Bankruptcy Law Commons^™

Chapter 9 Bankruptcy In California: The Efficacy Of Mandating Alternative Dispute Resolution In Municipal Bankruptcy Filings, Michael Galen

Cardozo Journal of Conflict Resolution

The subject of this Note is of importance to ADR practitioners: the incorporation of ADR into a new state law can mitigate a heated legal struggle involving state and federal law, while balancing the competing interests of powerful parties like local governments and large unions. This subject demonstrates the efficacy of ADR as applicable to bankruptcy law, a realm with which many ADR practitioners may be unfamiliar. This Note's case study focuses solely on California law and cases because California stands alone in its approach of mandating ADR as a precondition to a municipal bankruptcy filing. Since all states have …

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.

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 The Trustee for the Madoff Estate, Irving Picard, sought to recover cash withdrawn by “feeder funds.”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 …

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 …

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 …