Bankruptcy Law Commons^™

Debt Tokens, Andrea Tosato, Diane Lourdes Dick, Christopher K. Odinet

Faculty Scholarship

The worlds of crypto and bankruptcy have collided. Once-prominent, fast-growing, and even politically influential platforms for trading cryptocurrencies have imploded spectacularly. Gone are the glossy advertisements, celebrity endorsements, and proclamations that blockchain operates as a law unto itself. Instead, insolvent crypto businesses—including the crypto exchange giant FTX—find themselves in bankruptcy court, no different from any other failed enterprise. These bankruptcies reveal a startling reality: individual investors who placed their trust in these platforms have been stripped of their digital assets. In their stead, they hold hard-to-collect claims against these defunct platforms.

Amid the chill of the crypto winter, bankruptcy has …

Debt Tokens, Andrea Tosato, Diane Lourdes Dick, Christopher K. Odinet

Faculty Journal Articles and Book Chapters

The worlds of crypto and bankruptcy have collided. Once-prominent, fast growing, and even politically influential platforms for trading cryptocurrencies have imploded spectacularly. Gone are the glossy advertisements, celebrity endorsements, and proclamations that blockchain operates as a law unto itself. Instead, insolvent crypto businesses—including the crypto exchange giant FTX—find themselves in bankruptcy court, no different from any other failed enterprise. These bankruptcies reveal a startling reality: individual investors who placed their trust in these platforms have been stripped of their digital assets. In their stead, they hold hard-to-collect claims against these defunct platforms. Amid the chill of the crypto winter, bankruptcy …

The Gift Of Exit Financing, Robert W. Miller

Marquette Law Review

Aggressive liability management exercises have spilled over into bankruptcy court and exit financing is often the prize in the center of the arena. Debtors no longer rely upon gifting, the traditional strategy for buying plan support. Instead, they can replicate gifting’s benefits in a more defensible package by funneling discounted subscription rights to chosen constituencies as part of exit financing.

Recognizing exit financing’s distortive power, courts responded by evaluating the quality of negotiations and reviewing precedent transactions. Meanwhile, commentators suggest heightened monitoring and informal guardrails. All of these approaches ignore the shortcomings of judicial valuation. Market testing is the only …

Maine Debtor-Creditor Law By Dennis M. Patterson, David J. Jones

Maine Law Review

Dennis M. Patterson, Esquire, has written a brief, practical guide to selected areas of collection practice entitled Maine Debtor-Creditor Law. Two immediate observations come to mind: first, that I plan to keep a copy of the book in my office library for future reference; second, that I am disappointed that the author omitted reference to several challenging issues that confront the attorney having a regular collection or foreclosure practice. This latter observation is both an indication of the usefulness of the book's treatment of the areas covered and a hopeful invitation to the author to expand on his subject matter …

Insider May Be An Alter-Ego When It Exercises Control Over A Debtor, Delanie Fico

Bankruptcy Research Library

(Excerpt)

Section 101(31) of title 11 of the United States Code (the "Bankruptcy Code") defines an "insider." This definition, however, is not exhaustive. Courts have concluded that certain persons or entities not mentioned in the statute can be "non-statutory" insiders. In certain circumstances, a statutory or non-statutory insider may be the alter-ego of a debtor. As an alter-ego, an insider may be liable for a debtor’s debt. Alter-ego liability may be imposed on an insider who significantly controls the debtor and has committed some form of injustice.

This memorandum discusses an insider’s possible liability for a debtor’s debt in the …

Debts Based On Fraudulent Misrepresentations Of Material Fact May Not Be Discharged Under § 523(A)(2)(A), Lauren Shoemaker

Bankruptcy Research Library

(Excerpt)

In general, title 11 of the United States Code (the “Bankruptcy Code”) provides that an individual may be discharged of his or her debts at the conclusion of his or her bankruptcy case. A discharge relieves a debtor from liability for its unpaid pre-petition debts and acts as an injunction, barring a creditor from collecting such debts from the debtor. However, under section 523(a)(2)(A) of the Bankruptcy Code, an individual debtor cannot be discharged from any debt for money obtained by “false pretenses, a false representation, or actual fraud.”

This article explores when debtors cannot be discharged of their …

Creditors Not Precluded From Recovering Debtors’ Commercial Tort Litigation Recovery Through Security Interest, Dana Aprigliano

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) provides valuable protections for secured creditors. A secured creditor of a chapter 7 debtor is entitled to distribution of any debtor property (or its value) in which they have an interest before any other creditors are paid. Even if the debtor has filed under chapter 11 or 13, a secured creditor is still entitled to receipt of their collateral or its value.

