J. Ellsworth Summers, Jr.
What can Twinkies and Beer Teach Investors about Purchasing the Assets of an Insolvent Corporation?
Posted in BankruptcyWhen Hostess announced last November that it would be shutting the doors to its factories, spooked by the news and likely addled by decades of cream filling, hoarders of Ho-Ho’s scurried to buy every brand name snack cake they could find, boosting the online sale of Twinkies alone by 31,000% in the first twenty-four hours…. Continue Reading
A Lesson from the Lumber Yard: Middle District of Florida Raises Particularity Requirement for Trustee Standing in § 549 Avoidance Actions
Posted in Bankruptcy, Commercial LendingOne of the primary roles of a Chapter 7 trustee is to ensure that the bankruptcy estate is preserved prior to liquidation. It is no wonder, then, that the Trustee’s avoidance powers are well defined by the Bankruptcy Code. Nevertheless, a string of recent cases out of the Middle District of Florida has illustrated that… Continue Reading
Debts Non-Dischargeable When Use of Proceeds Intentionally Misrepresented
Posted in Bankruptcy, Commercial Lending, Debt and Judgment CollectionWhen an individual obtains a loan with no intention of repaying the lender, it is well established that such a debt is not dischargeable in bankruptcy. If, however, a debtor does not misrepresent its intent to repay the lender, but instead materially misrepresents the purpose of the loan, is the debt dischargeable in the debtor’s… Continue Reading
A Potential End-Around McNeal: Liens Partially Secured by Personal Property
Posted in Bankruptcy, Debt and Judgment CollectionWhen the time comes to collect a debt, few organizations are as accomplished as the Internal Revenue Service. The IRS showed just such guile in the case of In re Williams, a recent Chapter 7 proceeding in the Middle District of Georgia, in which the creditor raised an interesting, and more importantly, successful defense to… Continue Reading
Let the Stripping Begin: Lower Courts in the Eleventh Circuit Cautiously Embrace McNeal
Posted in Bankruptcy, Commercial LendingIt was only a matter of time before judges in the lower courts of the Eleventh Circuit began to accept the appellate court’s decision in McNeal. Two such opinions have recently been published in the Middle Districts of Florida and Georgia, and they address McNeal with as much contempt as many commentators have previously expressed…. Continue Reading
In re Davenport: The Eleventh Circuit sets Minimal Standards for Creditor Reliance in Fraud Case
Posted in Bankruptcy, Commercial Lending, Debt and Judgment CollectionThe Bankruptcy Code protects lenders which reasonably rely upon a debtor’s financial statements when approving a loan. The Eleventh Circuit was recently faced with an “enterprising” debtor who attempted to challenge the reasonableness of a bank’s reliance on his falsified financial statements. Ultimately the court rejected the debtor’s arguments that the bank should have more… Continue Reading
In re Sundale, Ltd.: Bankruptcy Court May Have Final Say in Certain State-law Counterclaims
Posted in Bankruptcy, Commercial Lending, Debt and Judgment CollectionAs we have discussed in previous posts, the Supreme Court has held that not all counterclaims which arise within the context of a bankruptcy case are “core” proceedings, such that the bankruptcy court may make a final and binding determination on the claim. This is troublesome to creditors because further litigation of the claim has… Continue Reading
Surcharge of Debtor’s Exempt Assets Allowed when Debtor Willfully Conceals Non-Exempt Assets
Posted in Bankruptcy, Debt and Judgment CollectionConcealing assets from the Bankruptcy Court rarely, if ever, turns out well for a debtor. In a recent First Circuit case, a debtor concealed proceeds from prepetition sale of his former marital home, claiming that all of the proceeds were paid to his former wife. Nevertheless, the debtor actually received nearly $27,000, which he used… Continue Reading
Insiders as Equity Investors: Competition Protects Lenders from Absolute Priority Rule Circumvention
Posted in Bankruptcy, Commercial Lending, Debt and Judgment Collection, Loan WorkoutsUnder the absolute-priority rule, unpaid creditors normally receive the equity in a reorganized business. If a plan of reorganization proposes a “new value” investment in exchange for equity, however, the rule does not strictly apply. In the case of Bank of American National Trust & Savings Ass’n v. 203 North LaSalle Street Partnership, the Supreme… Continue Reading
Forward Contracts for Commodities not Avoidable as Preferential Transfers
