruptcy courts deal with fraudulent transfers to prime brokers, particularly the degree to which the prime broker on inquiry notice of fraud must act with diligence. Due to the recent economic tumult, the number of bankruptcies is continually growing. Another result of the economic decline is that a large number of investment funds have failed. After these funds failed, many prime brokers discovered that some of the funds were not operating funds at all. They were in fact Ponzi schemes. …

Case Analysis Of In Re Atlantic Gulf Comtys. Corp., Meagan Mahar

Bankruptcy Research Library

(Excerpt)

In In re Atlantic Gulf Comtys. Corp., a Delaware Bankruptcy Court applied New York law to both equitable and legal arguments made by the debtor, holding that funds in an escrow account created by the debtor were not property of the debtor’s estate. 369 B.R. 156, 164–65 (Bankr. D. Del. 2007). First, this memo will examine the two opposing legal and equitable arguments made by the parties, with each relying on different theories of characterizing the debtor’s interest in escrow accounts as they have evolved throughout New York caselaw. Second, it will analyze the contingency argument made by the …

Ride Through Option For Real Property Survived Bapcpa, James Lynch

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Abuse Protection Act of 2005 (“BAPCPA”) largely eliminated the so-called “ride through” option for security interests in personal property; however, for nearly two years there was no clear indication as to whether the ride through option still existed for security interests in real property. Recently, in In re Caraballo, the Connecticut Bankruptcy Court confronted this uncertainty head on and determined that the ride through option still exists for real property. 386 B.R. 398, 400 (Bankr. D. Conn. 2008). Importantly for bankrupt individuals, utilizing the ride through option allows them to “keep their property during and after bankruptcy …

Whether Negative Equity Is Part Of Purchase Money Security Interest?, Vitaly Libman

Bankruptcy Research Library

(Excerpt)

The 2005 BAPCPA amendments have turned routine car purchases into a source of litigation in the federal courts. The litigation stems from the financing agreements made during the transaction. Today, these financing agreements often require the purchaser to repay loans over a term of five years or longer. See, e.g. In re Peaslee, 358 B.R. 545, 554 (Bankr. W.D.N.Y. 2006). During these long terms, cars rapidly depreciate in value. Consequently, many consumers are left with vehicles that have a market value less then the amount of debt still owed on them. This deficiency is called “negative equity.” Often, consumers …

Non-Consensual Third Party Releases In Chapter 11 Bankruptcy, Craig Lutterbein

Bankruptcy Research Library

The Seventh Circuit, in Airadigm Communications, Inc. v. Federal Communications Comm’n. (In re Airadigm Commc’n, Inc.), 519 F.3d 640 (7th Cir. 2008), has joined the circuits permitting the non-consensual releases of non-debtor third parties from their obligations to creditors in chapter 11 reorganizations. In Airadigm, the court considered the validly of releasing a guarantor and major reorganization financer, Telephone and Data Services (hereinafter TDS), from liability resulting from the reorganization of debtor Airadigm Communications. The Court came to three conclusions on the subject: 1. Bankruptcy code section 524(e) does not prevent bankruptcy courts from granting third-party releases; 2. …

Narrowing The Scope Of Auditor Duties, David Margulies

Bankruptcy Research Library

(Excerpt)

The tort of “deepening insolvency” refers to an action asserted by a representative of a bankruptcy estate against directors, officers, lenders, or others based on their pre-petition interactions with the debtor. 9 NORTON BANKR. L. & PRAC. 3d § 174:22. Liability under deepening insolvency has been imposed where “the defendant’s conduct, either fraudulently or even negligently, prolongs the life of a corporation, thereby increasing the corporation's debt and exposure to creditors.” In re LTV Steel Co., Inc., 333 B.R. 397, 421 (Bankr. N.D. Ohio 2005). Damages under the theory are sometimes awarded to a bankrupt corporation when, by delaying …

Expanding The Settlement Payments Exception In Lbo’S, Matthew Mcnamara

Bankruptcy Research Library

(Excerpt)

This memorandum will first give a statutory background of relevant bankruptcy code provisions and their effects on the bankruptcy proceeding. Next, the memorandum will present description of pertinent cases related to the 546(e) ‘settlement payment’ exemption. In particular, the memorandum will document the progression of cases interpreting the meaning of ‘settlement payment’ within 546(e) from a restrictive interpretation to an increasingly broad one. Finally, the memorandum will discuss the case Brandt v. B.A. Capital (In re Plassein International) and its implication on the 546(e) exemption in relation to transfers of stock made in an LBO for publicly-held …

