Law Commons^™

Ownership Status Of Inherited Retirement Accounts In Bankruptcy, Aron Kaplan

Bankruptcy Research Library

(Excerpt)

Immediately upon filing a petition for relief under title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy estate is created by operation of law that consists of the debtor’s assets from which the creditors will be repaid. The Bankruptcy Code states that the estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” This broad language reflects Congress’s intent that there be sufficient assets in the estate to protect the interests of creditors.

Despite this broad legislative language, there are certain categories of property that the debtor …

Private Student Loans May Be Dischargeable In Bankruptcy Without Meeting The Undue Hardship Requirement And If Not, There Are Two Ways To Prove Undue Hardship, Kimberly Lee

Bankruptcy Research Library

(Excerpt)

Section 523 of title 11 of the United States Code (the “Bankruptcy Code”) prevents former students from discharging certain educational debts in bankruptcy, unless the failure to discharge “would impose an undue hardship on the debtor and the debtor’s dependents.” Typically, it is a debtor’s burden to show that their loans may be discharged on the grounds of “undue hardship.” However, Congress has not defined “undue hardship” leaving jurisdictions divided regarding the appropriate test. Most courts have followed the Brunner three-prong test, while only the First and Eighth Circuits use the totality of the circumstances test.

Additionally, section 523(a)(8) …

A Foreign Debtor Who Lacks Permanent Residence In The U.S. May Qualify For Florida’S Homestead Exemption, Jenna Kirkland

Bankruptcy Research Library

(Excerpt)

The home has special significance under Florida law, as public policy favors property ownership, citizen independence, and preserving a home where a family can be sheltered and “live beyond the reach of economic misfortune.” Generally, once an individual files for bankruptcy, all property of the debtor becomes property of the estate. However, Section 522 of title 11 of the United States Code (“Bankruptcy Code”) allows a debtor to exempt certain property from the estate. The Bankruptcy Code permits states to opt out of the federal exemption scheme provided. Florida is one of the states that has opted out, therefore …

Age As A Factor In Determining Discharge Of A Debtor’S Student Loan Debt, Julia Merani

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides for debtors a “fresh start” by allowing the discharge of most debt. To obtain a discharge of student loan debt, a debtor must demonstrate “undue hardship.” If the debt is not discharged, it must still be paid. The phrase “undue hardship” is not defined in the “Bankruptcy Code and congressional record provides little guidance as to what constitutes undue hardship . . . .” Even though Congress created a single standard for discharging student loan debt; the circuit courts have adopted different tests to determine if the undue …

The Split In The Application Of Section 109(A) Requirements To Chapter 15 Cases, Kate Long

Bankruptcy Research Library

(Excerpt)

Chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”) governs recognition of foreign bankruptcy, insolvency, and debt-restructuring proceedings. Section 1517 of the Bankruptcy Code generally sets forth the requirements for recognition. In addition to those requirements, some courts have held that a foreign debtor must satisfy traditional debtor eligibility requirements for a debtor’s foreign proceeding to be recognized under Chapter 15. Other courts disagree and hold that a foreign debtor does not need to meet the traditional requirements for its foreign proceeding to be recognized under Chapter 15.

This memorandum explores the applicability of the …

Granting Derivative Standing To A Creditors’ Committee, Jordan Milite

Bankruptcy Research Library

(Excerpt)

A party has “standing” (the right to challenge the conduct of another in court) when that person or entity has suffered an “injury in fact.” “Derivative standing” is when a person or entity other than the harmed party steps in to assert the claim in place of the harmed party. In a case under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy court may grant derivative standing to a creditors’ committee or similar body, rather than the bankruptcy estate itself, to bring a claim on behalf of a debtor’s estate. This often …

True Sales Or Secured Transactions? The Contract Is Not Dispositive, Daniel Mosayov

Bankruptcy Research Library

(Excerpt)

Receivables are debts owed to a company for goods or services. A company seeking liquidity may sell the future interest in receivables generated through operations or use the future interest in receivables as collateral to secure a loan. The parties’ rights will vary depending on whether the receivables are sold or used as collateral. If sold, the buyer holds absolute ownership of the acquired receivables protected from other interests. If the transaction is a loan, the lender holds a security interest in the receivables, which may be junior to other interests.

