Bankruptcy Law Commons^™

The In Pari Delicto Defense May Bar Trustees That Bring Claims Which Are Property Of The Estate Under 11 U.S.C. § 541(A), Carmine Broccole

Bankruptcy Research Library

(Excerpt)

The in pari delicto doctrine states that “[i]n a case of equal or mutual fault … the position of the [defending] party … is the better one.” This doctrine is guided by the premise that it is not within the purview of the court to resolve disputes among wrongdoers, and that denial of judicial relief in these instances effectively deters illegal activity. Within the bankruptcy context, “every Circuit to have considered the question has held that in pari delicto can be asserted against a trustee bringing a claim on behalf of a debtor in bankruptcy.”

Under Section 541(a)(1) of …

Trademarks Are “Intellectual Property” Under Bankruptcy Code Section 365(N), Emily Clark

Bankruptcy Research Library

(Excerpt)

Under section 365 of title 11 of the United States Code (the “Bankruptcy Code”) a trustee or a debtor-in-possession may reject an executory contract. Rejection has the same effect as a breach outside of bankruptcy; rejection does not rescind the rights that the contract previously granted or terminate the contract. Under section 365(n) of the Bankruptcy Code, a licensee of intellectual property may retain the right to use such intellectual property notwithstanding the rejection of such license provided it is an executory contract. A contract is executory when there is performance due, to some extent, from both parties. A …

The Two Approaches To Center Of Main Interest Timing Determination, John Freeze

Bankruptcy Research Library

(Excerpt)

Under Chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy court may grant recognition to a “foreign main proceeding.” A foreign main proceeding is “a foreign proceeding pending in the country where the debtor has the center of its main interests." The Bankruptcy Code offers little in the way of a definition of a foreign main proceeding, only that “the debtor’s registered office . . . is presumed to be the center of the debtor’s main interests.” Thus, chapter 15 provides a rebuttable presumption that a foreign debtor’s center of main interest is …

Discharging Student Loan Debt Under Brunner: Interpreting The Second Prong’S “Additional Circumstances” Requirement, Emily Gault

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), an individual debtor is not entitled to a discharge of his or her student loan debt “unless excepting such debt from discharge…would impose an undue hardship on the debtor and the debtor’s dependents.” Because the Bankruptcy Code does not define the term “undue hardship,” the courts have applied a broad range of standards which has resulted in a “state of considerable confusion.” Currently, the majority of circuit courts have adopted the test formulated by the United States Court of Appeals for the Second Circuit to determine what qualifies …

The Brunner Test Imposes A High Burden To Discharge Student Loan Debt, Lindsey Haynes

Bankruptcy Research Library

(Excerpt)

The United States Bankruptcy Code (the “Code”) makes it more difficult to discharge student loan debt than other debts. Student loans are treated differently from other loans because they are presumptively nondischargable. The government wants to ensure young debtors with promising future income streams remain liable to preserve student loan funding in the future. More specifically, section 523(a)(8) of the Code prevents abuses of the educational loan system and protects the continued viability of student loan programs. But, if certain circumstances are proven, student loan debt can be discharged.

The Code states if repayment “would impose an undue hardship …

Relief Afforded To Debtor Clients Harmed By A Bankruptcy Petition Preparer's Fraudulent, Unfair, Or Deceptive Conduct, Kathryn M. Ingle

Bankruptcy Research Library

(Excerpt)

A "Bankruptcy Petition Preparer" (the "Preparer") is a non-attorney who assists pro se debtors in the preparation of bankruptcy petitions and documents related to filing for bankruptcy. Preparers are regulated under section 110 of title 11 of the United States Code the (the "Code"). This section of the Code severely limits the scope of a Preparer's duties. Preparers lack the same rigorous legal and ethical training acquired by bankruptcy attorneys; therefore, some Preparers try to take advantage of debtors who are often ignorant of the bankruptcy system. Section 110 of the Code outlines sanctions to deter Preparers from behaving …

The Objective Standard For Holding A Creditor In Civil Contempt For Violating A Discharge Order, Alexander Cirkovic Koban

Bankruptcy Research Library

(Excerpt)

An individual debtor is generally entitled to a discharge at the conclusion of a bankruptcy case. A discharge is a legal injunction that both releases the debtor from liability for most pre-bankruptcy debts and bars creditors from collecting any debt that has been discharged. A creditor that violates the discharge may be held in contempt and subject to sanctions by a court.

