Bankruptcy Law Commons^™

Taking Bankruptcy Rights Seriously, Rafael I. Pardo

Scholarship@WashULaw

Perhaps more so than any other area of law affecting individuals of low-to-moderate means, bankruptcy poignantly presents an affordability paradox: The system’s purpose is to relieve individuals from financial distress, yet it simultaneously demands a significant commitment of resources to obtain such relief. To date, no one has undertaken a comprehensive study of the complexities and costs of the litigation burden that Congress has imposed on self-represented debtors who seek a fresh start in bankruptcy. In order to explore the problems inherent in a system that sometimes necessitates litigation as the path for vindicating a debtor’s statutory right to a …

Of Progressive Property And Public Debt, Christopher K. Odinet

Faculty Scholarship

Debt is property, and, because of this, property law has a lot to say about how debts are resolved. Indeed, property law is deeply woven into the fabric of the bankruptcy process — a fact that has been woefully neglected by many scholars. The ability to provide debtors with relief and the ability of creditors to demand protections from discharge or diminished payments are both concepts that are intimately tied to property law. However, despite the doctrinal workings of property law in this context, from a theoretical standpoint property law has been underutilized. This is particularly true, as this Article …

Regulating Public Offerings Of Truly New Securities: First Principles, Merritt B. Fox

Faculty Scholarship

The public offering of truly new securities involves purchases by investors in sufficient number and in small enough blocks that each purchaser’s shares can reasonably be expected to be freely tradable in a secondary market that did not exist before the offering. Increasing the ability of small and medium-sized enterprises (SMEs) to make such offerings has been the subject of much recent discussion.

At the time that a firm initially contemplates such an offering, unusually large information asymmetries exist between its insiders and potential investors. These can lead to severe adverse-selection problems that prevent a substantial portion of worthy offerings …

Designing Corporate Bailouts, Antonio E. Bernardo, Eric L. Talley, Ivo Welch

Faculty Scholarship

Although common economic wisdom suggests that government bailouts are inefficient because they reduce incentives to avoid failure and induce excessive entry by marginal firms, in practice bailouts are difficult to avoid for systemically significant enterprises. Recent experience suggests that bailouts also induce litigation from shareholders and managers complaining about expropriation and wrongful termination by the government. Our model shows how governments can design tax-financed corporate bailouts to reduce these distortions and points to the causes of inefficiencies in real-world implementations such as the Troubled Asset Relief Program. Bailouts with minimal distortion depend critically on the government’s ability to expropriate shareholders …

Worlds Colliding: Competition Policy And Bankruptcy Asset Sales, Max Huffman

Villanova Law Review (1956 - )

No abstract provided.

The “Prudent Person” Standard In Esop Breach Of Duty Of Care Claims, Zien Halwani

Bankruptcy Research Library

(Excerpt)

Employee stock ownership plans (ESOPs) are a form of statutory pension program designed to invest employee retirement assets in the stock of the employer. Under the Employment Retirement and Income Securities Act of 1974 (“ERISA”), ESOP fiduciaries must discharge their duties “with the care, skill, prudence and diligence under the circumstances prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” This is to say that under ERISA, ESOP fiduciaries are liable for breaches of duty of care, …

Whether Puerto Rico’S Exclusion From Chapter 9 Is Non-Uniform Within The Meaning Of The Bankruptcy Clause Of The United States Constitution, Matthew T. Repetto

Bankruptcy Research Library

(Excerpt)

Amid the most serious fiscal crisis in its history, Puerto Rico’s public utilities are currently insolvent or at risk of becoming insolvent. In 2013, several distressed Puerto Rican public corporations had a combined deficit that totaled $800 million, and a combined debt reaching $20 billion. One avenue for Puerto Rico’s public utilities to restructure their debt, and perhaps the only avenue, is municipal bankruptcy relief. Unlike States, Puerto Rico “may not authorize its municipalities to seek Chapter 9 municipal bankruptcy relief” under title 11 of the United States Code (the “Bankruptcy Code”). An amendment to the Bankruptcy Code in …

Smoke & Mirrors: Bankruptcy Relief Remains Elusive For Marijuana Businesses And Their Creditors, Todd Plummer

Bankruptcy Research Library

(Excerpt)

Today, twenty-three states and the District of Columbia allow marijuana for medical purposes, and four of those states and the District of Columbia have legalized the drug’s recreational use. Despite this tidal shift in state laws and public opinion, marijuana remains a Schedule I substance under the Controlled Substances Act (“CSA”), meaning the federal government does not recognize its use in medical treatment, classifies the drug as having a high potential for abuse, and that no prescriptions may be written for it. Moreover, the CSA specifically makes it illegal to “rent, lease, profit from or make available for use” …

Section 510 (B) Of The Bankruptcy Code Is To Be Interpreted Broadly, James M. Kerins

Bankruptcy Research Library

(Excerpt)

One of the cornerstone principles of Chapter 11 under title 11 of the United States Code (“the Bankruptcy Code”) is section 510 (b). Under section 510 (b), a fraud claim by a purchaser of stock in a corporation that subsequently files a petition for relief under the Bankruptcy Code must be subordinated to general unsecured creditors. Although the application of section 510 (b) may seem straightforward, courts have struggled interpreting the ambiguous language of section 510 (b).