A bankruptcy court can recharacterize a transaction as …

Are Nonconsensual Third-Party Releases Acceptable In United States Courts, Megan O’Connor

Bankruptcy Research Library

(Excerpt)

Under Title 11 of the United States Code (the “Bankruptcy Code”), a debtor will generally be released or discharged from certain liabilities. In addition, a plan confirmed under Chapter 11 of the Bankruptcy Code may provide for a “third-party release,” pursuant to which a non-debtor, like a senior officer or shareholder, may be released from certain liabilities by creditors. There is currently a split between United States Courts of Appeals regarding the scope of who can be bound by a release by creditors: some courts permit such a release in the plan where each creditor has affirmatively consented to …

The Ability To Set And Enforce Bar Dates And Determine Untimely Administrative Expense Claims In A Chapter 11 Case, Kayla Nieves

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) does not expressly provide that bankruptcy courts may set and enforce deadlines, i.e., “bar dates,” for administrative expense claims. The Bankruptcy Code also does not expressly define “timely” or “tardy” administrative expense claims. Courts, however, have interpreted sections 105 and 503 of the Bankruptcy Code as sufficiently broad to provide bankruptcy courts with discretion to establish bar dates and allow untimely filed administrative expense claims “for cause.”

This memorandum explores the decisions that have addressed a bankruptcy court’s ability to set and enforce bar dates and to determine what …

Availability Of Setoff To Foreign Debtors And Representatives In U.S. Courts, Joseph Muschitiello

Bankruptcy Research Library

(Excerpt)

Setoff is the principle of allowing a party to reduce the debt it owes to an entity by applying a credit for any claim it has against the same entity. The purpose of setoff rights is rooted in “avoiding the absurdity of making A pay B when B owes A.” It is meant to be used by debtors as affirmative defenses or counterclaims. Section 553 of title 11 of the United States Code (the “Bankruptcy Code”) generally preserves the right of setoff in bankruptcy cases.

This memorandum explores how and when foreign debtors and representatives may exercise setoff rights …

Quitclaim Deeds, Divorce Decrees: Homestead Exemptions For Transferred Marital Property Across “Tenancy By The Entirety” And “Community Property” Jurisdictions, Elijah Newcomb

Bankruptcy Research Library

(Excerpt)

The quit claim deed is an instrument that transfers a property interest from a grantor to a grantee, without making any other representations. Quit claim deeds are common among spouses and divorcing couples as concerns regarding title defects are mitigated. These transfers have resulted in bankruptcy cases where a recipient-spouse receives a property interest encumbered by a lien, and tries to evade liability. A debtor can attempt to avoid a lien through an exemption. Exemptions are statutory provisions which can protect qualified property in a bankruptcy action. Section 522 of Title 11 of the United States Code (the “Bankruptcy …

The Prospect Of A Debtor’S Future Employment Is A Factor Courts Consider When Discharging Student Loan Debt, Joe Pizzingrillo

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a debtor’s student loan debt is not dischargeable unless “excepting such debt from discharge . . . would impose an undue hardship on the debtor.” A majority of courts apply a three-prong test, known as the Brunner test, to determine if student loan debt may be discharged. Under this analysis, courts will generally consider a debtor’s prospects for future employment in deciding whether a student loan debt should be discharged. In connection therewith, courts will often take into account a debtor’s educational background and possession of a professional …

The Features And Limitations Of Asbestos Settlement Trusts: A Primer, Michael Quintman

Bankruptcy Research Library

(Excerpt)

Section 524 of title 11 of the United States Code (“Bankruptcy Code”) prevents creditors from recovering pre-bankruptcy debts after plan approval if their recovery was not already provided for in the approved bankruptcy plan. Subsection (g) of section 524 provides a special procedure for debtors previously engaged in the sale or production of asbestos-containing products to restructure while ensuring those injured through exposure to those products are compensated. In particular, section 524(g) provides for the formation of a trust that can settle asbestos related tort claims after the plan has been confirmed by a bankruptcy court. These trusts are …

Subsequent Transferee’S Good Faith For Value Defense: The Second And Ninth Circuit’S Perspective, Alexa Schimp

Bankruptcy Research Library

(Excerpt)

Under section 548(a)(1) of title 11 of the United States Code (the “Bankruptcy Code”), a trustee may “avoid any transfer . . . incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition” if there is either an “actual intent” fraudulent transfer or a “constructive” fraudulent transfer. The trustee, however, may not recover if a subsequent transferee can satisfy the good faith for value defense and demonstrate that it “t[ook] for value . . . in good faith, and without knowledge of the voidability of the …

Equitable Subordination Of A Claim Depends On Insider Status, Conduct Of The Claimant, And If There Was Harm, Nicholas Smargiassi

Bankruptcy Research Library

(Excerpt)

Equitable subordination is a remedial doctrine pursuant to which a creditor’s claim may be subordinated to other claims. The doctrine is designed to “undo or to offset any inequality in the claim position of a creditor that will produce injustice or unfairness to other creditors in terms of the bankruptcy results.” Equitable subordination is codified in section 510(c) of Title 11 of the United States Code (the “Bankruptcy Code”). Section 510(c) of the Bankruptcy Code “authorizes a bankruptcy court to ‘subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed …

A Non-Party’S Ability To Assert A Cure Claim Under 365(B)(1)(A) In New York, Brendan Shaw

Bankruptcy Research Library

(Excerpt)

Under section 365 of title 11 of the United States Code (the “Bankruptcy Code”), “[a] trustee [or debtor], subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor.” Before assumption, a debtor must promptly cure or provide adequate assurance that it will promptly cure any defaults that existed at the time of assumption. Under New York law, an intended third-party beneficiary of a contract can enforce the terms of that contract.