In Taggart v. Lorenzen, the Supreme Court set the standard for when to impose civil contempt, holding that “a court may hold a creditor in civil contempt for violating a discharge order if there is no …

The Scope And Retroactivity Of The Honoring American Veterans In Extreme Need “Haven” Act In Chapter 7 And Chapter 13 Bankruptcy Cases, Carole Ann Liscio

Bankruptcy Research Library

(Excerpt)

On August 23, 2019, President Donald J. Trump signed the Honoring American Veterans in Extreme Need Act (the “HAVEN Act”). Congress stated that the HAVEN Act’s purpose is to correct an “obvious inequity” in title 11 of the United States Code (the “Bankruptcy Code”) as it relates to veterans. The HAVEN Act is silent as to whether it applies retroactively. Certain courts, however, have explored the idea that it should apply to cases pending as of the HAVEN Act’s enactment.

This memorandum analyzes whether the HAVEN Act can be applied retroactively or only to cases filed following its enactment. …

Center Of Main Interest For Members Of A Group Of Companies, Loredana Miranda

Bankruptcy Research Library

(Excerpt)

Under Chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”), a court can recognize a foreign bankruptcy, insolvency, or restructuring proceeding (i.e., a foreign proceeding) as either a “foreign main proceeding” or a “foreign nonmain proceeding.” The Bankruptcy Code defines a foreign main proceeding as “a foreign proceeding pending in the country where the debtor has the center of its main interests.” The Bankruptcy Code does not define the “center of main interest” or “COMI.” Thus, bankruptcy courts have formulated different definitions and factors to determine a debtor’s COMI.

Complex corporate structures have made it …

Luxurious Lifestyles Alone May Not Constitute A Lack Of Good Faith Under The Bankruptcy Code, Spencer Nelson

Bankruptcy Research Library

(Excerpt)

Luxurious lifestyles implicate a debtor’s good faith when applying for the protections provided under title 11 of the United States Code (the “Bankruptcy Code”). Typically, bankruptcy courts avoid making the debtor’s luxurious lifestyle, on its own, a determinative factor because the good faith (or bad faith) analysis is determined under a totality of the circumstances approach. A debtor with continuing expenses typically indicative of bad faith can maintain such expenses if the debtor has made other concerted efforts to repay creditors or can otherwise justify those expenses. What is required depends on whether the debtor is applying for protections …

Creditors Are Unable To Directly Assert Claims For Breach Of Fiduciary Duty Or Fraudulent Transfer Against Another Creditor When The Debtor Is In Bankruptcy, Anthony Norris

Bankruptcy Research Library

(Excerpt)

In order to effectuate the efficient resolution of bankruptcy proceedings, courts have followed the public policy of reducing the number of suits that are ancillary to a bankruptcy case. Courts have achieved this goal by limiting those that have standing once a bankruptcy case is initiated. Thus, courts will appoint a trustee who alone has standing to handle the estate of the debtor.

Typically, the issue of standing will be straightforward when a creditor sues a debtor. However, the question becomes more complicated when a creditor sues another creditor, where their only connection is the debtor.

This memorandum focuses …

Domestic Support Obligation Not Necessarily A First Priority Claim, Gabrielle Pullo

Bankruptcy Research Library

(Excerpt)

During distribution of the proceeds of a debtor’s estate, creditor claims and expenses are paid in a specific order of priority pursuant to title 11 of the United States Code (the “Bankruptcy Code”). Domestic support obligations, which include monies owed to or recoverable by a spouse, former spouse, child of the debtor, or such child’s parents, are entitled to be paid first. Typically, these types of claims are first priority regardless of whether they are filed by the persons to whom they are owed or by a governmental unit on behalf of such persons. However, this top tier priority …

