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The Application Of 11 U.S.C. § 523(A) To Subchapter V Corporate Debtors Under 11 U.S.C. § 1192(2), Elizabeth Allhusen

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a debtor can receive a fresh start through a broad discharge of its debts. The general availability of a discharge is limited by section 523(a). Section 523(a) provides that certain types of debts of an individual are excepted from discharge. Section 1192 applies these exceptions in certain small business bankruptcy cases.

In 2019, Congress created Subchapter V of the Bankruptcy Code with the passing of the Small Business Reorganization Act (“SBRA”). The SBRA added provisions to Chapter 11 which apply to small business debtors. Small business debtors, as …

Solvent Debtors Must Pay The Contractual Post-Petition Interest Rate On Unimpaired Claims, Rayla Aberman

Bankruptcy Research Library

(Excerpt)

The default rule in bankruptcy law is that when a debtor files for bankruptcy, interest ceases to accrue on their unsecured claims. This general principle is subject to an exception known as the solvent debtor exception. Under this exception, solvent debtors are required to pay post-petition interest on their outstanding claims, even after filing for bankruptcy. Section 726(a)(5) of the Bankruptcy Code states that solvent debtors must pay interest at “the legal rate.” However, the Bankruptcy Code does not define what the legal rate is, and courts have disagreed over whether it applies to both impaired and unimpaired claimants. …

Creditors Not Precluded From Recovering Debtors’ Commercial Tort Litigation Recovery Through Security Interest, Dana Aprigliano

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides valuable protections for secured creditors. A secured creditor of a chapter 7 debtor is entitled to distribution of any debtor property (or its value) in which they have an interest before any other creditors are paid. Even if the debtor has filed under chapter 11 or 13, a secured creditor is still entitled to receipt of their collateral or its value.

Under Article 9 of the Uniform Commercial Code (“UCC”), commercial tort claims and their proceeds may collateralize secured liens. Hence, creditors believing they are secured by a …

Exceptions To The Rule: When Non-Debtor Entities Are Protected By The Automatic Stay, Isabella Benchetrit

Bankruptcy Research Library

(Excerpt)

In most cases, the automatic stay, under section 362 of title 11 of the United States Code (the "Bankruptcy Code"), stays all creditors from pursuing litigation against debtors. Nonetheless, non-debtor entities can obtain the protection afforded to debtors by the automatic stay in limited circumstances. There are two primary ways of staying litigation against a non-debtor. First, through demonstrating that there are exceptional circumstances to extend section 362 to a non-debtor. Second, through satisfying the standard for an injunction pursuant to section 105 of the Bankruptcy Code.

This Article considers the circumstances by which a non-debtor entity may receive …

A Claims Agent Can Only Profit From The Fees The Clerk Of Court Can Charge, Peter Berkanish

Bankruptcy Research Library

(Excerpt)

In the Southern District of New York, the retention of claims agents is governed by the judicial procedure set forth in section 156(c) of title 28 of the United States Code, for cases under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) that involve 250 or more creditors and equity holders. When a claims agent is retained under section 156(c), the claims agent is acting in the same capacity as the clerk and the services are “limited in scope to those duties that would be performed by a Clerk of Court with respect to …

An Unincorporated Entity Will Be Unable To Recover As A Secured Creditor In Bankruptcy Unless A Court Invokes The Doctrines Of De Facto Corporation Or Corporation By Estoppel, Andrew Braverman

Bankruptcy Research Library

(Excerpt)

Under New York law, an entity that has failed to properly incorporate cannot assume liabilities or acquire rights. As a result, unincorporated entities will typically lack capacity to enter into contractual agreements. Within the context of bankruptcy, this may hinder a creditor’s ability to maximize its recovery.

