Bankruptcy Law Commons^™

Can A Debtor’S Exemption Assets Be Surcharged As A Sanction For Misconduct?, Marshall E. Tracht

Articles & Chapters

CASE AT A GLANCE

In chapter 7 bankruptcy, a debtor keeps certain statutorily defined “exempt” assets, while all other assets are sold to pay creditors. In exchange, most of the debtor’s debts are discharged. In this case, the Court must decide whether a debtor may be sanctioned by the loss of exempt assets as an equitable remedy for trying to fraudulently claim excess exemptions or hide assets, with the forfeited assets awarded to the bankruptcy estate to recover litigation costs arising from the debtor’s misconduct.

Reclaim This! Getting Credit Seller Rights In Bankruptcy Right, Lawrence Ponoroff

University of Richmond Law Review

No abstract provided.

Detroit's Real Challenge, John A. E. Pottow

Articles

When Detroit became the largest city in U.S. history to file for bankruptcy, it was a bad thing—unless you have the unique world-view of a bankruptcy lawyer, in which case it was marvelous news, worthy of celebration.

Fairness Over Deference: The Shifting Landscape Of Creditors Rights To Claims And Debtor Protection Regarding The Issuance Of Form 1099-C, Patrick Christensen

Bankruptcy Research Library

(Excerpt)

Issues surrounding the discharge of indebtedness with regard to Form 1099-C filings have recently become a difficult issue for bankruptcy courts. When a debtor cannot afford to pay a creditor an outstanding debt, a Form 1099-C is utilized to “discharge the debt.” The resulting cancellation is then reportable for tax purposes for both the debtor (as cancellation-of-debt income – “COD income”) and the creditor (as a deduction). Form 1099-C filings are made by creditors and issued to each “debtor for whom . . . $600 or more of a debt owed” had been cancelled.

Courts have had to consider …

Preclusive Effect Of Pre-Petition State Court Judgments In Nondischargeability Proceedings, Kelly E. Porcelli

Bankruptcy Research Library

(Excerpt)

A central purpose of the Bankruptcy Code is to provide a “fresh start” for the “honest but unfortunate debtor.” Subject to various exceptions, section 727 of the Bankruptcy Code provides that the court shall grant the debtor a discharge, which permanently enjoins the debtor’s creditors from attempting to collect any prepetition debts. This “fresh start” policy is not absolute, however, and section 523 of the Bankruptcy Code lists various types of debts that are nondischargeable. Under section 523(a)(2), (4), and (6), a debtor will not be discharged from debts which are “(2) . . . obtained by-- (A) false …

Can A Bankruptcy Trustee Recover Assets Transferred To A Self-Settled Trust?, Christian Corkery

Bankruptcy Research Library

(Excerpt)

A “spendthrift trust” provides a fund for the benefit of another, secures it against the beneficiary’s improvidence, and places it beyond the reach of the beneficiary’s creditors. A spendthrift trust has long been recognized as a useful vehicle for providing the beneficiary with the benefits of the trust while simultaneously preventing the beneficiary from voluntarily transferring his interest in the trust. This is particularly useful where the settlor wants to protect the transfer of wealth to a beneficiary. For instance, if a parent makes a large gift to an irresponsible child, the child will likely squander the gift …

No Second Chances: How Courts Have Interpreted Section 109(G)(2) To Prohibit Debtors From Filing A Second Petition Within 180 Days, Brian Adelmann

Bankruptcy Research Library

(Excerpt)

In 1984, Congress enacted section 109(g)(2) of the Bankruptcy Code for the purpose of curbing the abuse of repetitive bankruptcy filings by debtors. Section 109(g)(2) provides that an individual may not be a debtor if the debtor requested and obtained a voluntary dismissal of a previous bankruptcy case at any time in the preceding 180 days. The typical scenario that section 109(g)(2) is intended to prevent a debtor from voluntarily dismissing his bankruptcy case and subsequent refiling of a new case in order to prevent a creditor from acquiring relief from the automatic stay. The statute gives secured creditors …

The Purchaser Of A Tax Lien Is The Holder Of A “Tax Claim” Under 11 U.S.C. §511(A), Andrew Reardon

Bankruptcy Research Library

(Excerpt)

Governmental entities may place a tax lien against property for delinquent taxes owed on such property or as a result of the property owner’s failure to pay income or other taxes. Once the tax lien is perfected, the governmental entities can either enforce the lien or sell the liens, in order to recover the delinquent taxes. Private entities may purchase the liens, which often impose high interest rates on the debtors. A purchaser of the tax liens will be able to collect payment directly from the debtor when the property is sold or, if necessary, foreclose, while the government …

The Reciprocal Duty Of Good Faith Negotiations In Chapter 9 Bankruptcies, John Boersma

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code states that municipalities may only proceed under chapter 9 of the Bankruptcy Code if, among other things, they are specifically authorized to do so by their respective state law. As a result, municipal bankruptcies are governed by both the Bankruptcy Code and the state law of the relevant municipality. Under the Bankruptcy Code, the good faith of the parties involved is of primary importance due to its role in the approval or rejection of a debtor’s petition for chapter 9 bankruptcy protection. Given the fact that a successful petition has the ability to significantly alter the …

Whether The Equitable Power Of The Bankruptcy Court Can Save The Tardy Filing Of A Nondischargeability Complaint, Aldo A. Caira Iii

Bankruptcy Research Library

(Excerpt)