A Bankruptcy Court’S Authority To Find An Implicit Waiver Of A Debtor’S Rights Under A Chapter 11 Reorganization Plan, Benjamin Ranalli

Bankruptcy Research Library

(Excerpt)

In chapter 11 cases, bankruptcy courts often deal with parties seeking reorganization or the approval of a reorganization plan. However, repeated instances of post-confirmation disputes have led courts to address the issue of whether bankruptcy courts retain jurisdiction in disputes that arise after the plan has been confirmed. It is settled that bankruptcy courts retain post-confirmation jurisdiction regarding certain matters in chapter 11 cases. Since reorganization plans are treated like contracts between parties, issues of contract law regularly arise in bankruptcy court in post-confirmation cases. One such issue is whether a bankruptcy court may authorize an implicit waiver of …

The Standards The Court Uses To Determine The Priority Of A Party’S Entitlement To Dividends In A Bankruptcy Proceeding, Nally Ann Scaturro

Bankruptcy Research Library

(Excerpt)

Although the entitlement to receive dividends is not explicitly addressed in the United States Bankruptcy Code (the “Bankruptcy Code”), it is likely this right will be categorized as a security interest and thus be subordinated to creditors’ interests in a bankruptcy proceeding.

Creditors are entitled to be paid ahead of shareholders in the distribution of corporate assets. Furthermore, securities are subordinated to claims by creditors of the debtors. Presently, all interests not captured by the Bankruptcy Code are analyzed under the residual clause. This clause provides that unless the interest in dispute is explicitly excluded from the definition of …

Collusive Bidding On A Debtor’S Assets: A Question Of Fairness, Ross Weiner

Bankruptcy Research Library

(Excerpt)

Section 363(n) of title 11 of the United States Code (the “Bankruptcy Code”) prohibits “collusive bidding” -- a process where “the sale price [is] controlled by an agreement among potential bidders.” Section 363(n) only provides the trustee with the right to bring a claim of collusive bidding, [which if successful could undo a previously approved sale]. However, courts have allowed unsuccessful bidders to pursue such claims. Further, unsuccessful bidders have the right to recover “any costs, attorneys’ fees, or expenses incurred in avoiding such sale or recovering such amount.”

Today, a lack of clarity exists regarding when an unsuccessful …

Creditors Can Recover Post-Petition Interest By Incorporating Original Agreement Into The Plan Of Reorganization By Referencing A Specific Clause In The Original Agreement, Emmanuelle Yeremou-Ngah

Bankruptcy Research Library

(Excerpt)

Courts will generally interpret a contract according to its plain language, and any intent to incorporate a separate document must be clearly manifested with sufficient specificity. The parties’ intent will be inferred from the express language of the contract. Under section 506(b) of title 11 of the United States Code (the “Bankruptcy Code”), an oversecured creditor is entitled to post-petition interest on its secured claim up to the value of the collateral securing its claim. Additionally, most courts have ruled that a secured creditor is entitled to post-petition interest according to the rate specified in the contract or a …

Under A Confirmed Chapter 11 Plan A Liquidating Trustee May Have Sole Authority To Review And Object To Claims, Ryan C. Beil

Bankruptcy Research Library

(Excerpt)

A liquidating trust is one that is organized for the primary purpose of liquidating and distributing the assets transferred to it. When a plan under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) is confirmed and establishes a liquidating trust, the trust is treated as a distinct entity. The liquidating trust terminates the debtor in possession’s status and conveys the estate’s rights and assets to a “liquidating trustee.” The confirmed plan does not simply substitute the trustee for the debtor-in-possession, but rather it creates a separate and distinct trust, holding certain property of the …

A Non-Profit Entity May Not Be Substantively Consolidated With An Affiliated Debtor, Rachel Armely

Bankruptcy Research Library

(Excerpt)

To date, over 19,000 sexual abuse claims, totaling claims in an aggregate amount of more than $4 billion, have been filed against individual dioceses within the Catholic Church. This influx of claims comes as the result of certain state legislatures allowing individuals with previously time-barred claims to bring civil lawsuits against the dioceses. Consequently, at least eighteen Catholic dioceses have filed voluntary petitions for relief under title 11 of the United States Code (the “Bankruptcy Code”).

