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What’s Yours is Mine and What’s Mine is For the Benefit of My Creditors: Bankruptcy Courts Remain Reluctant to Impose Constructive Trusts on Debtor Property

February 27, 2017

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There is an inherent tension between the goals of bankruptcy law and the state law doctrine of constructive trust.  A central tenet of bankruptcy policy is that similarly situated creditors should be treated equally: because an insolvent business or individual will not be able to pay all creditors in full, a proper bankruptcy system must provide as equitable a distribution to each of them as possible.  Constructive trust law, on the other hand, works to the advantage of a single creditor – which always means the detriment of the others when everyone is competing for limited funds.

Constructive trusts are imposed when “property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest.”  Beatty v Guggenheim_Exploration_Co, 225 N.Y. 380, 386 (1919) (Cardozo, J.).  When a creditor in a bankruptcy case alleges that the debtor is

A Lender’s Federal Post-Judgment Interest Quandary

Post-judgment interest is not something most lenders consider when making a loan. In fact, it is not ordinarily the subject of significant analysis even when litigation becomes necessary.  Where the United States District Court is the preferred venue, however, parties easily can fall into the quandary of being stuck with the federal statutory post-judgment interest rate, which is currently less than 1% per annum.

Pre-judgment, a lender often has solid rights to contract interest and potentially very high default interest rates, which often approach double-digits, added to a recovery when a solvent obligor is on the other side. But a final judgment may be a game-changer on the rate of interest a lender is able to receive.  Recent circuit court decisions are developing the law on post-judgment interest in a way contrary to the economic recovery of contracting parties, and lenders in particular.  It may be possible, however, to draft

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