Bankruptcy Law Commons^™

An Oversecured Creditor’S Post-Petition Attorneys’ Fees, Governed By State Law Or Federal Law’S 11 U.S.C. 506(B), Charles Lazo

Bankruptcy Research Library

(Excerpt)

In bankruptcy, an oversecured creditor is generally entitled to post-petition interest on their underlying claims, and post-petition reasonable fees, costs, or charges provided for under a contract or state statute. Although an oversecured creditor might be entitled to attorneys’ fees under a contract provision or a state statute, bankruptcy courts will review such fees for reasonableness. However, the Bankruptcy Code does not provide what laws govern on the issue of whether fees are reasonable. Currently, there is a three-way split among courts: (1) the majority of courts rule that federal law preempts state law as to the enforceability and …

The Exception To The Automatic Stays: Determining Whether Revenues Are Pledged Special Revenues, Debra March

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code provides two automatic stays in cases under chapter 9. These automatic stays, with limited exceptions, prevent both direct and indirect collection efforts against a municipal debtor. The first automatic stay provided by section 362(a) generally stays all direct collection efforts against the debtor. In addition, section 922(a) provides for an automatic stay that, with limited exception, also stays the commencement and continuation of claims against an officer as inhabitant of a municipal debtor, and the enforcement of a lien on or arising out of taxes or assessments of the municipal debtor. However, section 922(a) imposes a …

Same-Sex Couple Deemed “Spouses” For Purposes Of The Bankruptcy Code, Michael Rich

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code states that a legally married couple may file a joint bankruptcy petition pursuant to section 302(a). However, this right to joint filing is narrowly limited to an “individual that may be a debtor under such chapter and such individual’s spouse.” Generally, courts have rejected joint filings under section 302(a) filed by debtors who are not legally married. For example, a parent and child cannot file a joint bankruptcy petition under section 302(a). Further, a couple that is living together without being legally married may not file a joint petition. The Bankruptcy Code is silent as to …

Deeping Insolvency: A Cause Of Action, A Tool Of Measuring Damages, Or Nothing At All?, Nicholas Santoro

Bankruptcy Research Library

(Excerpt)

“Deepening Insolvency” is a rather new theory of either liability or damages in cases brought by a plaintiff (typically a bankruptcy trustee, litigation trust, or some other party “filling in” for an insolvent corporation, or debtor) against directors, officers, attorneys, or other professionals, based on their dealings with the debtor. “Deepening insolvency” has been defined as “injury to the debtors' corporate property from the fraudulent expansion of corporate debt and prolongation of corporate life.” The theory of deepening insolvency has become a highly debated by attorneys, creditors, and the courts.

The courts, both state and federal, have continued to …

Are Government Creditors Exempt From U.C.C. Article 9 Filing And Perfection Requirements?, Thomas Sica

Bankruptcy Research Library

(Excerpt)

Article 9 of the Uniform Commercial Code (the “UCC”) requires a creditor to perfect its security interests against its collateral in order to recover the creditor’s priority in such collateral. Former versions of the UCC that predate 2001 provided that the Article 9’s perfection requirements did not apply “[t]o a transfer by a government or a governmental unit of the state.” This exception was eliminated from the UCC in 2001. Thirty-two states, however, still have versions of the UCC that contain some version of this exception. Within the states that still enforce this exception for governmental units, there are …

Judicial Estoppel: Essentially Locking In Representations Made During Bankruptcy Proceeding, Sophie Tan

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code provides that a debtor is required to file with the bankruptcy, among other things, “a list of [its] creditors,” a “schedule of [its] assets and liabilities,” and “a statement of [its] financial affairs.” With the filing of its schedules, the debtor asserts a position with respect to its assets, liabilities, and financial affairs, which is relied on by the bankruptcy court, the debtor’s creditors, and the other parties in interest. Accordingly, various circuit courts have recognized that “the success of our bankruptcy laws requires a debtor’s full and honest disclosure,” and that there needs to be …

The Irs Can Offset Post-Petition Tax Overpayments Against Pre-Petition Tax Liabilities, Kyle J. Tumsuden

Bankruptcy Research Library

(Excerpt)

In bankruptcy cases, creditors have the powerful right of “setoff,” i.e., the right to “net” or cancel payments. The right to set off usually arises in cases of mutual debt obligations where a debtor owes a debt to a creditor who in turn owes a unilateral debt back to the same debtor. The rationale for the right to setoff it obvious, as it allows the parties to apply their mutual debt obligations against each other, “thereby avoiding the absurdity of making A pay B when B owes A.” In other words, the court will reduce the two competing judgments …

The Continued Growth Of The Presumption Against Extraterritoriality And Its Impact On The Bankruptcy Code’S Avoidance Provisions, Michael Vandermark

Bankruptcy Research Library

(Exceprt)

Over the past several years, ever since the United States Supreme Court’s seminal decision in Morrison v. National Australia Bank Limited, the presumption against extraterritoriality has steadily expanded across much of the legal field. In doing so, the presumption has again become the dominant standard in deciding whether Congressional legislation may be used on an extraterritorial basis. This expansion has recently encompassed portions of the Bankruptcy Code, specifically, its avoidance provisions.

The presumption, as noted in detail below, relies on the premise that although the legislature has the authority to regulate beyond the borders of the United States, …

Gifting & The Absolute Priority Rule, Brianna Walsh

Bankruptcy Research Library

(Excerpt)

The absolute priority rule sets forth a hierarchical scheme for the distribution of proceeds obtained through liquidating the assets of a debtor. The scheme provides that property of an estate shall be distributed to secured creditors, then to administrative and priority unsecured creditors, then to unsecured creditors, and lastly to equity holders. Under Chapter 11, section 1129(b)(2)(B)(ii) for a dissenting class of impaired creditors, a plan is “fair and equitable” only if the allowed value of such creditors claims are paid in full, or the holder of any claim or equity that is junior to the dissenting creditors will …

Postdefault Interest Rates In Bankruptcy, David G. Carlson

Articles

This Article shows that as Bankruptcy Code section 506(b) is currently written, postdefault interest rates are prohibited when the default is an “ipso facto event” — a filing for bankruptcy or insolvency as the event of a default. Yet some courts have insisted on postdefault interest in situations reinstating a loan agreement and have been ignoring restrictions on pendency interest to permit oversecured creditors from obtaining penalty rates of interest. This Article argues that those holdings violate section 506(b) and Supreme Court precedent. It begins with an analysis of ipso facto defaults, showing that the Bankruptcy Code prohibits ipso facto …

Rules Of Thumb For Intercreditor Agreements, Edward R. Morrison

Faculty Scholarship

Intercreditor agreements frequently restrict the extent to which subordinated creditors can participate in the bankruptcy process by, for example, contesting liens of senior lenders, objecting to a cash collateral motion, or even exercising the right to vote on a plan of reorganization. Because intercreditor agreements can reorder the bargaining environment in bankruptcy, some judges have been unsure about their enforceability. Other judges have not hesitated to enforce the agreements, at least when they do not restrict the voting rights of subordinated creditors. This essay argues that intercreditor agreements are controversial because they pose a trade-off: they reduce bargaining costs (by …