A creditor that is adversely affected by a lack of corporate recognition will attempt to persuade a court to impose the doctrines of de facto corporation or corporation by estoppel. These doctrines, which are matters of state law, provide unincorporated entities with the rights and obligations that a legally recognized entity would …

Free And Clear Sale Under Section 363 Of The Bankruptcy Code Prevents Successor Liability, Matthew Bopp

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code allows a debtor to sell its assets free and clear of any interest in such property, pursuant to section 363(f) of the Bankruptcy Code. Section 363(f) is used to allow the trustee to sell assets not in the ordinary course of business and to allow purchasers to buy assets without the fear of liability. The Bankruptcy Code does not define the term “interest.” Thus, in interpreting section 363(f), a court must view interest in property expansively. Using section 363(f), courts have extinguished several types of claims and interest in property including: possessory interests, employment related claims, …

Shared Responsibility Payment May Be A Tax Entitled To Priority Under The Bankruptcy Code, Ashton Bryan

Bankruptcy Research Library

(Excerpt)

The Patient Protection and Affordability Care Act ("ACA") provides that certain individuals must maintain minimum essential health insurance coverage throughout the year. If a person under the mandate fails to maintain the required insurance for one month or more, a shared responsibility payment ("SRP") is imposed on the taxpayer. The SRP is collected by the Internal Revenue Service ("IRS").

The Tax Cuts and Jobs Act ("TCJA") eliminated the individual mandate and reduced the SRP to zero for 2019 and thereafter. The SRPs for 2018 and prior years must be reported to the IRS on the applicable tax return. Otherwise, …

Trustee’S Broad Duty To Disclose Information To Interested Parties Under Section 704(A)(7) Of The Bankruptcy Code, Joel Cardoz

Bankruptcy Research Library

(Excerpt)

A trustee has a duty to disclose information to interested parties upon request. Section 1109(b) of title 11 of the United States Code (the “Bankruptcy Code”) includes creditors in the definition of interested parties. Trustees must obtain a court order to be excused from their duty to disclose.

A trustee’s duty of disclosure is “broad and extensive.” Courts are reluctant to excuse the trustee from their duty of disclosure unless the trustee points to a compelling “countervailing fiduciary duty … whose performance is more important than avoiding the harm resulting from withholding the information in question.”

First, this article …

A Majority Of Courts Reject The Application Of The Rules For Disallowance Of Claims Under Section 502(D) To Administrative Expense Claims, Mairead Cooney

Bankruptcy Research Library

(Excerpt)

Since the adoption of title 11 of the United States Code (the “Bankruptcy Code”), courts have struggled with the application of administrative expense claims. Administrative expenses include the actual costs and expenses of preserving the estate after the commencement of a bankruptcy case. Allowance of an administrative expense claim is governed by section 503 of the Bankruptcy Code. A question arises, however, whether the rules of governing the allowance of claims, under section 502, also applies to administrative expense claims.

Under section 502(d), a court may “disallow any claim of any entity from which property is recoverable . . …

Uncertainty Surrounding Takings Claimants’ Rights In Municipal Bankruptcies, Gillian Deery

Bankruptcy Research Library

(Excerpt)

Governments in the United States and its territories have the power to exercise eminent domain so long as they provide property owners with the constitutionally guaranteed “just compensation.” The Fifth Amendment’s Takings Clause specifically prescribes this remedy for parties whose property has been subject to a government taking. “Just compensation” has proven to be an issue in the context of bankruptcy, as bankruptcy law inherently allows debtors to alter their obligations to their creditors.

In response to Puerto Rico’s financial crisis, Congress enacted the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), which created a modified version of …

When Deciding Whether To Transfer Venue, Bankruptcy Courts Will Consider Their Discretion To Retain A Case, As Well As The Interests Of Justice And Convenience Of The Parties, Cole Eiber

Bankruptcy Research Library

(Excerpt)

When a debtor decides to file a petition for bankruptcy, one decision to make is in what court, or what jurisdiction to file. However, the debtor’s choice of where to file is not always indisputable. Once a case is filed in a particular court, any “party in interest” may bring a motion seeking to change the venue of the case to an alternate court. Additionally, a court, on its own motion, may transfer a case to an alternate venue. The three statutory provisions that govern transfers of venue are Bankruptcy Rule 1014 (“Rule 1014”), 28 U.S.C. § 1408 (“Section …

