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You Get a Car! You Get a Car! Bankruptcy Court Gives Debtor a Car. Unsecured Creditors Get Nothing.

August 5, 2016


So, a ruling came out in June that we in The Bankruptcy Cave have been dying to blog about (and not just so we can use the blog title above).  Forgive the delay – heavy workloads and summer vacations often preclude timely blog posts.  But this one is a doozy, better late than never on this blog post.

In re Perez, Case No. 15-31645 (Bankr. E.D. Wisc., June 3, 2016) is one of those weird Chapter 13 cases (and we know most folks’ eyes glaze over when they read “Chapter 13” – ours do too, but just keep reading for once).  It addresses the definition of “current monthly income,” which partially drives what a Chapter 13 debtor must pay unsecured creditors over time via Chapter 13 plan.  In Perez, the debtor worked for an auto dealer; part of her pay was her regular use of a “demo” car.  She was w-2’ed for it to

Some Much Needed Transparency Required on Liquidating Trustees, Liquidating Trusts, Plan Documents, and Other Post-Confirmation Matters

July 10, 2016


We at The Bankruptcy Cave applaud the recent ruling by Judge Whipple of the Bankruptcy Court for the Northern District of Ohio, seeking to make the post-confirmation parties, processes, and procedures far more transparent. In In re Affordable Med Scrubs, LLC,[1] Judge Whipple declined to approve a disclosure statement for a secured creditor’s liquidating plan.  The key deficiencies were as follows:


  • Disclosure Must be Provided about the Liquidating Trustee: While the secured creditor’s disclosure statement did state who the liquidating trustee would be, it provided no disclosures about the putative trustee’s connections to key creditors and other parties in interest. We applaud this effort to require disclosures about a proposed liquidating trustee or plan administrator. The selection of a liquidating trustee or plan administrator is a murky process – at best, it is based on some vague (and undisclosed) considerations of pricing and experience of the individual or
  • The A++, Guaranteed to Go Smoothly and Make You Look Like You Do This All the Time, Timeline and Checklist to Prepare to Take a Deposition

    Editor’s Note:  If you would like a copy of this document in MS Word (we know the font on this blog is hard on the eyes, we are working on it I swear, but in the meantime we are happy to send you our forms or checklists in Word), then please feel free to contact either of the authors, or  And if you find this helpful, please check out the other “A++ Forms and Resources” we have posted to the blog, using the “Categories” drop down menu at the main page or clicking here and here.  Coming up next week:  another comprehensive checklist for preparing and filing a complaint.

    The Master Deposition Timeline and Checklist

    Two Weeks before Issuing the Subpoena (if you are issuing a subpoena to a non-party)

    • Please remember to run conflicts on every witness before you issue

    High Court Broadens the Definition of “Actual Fraud” under Section 523(a)(2)(A)

    The Supreme Court’s Decision:

    On May 16, 2016, in Husky International Electronics, Inc. v. Daniel Lee Ritz, Jr., Case No. 15-145, the Supreme Court held that the term “actual fraud” in § 523(a)(2)(A) of the Bankruptcy Code encompasses fraudulent conveyance schemes, even if the scheme does not involve a false representation to the creditor.  In reversing the judgment of the Fifth Circuit, the Supreme Court’s ruling settled a split among the circuits regarding whether “actual fraud” under § 523(a)(2)(A) requires a misrepresentation or misleading omission to the creditor. Compare In re Ritz, 787 F.3d 312 (5th Cir. 2015) with McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000), and Sauer V. Lawson, 791 F.3d 214 (1st Cir. 2015).

    The Appeal:

    On March 1, 2016, the Supreme Court heard arguments as to whether the “actual fraud” exception to discharge under § 523(a)(2)(A) applied narrowly (i.e. only when the debtor

    ASARCO’s Revenge: Do Estate Professionals Now Have to Charge the Same Fees to an Estate or Committee that They Would Charge a Similar Client in an Out-of-Court Matter?