Prior to Congress enacting section 510 (b), there was significant confusion throughout the bankruptcy community regarding what claims must be subordinated. Many …

May A Foreign Company Liquidate Under The U.S. Bankruptcy Code?, Micaela D. Manley

Bankruptcy Research Library

(Excerpt)

This article discusses the ability of a foreign debtor to liquidate or reorganize under title 11 of the United States Code (the “Bankruptcy Code”). Foreign companies can address their debt in a bankruptcy case under the Bankruptcy Code if it satisfies the eligibility requirements set forth in section 109 of the Bankruptcy Code. A court may dismiss a foreign company’s bankruptcy case under section 3052 or section 1112 of the Bankruptcy Code. Part I of this article discusses the eligibility requirements under section 109 of the Bankruptcy Code. Part II analyzes the possibility of dismissal for “cause” under section …

Whether The Debtor Or Bankruptcy Estate Owns Malpractice Claims That Accrue During A Chapter 11 Bankruptcy, Anna Chen

Bankruptcy Research Library

(Excerpt)

When a debtor files for chapter 11 bankruptcy, three different time periods become important to determine whether the debtor or the estate holds certain rights and interests. The first time period is before a debtor files for bankruptcy. The second time period is after filing for bankruptcy but before conversion. The third time period is post-conversion.

If the misconduct that gives rise to the legal malpractice claim occurs after the filing of a chapter 11 case but before the conversion to a chapter 7 case, the cause of action belongs to the bankruptcy estate. In that situation, the trustee, …

Delaware Bankruptcy Court Trumps An Automatic Stay By Allowing Suit To Terminate A Trademark Licensing Agreement, Olivia Cheung

Bankruptcy Research Library

(Excerpt)

Trademark licensees that file for bankruptcy protection may encounter difficulties and uncertainties regarding their continued use of trademarks that are critical for their businesses. An issue that remains unsettled with courts is whether a licensee can assume a trademark license without the licensor’s consent. Circuits are divided on whether Section 365(c)(1) of title 11 of the United States Code (the “Bankruptcy Code”) prohibits a debtor from assuming an intellectual property license without the consent of the licensor. Courts on one side of the issue apply the “actual test,” which permits a debtor to assume a license as long as …

Procedural Due Process Requirements In Bankruptcy Cases, Bryant Churbuck

Bankruptcy Research Library

(Excerpt)

The Fifth Amendment of the United States Constitution guarantees that an individual will not be deprived “of life, liberty, or property without due process of law.” In the context of bankruptcy, procedural due process requirements are especially important because although bankruptcy tries to ensure that rights that exist outside of bankruptcy are maintained in bankruptcy, title 11 of the United States Code (the “Bankruptcy Code”) or other federal laws may require a different result. Given that the rights of an individual can be altered in bankruptcy proceedings, the adequacy of notice of the bankruptcy proceeding is of great importance. …

Whether Foreign Avoidance Claims May Be Asserted Under Chapter 15, Peter I. Collorafi

Bankruptcy Research Library

(Excerpt)

Chapter 15 was added to title 11 of the Bankruptcy Code in 2005, replacing former Section 304 as the Bankruptcy Code’s operative provision for dealing with cross-border insolvencies. Chapter 15 may be utilized by a foreign representative seeking assistance in U.S. courts in connection with a foreign proceeding. A foreign representative commences a chapter 15 case by filing a petition for recognition of the foreign proceeding in which the representative has been appointed.

After obtaining recognition, a foreign representative has the right to sue and be sued in the United States and may apply directly to a U.S. court …

Debt Discharge, Intent And Good Faith, Arielle Cummings

Bankruptcy Research Library

(Excerpt)

Discharge is of singular importance to the individual in a Chapter 7 case. Discharge enables the debtor to begin a new financial life, and it provides the debtor with a fresh start. In order for this to happen, among other effects, section 524 of title 11 of the United States Code (the “Bankruptcy Code”), which addresses the effects of discharge, voids any judgment against the debtor subject to the discharge. Section 524 also provides a statutory injunction against the continued prosecution of any action that would lead to liability on the claim subject to discharge. Section 727 of the …

Filing For Bankruptcy And Untying The Knot? Not Without Strings Attached, Justin A. Klingenberg

Bankruptcy Research Library

(Excerpt)

Substantive consolidation is an equitable remedy used sparingly by bankruptcy courts to consolidate the bankruptcy estates of two debtors. Although it originated in the corporate context, consolidating the estates of two corporate entities or a corporate entity and an individual debtor, its application has extended to consumer bankruptcy. The consolidation of the bankruptcy estates of two debtor spouses has been addressed and recognized by the Second, Third, Fourth, Sixth, Eighth, and Eleventh Circuit Courts.

