Lenders and their counsel know that it is important to properly describe the collateral on which a lien (mortgage or security interest) is being granted. The purpose of this post is to discuss some recent decisions contrary to what many corporate counsel thought they knew concerning collateral descriptions in security agreements and UCC financing statements.

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.

In March 2019, Judge Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York ruled that lenders using clear and unambiguous language in their loan agreements may be entitled to prepayment premiums that they would have otherwise forfeited in a borrower’s bankruptcy. In In re 1141 Realty Owner LLC, Judge Bernstein acknowledged the general rule set forth in the U.S. Court of Appeals for the Second Circuit’s decisions in In re AMR Corp. and In re MPM Silicones, L.L.C.

In Witt v. United Cos. Lending Corp. (“In re Witt”), 113 F.3d 508 (4th Cir. 1997), the Fourth Circuit held that Chapter 13 debtors are not permitted to bifurcate undersecured home mortgage loans into separate secured and unsecured claims. In re Witt, 113 F.3d at 509. Recently, the Court overruled this twenty-two-year-old decision in an en banc opinion, Hurlburt v. Black, No. 17-2449, 2019 WL 2237966 (4th Cir. 2019).

On June 14, 2019, the U.S. Court of Appeals for the Fifth Circuit issued an opinion[i] affirming bankruptcy and district court decisions finding that, under the terms of the confirmed chapter 11 bankruptcy plan, the debtor’s lenders were not entitled to receive over thirty million dollars of post-petition default interest even though the lenders were fully secured.

The ability of a bankruptcy trustee to avoid fraudulent or preferential transfers is a fundamental part of U.S. bankruptcy law. However, when an otherwise avoidable transfer by a U.S. entity takes place outside the U.S. to a non-U.S. transferee—as is increasingly common in the global economy—courts disagree as to whether the Bankruptcy Code’s avoidance provisions apply extraterritorially to avoid the transfer and recover the transferred assets. Several bankruptcy and appellate courts have addressed this issue in recent years, with inconsistent results.

In preparing a merchant cash advance (MCA) agreement on behalf of the provider, there is constant tension between the urge to include every conceivable contractual right for protecting the provider’s economic interests and the need to avoid language that might reorder the parties’ relationship in a way that renders the entire agreement unenforceable. Deciding how to address the possibility that the merchant might pursue bankruptcy poses a particularly challenging dilemma.

Windstream Holdings, Inc.’s (“Windstream”) chapter 11 bankruptcy filing following its contentious litigation with Aurelius Capital Management LP (“Aurelius”) has rekindled market participants’ concerns over the effects of so-called “net short debt activism” – the efforts of creditors who, despite holding a borrower’s debt, seem motivated to push the borrower into distress over covenant or other defaults.

On May 17, 2019, the Bankruptcy Court for the Southern District of New York announced that the Official Committee of Consumer Creditors (the “Consumer Committee”) appointed in the In re Ditech Holding Corp. bankruptcy case would not be disbanded. Ditech, supported by the ad hoc group of term loan lenders (the “Ad Hoc Group”), had filed a motion requesting that the Consumer Committee be disbanded or alternatively have a limited scope and budget. After receiving objections from the U.S.

Recently, the U.S. Court of Appeals for the 4th Circuit overruled its own precedent, holding that the plain language of the Bankruptcy Code authorizes modification of undersecured homestead mortgage claims—not just the payment schedule for such claims—including through bifurcation and cram down.