The Bankruptcy Code confers upon debtors or trustees, as the case may be, the power to avoid certain preferential or fraudulent transfers made to creditors within prescribed guidelines and limitations. The U.S. Bankruptcy Court for the District of New Mexico recently addressed the contours of these powers through a recent decision inU.S. Glove v. Jacobs, Adv. No. 21-1009, (Bankr. D.N.M.

One of the first things creditors ask after filing a proof of claim is, “when do I get paid?” As with so many other legal questions, the answer is, “it depends.” Although many different factors govern payment in a bankruptcy proceeding, there are four key elements to payment: proof, allowance priority, and timing.

Bankruptcy is primarily about “claims.” The debtor seeks to discharge personal liability on claims, while creditors seek payment on their claims. In basic terms, a bankruptcy “claim” is a right to payment. The claim does not need to be fixed, settled, undisputed, or due at the time the debtor files his bankruptcy petition. The official proof of claim form is discussed in more detail here.

You just heard that a customer has filed for bankruptcy — what do you do now? One of the first steps is to determine whether you should file a proof of claim.

How will I be alerted about the bankruptcy?

In In re Smith, (B.A.P. 10th Cir., Aug. 18, 2020), the U.S. Bankruptcy Appellate Panel for the U.S. Court of Appeals for the Tenth Circuit recently joined the majority of circuit courts of appeals in finding that a creditor seeking a judgment of nondischargeability must demonstrate that the injury caused by the prepetition debtor was both willful and malicious under Section 523(a)(6) of the Bankruptcy Code.

Factual Background

In a recent decision, the U.S. Bankruptcy Court for the Southern District of New York held that claim disallowance issues under Section 502(d) of the Bankruptcy Code "travel with" the claim, and not with the claimant. Declining to follow a published district court decision from the same federal district, the bankruptcy court found that section 502(d) applies to disallow a transferred claim regardless of whether the transferee acquired its claim through an assignment or an outright sale. See In re Firestar Diamond, 615 B.R. 161 (Bankr. S.D.N.Y. 2020).

InIn re Juarez, 603 B.R. 610 (9th Cir. BAP 2019), the Bankruptcy Appellate Panel of the U.S. Court of Appeals for the Ninth Circuit addressed a question of first impression in the circuit with respect to property that is exempt from creditor reach: it adopted the view that, under the "new value exception" to the "absolute priority rule," an individual Chapter 11 debtor intending to retain such property need not make a "new value" contribution covering the value of the exemption.

Background

In In re Palladino, 942 F.3d 55 (1st Cir. 2019), the U.S. Court of Appeals for the First Circuit addressed whether a debtor receives “reasonably equivalent value” in exchange for paying his adult child’s college tuition. The Palladino court answered this question in the negative, thereby contributing to the growing circuit split regarding the avoidability of debtors’ college tuition payments for their adult children as constructively fraudulent transfers.

Background

Federal law has long excepted student loans from discharge in bankruptcy in all but the rarest instances, recognizing the problems (and costs) associated with allowing borrowers to wipe out defaulted debts through a bankruptcy filing. However, as the issues of access to college and affordability become frequent topics in political discourse, new ideas for radical changes to the treatment of student loan debt in bankruptcy have been proposed. Lenders and servicers need to be up to speed on those proposals and ready to adjust their operations if any become law.

The American Bankruptcy Institute’s Commission on Consumer Bankruptcy released its Final Report and recommendations on April 12, 2019. The commission was created in 2016 to research

and develop recommendations to improve the consumer bankruptcy system. During its review, the commission focused on new trends regarding how Americans are incurring debt. At the conclusion of its review, the commission created a Final Report which includes recommendations for amendments to the Bankruptcy Code and Rules to make the bankruptcy system more approachable and efficient.