By: Michael Buccino
St. John's Law Student
American Bankruptcy Institute Law Review Staff
In SLW Capital, LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin), the Third Circuit held that a creditor’s lien could not be avoided through the confirmation of a Chapter 13 plan that treated the claim as an unsecured claim.
Notwithstanding the importance of finality in bankruptcy proceedings and statutory language binding creditors to the terms of a confirmed plan, since the Federal Rules of Bankruptcy Procedure require an adversary proceeding to invalidate liens, the order confirming the confirmed plan was not res judicata with respect to the status of the creditor’s lien.
[2]
By: Valerie Sokha
St. John's Law Student
American Bankruptcy Institute Law Review Staff
The derivatives provisions of the 2005 BAPCPA amendments greatly enlarged the scope of the financial contracts that are shielded from traditional bankruptcy limitations such as the automatic stay and the prohibition on ipso facto clauses. Those exceptions were reaffirmed in a strong anti-debtor opinion in American Home Mortgage, Holdings, Inc. v. Lehman Brothers Inc.
Although Lehman may now regret its victory since it is a debtor in its own bankruptcy case, it succeeded in defeating a number of theories that might have limited the scope of the exceptions. In an opinion relying in part on the market protection policy reflected by the exceptions, the Delaware Bankruptcy Court adopted a liberal definition of “repurchase agreement” that turned mostly on the intention of the parties as stated in the four corners of their agreement.
By: Anna Drynda
St. John's Law Student
American Bankruptcy Institute Law Review Staff
Recently, the United States Bankruptcy Court for District of New Jersey in In re Kara Homes, Inc. held that affiliated Chapter 11 debtors, each owning separate real estate development projects for the construction of single family residences and condominiums, qualified as single asset real estate (“SARE”) cases, a holding that allowed the lenders expedited relief from automatic stay.
The case focused on whether the debtors conducted “substantial business” other than operating the real property sufficient to exclude them from the SARE provisions.
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Adopting a “pragmatic approach,” the Court held that even if the business activities would qualify had the debtors performed them for third parties, such activities when performed for the debtor itself, or one of its affiliates, do not constitute substantial business.
[3]
The residential home building business, although involving real estate, arguably has more similarity to a manufacturing operation than to the on-going property management operations of many SARE debtors. The Kara Homes approach makes it very difficult for real estate developers to reorganize in bankruptcy.
By: Caitlin Cline
St. John's Law Student
American Bankruptcy Institute Law Review Staff
Drawing a distinction between Chapter 11 plans and section 363 sales, the Ninth Circuit Court of Appeals held in General Electric Capital Corp. v. Future Media Productions, Inc.
that when an oversecured creditor is paid off through a section 363 sale, it is entitled to enforce a default interest rate provision and is not limited to the pre-default rate. In contrast, if payment is made through a confirmed plan, the debtor may “cure” the default under section 1124 and avoid the default interest rate.
[2]
By: Craig Kavanagh
St. John's Law Student
American Bankruptcy Institute Law Review Staff
Recently, the New Jersey Bankruptcy Court, in In re Bursztyn,
held that Fourth Amendment limitations applied to a trustee’s conduct in seeking to search a debtor’s residence with the intention of seizing undisclosed assets. However, the Court reasoned that, by filing bankruptcy, the debtor had reduced her reasonable expectations of privacy
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and the Court held that the trustee’s actions did not exceed the Fourth Amendment standards of reasonableness.
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In Bursztyn, based on an investigation of court records of the debtor's recent divorce, the trustee suspected that the debtor was hiding valuable jewelry and artwork that was not listed in the debtor’s bankruptcy petition or financial affairs statements.
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The trustee requested from the Court, ex parte, an order allowing her to search the debtor’s home with the hopes of obtaining the art and jewelry that now belonged to the estate.
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The Court granted authorization, and the United States Marshals Service and the trustee served the order upon the debtor at her residence, and proceeded to search her bedroom and closets.
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The search uncovered nearly two hundred pieces of fine jewelry and ten works of art, valued at nearly $250,000.
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Claiming that the search and seizure violated her Fourth Amendment rights, the debtor sought to suppress all evidence uncovered by the trustee’s search.
[8]
By: Thomas Scappaticci Jr.
St. John's Law Student
American Bankruptcy Institute Law Review Staff
The decision in Clear Channel Outdoor, Inc. v. Knupfer (In re PW)
cast doubt on the ability of a senior secured creditor to take title free and clear of junior liens under section 363(f) of the Bankruptcy Code. In Clear Channel, the Ninth Circuit Bankruptcy Appellate Panel held that “[s]ection 363(f) of the Bankruptcy Code [does not] permit a secured creditor to credit bid its debt and purchase estate property, taking title free and clear of valid, non consenting junior liens.”
[2]
The Court noted the split in cases interpreting the section 363(f)(3) ground for free and clear sales, but followed the more restrictive line that limits such sales to situations where the sale proceeds exceeded the face amount of all liens,
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thus making it unavailable in cases where the junior liens are undersecured. The Court’s interpretation section 363(f)(5) was more novel in nature, holding that a “cram down” is not a legal proceeding under that provision.
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The truly novel aspect of the opinion, however, was its holding that the section 363(m) statutory mootness provision applied only to the sale itself, and did not shield the section 363(f) free and clear aspect of the sale.
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This holding seems to allow a junior lien creditor to attack, post sale, virtually any sale that does not fully satisfy its claim.
By: Steven Saal
St. John's Law Student
American Bankruptcy Institute Law Review Staff
The case of In re Roedemeier
holds that the section 707(b) “means test” expense allowances are not incorporated into the calculation of disposable income for individual chapter 11 debtors.
[2]
Instead, a chapter 11 debtor’s “projected disposable income” under section 1129(a)(15) is calculated by the court through “a judicial determination of the expenses that are reasonably necessary for the support of the debtor and his or her dependents.”
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Since the means test applies to the calculation of “projected disposable income” in chapter 13 cases, this decision creates a difference between the two chapters. Use of the “means test” involves a stricter formula of determining income that in many cases would require the debtor to contribute more income to funding the plan, thus creating an incentive for debtors to file chapter 11 in order to use the more flexible judicial calculation.