Under Article 9 of the Uniform Commercial Code (“UCC”), commercial tort claims and their proceeds may collateralize secured liens. Hence, creditors believing they are secured by a …

A Decedent’S Estate Is Barred From Filing Bankruptcy, Howard Poon

Bankruptcy Research Library

(Excerpt)

A “person” that “resides or has a domicile, a place of business, or property in the United States, or a municipality” is generally eligible to be a debtor in a bankruptcy case under title 11 of the United States Code (the “Bankruptcy Code”). The definition of a “person” under the Bankruptcy Code includes “individual, partnership, and corporation.” Courts, however, have interpreted the definition of “person” broadly to include groups not explicitly mentioned in the statute. Consequently, a decedent’s estate, which is not expressly identified as a person under the Bankruptcy Code, may nevertheless argue that it is eligible to …

Exceptions To The General Rule That The Automatic Stay Under Bankruptcy Code Section 362(A) Does Not Apply To Non-Debtors, Annmarie Gruick

Bankruptcy Research Library

(Excerpt)

Upon the filing of a bankruptcy petition, the automatic stay takes effect. “The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from its creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him [or her] into bankruptcy.”

Section 362(a) enumerates eight (8) actions and activities from which the debtor is protected—“it does not protect separate legal entities, such as corporate directors, …

Availability Of Setoff To Foreign Debtors And Representatives In U.S. Courts, Joseph Muschitiello

Bankruptcy Research Library

(Excerpt)

Setoff is the principle of allowing a party to reduce the debt it owes to an entity by applying a credit for any claim it has against the same entity. The purpose of setoff rights is rooted in “avoiding the absurdity of making A pay B when B owes A.” It is meant to be used by debtors as affirmative defenses or counterclaims. Section 553 of title 11 of the United States Code (the “Bankruptcy Code”) generally preserves the right of setoff in bankruptcy cases.

This memorandum explores how and when foreign debtors and representatives may exercise setoff rights …

The Various Methods Circuit Courts Use To Define "Initial Transferee" In Fraudulent Transfers, Anthony J. Crasto

Bankruptcy Research Library

(Excerpt)

Transfers of a debtor's interest or obligation in property to a third party, made to prevent creditors from reaching assets in a bankruptcy case, are known as fraudulent transfers. Under current law, there are two types of fraudulent transfers: actual fraud and constructive fraud. Actual fraud requires findings of a debtor's "intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted." Constructive fraud does not require a finding of intent and occurs when a debtor receives "less than …

Keeping The Lights On Through Dark Times: How Subchapter V Bankruptcy Should Protect Small Businesses Decimated By The Pandemic, Daniel Lebrun

Touro Law Review

Small to mid-market, independent businesses are at the heart of our economy and play a pivotal role in job creation. While it’s estimated by the House of Representatives that these companies account for over half of overall U.S. employment, they have been traditionally underserved in bankruptcy law. Historically, the resources necessary to complete a chapter 11 bankruptcy are not within reach for these small to mid-market businesses. Passed in 2019, the Small Business Reorganization Act has modified the Bankruptcy Code to provide new avenues for these small businesses in need. Impactful in its own right, it has emerged as a …

Bankruptcy Debtor Eligibility For Federal Coronavirus Aid Under The Cares Act, Meghan Paola

Bankruptcy Research Library

(Excerpt)

In March of 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide assistance to individuals and businesses affected by the Covid-19 pandemic. The Paycheck Protection Program (the “PPP”) was established under section 7(a)(36) of the Small Business Act to provide economic relief in the form of loans to small businesses negatively impacted by Covid-19. The CARES Act tasks the Small Business Administration (the “SBA”) with administering the PPP loans.

The PPP application form provides that a loan will not be approved if an applicant is “presently involved in any bankruptcy.” However, debtors …

Financial Advisory Firms Whose Affiliate’S Employees Served As Independent Officers Or Directors Of The Debtor Prepetition Should Be Retained Under Section 327(A) Of The Bankruptcy Code, Lauren Jusas

Bankruptcy Research Library

(Excerpt)

The retention of financial advisors by chapter 11 debtors must be approved by a bankruptcy court. Currently, debtors may file employment applications for financial advisors, whose affiliate’s employees, prepetition, served as a chief restructuring officer (“CRO”), under two different sections of title 11 of the United States Code (the “Bankruptcy Code”). Under section 327(a), financial advisors must satisfy a stringent two-part test to be approved. Alternatively, financial advisors may seek approval under section 363(b) pursuant to the J. Alix Protocol, a national settlement protocol developed by the United States Trustee Program (the “USTP”). Since its inception, the J. Alix …