Two Valid Approaches For Determining Whether “Taxes” Get Priority In Bankruptcy Cases, Jonathan Fuller

Bankruptcy Research Library

(Excerpt)

In bankruptcies, tax status often effects whether claims are entitled to priority. Thus, debates about whether charges are penalties or taxes date back to the early twentieth century. In 1930, the Supreme Court established that courts are not bound to the characterization given to a charge by the municipality that created it. Rather, courts have a duty to consider the “real nature” and “effect” of the charge. Accordingly, different circuits have implemented different approaches to make these determinations.

This Article examines the ambiguity among circuits regarding charges’ “tax” status and resulting priority entitlement. Part I outlines In re Lorber …

Bad Faith Dismissals In Chapter 7, Myah Drouin

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides a fresh start to the “honest but unfortunate debtor.” Chapter 7 therefore permits a debtor to “discharge their outstanding debts in exchange for liquidating their nonexempt assets and distributing them to their creditors.” Dismissals in chapter 7 are governed by section 707 of the Bankruptcy Code. Section 707(a) governs all chapters of bankruptcy filings and applies when adequate “cause” is shown.

There is currently a circuit split regarding whether a debtor’s lack of good faith constitutes cause for dismissal under section 707(a). Under section 707(a), a case may …

The Intersection Of The Bankruptcy Courts And Ferc, Amanda Gazzo

Bankruptcy Research Library

(Excerpt)

In the past, the bankruptcy courts and the Federal Energy Regulatory Commission (“FERC”) have been involved in a power struggle with one another. Congress has granted bankruptcy courts exclusive authority to allow debtors to reject executory contracts in chapter 11 reorganization cases. Additionally, Congress has granted FERC authority to govern over utility entities’ filed-rates, which are sometimes contained in executory contracts. It is in this intersection, regarding executory contracts containing filed-rates, where the power struggle between the two exists.

An executory contract is a contract where both parties still have material obligations to perform under the contract. Filed-rates may …

Exceptions To The General Rule That The Automatic Stay Under Bankruptcy Code Section 362(A) Does Not Apply To Non-Debtors, Annmarie Gruick

Bankruptcy Research Library

(Excerpt)

Upon the filing of a bankruptcy petition, the automatic stay takes effect. “The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from its creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him [or her] into bankruptcy.”

Section 362(a) enumerates eight (8) actions and activities from which the debtor is protected—“it does not protect separate legal entities, such as corporate directors, …

Whether A Surety Agreement Is An Executory Contract Is A Crucial Determination For Both Creditors And Debtors In Bankruptcy, Elizabeth Gomiela

Bankruptcy Research Library

(Excerpt)

In bankruptcy, whether a surety bond is an executory contract is not a question that is often addressed by the circuit courts of appeals. However, this determination is crucial for both debtors and creditors because only executory contracts can be assumed, rejected, or pass through in bankruptcy.

“A surety bond creates a three party relationship, in which the surety becomes liable for the principal's debt or duty to the third party oblige.” The term “executory contract” has not been defined within title 11 of the Unted States Code (the “Bankruptcy Code”), however the Supreme Court concluded that "Congress intended …

The Dischargeability Of Money Judgements Versus Property Interests In Arbitration Awards For Domestic Contributions In The Context Of Unmarried Couples, Gabriella Hansen

Bankruptcy Research Library

(Excerpt)

A debt which arises prior to the filing of the petition for discharge in bankruptcy is dischargeable unless it can be categorized as one of the statutory exceptions to discharge listed in section 523(a) of title 11 of the United States Code (the “Bankruptcy Code”). Section 523(a)(5) of the Bankruptcy Code prohibits the discharge of awards of domestic support due to a debtor’s spouse, former spouse, or child. Accordingly, maintenance, alimony, and child support, often awarded in divorce proceedings, fall under the federal bankruptcy law statutory exceptions to discharge for domestic support obligations.