A Bankruptcy Court’S “Preference” Towards Mandatory Mediation, Seth Meyer

Bankruptcy Research Library

(Excerpt)

Mediation has gained general acceptance in the legal community but has been slow to take root in bankruptcy. See generally Geetha Ravindra, Reflections on Institutionalizing Mediation, 14 DISP. RESOL. MAG. 28, (Spring/Summer 2008). Over the past 20 years, mandatory bankruptcy mediation has become a feasible alternative to traditional litigation of adversary proceedings. In the beginning, creditors and debtors would mediate only if they agreed to mediate. As statutory authority for court ordered mediation strengthened, bankruptcy courts ordered parties to mediate with more regularity. Presently, mandatory mediation is statutorily authorized and bankruptcy courts have institutionalized the use of mandatory bankruptcy …

Repossession Does Not Alter Debtor’S Rights In Collateral, Ian Park

Bankruptcy Research Library

(Excerpt)

Does section 541(a)(1) of title 11 of the U.S. Code, which defines a debtor’s bankruptcy “estate,” include collateral which has been lawfully repossessed by secured creditors pursuant to Article 9 of the Uniform Commercial Code (“UCC”) prior to the debtor’s filing for bankruptcy? The courts have split in answering this pro-debtor issue by defining “estate” differently. Recently, in Tidewater Fin. Co. v. Curry (In re Curry), 509 F.3d 735, 735 (6th Cir. 2007), the Sixth Circuit Court of Appeals split with the Fourth and Eleventh Circuits and held that a secured creditor’s repossession of collateral under the state’s …

Giant Eagle, Inc. V. Phar-Mor, Inc., Courtney Pasquariello

Bankruptcy Research Library

(Excerpt)

Although under Pennsylvania common law a lessor has a duty to mitigate damages and is unable to claim damages that could have been avoided, no legal proposition exists that an injured lessor who attempts mitigation of damages resulting from a lessee’s misconduct must bear the consequences of a failed effort. Although the lessor received partial mitigation of a claim against a liable lessee, the lessee nonetheless remains liable for his previous breach.

Pension Benefit Guaranty Corporation’S Termination Premiums Constitute Dischargeable Pre-Petition Contingent Claims, Thomas Rooney

Bankruptcy Research Library

(Excerpt)

In Oneida Ltd. v. Pension Benefit Guaranty Corp., the U.S. Bankruptcy Court for the Southern District of New York addressed the issue of whether a debtor’s liability for pension termination premiums (“DRA Premiums”) constituted a pre-petition contingent “claim” and was, therefore, dischargeable pursuant to the debtor’s reorganization plan confirmation. 383 B.R. 29, 32 (Bankr. S.D.N.Y. 2008). The Bankruptcy Court held that the debtor’s liability for DRA premiums was a dischargeable pre-petition “claim” even though the pension termination occurs during the debtor’s chapter 11 case. Id. at 32, 43.

The Bankruptcy Court based its holding on three determinations: (1) …

Non-Claim Status Of Environmental Clean-Up Injunctions Limited To States, Klevis Peshtani

Bankruptcy Research Library

(Excerpt)

Does the equitable right of an individual, whose property has been damaged by the debtor’s pollution, to injunctive clean-up relief constitute a “claim” that may be discharged in the debtor’s Chapter 11 bankruptcy? This was the issue of first impression which the Pennsylvania Bankruptcy Court dealt with in Krafczek v. Exide Corp., No. 00-1965, 2007 WL 1199530, at *1 (E.D. Pa. Apr. 19, 2007). The Krafczek court answered the question in the affirmative, 2007 WL 1199530 at *3, setting new precedent in an already narrow area of Bankruptcy Law upon which other courts had trodden carefully.

This article …

The Exclusive View V. The Non-Exclusive View: Can A Creditor’S Claim Be Dismissed For Failing To Provide Supporting Documentation?, Robert J. Ryan

Bankruptcy Research Library

(Excerpt)

May a creditor’s claim be dismissed simply because he failed to provide supporting documentation in violation of Federal Rule of Bankruptcy Procedure 3001? The answer depends on which jurisdiction the creditor is pursuing its claim in. Courts are currently sharply divided on the issue. If the creditor is fortunate enough to be in a jurisdiction which follows the “exclusive” view, which is the majority rule, the answer to this problem will be yes. However, if the creditor happens to be in a jurisdiction which follows the “non-exclusive” view, which is the minority rule, the answer to this problem will …

Bapcpa Does Not Require The Chapter 13 Means Test In Individual Chapter 11 Cases, Steven Saal

