Section 329 Bankruptcy Courts Have Exclusive Jurisdiction Over Attorneys Fees in Bankruptcy Proceedings

By: Samantha M. Tusa

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

The Bankruptcy Court for the Eastern District of Michigan held, in In re Piccinini[1], that bankruptcy courts have exclusive jurisdiction over attorneys’ fees incurred in bankruptcy proceedings because of the “restrictive language” of section 329 of the Bankruptcy Code (the “Code”). [2]  The issue arose after the debtor terminated his original attorney who then filed a suit against the debtor in state court to collect his fees.[3]  The bankruptcy court stayed the state court collection action pending the bankruptcy court’s resolution of the fee dispute. [4]

Strip Off of a Wholly Unsecured Second Mortgage Impermissible

By: Michael J. Casaceli

St. John’s University Law Student

American Bankruptcy Institute Law Review Staff

 

Joining a majority of courts, the New Jersey District Court, in Cook v. IndyMac Bank,[1] held that the debtor, Cook, could not use section 506(d) of the Bankruptcy Code (the “Code”) to “strip off” a wholly unsecured junior lien.[2]  Cook’s home was encumbered by a first and second mortgage.  Cook sought to strip off the second mortgage pursuant to section 506(d),[3] because the first mortgage exceeded the appraised value of the home.[4]  The court denied Cook’s attempted “strip off” because it would grant a windfall to debtors whose property unexpectedly sells for more than its appraised value.[5]  The court found that the only way to “strip off” a second mortgage is to contest its status as an allowed claim under section 502 of the Bankruptcy Code.[6]

Debtor Cant Avoid Judgment Lien That Attached Prior to Homestead Declaration

By: Alyssa Baer

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

In In re Bailey,[1] the United States Bankruptcy Court for the District of Idaho held that Debtors were not entitled to avoid a judicial lien, pursuant to 11 U.S.C. § 522(f), when Debtors purchased a homestead[2] after the judgment was recorded, since the debtors did not have a prior interest in the encumbered property.[3]  In an unrelated state court case, Mountain West Bank (the “Creditor”) obtained a valid judgment lien against the debtors in the amount of $103,847.00, and recorded it in the Office of the Canyon County Recorder in accordance with Idaho law.[4]  Then, the debtors purchased undeveloped land in Canyon County,[5] at which time the creditor’s judgment lien attached to the property by operation of Idaho state law.[6]  The debtors’ subsequent recording of a homestead declaration with the recorder’s office was insufficient to protect the homestead from encumbrance by the creditor’s judgment lien.  However, the debtors later filed for chapter 7 bankruptcy, and claimed their property exempt pursuant to Idaho’s homestead exemption. The debtors then moved to avoid the creditor’s judgment lien, pursuant to § 522(f), claiming that it impaired their homestead exemption.[7] 

The Challenge of Exclusivity Appeal of Original Equity Owners

By: Michael M. Harary

St. John's Law Student

American Bankruptcy Institute Law Review Staff 

 

In H.G. Roebuck & Son, Inc. v. Alter Communications, Inc.,[1] (“Roebuck”) the United States District Court for the District of Maryland reversed the bankruptcy court’s decision to grant the debtor, Alter Communications, Inc. (“Alter”), the exclusive right to file a plan of reorganization because the proposed plan violated the absolute priority rule.[2] H.G. Roebuck (“Roebuck”) sought to submit a competing plan, but was denied because the bankruptcy court determined that Alter’s plan satisfied the absolute priority rule and was confirmable. The court held that Alter’s prior equity holders, the Buerger family, could be granted the exclusive right to purchase shares in the reorganized company, even though the proposed plan provided for less than a 16% return to certain general unsecured claimants, including Roebuck.[3] Alter’s remaining unsecured creditors were to be paid in full.[4] The court reasoned that it was permissible to pay an old equity holder a greater return than certain unsecured claimants because the plan required the prior equity holders to contribute $34,850 in “new value” and therefore the “new value” exception to the absolute priority rule was satisfied.[5]

Non-Collusive Mortgage Foreclosure Held Preferential

 By: Adam S. Cohen

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re Whittle Development, Inc.,[1] the Bankruptcy Court for the Northern District of Texas held that a pre-petition foreclosure action against real property may be avoidable as a preferential transfer where the foreclosing creditor receives more than it would have in a liquidation under chapter 7 of the Bankruptcy Code, even though the action was non-collusive and complied with state law.[2] Whittle Development, Inc. (the “Debtor”) and Colonial Bank, N.A. (the “Creditor”) entered into a Development Loan Agreement on December 31, 2007 pursuant to which the Creditor loaned the Debtor $2,700,000 (the “Loan”).[3] The Creditor declared a default on the Loan, accelerated the balance due, and on September 7, 2010, foreclosed on the property that secured the loan.[4] At the pre-petition foreclosure sale, a subsidiary of the Creditor bought the property for $1,220,000.[5]  The Debtor filed for bankruptcy on October 4, 2010 under chapter 11 of the Bankruptcy Code.[6]  The Creditor filed a proof of claim for $2,855,243.29, alleging that $1,181,513.27 of the claim represents the deficiency from the foreclosure sale.[7]  The Debtor disputed the Creditor’s deficiency claim and argued that the Creditor was over secured by $1,100,000 because the property was worth $3,300,000.[8]