Bankruptcy Law Commons^™

The Differences Between The Right To Setoff Under 11 U.S.C. §553 And 11 U.S.C. §558, Maria Ehlinger

Bankruptcy Research Library

(Excerpt)

In bankruptcy cases, the right to setoff is a powerful tool used by both debtors and creditors to avoid having to pay a debt owed to another. The right to setoff is defined as “[a] debtor’s right to reduce the amount of a debt by any sum the creditor owes the debtor the counterbalancing sum owed by the creditor.” A right to setoff usually arises when a debtor owes a debt to a creditor and the creditor owes a debt to the debtor. The purpose of a setoff is to “allow entities that owe each other money to apply …

Applying The Automatic Stay To Non-Debtors, Raff Ferraioli

Bankruptcy Research Library

(Excerpt)

The automatic stay provision of the Bankruptcy Code is regarded as one of the most essential protections the Code offers to debtors. Section 362(a) provides that the filing of a bankruptcy petition “operates as a stay [of] action[s] or proceeding[s] against the debtor.” Thus, when an entity files for bankruptcy, an automatic stay is created that prevents creditors from taking any action to collect or enforce a debt, including among other things, continuing ongoing litigation.

Practically, the automatic stay enables all claims against a debtor to be brought in a single forum. Simultaneously, it also preserves “what remains of …

The Effect Of Ongoing Civil Litigation On Chapter 11 Reorganization, Kaitlin Fitzgibbon

Bankruptcy Research Library

(Excerpt)

Businesses and, in some cases, individuals who have incurred a significant amount of debt can voluntarily file for bankruptcy under chapter 11 of the Bankruptcy Code as a means of settling their debts with their creditors and preserving their businesses as going concerns. Chapter 11 is a vehicle for businesses to achieve this goal because it emphasizes debtor reorganization and rehabilitation rather than liquidation. Chapter 11 strikes a balance between rehabilitating the debtor and maximizing value to creditors. Public policy encourages reorganization as opposed to liquidation wherever possible because the successful rehabilitation of debtors is in the best interest …

The Effect Of Conversion On A Post-Petition Lender’S Superpriority Claim Over A Chapter 7 Trustee’S Post-Conversion Administrative Expense Claim, Michael Foster

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code provides a priority scheme that dictates the order in which claims are to be paid. Generally, secured claims get paid out first. Secured claims are followed by administrative expense claims, which include expenses incurred for administration of the estate, such as professional fees of the trustee, attorney, or accountant employed by the estate, and certain taxes. These claims are then followed by other priority unsecured claims, and finally general unsecured claims. The amount of the distribution that a creditor will receive in a bankruptcy case depends on numerous factors, including the total number of other creditors …

Litigation Trustees Not Allowed To Wear Their “Non-Bankruptcy Hats” To Avoid Swap Transactions As Fraudulent Conveyances, Aura M. Gomez Lopez

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code provides bankruptcy trustees with avoidance powers that allow the trustees to undo certain pre- and post-petition actions. The purpose of this power to allow the recovering property or interests transferred by the debtor in order to maximize the value of the bankruptcy estate for the benefit of the creditor and to provide more equitable distribution to creditors. Among these avoidance powers is the power to avoid fraudulent transfers/conveyances. In particular, the bankruptcy trustee may avoid a transfer (1) as an actually fraudulent transfer if it was made with the actual intent to hinder, delay, or defraud …

Discharging Non-Filing Co-Debtor Debt Under Chapter 13, Carly Krupnick

Bankruptcy Research Library

(Excerpt)

During chapter 13 proceedings, both the debtor and the non-filing co-debtor are protected from their creditors by a stay. Once a bankruptcy petition is filed, section 362(a) of the Bankruptcy Code creates an “automatic stay” that operates by halting almost all actions by creditors against the debtor and his property to collect a prepetition debt. In a chapter 13 bankruptcy case, section 1301(a) provides that the filing of the petition also automatically creates a co-debtor stay that generally prevents a creditor from taking any “act[ion], or commenc[ing] or continu[ing] any civil action, to collect all or any part of …

Does The “Free And Clear” Language In An Order Approving A Sale Pursuant To Section 363(F) Of The Bankruptcy Code Bar A Successor Liability Claim?, Stephanie Y. Lin

Bankruptcy Research Library

(Excerpt)

Section 363(f) of the Bankruptcy Code was enacted to empower debtors to maximize the value of their bankruptcy estate for the benefit of creditors. Because the assets sold in a sale under section 363(f) (a “363 Sale”) transfer “free and clear” of “any interest in such property,” a purchaser would be more likely to pay a higher price for the assets. In turn, a higher price paid for the assets results in more available resources to distribute among the debtor’s creditors. If a claim is considered an “interest in such property” and the sale order provides that the sale …

Whether Section 522(B)(3) Of The Bankruptcy Code Contains An Implied Residency Requirement For Determining Which Exemption Scheme Applies, Christopher Mccune

Bankruptcy Research Library

(Excerpt)

Filing a bankruptcy petition creates a bankruptcy estate consisting of all the debtor’s legal or equitable interests in property, plus any proceeds generated from the disposition of property of the estate. Once a debtor’s asset becomes property of the estate, all the debtor’s rights in that property are extinguished, unless the property is “exempted” under section 522 of the Bankruptcy Code or is otherwise abandoned back to the debtor. Accordingly, while creditors are entitled to seek reimbursement in the rest of the bankruptcy estate, the debtor may retain his or her interest in exempted property.

