In a victory for secured lenders, the U.S. Supreme Court has ruled that a bankruptcy court may not extinguish a junior lien on a Chapter 7 debtor's property, even though the collateral has no value above the senior debt.
Yesterday the United States Supreme Court, in Bank of America v.
On June 1st, the Supreme Court of the United States released an opinion which settles a controversy in the lower courts over lien stripping in Chapter 7 bankruptcy cases. With Bank of America, N.A. v.
No matter your industry or line of business, insolvency is not a pleasant process. Debts stack up, paperwork starts flying back and forth, and creditors circle their wagons. But it may surprise even a seasoned corporate attorney when one debtor in particular comes calling: The federal government.
The law that makes it possible — and pushes Uncle Sam to the front of the creditor line — is the Federal Priority Act. The statute dates back centuries, but is little-known among today’s practitioners. And that’s not a good thing.
Section 506(a) of the Bankruptcy Code provides that a creditor’s claim is a “secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property”—that is, it is a secured claim for an amount equal to the present value of the collateral—and is an “unsecured claim” for the remainder. Section 506(d) provides that, “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.”
The Nutter Bank Report is a monthly electronic publication of the firm’s Banking and Financial Services Group and contains regulatory and legal updates with expert commentary from our banking attorneys.
Whether a provision in a bond indenture or loan agreement obligating a borrower to pay a “make-whole” premium is enforceable in bankruptcy has been the subject of heated debate in recent years. A Delaware bankruptcy court recently weighed in on the issue in Del. Trust Co. v. Energy Future Intermediate Holding Co. LLC (In re Energy Future Holdings Corp.), 527 B.R. 178 (Bankr. D. Del. 2015).
On May 6, 2015, the Court of Appeals for the Ninth Circuit considered whether so-called“Deprizio waivers,”1 where an insider guarantor waives indemnification rights against a debtor, can insulate the guarantor from preference liability arising from payments made by the obligor to the lender. The Ninth Circuit held that if such a waiver is made legitimately—not merely to avoid preference liability—then the guarantor is not a “creditor” and cannot be subject to preference liability.
Lenders take note—a state court has held that in some circumstances a refinancing transaction can extinguish an original guarantee.
The United States Court of Appeals for the Second Circuit on Aug. 30, 2007, affirmed the dismissal of a lender liability class action brought by employees of a defunct originator and seller of mortgages and home equity loans. 2007 U.S. App. LEXIS 20791 (2d Cir. August 30, 2007). Agreeing with the district court, the Second Circuit held that the lender was not an "employer" within the meaning of the Worker Adjustment & Retraining Notification Act ("WARN Act"), and thus was not liable to the employees for the sudden loss of their jobs. Id., at *2.