In many cases, the majority of the Catholic dioceses’ assets are held by inter-related, non-profit Catholic entities that often collectively hold billions of …

Involuntary Bankruptcy Cases And Discretionary “For Cause” Dismissals, Jp Amato

Bankruptcy Research Library

(Exceprt)

This article addresses whether a bankruptcy court has the discretionary power to dismiss an involuntary bankruptcy case filed under chapters 7 or 11 of title 11 of the United States Code (the “Bankruptcy Code”) for cause when there is a finding of bad faith or a lack of good faith on behalf of the petitioning creditor or creditors. In short, it is unclear because there is insufficient authority on this issue in the involuntary context, and the issue remains split among the courts in the voluntary context.

This article first addresses the statutory requirements of an involuntary petition. Next, …

Foreign Third-Party Releases May Be Enforced Under Principles Of Comity, Jennifer Delasco

Bankruptcy Research Library

(Excerpt)

Chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”) provides a mechanism for a foreign debtor or a foreign representative to seek recognition of a foreign insolvency, liquidation, or bankruptcy proceeding and the enforcement of a foreign court’s orders issued in such proceedings in the United States. A foreign bankruptcy proceeding or plan may contain “provisions that release non-debtors, such as officers, directors, shareholders, or non-debtor affiliates, from claims and causes of action held by creditors or other non-debtor parties.” There is a split in the United States courts as to whether such a third-party …

Chapter 7 Bankruptcy Proceedings May Be Sufficiently “Unusual” To Render Forum-Selection Clauses Unenforceable, James A. Goodridge

Bankruptcy Research Library

(Excerpt)

The strong policy in favor of centralizing bankruptcy disputes in a single forum often overrides the deference typically owed to the enforceability of the enforceability of forum-selection clauses (“FSC”). As such, with the exception of the Seventh and Tenth Circuits, FSCs are less likely to be enforced in bankruptcy cases, especially when the pending claim is constitutionally core. This memorandum explores the treatment of FSCs in bankruptcy cases. Section I discusses bankruptcy courts’ strong presumption for centralized proceedings; Section II examines the treatment of FSC when the matter is core; and Section III reviews the rejection of the “core …

The Standard For Taking A Security Interest In Fixtures, Mark J. Lobiondo

Bankruptcy Research Library

(Excerpt)

Creditors that have a security interest in the same collateral will often dispute the priority of each other’s liens. In general, the security interest that is first perfected will be entitled to priority over subsequent liens. A security interest is generally perfected by filing a financing statement that satisfies the requirements of section 9-502 of the UCC. Section 9-502 provides that a financing statement is sufficient only if it: (1) provides the name of the debtor; (2) provides the name of the secured party or a representative of the secured party; and (3) indicates the collateral covered by the …

A Trustee Generally May Not Recover An Actual Fraudulent Transfer If The Funds Have Been Reimbursed To The Debtor Pre-Petition, Carina Zupa

Bankruptcy Research Library

(Excerpt)

Section 544 of title 11 of the United States Code (the “Bankruptcy Code”) grants a trustee the power to “avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by” certain classes of secured creditors, unsecured creditors, and bona fide purchasers. When seeking to avoid a transfer a trustee can look to various other provisions of the Bankruptcy Code, including: 11 U.S.C. § 545 (statutory liens), 11 U.S.C. § 547 (preferences), 11 U.S.C. § 548 (fraudulent transfers), 11 U.S.C. § 549 (post-petition transactions), 11 U.S.C. § 553(b) (impermissible setoffs), and 11 …

Exploring The Scope Of The Property Requirement Of Section 109(A) In Chapter 11 And 15 Cases, Rasha El Mouatassim Bih

Bankruptcy Research Library

(Excerpt)

Section 109 of title 11 of the United States Code (the “Bankruptcy Code”) provides that “only a person that resides or has a domicile, a place of business, or property in the United States . . . may be a debtor.” In In re Barnet, the United States Court of Appeals for the Second Circuit held that debtor eligibility requirements of section 109 apply to a debtor in recognition proceedings under chapter 15. If a debtor does not have a domicile or place of business in the United States, as is often the case with foreign debtors, then …