Courts have long held that the Bankruptcy Code provides a discharge only to those “honest but unfortunate debtors.” To that end, when a debt has been incurred under false pretenses, false representation, or outright fraud, the Bankruptcy Code allows the debtor’s creditors to file a nondischargeability complaint against the debtor. However, in order for the creditor to challenge the dischargeability of a debt, the creditor must file his or her nondischargeability complaint in a timely manner. A creditor who fails to file a timely complaint (or to seek a “for cause” extension) risks losing the right to challenge the …

An Assignee Has The Same Right Of Non-Dischargeability Under Section 523(A)(2)(B) As The Assignor, Justin W. Curcio

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code affords an “honest but unfortunate debtor” a “fresh start” by discharging certain prior financial obligations of the debtor. The bankruptcy process allows debtors to “reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.’” However, there are limitations on a debtor’s ability to obtain a discharge. For example, a creditor that lent money to a debtor based on a fraudulent writing can seek a determination that the debt is non-dischargeabile under section 523(a)(2)(B).

Issues arise …

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 …

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 …

When Churches Reorganize, Pamela Foohey

Scholarly Works

This Article combines an analysis of documents submitted in connection with Chapter 11 cases filed by religious organizations with the results of in-depth interviews with these organizations’ leaders and their bankruptcy attorneys to assess whether reorganization has the potential to offer an effective solution to these debtors’ financial distress. In doing, it makes three contributions. First, it identifies a subset of organizations that seemed more likely to turn to bankruptcy: small congregationalist and non-denominational churches, often with predominately African-American membership. The Article pinpoints salient questions about these churches’ access to credit and use of bankruptcy for future study. Second, it …

The Unlucky Penny: How $0.01 In Collateral Value Can Limit The Debtor's Ability To Strip Off A Junior Mortgage In A Chapter 7 Bankruptcy Proceeding, Keri Mahoney

Touro Law Review

No abstract provided.

Breaking Bankruptcy Priority: How Rent-Seeking Upends The Creditors' Bargain, Mark J. Roe, Fred Tung

Faculty Scholarship

Bankruptcy reallocates value in a faltering firm. The bankruptcy apparatus eliminates some claims and alters others, leaving a reduced set of claims to match the firm’s diminished capacity to pay. This restructuring is done according to statutory and agreed-to contractual priorities, so that lower-ranking claims are eliminated first and higher ranking ones are preserved to the extent possible. Bankruptcy scholarship has long conceptualized this reallocation as a hypothetical bargain among creditors: creditors agree in advance that if the firm falters, value will be reallocated according to a fixed set of predetermined rules and contracts. In any given reorganization case, creditors …

Third Time's The Charm: The Coming Impact Of The Restatement (Third) Restitution And Unjust Enrichment In Bankruptcy, C. Scott Pryor

Pepperdine Law Review

Bankruptcy courts have frequently been characterized as courts of equity. Often this characterization has accompanied unusually relaxed interpretation or application of a provision of the Bankruptcy Code. However, this understanding does not exhaust the meaning of equity in bankruptcy. Historically, equity covered a large range of topics–trusts and estates, injunction, contracts, specific performance, unjust enrichment, restitution, and disgorgement. In addition, equity was not limited to particular remedies. Equity’s remedies certainly included money damages but recognized many more. The law of equity was substantive as well as remedial; it recognized primary rights as well as secondary rights of rectification. Among equity's …

Force Out: A Dodgers Bankruptcy, Richard Marrero, Cj Fayton

Chapter 11 Bankruptcy Case Studies

The premise of a chapter 11 bankruptcy is that the business’ going concern value exceeds its liquidation value. It provides the debtor with an opportunity to restructure their debt so that they can pay back their creditors and stay in business.

The debtor’s filing of the bankruptcy petition creates an “automatic stay.”[1] The automatic stay is an injunction that prevents creditors from pursuing legal actions against the debtor and its assets. The automatic stay, however, protects not only the debtor but the creditors as well. In the absence of the automatic stay, creditors would “race to the courthouse” to …

In Re Dewey Ranch Hockey, Llc: The Bankruptcy Of The Phoenix Coyotes, Chris Rowe, Jeff Upshaw

Chapter 11 Bankruptcy Case Studies

While only a small percentage of Chapter 11 bankruptcy filings garner the attention of the American public, a bankruptcy petition involving a “big four” professional sports franchise (NFL, MLB, NBA, NHL) is big news to the American sports world. Perhaps the reason is that few, if any, commercial entities make such a passionate connection with its customers as professional sports teams.

In comparison to the other members of the “big four”, the NHL simply does not have the same level of financial success. Almost half of the 30 NHL franchises lost money in the 2011-2012 season.^[1] Of the nine …

Hostess Brands, Inc. Bankruptcy, Kathryn K. Ganier, Frederick L. Conrad Iii, Wendy G. Patrick

Chapter 11 Bankruptcy Case Studies

In 1930, the Hostess Corporation[1] began as the Interstate Baking Corporation (IBC). In Kansas City Missouri, flour, wheat, and grain marched from machines as workers placed sliced white squares into Wonder Bread’s iconic yellow, red, and blue packaging.[2]

Hostess grew from its small town beginnings into a large corporation thanks in large part to its innovation in its product lines as well as growth through the acquisition of its competitors. By the end of 2012, “Hostess [was] one of the largest wholesale bakers and distributors of bread and snack cakes in the United States [and] operate[d] 36 bakeries, …