Law Commons^™

In The Midst Of Bankruptcy: How Cryptocurrency's Classification Affects Creditors Who Were Once Customers, Mia Qu

Washington Law Review

In 2022, Congress proposed the Digital Commodities Consumer Protection Act to amend the Commodity Exchange Act and define a new type of commodity: digital commodity. The definition of digital commodity encompasses cryptocurrency and provides the Commodity Futures Trading Commission with jurisdiction over digital asset transactions. This definition of digital commodity has two important implications. First, it signals the lawmakers’ tendency to generalize cryptocurrency as a commodity. Second, it brings complications into how creditors—especially individual crypto account holders—can recover in the recent bankruptcy cases involving prominent crypto companies. This Comment contains four components. First, it provides a brief explanation of cryptocurrency …

Hostile Restructurings, Diane L. Dick

Washington Law Review

The conventional wisdom holds that out-of-court loan restructurings are mostly consensual and collaborative. But this is no longer accurate. Highly aggressive, nonconsensual restructuring transactions—what I call “hostile restructurings”—are becoming a common feature of the capital markets. Relying on hypertechnical interpretations of loan agreements, one increasingly popular hostile restructuring method involves issuing new debt that enjoys higher priority than the existing debt; another involves transferring the most valuable collateral away from existing lenders to secure new borrowing.

These transactions are distinguishable from normal out-of-court restructurings by their use of coercive tactics to overcome not only the traditional minority lender holdout problem, …

The Secret Life Of Priority: Corporate Reorganization After Jevic, Jonathan C. Lipson

Washington Law Review

Academics have long debated whether the order of bankruptcy distributions should be “absolute” or “relative.” Should courts have the flexibility to scramble priority to serve some greater good? The Supreme Court’s recent decision in Czyzewski v. Jevic Holding Corp. holds that the answer is “no”: priority is absolute absent the consent of affected creditors. “Consent” is not self-defining, however, and is largely ignored in debates about priority. This is a problem because consent is hard to pinpoint in corporate reorganizations, a type of aggregate proceeding that can involve hundreds or thousands of creditors and shareholders. Although the Jevic majority …

Taking Bankruptcy Rights Seriously, Rafael I. Pardo

Washington Law Review

Perhaps more so than any other area of law affecting individuals of low-to-moderate means, bankruptcy poignantly presents an affordability paradox: the system’s purpose is to relieve individuals from financial distress, yet it simultaneously demands a significant commitment of resources to obtain such relief. To date, no one has undertaken a comprehensive study of the complexities and costs of the litigation burden that Congress has imposed on self-represented debtors who seek a fresh start in bankruptcy. In order to explore the problems inherent in a system that sometimes necessitates litigation as the path for vindicating a debtor’s statutory right to a …

Taxes And Ability To Pay In Municipal Bankruptcy, John Patrick Hunt

Washington Law Review

Scholars and commentators have argued that municipalities can and should use bankruptcy to shed unwanted liabilities, particularly employee healthcare and pension commitments. Courts increasingly have agreed: Detroit’s approved bankruptcy plan cut pensions, and the bankruptcy court overseeing the bankruptcy of Stockton, California brought down barriers to pension-cutting. Both courts found their way around state provisions arguably protecting municipal pensions. Now that pension-cutting in bankruptcy has momentum, we can expect to hear arguments for using bankruptcy not just in cases like Detroit and Stockton where the municipality cannot meet all its obligations, but also in cases where residents or politicians come …

Taxes And Ability To Pay In Municipal Bankruptcy, John Patrick Hunt

Washington Law Review

Scholars and commentators have argued that municipalities can and should use bankruptcy to shed unwanted liabilities, particularly employee healthcare and pension commitments. Courts increasingly have agreed: Detroit’s approved bankruptcy plan cut pensions, and the bankruptcy court overseeing the bankruptcy of Stockton, California brought down barriers to pension-cutting. Both courts found their way around state provisions arguably protecting municipal pensions. Now that pension-cutting in bankruptcy has momentum, we can expect to hear arguments for using bankruptcy not just in cases like Detroit and Stockton where the municipality cannot meet all its obligations, but also in cases where residents or politicians come …

State Default And Synthetic Bankruptcy, Richard M. Hynes

Washington Law Review

An insolvent state does not need bankruptcy if sovereign immunity would protect it from lawsuits and other collection efforts. To the extent that a state is not judgment-proof and needs bankruptcy, we may not need to modify the Federal Bankruptcy Code to allow it to file. First, a substantial share of state spending flows through their municipalities, and these municipalities have substantial obligations of their own. Unlike states, municipalities can file for bankruptcy under current law, and a state could substantially reduce the cost of accomplishing its own fiscal goals by forcing its municipalities to file. Second, states may be …