This Article discusses how the Southern District of New York dealt with the issue of whether an intended third-party beneficiary …

The Role A Debtor’S Age Plays When Determining Whether To Discharge Student Loan Debt, Joseph Wales

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) generally provides for a broad discharge of pre-petition debts, resulting in a “fresh start” for debtors post-bankruptcy. However, section 523 of the Bankruptcy Code provides that a debtor may not be discharged from student loans unless there is a showing of “undue hardship.”

“Undue hardship” is a term of art largely dependent on the circumstances of the debtor. One common circumstance is the age of the debtor. The effect of a debtor’s age on their ability to pay can vary, so the role age plays in undue hardship analyses …

When A Critical Vendor May Be Insulated From Preference Liability, Michael A. Solimani

Bankruptcy Research Library

(Excerpt)

Under Title 11 of the United States Code (the “Bankruptcy Code”) a trustee or debtor in possession (“DIP”) may avoid certain payments made by the debtor to a creditor within ninety days prior to filing for bankruptcy, or one year if the creditor is an insider. The Bankruptcy Code contains certain defenses to preference claims. A court may also release a creditor from such claims. Such a release may be found in orders approving payment of pre-petition claims to a “critical vendor.” Absent such an express release, it is unclear whether a trustee or DIP is precluded from pursuing …

Circumstances Under Which A Court Will Dismiss A Chapter 11 Filing Made In Bad Faith, Nicholas Wogan

Bankruptcy Research Library

(Excerpt)

Under section 1112(b) of title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy court may dismiss a Chapter 11 filing “for cause.” It is a generally accepted principle that “for cause” dismissal includes dismissal of filings made in bad faith, and this concept originates in a need for bankruptcy courts to uphold the jurisdictional integrity of the Chapter 11 process from those who would seek to abuse it. Courts deciding whether dismissal for bad faith is warranted typically employ a two-step analysis: first to determine whether a bad faith filing is “cause” for dismissal under section …

Against Bankruptcy Exceptionalism, Jonathan M. Seymour

Faculty Scholarship

Bankruptcy courts conceive of their mission differently than other courts do. For the Supreme Court, bankruptcy cases are ordinary statutory cases to be resolved “clearly and predictably using well established principles of statutory interpretation.” Many bankruptcy judges, though, believe that bankruptcy courts serve a distinctive mission for which ordinary adjudicative methods do not suffice. Often, that mission is characterized using the language of equity. Judges and commentators alike have observed that among the most spoken words in the bankruptcy courts are: “the bankruptcy court is a court of equity.” Others have contended that bankruptcy necessitates “creativity and flexibility,” pursuant to …

Bankruptcy Grifters, Lindsey Simon

Scholarly Works

Grifters take advantage of situations, latching on to others for benefits they do not deserve. Bankruptcy has many desirable benefits, especially for mass-tort defendants. Bankruptcy provides a centralized proceeding for resolving claims and a forum of last resort for many companies to aggregate and resolve mass-tort liability. For the debtor-defendant, this makes sense. A bankruptcy court’s tremendous power represents a well-considered balance between debtors who have a limited amount of money and many claimants seeking payment.

But courts have also allowed the Bankruptcy Code’s mechanisms to be used by solvent, nondebtor companies and individuals facing mass-litigation exposure. These “bankruptcy grifters” …

Bankruptcy & The Benefit Corporation, Christopher D. Hampson

UF Law Faculty Publications

As pressure grows for money-making businesses to prioritize social responsibility, the benefit corporation - a recent innovation in corporate governance - promises to require the directors of socially minded businesses to balance public benefit with shareholder interests. But will that promise survive the crucible of financial distress? While most discussions of the benefit corporation give only passing treatment to insolvency (or ignore it altogether), this Article provides the first complete analysis of how bankruptcy principles would apply to benefit corporations, informed by the practical context of out-of-court workouts and negotiations that take place in the shadow of the bankruptcy laws. …

A Process For Politics, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

I argue that consistent and public process observance has a distinctly valuable function in sovereign debt restructuring, with no precise equivalent in national insolvency regimes. National regimes reflect the distribution bargains of their enactment, presumptively legitimate and binding. Debtors and creditors allocate insolvency losses in their shadow, with liquidation as a backstop and politics just outside the frame. All else equal, the restructuring process has a harder job with sovereign debt. There is no liquidation backstop and no default distribution scenario. Each crisis resolution episode must allocate losses from scratch among the country’s citizens, foreign and domestic creditors, and other …

Pandemic Hope For Chapter 11 Financing, David A. Skeel Jr.