Part I of this article briefly examines the authority legitimizing substantive consolidation. Part II analyzes the remedy’s corporate origins and the differing approaches taken by …

A Showing Of Gross Recklessness Satisfies Section 523(A)(2)(A): Denying Deceivers The Ability To Discharge Debts Related To Fraudulently Obtained Funds, Megan Kuzniewski

Bankruptcy Research Library

(Excerpt)

11 U.S.C. Section 523(a) lists certain debts that may not be discharged through a debtor’s bankruptcy. In particular, section 523(a)(2)(A) provides that a debtor who files bankruptcy will not be discharged of debts that were obtained by “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” False representations, such as those described in section 523(a)(2)(A), carry a scienter requirement which requires that it be shown that an individual knowingly made false statements or representations. This requirement carries a heavy burden, as trying to prove that a person had …

Notice Of Bar Date To Employees Of A Multinational Corporation May Be Satisfied By Publication, Naffie Lamin

Bankruptcy Research Library

(Excerpt)

Courts have frequently held that notice to employees of the final day to file a proof of claim (the “bar date”), for purposes of satisfying constitutional due process requirements, may be satisfied by publication. To determine whether proper notice was served, bankruptcy courts distinguish between known and unknown creditors. While a known creditor must be provided with actual notice of a bar date, notice to an unknown creditor is satisfied by constructive notice, for example publication in a newspaper. In the context of the employer-employee relationship, it may seem counterintuitive that a creditor-employee would constitute an “unknown” creditor but …

Whose Claim Is It Anyway?—Direct And Derivative Claims In The Context Of Bankruptcy Litigation, Kristen M. Lasak

Bankruptcy Research Library

(Excerpt)

In bankruptcy litigation, the line between direct and derivative claims may be a thin one, and courts are often entrusted with the task of determining whether the claims creditors set forth are actually derivative of claims owned by the bankruptcy estate. Companies entering into bankruptcy proceedings have the option of creating litigation trusts, which are authorized to pursue any claims the bankruptcy estate may own. A release of claims is often part of any settlement agreement, and such an agreement combined with the ownership of claims by the bankruptcy estate, often controlled through a litigation trust, can leave defrauded …

A Sublessee’S Rights In The Face Of A Debtor-Sublessor’S Rejection Of An Unexpired Lease Under Chapter 11, Adam K. Lau

Bankruptcy Research Library

(Excerpt)

Whether or not rejection of a lease constitutes termination is of great concern to interested parties in a chapter 11 bankruptcy proceeding. This determination can alter the remedies available for injured parties. Section 365 of the Bankruptcy Code establishes the general rule that rejection does not constitute termination, and sets forth the circumstances where exceptions to the general rule apply.

In In re Overseas Shipholding Group, Inc., a Delaware Bankruptcy Court held that the rejection of a lease constitutes a prepetition breach of the lease under section 365(g) of the Bankruptcy Code. The court determined the amount of …

Conflict In The Bankruptcy Code: Ramification Of A Trustee’S 363(F) Right To Sell Property “Free And Clear” On The Lessee’S 365(H) Right To Retain Property, Aaron Leaf

Bankruptcy Research Library

(Excerpt)

Section 363(f) of title 11 of the United States Code (the “Bankruptcy Code”) allows a trustee to sell property “free and clear of any interest in such property” that a third party might have if certain conditions are met. Section 365(h) of the Bankruptcy Code allows the lessee of a rejected lease to either retain the property with all rights appurtenant to the estate, or treat such lease as terminated and sue for damages. Courts are split on if these sections of the Bankruptcy Code are compatible. The majority of courts have found these sections are not compatible, and …

Whether Sovereign Immunity Is A Defense For States In Bankruptcy Cases, Melanie Lee

Bankruptcy Research Library

(Excerpt)

Sovereign immunity, generally, prohibits suit against a sovereign without the sovereign’s consent. The defense of sovereign immunity may not be asserted by any state, or arm of the state, in any bankruptcy proceeding. The prohibition of asserting sovereign immunity in a bankruptcy case has been common practice, almost continuously, since the states agreed to such a waiver in the Constitutional Convention. Moreover, this waiver of sovereign immunity, has since been codified in Section 106 of title 11 of the United States Code (the “Bankruptcy Code”). As a result, a state involved in a bankruptcy case will typically be treated …