Keeping The Faith: The Rights Of Parishioners In Church Reorganizations, Theresa J. Pulley Radwan

Washington Law Review

Faced with significant potential liability to victims of sexual abuse at the hands of church personnel, four archdioceses and dioceses of the Roman Catholic Church have filed for Chapter 11 bankruptcy protection. The bankruptcy proceedings present a multitude of novel issues, including valuation of tort claims against the church and determination of the property available to pay those claims. While each issue has the potential to affect parishioners of the church, the issue of property ownership may have a particularly strong effect. Under both canon law and state incorporation statutes, an archdiocese or diocese owns all assets of its churches. …

Keeping The Faith: The Rights Of Parishioners In Church Reorganizations, Theresa J. Pulley Radwan

Washington Law Review

Faced with significant potential liability to victims of sexual abuse at the hands of church personnel, four archdioceses and dioceses of the Roman Catholic Church have filed for Chapter 11 bankruptcy protection. The bankruptcy proceedings present a multitude of novel issues, including valuation of tort claims against the church and determination of the property available to pay those claims. While each issue has the potential to affect parishioners of the church, the issue of property ownership may have a particularly strong effect. Under both canon law and state incorporation statutes, an archdiocese or diocese owns all assets of its churches. …

A Failure Of Expression: How The Provisions Of The U.S. Bankruptcy Code Fail To Abrogate Tribal Sovereign Immunity, Greggory W. Dalton

Washington Law Review

Sections 106(a) and 101(27) of the U.S. Bankruptcy Code use the general phrase "other foreign or domestic government" to abrogate sovereign immunity without specifically referencing Indian tribes. The U.S. Supreme Court has not yet decided whether these sections of the Code abrogate tribal sovereign immunity, and lower court decisions have come to varying conclusions. As a general rule, Indian tribes are immune from suit due to their inherent sovereignty. Congress, however, may abrogate the sovereign immunity of tribes by unequivocally stating its intent to do so in a statute. When interpreting abrogation provisions in a statute, courts have only found …

Sovereign Impunity: The "Uniform Laws" Theory Tries (And Fails) To Take A Bankruptcy-Sized Bited Out Of The Eleventh Amendment, Cecily Fuhr

Washington Law Review

Sovereign immunity represents the principle that a state cannot be subjected to suit without its consent. In bankruptcy proceedings, it is sometimes necessary for a debtor to file an adversary proceeding against a creditor to determine the dischargeability of a debt. When the creditor is a state, the exercise of sovereign immunity by that state can pose an obstacle to the total discharge of debts contemplated by the bankruptcy system. Courts have found unconstitutional recent attempts by Congress to abrogate states' sovereignty in § 106(a) of the Bankruptcy Code. In response, some courts have adopted a "uniform laws" theory. This …

Taming The Bankruptcy Code's Toothless Tiger, 11 U.S.C. § 521(2), Julio M. Zapata

Washington Law Review

Federal appellate courts are divided on whether a debtor who files a Chapter 7 bankruptcy petition and is current on the underlying contractual obligation secured by collateral is able to retain the collateral without redeeming it or reaffirming the debt under section 521(2) of the Bankruptcy Code. The Fourth and Tenth Circuits hold that the Code's options are not exclusive. Thus, the debtor may retain the collateral and continue under the terms of the contract as long as the payments are current In contrast, the Seventh and Eleventh Circuits hold that a debtor's only options are those listed in section …

Desperate Times And Desperate Measures: The Troubled State Of The Ordinary Course Of Business Defense—And What To Do About It, Lawrence Ponoroff

Washington Law Review

The ordinary course of business defense to the bankruptcy trustee's preference avoiding power has been controversial since its enactment in 1978. Burdened with a cryptic legislative history concerning its underlying goals, this preference exception has gone through multiple reinterpretations at the hands of Congress and the U.S. Supreme Court. In recent years, faced with a potentially expansive reading of the ordinary course defense that threatened to eclipse the rule, courts have used the "ordinary business terms" element of the defense to engraft an objective requirement that the party asserting the defense establish conformity of the challenged transfer with prevailing industry …

Avoidability Of Foreclosure Sales Under Section 548(A)(2) Of The Bankruptcy Code: Revisiting The Transfer Issue And Standardizing Reasonable Equivalency, Vic Sung Lam

Washington Law Review

Federal courts consider the 1984 amendments to the Bankruptcy Code to have conclusively defined "transfer" to include foreclosure sales under section 548(a)(2). This Comment questions this widely accepted interpretation. Moreover, federal courts have strongly disagreed on the meaning of "reasonably equivalent value" under section 548(a)(2) of the Bankruptcy Code for the purpose of avoiding a foreclosure sale as a constructive fraudulent transfer. This Comment examines the three dominant but divergent approaches to determining reasonable equivalency. It concludes that both the Durrett 70-percent rule and the Madrid state-procedural approach are inappropriate standards because they fail to comport with the statutory language …