Emerging Circuit Split Over Modification Of Mortgages On Multi-Use Real Properties, Michal Zabadal

Fordham Journal of Corporate & Financial Law

For many decades, healthy levels of residential mortgage loans (“RMLs”) and their regulation have been among the major drivers of the economy. Because of the importance of RMLs for the condition of the national financial system and the general well-being of the society, it is essential that lenders are reasonably incentivized to originate these loans. A well-designed promise of higher recovery on RMLs in times of distress can be a compelling motivator. The Bankruptcy Code seeks to deliver on that promise by treating RMLs more favorably. It does that by barring the debtor-in-bankruptcy from modifying a claim secured by a …

Bankruptcy Debtors Are Ineligible For Ppp Loans, Laura Chambers

Bankruptcy Research Library

(Excerpt)

During the COVID-19 pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which established the Paycheck Protection Program (“PPP”). Under the PPP, the United States Small Business Administration (“SBA”) declared small businesses—including nonprofits, veterans’ organizations, and tribal enterprises that employ 500 people or less—as potential eligible borrowers. A borrower can use a PPP loan for a variety of purposes, such as general business costs like payroll and rent, or payments toward preexisting debts.

However, there has been some debate as to whether a debtor in a case under title 11 of the United States Code …

Impact Of Covid-19 On Debtor’S Obligations To Comply With Duties To Pay Rent, Joseph Diorio

Bankruptcy Research Library

(Excerpt)

Under section 365(d)(3) of title 11 of the United States Code (the “Bankruptcy Code”), a debtor-in-possession is required to “timely perform all the obligations of the debtor . . . arising from and after the order for relief under any unexpired lease of nonresidential real property until such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title.” Section 365 was implemented to relieve landlords from the burden of proving the rent payments owed by the debtors prior to rejection were “actual and necessary” costs of preserving the bankruptcy estate. Section 365 has been heavily litigated since early …

Ability Of The Eeoc To Litigate For Compensation On Behalf Of A Specific Individual Despite Automatic Stay, Julia Guthy

Bankruptcy Research Library

(Exceprt)

Section 362 of title 11 of the United States Code (the “Bankruptcy Code”) provides for an automatic stay, i.e., a “statutory injunction against efforts outside [a] bankruptcy to collect debts from a debtor under the protections of the Bankruptcy Code.” However, pursuant to section 362(b)(4) of the Bankruptcy Code, a governmental agency may commence or continue an action against a debtor to enforce the agency’s police or regulatory power despite the automatic stay (hereinafter, the “§362(b)(4) Exception”). For the exception to apply, the action of the governmental agency must “protect the public health and safety” as opposed to “a …

A Bankruptcy Court May Temporarily Suspend Rent Obligation, Matthew Kipnis

Bankruptcy Research Library

(Excerpt)

Section 365(d)(3) of title 11 of the United States Code (the “Bankruptcy Code”) authorizes a court to “extend, for cause, the time for performance of any [rent] obligation[‘s] [on unexpired leases of nonresidential real property] that arise[] within 60 days after the date of the order for relief[.]” Historically, courts have recognized that under § 365(d)(3), there is a statutory obligation on debtors to pay rent on unexpired leases. Courts have also recognized that if a debtor’s rent obligation is deferred, lessors are entitled to adequate protection. However, courts are divided on the exact timing of when a debtor’s …

Did The Consolidated Appropriations Act Make Bankruptcy Debtors Eligible For Ppp Loans?, Mary Theresa Michalos

Bankruptcy Research Library

(Excerpt)

In response to the economic fallout of the global COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which makes government-guaranteed loans available to qualified small businesses through the Paycheck Protection Program (“PPP”). The PPP was not created as a standalone program but was added to the existing section 7(a) program, which subjects the PPP to existing conditions and regulations, as well as existing Small Business Administration (the “SBA”) authority. The CARES Act expressly gives the SBA “[e]mergency rulemaking authority” to “issue regulations” carrying out the PPP. And it provides that the SBA …

Do Parents Receive Reasonably Equivalent Value For Paying College Tuition For Their Children Making Such Payments Avoidable, Alexandria Stiteler

Bankruptcy Research Library

(Excerpt)

