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A Debtor’s Allegedly False Financial Statement Doesn’t, At All, Excuse a Lack of Lender Diligence

January 9, 2017

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A decision rendered during the sometimes peaceful interlude between Christmas and New Year’s is worth reading, and heeding.  Hurston v. Anzo (In re Hurston), Adv. Proc. No. 15-2026 (Bankr. N.D. Ga. Dec. 27, 2016) is a helpful reminder to anyone representing lenders or creditors which are hell-bent-for-leather to pursue a non-dischargeability claim against a debtor that submits a false written statement (e.g., a personal financial statement) to obtain credit.  Often, in the fervor of the start of a bankruptcy case, the creditor (and its lawyer) will make great hay from the fact that a debtor may have lied in a pre-petition credit application, or forbearance agreement, or other written medium.  However, the facts of Hurston show that a creditor (and its lawyer) should pause, take a breath, and critically evaluate whether the creditor actually relied on the pre-petition writing from the debtor, and whether that creditor’s reliance was also, in fact, reasonable.  If

This Just In – Supreme Court to Provide Clarity on Whether Collection of Time-Barred Debts in Bankruptcy Violates the Fair Debt Collection Practices Act.

October 11, 2016

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jabez-stoneWe all remember The Devil and Daniel Webster – the Devil comes to collect a seven year old debt (secured by Jabez Stone’s soul), only to be foiled by the great trial lawyer Daniel Webster – thanks to a skilled litigator, the old debt is forgiven!

But that isn’t the only example of years’ old debt becoming a real matter of contention.  Earlier today, the Supreme Court granted certiorari on an issue that (a) is pretty important in the world of consumer debt collection, and (b) makes some folks pretty darn furious. The issue is this:  if you file a proof of claim in a bankruptcy case, and you know such claim is barred by the applicable statute of limitations, are you committing a “misleading” or “unfair” practice under the Fair Debt Collection Practices Act (FDCPA)?  (Coverage of the case and

Over Four Hundred Years of Law on Fraudulent Transfers, Flushed Down the Drain

August 15, 2016

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In 1571, Parliament enacted a law, sometimes known as the Statute of 13 Elizabeth, creating one of the greatest means of creditor protection – the proscription of fraudulent transfers.  As Professors Baird and Jackson stated, the law prevents an “Elizabethan deadbeat [from selling] his sheep to his brother for a pittance.”[1]  The law has progressed, covering not just intentional acts to hinder, delay, or defraud creditors, but also “constructively fraudulent transfers” in which a third party who is not in on any con nonetheless gets something from an insolvent debtor for less than reasonably equivalent value.

These are simple, straightforward principles, with which no bankruptcy professional (or really, anyone) could quibble.  You got stuff and you didn’t pay for it, so you need to give it back.  There are some exceptions.  Voiding transfers in the securities industry, for instance, could up-end financial markets.  So Congress added Sections 548(d)(2)(B)

The A++ Forms and Resources–Defending Depositions, Prepping Your Witness, Practical Tips and Key Errors to Avoid

Editor’s Note:  Ok, we know, this is waaaay to long for a blog post.  But this is just too good not to share!  In our continuing effort to avoid re-inventing the wheel, getting the easy stuff down to checklists, and helping us lawyers impress our virtually-impossible-to-impress clients, we offer our most recent post: everything you need (actually, must) to do to get ready to defend a deposition (including the critical steps to take to prepare your witness).  We have previously posted in our A++ Forms and Resources (TM), great checklists on the timeline of all steps to prepare to take the perfect deposition, the script you should always have in your lit bag to make a perfect record for a no-show deposition (it happens!), and the super-comprehensive list of opening questions to get to everything a witness could know.  All of these, and the post below,

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

August 5, 2016

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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

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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, mark.duedall@bryancave.com or leah.fiorenza@bryancave.com.  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

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