A recent decision by the Court of Appeals for the Third Circuit affirming the decisions of both the bankruptcy and district courts, provides an interesting analysis of “willful” violations of the automatic stay under Section 362 of the Bankruptcy Code. See California Coast Univ. v. Aleckna (In re Aleckna), No. 20-1309 (3d Cir. 2021).
In an underreported amendment to the Bankruptcy Code, the Small Business Reorganization Act amended §547(b) of the Code to add an explicit requirement for the bankruptcy trustee or debtor in possession to conduct “reasonable due diligence” before filing a preference action. The apparent goal of this amendment to the Bankruptcy Code is to reduce the number of frivolous preference lawsuits pursued by trustees.
It is said that the word bankruptcy originated in the middle ages from the term “breaking the bench.” At that time, rupturing a craftsman’s bench was the punishment for defaulting. Later, debtors were punished for their failure to pay their debts through imprisonment. Neither approach helped the creditor. Rather, it punished those dependent upon the debtor for support. In the late 19th Century, the American system of bankruptcy was created to break from these policies and provide debtors a fresh start.
On August 16, 2021, the US Court of Appeals for the Fifth Circuit held that an individual guarantor remained liable for more than $58 million in commercial debt, despite the individual’s claims that the lenders induced him to provide the guaranty under duress. See Lockwood International, Inc. v. Wells Fargo, NA, et al., Case No. 20-40324 (5th Cir. Aug. 16, 2021).
COVID-19 M&A Lessons
Once again, a bankruptcy court has weighed in on the subject of discharging student loan debt in the context of a chapter 7 proceeding.
The United States Bankruptcy Court for the District of New Mexico added its voice to the split in judicial authority on whether a lien or similar transfer can be avoided under sections 544, 547, 548 and 549 of the Bankruptcy Code where only the debtor itself may benefit from the avoidance. Judge Thuma in his recent decision in U.S. Glove, Inc. v. Jacobs (In re U.S. Glove, Inc.), AP No. 21-1009, 2021 WL 2405399 (Bankr. D. N.M.
Michael Traison Chicago/NYC – 312.860.4230
Michael Kwiatkowski Garden City – 516.296.9144
On April 29, 2021, the United States Court of Appeals for the Fourth Circuit issued its decision in Siegel v. Fitzgerald (In re Circuit City Stores, Inc.), Case No. 19-2240 (4th Cir. Apr. 29, 2021), upholding the constitutionality of a 2017 law that substantially increased the quarterly fees debtors are required to pay to the Office of the United States Trustee (the “US Trustee”) in chapter 11 bankruptcy cases.
The automatic stay provided under section 362 of the Bankruptcy Code is an injunction, arising when a bankruptcy case is filed, which prevents all proceedings or actions against the debtor or the property of the estate without court permission - the so-called “lifting of the stay”.[1]