Property Of The Estate After Confirmation Of A Chapter 13 Repayment Plan: Balancing Competing Interests, Vickie L. Vaska

Washington Law Review

Under Chapter 13 of the Bankruptcy Code, it is unclear whether property of the estate and protection of the automatic stay continue after confirmation of debtor's repayment plan. Courts use diverse approaches to determine whether property of the estate exists after confirmation, resulting in confusion for trustees, debtors, and creditors. This Comment proposes that bankruptcy courts use their equitable powers and adopt a test that balances the competing interests of debtor and creditor

Software Distribution Agreements And Bankruptcy: The Licensor's Perspective, J. Dianne Brinson

Washington Law Review

This Article addresses a special problem within the software-industry—licensee bankruptcy and the need to protect the rights of licensors in the software. Although federal law now protects the rights of a software licensee in the technology when a licensor undergoes bankruptcy, little guidance exists as to the effects of licensee bankruptcy upon the software licensor. This Article thoroughly reviews the relevant bankruptcy and copyright law as they relate to the computer software area, and then discusses why a licensor should consider avoiding the possibility of a software license being treated as an executory contract. The author concludes by offering practical …

The Effect Of Recent Federal Cases On Suspension Of The Washington General Assembly Law By Operation Of The Federal Bankruptcy Act, Warren Shattuck

Washington Law Review

Since Armour & Co. v. Becker the Washington court has made clear its position on suspension of our general assignment law by the Bankruptcy Act. In Tacoma Grocery Co. v. Doersch on authority of the Armour case and Interational Shoe Co. v. Pinkus a non-assenting creditor was permitted to garnishee the assigned property in the hands of the assignee. A few months later in Anderson v. Zelensky a creditor who had not taken under a general assignment recovered judgment on his claim despite the debtor's discharge pursuant to Rem. Com. Stat. sec. 1100. The only conclusion which can be drawn …

Deferred Cash Payments To Secured Creditors In Cram Down Of Chapter 11 Plans: A Matter Of Interest, Waltraud S. Scott

Washington Law Review

What is the present value of deferred payments made to secured creditors under a Chapter 11 reorganization plan? Courts agree that the present value depends on the interest rate that is used to compute the payments' value. They cannot agree, however, on how the proper interest rate should be determined. In their attempts to set a proper interest rate, most courts travel down the dead-end road of market rate analysis. Bogged down in the intricacies of this analysis, courts frequently ignore their fundamental role in bankruptcy proceedings: Resolving the tension between giving creditors protection while giving debtors a chance to …

Deferred Cash Payments To Secured Creditors In Cram Down Of Chapter 11 Plans: A Matter Of Interest, Waltraud S. Scott

Washington Law Review

What is the present value of deferred payments made to secured creditors under a Chapter 11 reorganization plan? Courts agree that the present value depends on the interest rate that is used to compute the payments' value. They cannot agree, however, on how the proper interest rate should be determined. In their attempts to set a proper interest rate, most courts travel down the dead-end road of market rate analysis. Bogged down in the intricacies of this analysis, courts frequently ignore their fundamental role in bankruptcy proceedings: Resolving the tension between giving creditors protection while giving debtors a chance to …

Bankruptcy—Financial Responsibility Laws—Effect Of Discharge Of Automobile Judgment Upon Driver's License Suspensions—Perez V. Campbell, 402 U.S. 637 (1971), Anon

Washington Law Review

Adolfo Perez, driving a car registered in his name, was involved in an automobile collision in Arizona. Mr. Perez was not carrying automobile liability insurance at the time of the accident. The minor who was driving the second car and her parents sued Mr. and Mrs. Perez in an Arizona state court for personal injuries and property damage. Judgment was entered against them. Mr. and Mrs. Perez filed petitions in bankruptcy and were discharged from all their provable debts, including the judgment arising from Mr. Perez's driving mishap. During the pendency of the bankruptcy proceedings, their driver's licenses and automobile …

Triumph Or Tragedy? The Bankruptcy Act Amendments Of 1966, Harold Marsh, Jr.

Washington Law Review

Professor Marsh analyzes in detail the 1966 amendments to the Bankruptcy Act. Addressing the question whether these amendments have accomplished anything, he concludes that they have done little but complicate an already intolerably complicated statute. Although he points out many drafting failures, he particularly condemns the failure of Congress to ask or answer the underlying questions of policy—whether tax liens and state statutory liens should be given priority. Professor Marsh concludes that whatever good the amendments may do "is not worth the mess they have made."

Triumph Or Tragedy? The Bankruptcy Act Amendments Of 1966, Harold Marsh, Jr.