Posted in Bankruptcy, Commercial Lending, Debt and Judgment CollectionBecause debtors may avoid certain transfers and contracts entered into during the ninety days before they filed their bankruptcy petition, trade creditors are understandably nervous about entering into contracts with customers who may appear to be on the edge of insolvency. Such anxiety is especially acute when the nature of the creditor’s business necessitates entering… Continue Reading
Denial of Discretion: Eleventh Circuit Lacks Jurisdiction to Hear Bankruptcy Appeal
Posted in BankruptcyEven one year removed from the Supreme Court’s decision in Stern v. Marshall, which challenged the jurisdiction of a lower bankruptcy court, many practitioners and lenders alike are still left with unanswered questions regarding the “finality” of their bankruptcy court judgments. Recently the Eleventh Circuit Court of Appeals, in the case of In re Celotex,… Continue Reading
Though not Precedent, McNeal Proves Persuasive in Southern District of Florida
Posted in Bankruptcy, Commercial Lending, Debt and Judgment CollectionMortgage modification has long been an angst-ridden topic for consumer creditors. The issue once again rose to the forefront in May of 2012, when the Eleventh Circuit issued the unpublished opinion of In re McNeal, wherein the court allowed a Chapter 7 debtor to “strip off,” or avoid, a wholly unsecured junior mortgage. As discussed… Continue Reading
A Troubling Interpretation: Prepetition Foreclosures as Preferential Transfers under § 547
Posted in Bankruptcy, Debt and Judgment CollectionAs stated in Doug Waldorf’s post below, the concept of property valuation in regards to a deficiency judgment is well established within the Eleventh Circuit. The fair market value of the property is established at the foreclosure sale. When foreclosure and bankruptcy cross paths, however, other considerations come into play, and it is important that… Continue Reading
Formal Objection to Confirmation not Necessary to Appeal “Absolute Priority” Violation
Posted in Bankruptcy, Commercial Lending, Debt and Judgment CollectionCramdown. The very word makes the hair on the back of lenders’ necks stand up, because in the past, there was little a lender could do once the bankruptcy court confirmed a Chapter 11 plan. However, in the 2011 decision of In re Lett, the Eleventh Circuit loosened the stranglehold and allowed a creditor to appeal the confirmation… Continue Reading
What Lenders Need to Know About “Equitable Mootness” in Appealing a Confirmed Chapter 11 Plan
Posted in Bankruptcy, Debt and Judgment CollectionAs many lenders have learned the hard way, an appeal of a confirmed Chapter 11 plan is often met with strong resistance by the debtor. Often a strong arm tactic used by debtors to encourage courts to deny appellate review of confirmed reorganization plans, the doctrine of “Equitable Mootness” has recently come under fire. Because… Continue Reading
The Threat of Lien Stripping in “Chapter 20” Bankruptcy
Posted in Bankruptcy, Debt and Judgment CollectionAs discussed in the McNeal posts below, junior mortgage holders are increasingly finding that their mortgages are worth less than the paper they were printed on. Especially troubling to lenders, are conflicting decisions that allow liens, which otherwise would have passed through a Chapter 7 bankruptcy, to be avoided in a subsequent Chapter 13 proceeding…. Continue Reading
First Challenge to McNeal Reveals Lien Stripping Challenges for Chapter 7 and 13 Debtors
Posted in Bankruptcy, Commercial Lending, Debt and Judgment CollectionNearly five months after McNeal was decided by the Eleventh Circuit, a challenge has arisen within the Eastern District of New York, which has historically been fertile ground for bankruptcy law. In Wachovia Mortgage v. Smoot, the court rejected a debtor’s attempt to strip off a wholly unsecured junior mortgage in a Chapter 7 proceeding,… Continue Reading
Liquidating Debtor’s Personal Property to Satisfy Unsecured Claim
Posted in BankruptcyThese days many lenders are stuck with unsecured claims against debtors who file Chapter 7 bankruptcy. Under certain circumstances, all is not lost, because a creditor may be able to liquidate a debtor’s personal property to satisfy its unsecured claim. In a recent case out of the Ninth Circuit, a mother guaranteed her son’s $13… Continue Reading
Pending Re-Hearing, McNeal is Stripping Away
Posted in BankruptcyRecently, in an article published in the American Bankruptcy Institute, we dissected the recent 11th Circuit Court of Appeals decision in the case of In re McNeal. The decision was short, only two pages in fact, but in it the court drastically changed the rights of upside-down debtors with junior mortgages who have filed for… Continue Reading