Bankruptcy Law Commons^™

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 …

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 …

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 …

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 …

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) …

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 …

Early Retirement Benefits Not Entitled To Severance Priority, Joe Scolavino

Bankruptcy Research Library

(Excerpt)

In Supplee v. Bethlehem Steel Corp (In re Bethlehem Steel Corp.), 479 F.3d 167 (2d Cir. 2007), the Second Circuit Court of Appeals addressed the issue of whether early retirement benefits triggered by severance are entitled to administrative expense treatment. The court held that that early retirement benefits are not entitled to severance priority. While the Second Circuit generally treats severance payments as priority administrative expenses when employment is terminated during the employer’s bankruptcy, Bethlehem determined that lump-sum retirement benefits for which the employee became eligible at termination did not constitute a new benefit earned at termination, …

American Home Mortgage, Holdings, Inc. V. Lehman Brothers Inc., Valerie Sokha

Bankruptcy Research Library

(Excerpt)

The derivatives provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) amendments greatly enlarged the scope of the financial contracts that are shielded from traditional bankruptcy limitations such as the automatic stay and the prohibition on ipso facto clauses. Those exceptions were reaffirmed in a strong anti-debtor opinion in Am. Home Mortg. Inv. Corp. v. Lehman Bros. (In re Am. Home Mortg. Holdings, Inc.), 388 B.R. 69 (Bankr. D. Del 2008). Although Lehman may now regret its victory since it is a debtor in its own bankruptcy case, it succeeded in defeating a number …

Discharge Under The Code For Erisa "Fiduciaries", Devin Sullivan

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code (“Code”) provides debtors with relief from many of their outstanding debts. However, even under the broad protection of the Code, some debts cannot be erased. Pursuant to section 523(a)(4) of the Code, an individual debtor may not discharge any debt for fraud or defalcation (unauthorized appropriation of money) while acting in a fiduciary capacity. 11 U.S.C. § 523(a)(4). The federal courts are currently split on the issue of whether a debtor who qualifies as a “fiduciary” under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 et seq, (“ERISA”) will also qualify as …

Can Software Be A Bankruptcy Petition Preparer?, Thomas Szaniawski

Bankruptcy Research Library

(Excerpt)

Recently, in Reynoso v. United States (In re Reynoso) — a case of first impression for the Ninth Circuit that addressed the intersection of cyberspace and bankruptcy — the court held that a provider of web-based bankruptcy software was a bankruptcy petition preparer (“BPP”) under 11 U.S.C. section 110 and that under California law, the features and functionality of the software went beyond mere typesetting and constituted the unauthorized practice of law. Reynoso v. United States (In re Reynoso), 477 F.3d 1117 (9th Cir. 2007). In re Reynoso is significant because prior to this …

The Chapter 13 Estate And Its Discontents, David G. Carlson

Articles

Thirty years after the enactment of the Bankruptcy Code, the courts have yet to agree on a theory of the bankruptcy estate in Chapter 13 cases. This is not the fault of the courts. The Bankruptcy Code is contradictory as to the composition of the chapter 13 estate. This article selects one of four possible theories and defends it as the one that does the least violence to the plain meaning of the Bankruptcy Code.

This theory is referred to in this article as the "Divestment Theory," because it holds that, upon confirmation of a chapter 13 plan, the debtor …

Critique Of Money Judgment (Part Two: Liens On New York Personal Property), David G. Carlson

Articles

The article critiques the New York Civil Practice Law and Rules (CPLR) for its outdated and overly complex framework governing money judgments, particularly in the creation, enforcement, and priority of judicial liens. It argues that the CPLR's inefficiencies and inconsistencies, exacerbated by conflicts with federal bankruptcy law and the Uniform Commercial Code (UCC), lead to unjust outcomes for both debtors and creditors. The article proposes modest reforms to align the CPLR with modern legal standards, simplify procedures, and eliminate unnecessary distinctions between tangible and intangible property.

Bargaining Around Bankruptcy: Small Business Workouts And State Law, Edward R. Morrison

Faculty Scholarship

Federal bankruptcy law is rarely used by distressed small businesses. For every 100 that suspend operations, at most 20 file for bankruptcy. The rest use state law procedures to liquidate or reorganize. This paper documents the importance of these procedures and the conditions under which they are chosen using firm-level data on Chicago-area small businesses. I show that business owners bargain with senior lenders over the resolution of financial distress. Federal bankruptcy law is invoked only when bargaining fails. This tends to occur when there is more than one senior lender or when the debtor has defaulted on senior debt …