Law Commons^™

Defense Of In Pari Delicto Does Not Affect Trustee Standing, Elizabeth L. Anderson

Bankruptcy Research Library

(Excerpt)

Rejecting the Second Circuit’s Wagoner rule and agreeing with the First, Third, Fifth, and Eleventh Circuits, the United States Court of Appeals for the Eighth Circuit held that the collusion of corporate insiders with third parties to injure the corporation does not deprive the corporation’s trustee of standing to sue third parties, resulting in a greater rift between Second Circuit and the other Courts of Appeal on this issue. Moratzka v. Morris, 482 F.3d 997, 1004 (8th Cir. 2007). Nevertheless, the court affirmed that such a situation may give rise to the defense of in pari delicto barring the …

Chapter 13 Plan Cannot Avoid Lien Absent Adversary Proceeding, Michael Buccino

Bankruptcy Research Library

(Excerpt)

In SLW Capital, LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin), 530 F.3d 230, 233 (3d Cir. 2008), the Third Circuit considered whether a Chapter 13 confirmation plan has res judicata effect with respect to a creditor’s lien when no adversary proceeding regarding the lien was brought under the Federal Rules of Bankruptcy Procedure (“the Rules”). The court held that the plan had no res judicata effect on such a lien. Accordingly, the lien passed through bankruptcy unaffected and could only be invalidated through an adversary proceeding. In doing so, the court made it clear that the requirements of …

In Re Whitehall Jewelers Holdings, Inc., Jonathan Borst

Bankruptcy Research Library

(Excerpt)

In In re Whitehall Jewelers Holdings, Inc., No. 08-11261(KG), 2008 WL 2951974 (Bankr. D. Del. July 28, 2008), the court held against Whitehall Jewelers Holdings, Inc. (“Debtors”), in favor of approximately 124 consignment vendors (“Consignment Vendors”), where Debtors sought an order permitting the “free and clear” sale of all of their assets and inventory, including consigned goods from Consignment Vendors. See id. at *1–2. In order to develop a full understanding of the court’s holding, it is necessary to understand its statutory context, specifically sections 363 and 541 of the Bankruptcy Code, as well as Federal Rule of …

Whether “Hedging” Anticipated Contingency Fees Should Be Deemed Impermissible Fee-Sharing Under Section 504 When The Policy Considerations Underlying The Statute Are Not Offended, David Bloom

Bankruptcy Research Library

(Excerpt)

Although the Bankruptcy Code establishes a clear prohibition against the sharing of fees by persons receiving compensation or reimbursement under section 504, it is unclear whether bankruptcy attorneys may be permitted to enter into “hedging” arrangements in order to obtain downside protection against risks associated with appeal. Ultimately, what is needed to decide this issue is a determination of what constitutes “sharing” of compensation within the meaning of the Code. Recently, in In re Winstar Communications, Inc., 378 B.R. 756 (Bankr. D. Del. 2007), the bankruptcy court found no ambiguity in the statute, and gave the term “sharing” …

Applying The “Applicable” Standard Or The Actual Amount: Monthly Rent In A Debtor’S Chapter 13 Plan, Paola Chiarenza

Bankruptcy Research Library

(Excerpt)

Under The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) (S. 256, Pub. L. No. 109–8, 119 Stat. 23), debtors are subjected to a test in order to ensure their creditors are repaid as much as possible. Chapter 13 requires debtors in bankruptcy to file a plan indicting a monthly amount they will repay to creditors over a given set of years. The amount to be repaid is a debtor’s entire “disposable income,” which is income minus expenses. See 11 U.S.C. § 1325 (2007). Deductable expenses are to be calculated the same as a chapter 7 filing. …

What Exactly Does The Term “Fair And Equitable” Mean?, Peter Doggett Jr.

Bankruptcy Research Library

(Excerpt)

In a plan of reorganization, the Bankruptcy Code outlines a priority scheme that must be strictly adhered to. 11 U.S.C. § 1129. According to the Code, “the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.” 11 U.S.C. § 1129(b)(2)(B)(ii). When faced with the question of extending the codified priority rule to settlement approvals, the Fifth Circuit in United States v. AWECO Inc. (In re AWECO, Inc.), 725 F.2d 293 (5th Cir. 1984) held …

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 …