Application Of The Automatic Stay To A Non-Debtor Corporation, Joanna Matuza

Bankruptcy Research Library

(Excerpt)

When a corporation files for bankruptcy, it is entitled to an automatic stay of any action that has been filed against it pursuant to section 362(a)(1) of title 11 of the United States Code (the “Bankruptcy Code”). But today, litigation is often complex and involves more than one defendant. For example, I may commence an action against corporations X, Y and Z. Corporation X then files for bankruptcy and is entitled to an automatic stay. The question in these cases is whether the automatic stay applicable to the debtor corporation (Corporation X) also applies to the non-debtor corporations (Corporations …

May A Bankruptcy Court May Permanently Disbar An Attorney From Practicing Before Its District?, Maurice W. Sayeh

Bankruptcy Research Library

(Excerpt)

In most matters, the local bar association governs attorney discipline. Depending on the offense by the attorney, discipline can range from a private or public reprimand to a suspension or even disbarment. However, in special circumstances and when the court believes it must protect the general public from attorneys it finds unfit to practice, a bankruptcy court, as well as other courts, may permanently disbar an attorney from practicing before it. However this exercise of authority requires cautious judicial discretion.

Bankruptcy courts, in particular, may find the authority to discipline attorneys through multiple federal statutes, the Federal Rules of …

Duty To Advise Of The Legal Risks From Business Transactions, Nicole Strout

Bankruptcy Research Library

(Excerpt)

Lawyers owe specific duties to their clients, mainly with respect to reasonable legal advice. If reasonable care is not exercised by an attorney when providing legal advice and services, there is a potential for a malpractice claim against that attorney. For attorneys that represent businesses, however, legal advice can sometimes be blurred with business advice. It is important to note that lawyers are not business consultants and do not specifically owe a duty to their clients to protect them from poor business decisions. The problem occurs when it is hard to distinguish between the legal and business advice. These …

Creditor And Debtor Burdens When Confirming A Chapter 11 Reorganization Plan, Corey Trail

Bankruptcy Research Library

(Excerpt)

In Chapter 11 bankruptcy, after a debtor has submitted a reorganization plan, the creditor has the right to vote on that plan. However, the right to vote on that plan is grounded in the understanding that the creditor will not vote against a debtor’s reorganization plan in bad faith. If a court finds that the creditor rejected the plan in bad faith, the court may “designate” the votes of the creditor that voted against the plan. But the issue of good faith does not solely lie with the creditor’s behavior. Reorganization under Chapter 11 also demands that the debtor …

Can A Consumer Debtor Voluntarily Dismiss Own Chapter 7 Bankruptcy Case?, Shane P. Walsh

Bankruptcy Research Library

(Excerpt)

Under Section 707(a) of title 11 of the United States Code (the “Bankruptcy Code”), a court may dismiss a chapter 7 bankruptcy case for cause. Section 707(a) provides a list of examples of conduct that constitutes cause to guide the court in making its determination. A chapter 7 consumer debtor has the right to voluntarily dismiss his own chapter 7 case, however, that right is not absolute. When a consumer debtor seeks to voluntarily dismiss his chapter 7 case he must establish cause for dismissal under section 707(a). The court will determine whether the debtor’s voluntary motion to dismiss …

Consent, Coercion, And Bankruptcy Administration, S. Todd Brown

Journal of Business & Technology Law

No abstract provided.

Changes To Bankruptcy Forms And Pending Bankruptcy Rule Changes, Kathleen Klepfer

Law Faculty Publications

Nearly every form used by the bankruptcy courts went through a significant overhaul in December as part of a seven-year project designed to streamline the filing process. The voluntary petition—old Form B1—has now been split into three separate forms: B101 for individual debtors, B201 for nonindividual debtors, and B401 for foreign proceedings. This overhaul altered the format of most additional forms and schedules, including the internal “director’s forms,” all of which are now available on the court’s main form page. Because most form numbers changed as well, the courts have provided a conversion chart that aligns the old and new …

Restructuring Municipal Bankruptcy, Laura Napoli Coordes

Utah Law Review

What sorts of legal relief should be available to a municipality in financial distress? Chapter 9 of the Bankruptcy Code has served as an option of last resort for many municipalities over the years. But as this Article illustrates, Chapter 9 arguably falls short of an effective solution and at times seems to contravene the foundational principles underlying bankruptcy law. By examining recent Chapter 9 filings, this Article presents a comprehensive analysis of how and why Chapter 9 has failed to address the problems that characterize municipal insolvencies. It argues that Chapter 9, in both practice and principle, has proved …