Business Law Insolvency Law Committee

In re Bello, 2019 WL 6826007 (Bankr. E.D. Mich. Dec. 13, 2019) shows that in applying the unsecured debt limit for Chapter 13 eligibility, a debt may be regarded as both liquidated and unliquidated at the same time. The court in Bello reasoned that if the Debtor admits that he or she owes a certain amount of money to a creditor, the admitted portion of an otherwise disputed debt should be taken into account in applying the debt limit. However persuasive this logic might be, it has not been applied in cases involving involuntary bankruptcy, in which any dispute as to the amount of a debt will disqualify a petitioning creditor. Read more

The Bankruptcy Appellate Panel for the Ninth Circuit recently ruled that a chapter 13 debtor is not required to use post-confirmation proceeds from prepetition assets to pay creditors when the property revests in the debtor after confirmation. Black v. Leavitt (In re Black), 609 B.R. 518, 2019 WL 7344909 (BAP 9th Cir. 2019). Read more

Members of the Insolvency Law Committee specialize in debtor/creditor rights, restructuring and bankruptcy law. The Insolvency Law Committee collaborates in the presentation of educational programs, publications, proposed legislation, comments on legislative proposals and with other members of the BLS on matters of overlapping interest. Read more

A California bankruptcy court has held that a contractual provision authorizing lender to recover default interest at the rate of 4% above the ordinary contract rate was not an unenforceable penalty under California or bankruptcy law. The court also ruled that the default rate was enforceable as a liquidated damages clause. [In re 3MB, LLC, Case No. 18-14663-B-11, 2019 WL 6701420 (Bankr. E.D. Cal. Dec. 5, 2019).] Read more

The Fifth Circuit Court of Appeals rejects lower court ruling that a bankruptcy trustee could avoid prepetition transfers and recover their values under 11 U.S.C. section 550(a), when the immediate transferee had returned the funds in question to the debtor prepetition, as such recovery would violate the prohibition against double recovery in Section 550(d). Matter of DeBerry, ___ F.3d ___, 2019 WL 7046904 (5th Cir. 2019). Read more

The Texas Supreme Court, on a certified question from the Fifth Circuit Court of Appeals, determined that a recipient of a fraudulent transfer who was on inquiry notice of the transferor’s fraud must diligently investigate suspicions to prove good faith as part of the good faith and value defense in the Texas Uniform Fraudulent Transfers Act, irrespective of whether the investigation would reveal fraudulent conduct. Janvey v. GMAG, L.L.C., 2019 WL 6972237 (Tex. Sup. Ct. 2019). Read more

The Ninth Circuit Court of Appeals recently determined that the statute-of-limitations disclosure in a debt collector’s letter did not mislead or deceive the “least sophisticated debtor” and therefore was not a violation of the Fair Debt Collection Practices Act. Stimpson v. Midland Credit Management, Inc., 2019 WL 6885508 (9th Cir. Dec. 18, 2019). Read more

A California bankruptcy court has held that Chapter 7 debtor-taxpayers are liable for taxes owed to the Franchise Tax Board where the transaction by which the debtors formed and operated their Subchapter S corporation was determined to be a “sham” with no economic substance separate from providing tax benefits to the debtors. Read more

In In re Davis, (unpublished), No. 19-1116, 2019 WL 2931668, 2019 Bankr. LEXIS 3466 (9th Cir. BAP Nov. 5, 2019) the U.S. Bankruptcy Appellate Panel of the Ninth Circuit ruled that generic language in a contract may be sufficient to permit a bankruptcy court to award attorneys fees to the debtor for successful defense of a Section 523(a)(2) action. Read more

In Norio, Inc. v. Thomas H. Casey, Chapter 7 Trustee, 2019 WL 6331564 (9th Cir. BAP 2019), the Bankruptcy Appellate Panel for the Ninth Circuit held in an unpublished opinion that a lender’s claim was unsecured because the Debtor-borrower had no direct ownership interest in the property (membership interests in a limited liability company and a limited partnership, collectively the “Membership Interests”) she purported to pledge as collateral for the related loan. Read more