When an unmarried couple separates and …

The Third Circuit Requires Inequitable Conduct By A Higher-Priority Creditor To Equitably Subordinate Its Debt To A Lower-Priority Creditor, Caitlyn R. Marino

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) implements a basic priority system under section 507 to determine the order a bankruptcy court will distribute the assets of an estate. The classic hierarchy begins with secured creditors, then “[s]pecial classes of creditors, such as those [holding] certain claims for taxes or wages . . . [then] low-priority creditors, including general unsecured creditors . . . [followed by] equity holders . . . [who] receive nothing until all previously listed creditors have been paid in full.” Section 510(c) of the Bankruptcy Code authorizes disturbing the fundamental distribution scheme …

Personal Injury Tort Claims As Core Proceedings In Bankruptcy Courts—Broad, Narrow, And Intermediate Approaches, Brigid Lynn

Bankruptcy Research Library

(Excerpt)

Under 28 U.S.C. § 157(b)(1), “bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11.” Core proceedings are those concerning the administration of an estate and the confirmation of plans, among others listed in the statute. However, not considered core proceedings are those regarding “the liquidation or estimation of contingent or unliquidated personal injury tort . . . claims against the estate for purposes of distribution in a case under title 11.” Personal injury tort claims are instead reserved for the district court in which the bankruptcy case is pending …

A Decedent’S Estate Is Barred From Filing Bankruptcy, Howard Poon

Bankruptcy Research Library

(Excerpt)

A “person” that “resides or has a domicile, a place of business, or property in the United States, or a municipality” is generally eligible to be a debtor in a bankruptcy case under title 11 of the United States Code (the “Bankruptcy Code”). The definition of a “person” under the Bankruptcy Code includes “individual, partnership, and corporation.” Courts, however, have interpreted the definition of “person” broadly to include groups not explicitly mentioned in the statute. Consequently, a decedent’s estate, which is not expressly identified as a person under the Bankruptcy Code, may nevertheless argue that it is eligible to …

A Transfer Made In Connection With A Securities Contract May Not Be Avoided Under Section 546(E) Of The Bankruptcy Code, Dennis Mossberg

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy trustee has the power to avoid, or claw back, certain transfers of property made before a bankruptcy filing. A trustee may avoid transfers such as those that are preferential under section 547 and fraudulent transfers under section 548. Section 546(e) of the Bankruptcy Code generally provides that a transfer made by, to, or for the benefit of a commodity broker, stockbroker, financial institution, or securities clearing agency in connection with a securities contract cannot be avoided. In 2018, the Supreme Court clarified the scope of the …

The Effect Of Rejection Of A Copyright License On A Non-Debtor Licensee, Thomas Meininger

Bankruptcy Research Library

(Excerpt)

In general, a trustee may assume, reject, or assign an executory contract of the debtor under title 11 of the United States Code (the “Bankruptcy Code”). Courts have generally held that intellectual property license agreements are executory contracts. If the license is an exclusive copyright license, it is a transfer of ownership under title 17 of the United States Code (the “Copyright Act”). Thus, some courts treat a copyright license as transfer of ownership, not an executory contract.

This article explores the rights and obligations of a non-debtor licensee when a debtor-licensor rejects a copyright license under the Bankruptcy …

A Secured Creditor’S Ability To Have An Automatic Stay Lifted Against A Single Asset Real Estate, Zachary Rozycki

Bankruptcy Research Library

(Excerpt)

The filing of a petition for relief under title 11 of the United States Code (the “Bankruptcy Code”) results in an automatic stay, which generally enjoins any creditor from taking action against the debtor or its property. Pursuant to section 362(d)(1) of the Bankruptcy Code, an automatic stay may be terminated upon a showing of “cause.” Additionally, under section 362(d)(2) a stay may be terminated as to property if the debtor has no equity in the property, and the property is not necessary to an effective reorganization. Further, under section 362(d)(3), an automatic stay may be lifted as to …

Small Business Owners Are Entitled To Exempt Reasonable Compensation From The Bankruptcy Estate, Rachel Mcgarry

Bankruptcy Research Library

(Excerpt)

The COVID-19 pandemic greatly impacted small business owners in the United States. In March 2020, the United States Small Business Administration (“SBA”) began aiding eligible small business owners in the form of Economic Injury Disaster Loans (“EIDL”). EIDLs were made available to small businesses that were unable to meet existing financial obligations for necessary operating costs. Those funds can be used to “make regular payments for operating expenses, including payroll.”