Thus, section 522 of …

Whether The Doctrine Of Judicial Estoppel Applies If The Debtor Fails To List A Lawsuit In His Or Her Bankruptcy Schedules, Joshua Nadelbach

Bankruptcy Research Library

(Excerpt)

Many different tactics are used by both plaintiffs and defendants to try and gain an upper hand in court proceedings. One particular scheme occurs when parties take an inconsistent position with one they successfully asserted in an earlier proceeding. The idea of the scheme is to be successful initially and then to contradict the position previously taken based on the need of the moment. To combat that particular ploy, the courts developed the doctrine of judicial estoppel.

Judicial estoppel generally refers to “judicially-imposed limitations on litigants who would assert two irreconcilable positions in successive litigations.” The purpose of judicial …

Health Savings Accounts And The Bankruptcy Estate, Michelle Nicotera

Bankruptcy Research Library

(Excerpt)

Section 541 of the Bankruptcy Code defines “property of the estate” to include “all legal or equitable interests of the debtor in property as of the commencement of the estate.” Consistent with a policy of expanding the bankruptcy estate, the property listed under section 541 is available to the trustee to satisfy the estate’s creditors once a petition has been filed. This aggregation provides the debtor an opportunity for a fresh start and ensures effective distribution among creditors and thus “promotes the fundamental purpose of the Bankruptcy Code.” Although section 541(a) defines “property of the estate” broadly, section 541(b) …

Should A Bankruptcy Court Consider A Debtor’S Social Security Income When Determining Whether His Chapter 13 Plan Is Feasible?, Sarah M. Roe

Bankruptcy Research Library

(Excerpt)

Chapter 13 of the Bankruptcy Code provides individuals the opportunity to reorganize their debt obligations. This adjustment chapter permits an individual debtor to keep his nonexempt assets but requires that he make payments for three to five years through a repayment plan. During this repayment period, the individual debtor uses his disposable income to fulfill his debts. After all of the payments are made to creditors, the debtor receives a discharge.

If the trustee or an unsecured creditor objects to the plan, a court must determine if the plan can fulfill the unsecured claim and allow the debtor’s “projected …

Article Iii And Bankruptcy Code Standing: Preserving A Party’S Right To Object To A Proposed Reorganization Plan, James Scahill

Bankruptcy Research Library

(Excerpt)

In a chapter 11 bankruptcy proceeding, a troubled company can either restructure or liquidate through a confirmed chapter 11 plan. To encourage more participation in reorganization cases, courts have broadly interpreted section 1109(b) of the Bankruptcy Code, which determines who may object to a plan. Section 1109(b) states that “a party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.” A party wishing to object to …

Section 365 Of The Bankruptcy Code Preempts Provisions Of State Dealer Statutes, Andrew Ziemianski

Bankruptcy Research Library

(Excerpt)

In bankruptcy proceedings, the rejection of an executory contract by a trustee under section 365 of the Bankruptcy Code constitutes a prepetition breach of contract, which gives rise to a general unsecured claim. The rejection damages claim, which is governed by state common law, will generally not be paid in full in bankruptcy.

The Bankruptcy Code will impliedly preempt state statutes that impose additional statutory damages, as these statutes impose damages for economic benefit of the counterparty and “‘frustrate section 365’s purpose of giving a debtor the power to decide which contracts it will assume and assign or reject …

Extraterritorial Avoidance Actions: Lessons From Madoff, Edward R. Morrison

Faculty Scholarship

The Madoff case continues to provide fertile ground for testing boundaries of the U.S. Bankruptcy Code (Code). In July 2014, Judge Rakoff issued an important decision regarding the extraterritorial scope of the Code’s avoidance rules. The Trustee for the Madoff Estate, Irving Picard, sought to recover cash withdrawn by “feeder funds.” These funds pooled customer assets, invested them in Bernard L. Madoff Investment Securities (Madoff Securities), withdrew proceeds from the investment prior to Madoff’s SIPA filing, and distributed the proceeds to customers before the funds themselves collapsed. The funds are located abroad: one, Fairfield Sentry, is a British Virgin Islands …