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) was implemented in order to prevent debtors from unjustly shielding value in their estate from deserving creditors and thus abusing the functionality of the federal bankruptcy system. Specifically, one problem perceived to be very prevalent was a practice by individual debtors who would seek to avoid the stringent guidelines of the “means test” in Chapter 13 cases by running for the protection of the more relaxed standards in Chapter 11 cases. The BAPCPA Amendments to section 1129 of the Bankruptcy Code were adopted to institute stricter standards in Chapter 11 …

Clear Channel Outdoor, Inc. V. Knupfer, Thomas Scappaticci

Bankruptcy Research Library

(Excerpt)

An important and traditional power afforded by the Bankruptcy Code to debtors and trustees is the power to sell encumbered property free and clear of any liens or encumbrances. See G COLLIER ON BANKRUPTCY, App. Pt. 44, at 44-529 (Alan N. Resnick et al. eds., 15th ed. rev. 2006). One way in which this power is given to debtors and trustees is through Section 363(f)(3) of the Bankruptcy Code, which provides a mechanism for property to be sold free and clear of any liens. See 11 U.S.C. § 363(f)(3) (2006). Yet, the application of Section 363(f)(3) is not entirely …

Early Retirement Benefits Not Entitled To Severance Priority, Joe Scolavino

Bankruptcy Research Library

(Excerpt)

In Supplee v. Bethlehem Steel Corp (In re Bethlehem Steel Corp.), 479 F.3d 167 (2d Cir. 2007), the Second Circuit Court of Appeals addressed the issue of whether early retirement benefits triggered by severance are entitled to administrative expense treatment. The court held that that early retirement benefits are not entitled to severance priority. While the Second Circuit generally treats severance payments as priority administrative expenses when employment is terminated during the employer’s bankruptcy, Bethlehem determined that lump-sum retirement benefits for which the employee became eligible at termination did not constitute a new benefit earned at termination, …

American Home Mortgage, Holdings, Inc. V. Lehman Brothers Inc., Valerie Sokha

Bankruptcy Research Library

(Excerpt)

The derivatives provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) amendments greatly enlarged the scope of the financial contracts that are shielded from traditional bankruptcy limitations such as the automatic stay and the prohibition on ipso facto clauses. Those exceptions were reaffirmed in a strong anti-debtor opinion in Am. Home Mortg. Inv. Corp. v. Lehman Bros. (In re Am. Home Mortg. Holdings, Inc.), 388 B.R. 69 (Bankr. D. Del 2008). Although Lehman may now regret its victory since it is a debtor in its own bankruptcy case, it succeeded in defeating a number …

Discharge Under The Code For Erisa "Fiduciaries", Devin Sullivan

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code (“Code”) provides debtors with relief from many of their outstanding debts. However, even under the broad protection of the Code, some debts cannot be erased. Pursuant to section 523(a)(4) of the Code, an individual debtor may not discharge any debt for fraud or defalcation (unauthorized appropriation of money) while acting in a fiduciary capacity. 11 U.S.C. § 523(a)(4). The federal courts are currently split on the issue of whether a debtor who qualifies as a “fiduciary” under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 et seq, (“ERISA”) will also qualify as …

Can Software Be A Bankruptcy Petition Preparer?, Thomas Szaniawski

Bankruptcy Research Library

(Excerpt)

Recently, in Reynoso v. United States (In re Reynoso) — a case of first impression for the Ninth Circuit that addressed the intersection of cyberspace and bankruptcy — the court held that a provider of web-based bankruptcy software was a bankruptcy petition preparer (“BPP”) under 11 U.S.C. section 110 and that under California law, the features and functionality of the software went beyond mere typesetting and constituted the unauthorized practice of law. Reynoso v. United States (In re Reynoso), 477 F.3d 1117 (9th Cir. 2007). In re Reynoso is significant because prior to this …

We Can Work It Out: Entertaining A Dispute Resolution System Design For Bankruptcy Court, Elayne E. Greenberg

Faculty Publications

On October 2, 2009, dispute resolution scholars and bankruptcy court jurists courageously began the difficult conversation about the feasibility of an expanded dispute resolution system design for bankruptcy court. This commentary distills that conversation through a dispute resolution system design lens. Dispute resolution system design offers a framework for organizations to more effectively manage and resolve recurring conflicts. The design of a dispute resolution system requires clarifying ideas, elucidating values, prioritizing goals, considering options and incorporating that information into a more workable process to respond to conflict. All the while, the stakeholders and dispute resolution designers work together to clarify, …