One consequence of the depressed real estate market has been numerous Chapter 11 bankruptcy cases wherein the debtor seeks confirmation of a “dirt-for-debt” plan. In such a plan, instead of paying the secured creditor the value of the real property securing the debt through restructured loan terms, the debtor proposes to convey part or all of the real property securing the debt to the creditor in full satisfaction of its secured claim.

In chapter 11 bankruptcy cases, creditors and equity holders with common interests often find it advantageous to pool resources and form an ad hoc group or committee. Because the committee represents a larger amount of claims or interests, it speaks with more authority in the bankruptcy case, and the members are able to save money by sharing the cost of legal and financial advisors.

When a loan is secured by real property, the current value of the property will be a determining factor in how the lender is treated in bankruptcy and will drive the lender’s bidding strategy in foreclosure. Valuing real property has never been an exact science. Volatility in the residential and commercial real estate markets over the last two years has made it even harder for lenders to rely with confidence on the appraisals they obtain to plan and predict how they will fare in bankruptcy or in foreclosure.

In difficult economic times, debtors’ attorneys closely review credit reports looking for potential legal claims against creditors. Long after a debtor has been discharged from bankruptcy, creditors can find themselves defending claims of improper credit reporting. A recent case from the Eastern District of North Carolina illustrates the trouble facing creditors who furnish incorrect reports of discharged debt. See In re Adams (Bankr. E.D.N.C. 2010).

In a much-followed case given the recent publicity surrounding collapsed Ponzi schemes, the U.S. District Court for the Southern District of New York on September 17, 2010 reversed a decision of the Bankruptcy Court from the Southern District of New York that had broadened the scope of those facts and circumstances that may trigger inquiry notice under the "good faith" defense to a fraudulent conveyance claim. In re Bayou Group, LLC, 2010 U.S. Dist. LEXIS 99590 (S.D.N.Y. September 17, 2010).