This article was originally published in the January 2014 issue of Pratt's Journal of Bankruptcy Law.
Preference actions are common in bankruptcy cases. These actions seek to claw back payments made by a debtor to a creditor during the 90 days before the commencement of a bankruptcy case.
Whether a secured creditor has an absolute right to credit bid at a sale under a chapter 11 plan has been the subject of conflicting decisions rendered by the Third, Fifth and Seventh Circuits.1 The United States Supreme Court has resolved these inconsistent rulings with its decision in RadLAX Gateway Hotel, LLC, et al., v. Amalgamated Bank, 2 which affirmed the Seventh Circuit’s holding that a secured creditor has an absolute right to credit bid in a sale under a chapter 11 plan.
As if buying distressed debt is not challenging enough given the underlying business considerations, the possible, and perhaps likely, bankruptcy filing of your soon-to-be borrower presents a maze of issues the note purchaser should consider before acquiring the debt.
1. Know Your Seller