Washington Law Review

Professor Marsh analyzes in detail the 1966 amendments to the Bankruptcy Act. Addressing the question whether these amendments have accomplished anything, he concludes that they have done little but complicate an already intolerably complicated statute. Although he points out many drafting failures, he particularly condemns the failure of Congress to ask or answer the underlying questions of policy—whether tax liens and state statutory liens should be given priority. Professor Marsh concludes that whatever good the amendments may do "is not worth the mess they have made."

Bankruptcy—Discharge—Effect Of False Financial Statement Upon Prior Indebtedness, Anon

Washington Law Review

In the 1961 case of Household Fin. Corp. v. DeShazo, the Washington Supreme Court held that section 17(a)(2) of the Federal Bankruptcy Act limited a creditor to recovery of the amount of an additional loan made in reliance upon a false financial statement, and did not permit recovery of prior indebtedness—not initially obtained by fraud—which was refinanced in the same transaction and included in the total amount of a new note.

Community Property And Divorce—Effect Of Subsequent Bankruptcy, Anon

Washington Law Review

Plaintiff, trustee in bankruptcy of defendant's former husband, brought suit in federal district court to set aside as a fraudulent conveyance a Washington court's award of community property to the defendant incident to her divorce. The district court granted summary judgment for defendant on the ground that the trustee's attack on the award depended upon the community nature of the property which had been terminated by the divorce. On appeal, the Ninth Circuit Court of Appeals reversed and remanded. Held: Because a Washington marital community is not an entity with separate legal existence, an award of community property by a …

State Wage Collection Laws: Supplementing The Bankruptcy Act, D. Mckay Snow

Washington Law Review

The general problem to be considered here is that of the employer's insolvency and consequent inability to pay wages which have already been earned. More specifically this comment examines the various types of state legislation designed to assist employees in the collection of these earned but unpaid wages, with primary consideration directed to those statutes which enable the employee to circumvent the limitations of the federal Bankruptcy Act. State wage priority statutes are therefore not included, nor are general creditor collection devices, criminal sanctions against non-payment of wages, and laws authorizing the assignment of wage claims to an administrative agency …

Creditor's Rights—Bankruptcy—Section 70(C)—Actual Creditor Required, John S. Calvert

Washington Law Review

In Pacific Finance Corp. v. Edwards the United States Court of Appeals for the Ninth Circuit interpreted § 70(c) of the Bankruptcy Act to mean that the trustee acquires the status of a hypothetical lien creditor only if there is an actual creditor who could have acquired a lien on the date of the petition in bankruptcy.

Washington Receivership, Ray Graves

Washington Law Review

A full discussion of the historical development of the law of receivership, of the powers and duties of the numerous kinds of receivers, and of the advantages or disadvantages of receivership as contrasted with bankruptcy and other devices, is beyond the scope of this article. This discussion is limited to an examination of some of the rules governing appointment of general liquidating receivers in the State of Washington. Within that framework we shall examine two facets of the law, viz., (a) the sources and general rules of the law of receivership in Washington, and (b) the procedures to be followed …

Preferences As Affected By Section 60c And Section 67b Of The Bankruptcy Act, John Hanna

Washington Law Review

The general problem of preferences in bankruptcy in the recent past has been more frequently and more comprehensively discussed in legal periodicals than any other bankruptcy topic. It is not the purpose of this article to supplement what has been written elsewhere on the subject of Section 60a and b. The proper concern of many members of Congress for the lamentable uncertainties of the position of many secured creditors under the present law gives some reason to hope that before this article appears an amendment to Section 60a will have been adopted, which as to personal property transfers will substitute …

The Effect Of The National Bankruptcy Code Upon The Uniform Business Corporations Act, Jennings P. Felix

Washington Law Review

The Federal Constitution provides that Congress shall have the power to establish uniform bankruptcy laws. This does not deprive the states of their power to enact insolvency laws but merely suspends the operation of such laws where enforcement would conflict with the Federal Act. Whether an insolvency statute is considered a bankruptcy act depends on whether the debtor is given an absolute discharge. The whole of the state act or merely the discharge portion may be invalid depending upon whether its other sections are inseparably interlaced with the discharge provision. If the highest court of the state declares its discharge …

Liquidation Under The Chandler Act: Bankruptcy Practice And Procedure Is Changed By Act Of Congress Effective September 22, 1938, Leopold M. Stern

Washington Law Review

In 1938 Congress enacted the Chandler Bill, which became effective September 22, 1938. Its purpose, among other things, as explained by the House Judiciary Committee report, was to clarify certain of the definitions and to add desirable new definitions, to straighten out certain overlapping provisions, to increase efficiency in administration, to make clearer certain ambiguous provisions, to improve the procedural sections of the act, and in general to modernize and bring up to date the bankruptcy law of our country. Congress went somewhat further than a mere modernization of the existing statute. It expanded the law by adding chapters on …