All Faculty Scholarship

One of the biggest surprises of the recent pandemic from a bankruptcy perspective has been the ready availability of financing. A variety of factors—such as an estimated $2.5 trillion in available funding at the outset of the crisis and the buoyant stock market—may have contributed. In this Essay, I focus on a less widely appreciated factor, a striking shift in the capital structure of many corporate debtors. Rather than borrowing from one group of lenders, debtors now often borrow from multiple groups of diverse lenders. Although the new capital structure complexity has downsides, it also could counteract a longstanding problem …

Two Approaches For Evaluating A Debtor’S “Additional Circumstance” Under The Brunner Test To Qualify For A Hardship Discharge Of Student Loan Debt, Julie Aberasturi

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), student loan debt is typically non-dischargeable in bankruptcy, except for circumstances in which the failure to discharge “would impose an undue hardship on the debtor and the debtor’s dependents.” However, the Bankruptcy Code does not define “undue hardship.” Instead, Congress “left it up to the various Bankruptcy Courts to utilize their discretion in defining what that term means after an analysis of the statute and a review of applicable legislative history.”

In determining what constitutes an “undue hardship,” a majority of courts rely on the three-prong Brunner test …

Unqualified Student Loans Are Likely Dischargeable In Bankruptcy, Cristian Catanese

Bankruptcy Research Library

(Excepr)

As a general matter, most student loans are excepted from discharge under section 523 of title 11 of the United States Code (the “Bankruptcy Code”). The Bankruptcy Code prohibits discharge of certain student loans unless doing so “would impose undue hardship on the debtor and [their] dependents . . . .” Student debtors seeking to discharge student loan debt must file an adversary proceeding and demonstrate “undue hardship” — a difficult burden to meet. However, not all student loans may be subject to this requirement.

Jurisdictions are divided on whether unqualified student loans, i.e., loans outside the cost of …

Enforcing Make Whole Premiums In Bankruptcy, Brian P. Campbell Jr.

Bankruptcy Research Library

(Excerpt)

A debt instrument typically has two components: principal and interest. The lender usually has some expectation in receiving a certain amount of interest over the life of a loan. The borrower may in many instances reduce the amount of the interest paid by pre-paying the loan in full prior to maturity. In certain instances, a lender will protect its interest recovery by including a “make whole premium” (“MWP”) in the loan. When borrowings are either paid back early or are accelerated forward by a default, MWPs provide for the payment of an additional amount by the borrower to “compensate …

The Debtor’S Absolute Right To Dismiss A Chapter 13 Case, Jared Brady

Bankruptcy Research Library

(Excerpt)

Under section 1307(b) of title 11 of the United States Code (the “Bankruptcy Code”), a debtor has an absolute right to dismiss a Chapter 13 bankruptcy case. A bankruptcy case may be voluntarily filed under any chapter so long as the individual is eligible to be a debtor under the chapter selected. Section 1307(b) requires the court, on request of the debtor, to dismiss a Chapter 13 case if the case has not already been converted from Chapter 7 or Chapter 11.

This memorandum addresses a debtor’s right to dismiss a Chapter 13 case in three sections. Section one …

The Differing Standards To Obtain A Student Loan Debt Discharge, Nicholas Bonelli

Bankruptcy Research Library

(Excerpt)

Discharging student loans in a bankruptcy case is often an uphill battle. Under section 523 of title 11 of the United States Code (the “Bankruptcy Code”), student loans are presumed nondischargeable. Thus, a discharge is generally unavailable for student loans “[u]nless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor's dependents.” To obtain a discharge, a debtor bears the burden of showing “undue hardship” by a preponderance of the evidence. In determining “undue hardship,” a majority of courts use the Brunner Test. A minority of courts use the more …

Standing To Challenge Bankruptcy Court’S Approval Of Retiree Benefits Settlement, Inkook Choi

Bankruptcy Research Library

(Excerpt)

Section 1114 of title 11 of the United States Code (the “Bankruptcy Code”) provides in relevant part that: “the debtor in possession shall timely pay and shall not modify any retiree benefits” unless “the court, on the motion of the [debtor] or authorized representative [of the retirees,]” orders or the debtor and the authorized representative agree to the modification of such benefits. A bankruptcy court may, after notice and hearing, approve a settlement, including a settlement of retiree benefit claims, under Federal Rule of Bankruptcy Procedure 9019. Consequently, creditors and other parties in interest may voice their views on …