Selling A Vessel Free And Clear Of A Maritime Lien Pursuant To Section 363 Of The Bankruptcy Code, Aram Movaseghi

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a debtor in possession or trustee may sell property of the debtor’s estate. However, a lien on a maritime vessel may make such a sale challenging, in particular because of jurisdictional issues. When a debtor’s assets become subject to the jurisdiction of both admiralty and bankruptcy cases, a complex conundrum arises. Maritime bankruptcies have generated complex legal issues and jurisdictional conflicts that have perplexed practitioners and implicated significant constitutional issues.

Under section 363 of the Bankruptcy Code, a debtor or trustee may seek authority from the court to …

Court’S Ability To Modify Or Terminate A Prior Recognition Order Under §1517(D) Of The Bankruptcy Code, Kristopher Peters

Bankruptcy Research Library

(Excerpt)

Chapter 15 of title 11 of the United States Code (the “Bankruptcy Code”) governs the process for obtaining recognition of foreign insolvency proceedings in the U.S. Section 1517 governs recognition of foreign proceedings and addresses two distinct, but related, issues: (1) whether a court must recognize a foreign court’s foreign proceeding; and (2) whether a court may modify or terminate a prior recognition of a foreign proceeding. This memorandum analyzes the second issue, which is governed by §1517(d) of the Bankruptcy Code.

This memorandum first examines the scope of §1517(d) and whether and when a court may modify or …

In Re Minter-Higgins, Deanna Scorzelli

Bankruptcy Research Library

(Excerpt)

A Chapter 7 trustee cannot recover from the debtor, through a turnover motion, postpetition transfers that were made out of the debtor’s bank account that resulted from pre-petition checks and debit expenditures that were not transferred by the bank to the payees until after the debtor filed for bankruptcy. The § 362(b)(11) exception from the automatic stay insulates a consumer debtor from the trustee’s attempt to require her to “turnover” these amounts.

It Is Possible To Incriminate Yourself In The United States Bankruptcy Courts, Andre Brittis-Tannenbaum

Bankruptcy Research Library

(Excerpt)

The Fifth Amendment of the United States Constitution’s Self Incrimination Clause provides that, “[n]o person shall . . . be compelled in any criminal case to be a witness against himself. . . .” This right protects an individual from “answer[ing] official questions put to him in any [] proceeding . . . where the answers might incriminate him in future criminal proceedings.” While the drafters of the Constitution only included language related to criminal cases, the Supreme Court has extended the privilege to civil proceedings, including bankruptcy cases. However, this privilege is not absolute, and can be waived …

Circuit Split Created Over Enactment Of Section 510(A) Of The Bankruptcy Code And Its Effect On The Rule Of Explicitness, Rossella Scarpa

Bankruptcy Research Library

(Excerpt)

Bankruptcy law seeks to equitably distribute a debtor’s remaining assets among creditors. However, prior to bankruptcy, creditors can contract around their pro rata equitable distribution by executing inter-creditor agreements. Inter-creditor agreements are executed to delegate the rights and priorities of creditors as to a common borrower in the event the borrower defaults. Subordination agreements are a type of inter-creditor agreement, where junior creditors consent to senior creditors having their loans repaid in full before junior creditors receive their payment. Bankruptcy courts enforce subordination agreements through section 510(a) of title 11 of the United States Code (the “Bankruptcy Code”), which …

Determining When The Granting Of Relief Is Deemed Abuse Of The Bankruptcy Code Under Section 707, Angela Bonica

Bankruptcy Research Library

(Excerpt)

There is no constitutional right for an individual to have their debts discharged. A discharge is a privilege offered to the honest but unfortunate debtor pursuant to title 11 of the United States Code (the “Bankruptcy Code”). A bankruptcy court considers different standards and/or tests to determine when a debtor may be abusing the relief provided under the Bankruptcy Code. The specific provision that restricts relief because of abuse was originally enacted in 1984, and then amended in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). A main purpose of the BAPCPA was to deter abuses …