Under section 548 of title 11 of the United States Code (the “Bankruptcy Code”), a trustee may avoid a transfer by a debtor that was an actual or constructive fraud. An actual fraudulent transfer is a transfer made with actual intent to hinder, delay, or defraud creditors. In general, a constructive fraudulent transfer is a transfer or the incurrence of an obligation by a debtor that was made within two years before the date of filing the bankruptcy petition, for less than reasonably equivalent value, at a time when the debtor was insolvent and could not pay its debts …

Timing And Location Of Comi Determined At The Timing Of Filing Chapter 15 Petition, Priya Suresh

Bankruptcy Research Library

(Excerpt)

A debtor’s center of main interest (“COMI”) is not defined under title of 11 of the United States Code (the “Bankruptcy Code”). As a result, bankruptcy courts have taken a number of different approaches to determining a debtor’s COMI. The starting place for determining COMI is the statutory rebuttable presumption that a debtor’s registered office, or habitual residence is the debtor’s COMI. If the presumption is rebutted, the party seeking recognition as a foreign main proceeding must prove by a preponderance of the evidence that the debtor's COMI is in the jurisdiction where the proceeding is pending. Under chapter …

Pension Trusts Should Not Be Considered Business Trusts For The Purpose Of § 109 Of The Bankruptcy Code And Thus Not Eligible To Be A Debtor Under The Bankruptcy Code, Danielle Ullo

Bankruptcy Research Library

(Excerpt)

Qualifying as a debtor is the first eligibility requirement for bankruptcy protection under the United States Bankruptcy Code (the “Code”). Failure to satisfy the requirements to be a qualifying debtor forecloses an entity from obtaining bankruptcy relief. Thus, it is crucial that qualifying debtor categories are defined and delineated, particularly for business entities for whom debtor status is not always so clear.

Section 109 of the Code includes “business trust[s]” as a party entitled to bankruptcy relief but excludes other trusts from that definition. While the Code is clear to exclude ordinary trusts from eligibility to be a debtor, …

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 …

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 …

Fiduciary Principles In Bankruptcy And Insolvency, John A. E. Pottow

Book Chapters

This chapter examines fiduciary duties in bankruptcy and insolvency, focusing on the bankruptcy trustee’s duties, which are triggered by virtue of appointment in a case. It first provides a background on bankruptcy law in order to elucidate the doctrines and rules affecting fiduciary responsibilities in bankruptcy, citing a number of relevant provisions in the Bankruptcy Code. It then considers the fiduciary, non-fiduciary, and anti-fiduciary obligations of the trustee under the Bankruptcy Code before discussing the fiduciary duties of care and loyalty. In particular, it highlights bankruptcy-related issues raised by the duty of loyalty with respect to secured creditors, priority unsecured …

Balancing And Protecting Competing Interests Of A Landlord-Tenant Relationship In A Section 363 Sale, Kayla Dimatos

Bankruptcy Research Library

(Excerpt)

Section 363(f) of title 11 of the United States Code (the “Bankruptcy Code”) gives the trustee or debtor in possession a powerful tool to sell property of the estate “free and clear of any interest in such property.” Before the estate can sell an asset “free and clear of any interest in such property,” the Bankruptcy Code requires that a debtor or trustee satisfy the statutory requirements enumerated in section 363(f). A sale of property of the debtor’s estate is permissible only if:

(1) applicable nonbankruptcy law that permits such a sale, (2) the nondebtor entity consents, (3) the …

Discharge Under Section 524(A) Does Not Preclude A Suit To Recover From A Debtor’S Insurer, Michael P. Pitre

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a discharge of a debt “operates as an injunction against the commencement or continuation of an action . . . to collect, recover, or offset any debt as a personal liability of the debtor.” This discharge is the “principle advantage bankruptcy offers an individual” because it provides the debtor with a “fresh start” by freeing him from the chains of previous debts.

Even so, a “discharge in bankruptcy does not extinguish the debt itself, but merely releases the debtor from personal liability for the debt.” Therefore, as provided …

Combating Professional Error In Bankruptcy Analysis Through The Design And Use Of Decision Trees In Clinical Pedagogy, Timothy R. Tarvin

St. John's Law Review

(Excerpt)

This Article will address the positive impact of using the decision tree model in four parts. Part I will provide a historical overview of the evolution of legal education and the profession’s call for more experiential education, both generally and specifically, through clinical training and the use of technology. This Section will provide context and argue that the use of decision trees in the clinical setting is the natural culmination of the legal academy’s goals of teaching analytical skills, preparing graduates for practice, and incorporating new technology into the practice of law.

Part II will describe the legal malpractice …