    Either from our prior posts here and here, or from the great posts from Stone and Baxter’s Plan Proponent blog or from Bracewell’s Basis Points blog, we all know the Supreme Court’s holding in ASARCO[1]/: a strict interpretation of Section 330(a) of the Bankruptcy Code[2]/ allows professionals to charge for the preparation of a fee application per Section 330(a)(6).  But as there is no express statutory authority to charge the estate for defense of a fee application, the “American rule” prevails, requiring professionals to bear their own defense costs if a third party objects to the fees.[3]/

    The cases following Asarco have all been sad days for bankruptcy professionals.  As we have written, the Delaware Bankruptcy Court has rejected all arguments that Section 328 of the Bankruptcy Code, which allows the Court to approve reasonable contractual terms, could allow a contractual term

    Preference Defendants, Rejoice! Services Billed in a Lump Sum Can Be Allocated Per Diem, for Your New Value Defense

    May 4, 2016


    Preference actions are, for the most part, insanity. We won’t go on a tirade here. But recently, a ruling brings common sense to the “new value” defense.

    Specifically, all bankruptcy lawyers know that any “new value” must come after the allegedly preferential transfer. This can be problematic for service providers, especially services provided daily, or over time. The debtor may, for instance, pay a prior invoice on April 10, and then file for bankruptcy on April 20, or 30, before the service provider generates an invoice for all of April’s services. A crafty trustee may thus argue that there is no evidence of new value provided after April 10, and hence no new value defense.

    The recent case of Levin v. Verizon Business Global, LLC (In re OneStar Long Distance, Inc.), 3:15-cv-00049 (S.D. Ind. March 28, 2016) is a perfect example of this. The defendant provided telecommunications services to the

    7th Circuit Disrupts Commercial Certainty in Lease Terminations; Landlords, We Hate That You Have to Read this Blog Post

    There are many tenants that are, shall we say, “problem children.” They pay late, open late, breach, junk up your strip or building, threaten, the works. Sometimes, the landlord finds it easier just to reach a lease termination agreement with such a tenant, with the parties walking away with a mutual release. If the lease is below market, or the landlord is really motivated to move this tenant along, the landlord even provides some “keys money” to terminate the lease.

    This normal practice may now be turned on its head. In a recent opinion, the Seventh Circuit ruled that a pre-bankruptcy lease termination was a “transfer” under the Bankruptcy Code. Because it was a “transfer,” if the tenant did not receive “reasonably equivalent value” for the value of the lease (such as where the tenant alleges it was a below market lease, which could have been assigned in bankruptcy for

    Snooze Alert (but you really have to read this) – Bankruptcy Forms and Various Dollar Amounts Changing on April 1

    On April 1, a bevy of dollar amounts set forth in the Bankruptcy Code will change. Some of these are quite important to substantive relief, and others are quite important to making sure you don’t look bad in front of the client or your favorite (least favorite?) judge. We have Section 104 of the Bankruptcy Code to thank for this malpractice-inducing enterprise, which we enjoy every three years. See 11 U.S.C. § 104 (a) (“On April 1, 1998, and at each 3-year interval ending on April 1 thereafter, each dollar amount in effect under sections . . . shall be adjusted . . . .”).

    At some point in the careers of the contributors to The Bankruptcy Cave, we would love to speak to the legislative scribes who meticulously cross-referenced all of BAPCPA’s new dollar figures to Section 104, but still managed to give us the hanging paragraph

    The A++ Forms and Resources: Handling the No-Show Deposition

    Editor’s Note:  Here at The Bankruptcy Cave, we love insolvency stuff; we eat it for breakfast and dream about it at night.  (We are not kidding.)  Sometimes that includes credit-related litigation, and so we keep our pre-trial, trial, and appellate skills honed.  To that end, here is a very helpful cheat sheet we prepared and which we bring with us to every deposition, just in case.  (Your author Leah even got to enjoy a no-show deposition in Chicago last year; she created a perfect record using the below.)  Feel free to use it, and if it is handier to have a Word version, email one of the authors.  We will update the post later to make it download-able, but the rudimentary blogging skills of your new editor prevent that now, alas.

    Editor’s Note 2:  If you like practice tips and cheat sheets like this, see also Mark and Leah’s “The A++, Super Comprehensive, Don’t

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