Two recent decisions may affect the assets of individuals available to satisfy creditors' claims in bankruptcy. In the first decision, the Bankruptcy Court for the Eastern District of New York determined that married, joint debtors received value in exchange for tuition payments and rejected the bankruptcy trustee's arguments that the tuition payments were fraudulent transfers.

Recent developments in the bankruptcy arena have placed a greater burden on claimants. Creditors are now required to make additional disclosures in their proof of claim forms, and courts are under no obligation to recognize late-filed claims. Proposed changes to the Bankruptcy Rules, including an amendment slashing the time to file a proof of claim, highlight the need for creditors to exercise extra vigilance.

GREATER DISCLOSURE

The Third Circuit recently held that claims purchased from trade creditors by a claims trader will be disallowed under section 502(d) of the Bankruptcy Code when the seller of the claim received, and did not repay, a preference. In doing so, the United States Court of Appeals for the Third Circuit expressed its disagreement with a relatively recent decision in the United States District Court for the Southern District of New York which reached the opposite conclusion.

A make-whole premium is a lump-sum payment that becomes due under a financing agreement when repayment occurs before the stated maturity date, thereby depriving the lender of all future interest payments bargained for under the agreement. Make-whole provisions, ubiquitous in the bond market, are becoming more prevalent in commercial loan transactions, including in the distressed context. That trend is spurred by favorable court rulings for lenders enforcing make-whole premiums when the borrower files for bankruptcy protection.

The Ninth Circuit recently held that an employer who failed to pay $170,045 in withdrawal liability could discharge the liability in bankruptcy. Carpenters Pension Trust Fund v. Moxley, No. 11-16133 (9th Cir. August 20, 2013). In so ruling, the Court rejected the Fund’s argument that unpaid withdrawal liability constituted a plan asset.

Quin v. County of Kauai Dep't. of Transp., 2013 WL 3814916 (9th Cir. 2013)

Unsecured creditors in chapter 11 cases face the prospect of two financial blows: the possibility of not receiving full payment of their claims and the cost of attorney's fees for defending their interests. But these creditors may be able to take comfort in a small but growing trend -- the ability to have the attorney's fees paid from the debtor's assets under the debtor's chapter 11 plan. This outcome occurs in only a small number of cases, and unsecured creditors would be advised to not assume their attorney's fees will be reimbursed by the debtor.

The "WARN Act" (Worker Adjustment and Retraining Notification Act) requires that larger employers provide 60 days' notice in advance of plant closings or other mass layoffs. This has long been in conflict with bankruptcy practice. A recent Fifth Circuit decision, In re Flexible Flyer Liquidating Trust, 2013 WL 586823, at *1 (5th Cir. Feb. 11, 2013), confirms that exceptions to the WARN Act apply in bankruptcy and interprets these exceptions more broadly than previous decisions.

In bankruptcy proceedings, is a class action superior to the claims administration process as a vehicle for resolving claims under the federal and New York State Workers Adjustment and Retraining Notification Act (the “WARN Act”)?  In Schuman v. The Connaught Grp., Ltd. (In re The Connaught Grp., Ltd.), Case No. 12-01051, Slip Op. (Apr.

As the American economy continues to slog through the ongoing Great Recession, even financially sound companies face challenges due to the continued economic malaise. In particular, a company that works with suppliers, customers and other business partners facing financial troubles needs to be prepared to handle the consequences of others' fiscal problems. Being attuned to signs of distress and taking defensive actions early can help strong companies avoid problems and be better positioned in the case of a significant event, such as a business partner filing for bankruptcy.