This article addresses whether small business owners are entitled to pay themselves reasonable compensation as earnings for their efforts, which in turn may be exempted from their future bankruptcy …

Avoidance Of An Unauthorized Post-Petition Transfer Of Intellectual Property Under Section 549 Of The Bankruptcy Code, Kathryn-Rose Russotto

Bankruptcy Research Library

(Excerpt)

Under section 549 of title 11 of the United States Code (the “Bankruptcy Code”), a trustee may avoid an unauthorized post-petition transfer of property of the debtor’s estate. Property is not limited to tangible property. Thus, a trustee can avoid a post-petition transfer of intangible assets, including intellectual property.

This article explores a trustee’s ability to avoid a post-petition transfer of intellectual property. Part I analyzes the legal standard for avoidance of unauthorized post-petition transfers under section 549. Part II examines section 549 in relation to intellectual property. Part III discusses the procedure for remedies a trustee can seek …

U.S. Trustee Fee Increase That Is Not Applicable Uniformly Violates The U.S. Constitution, Malorie Ruggeri

Bankruptcy Research Library

(Excerpt)

Article I, Section 8, Clause 4 of the United States Constitution contains the “Bankruptcy Clause,” which vests Congress with the power to establish “uniform Laws on the subject of Bankruptcies throughout the United States.” The clause’s requirement that the bankruptcy laws be “uniform” is not a strictly construed requirement as Congress reserves the right to draft legislation depending on different regional issues that arise within the bankruptcy system.

Congress created the United States Trustee Program (USTP) to, among other things, oversee the administration of bankruptcy cases and promote the integrity and efficiency of bankruptcy system for the benefit of …

Non-Income Producing Properties That Never Operated May Be Single Asset Real Estate Under The Bankruptcy Code, Paul R. Spagnoli

Bankruptcy Research Library

(Excerpt)

Section 101 of title 11 of the United States Code (the “Bankruptcy Code”) includes a definition for a single asset real estate (“SARE”). A debtor that owns SARE is subject to certain special rules. In particular, the automatic stay will be lifted, upon the request of a secured creditor as to the SARE unless the debtor has either (i) begun making payments with interest at the nondefault rate to the secured creditor or (ii) has filed a plan of reorganization which has a reasonable possibility of being confirmed within a reasonable period of time. This article addresses whether a …

Debts Based On Fraudulent Misrepresentations Of Material Fact May Not Be Discharged Under § 523(A)(2)(A), Lauren Shoemaker

Bankruptcy Research Library

(Excerpt)

In general, title 11 of the United States Code (the “Bankruptcy Code”) provides that an individual may be discharged of his or her debts at the conclusion of his or her bankruptcy case. A discharge relieves a debtor from liability for its unpaid pre-petition debts and acts as an injunction, barring a creditor from collecting such debts from the debtor. However, under section 523(a)(2)(A) of the Bankruptcy Code, an individual debtor cannot be discharged from any debt for money obtained by “false pretenses, a false representation, or actual fraud.”

This article explores when debtors cannot be discharged of their …

Debtor Needs To Have Benefitted From Fraud To Be Barred A Discharge Under 11 U.S.C. § 523(A)(2)(A), Elizabeth Tighe

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides that a court may grant a debtor a discharge of its debts, subject to certain conditions and exceptions. One exception to dischargeability is set forth in section 523(a)(2)(A), which bars a discharge from debt “for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition.”

A key phrase in the statute is “obtained by” and courts have applied a …