Debtors beware: The Sixth Circuit Court of Appeals has recently expanded the ability of parties to appeal a bankruptcy court's approval of a sale of assets notwithstanding the statutory mootness rule set forth in section 363(m) of the Bankruptcy Code.

The U.S. Supreme Court has held that the filing of a proof of claim in bankruptcy proceedings with respect to time-barred debt is not a “false, deceptive, misleading, unfair, or unconscionable” act within the meaning of the Fair Debt Collection Practices Act (“FDCPA”) when there continues to be a right to repayment after the expiration of the limitations period under applicable state law. The Court’s decision in Midland Funding, LLC v.

In re: Linear Electric Co., Inc., No. 16-1477, 2017 U.S. App. Lexis 5527 (3d Cir., March 30, 2017)

The Bankruptcy Code (“Code”) “requires the use of replacement value rather than a hypothetical [foreclosure] value … that the reorganization is designed to avoid,” held a divided U.S. Court of Appeals for the Ninth Circuit on May 26, 2017.

“You have been served” – the famous phrase uttered by process servers everywhere, may never be heard by a bankruptcy defendant.

Why?

The United States Supreme Court recently held that a creditor who files a bankruptcy claim on a time-barred debt does not violate the Fair Debt Collection Practices Act (“FDCPA”). SeeMidland Funding, LLC v. Johnson, 137 S. Ct. 1407 (2017). In the case, the debtor filed for bankruptcy under Chapter 13 of the Bankruptcy Code, and the creditor filed a proof of claim asserting that it was owed credit card debt. However, the credit card had not been used in over ten years, outside Alabama’s six-year statute of limitations.

“… [A]ny sale of [a foreign] debtor[’s] property [in the U.S.] outside of the ordinary course of business can be approved by the bankruptcy court only after notice, hearing, and a finding of good business reasons to permit the sale,” held the U.S. Court of Appeals for the Second Circuit on May 22, 2017. In re Fairfield Sentry Ltd. (“Sentry II”), 2017 U.S. App. LEXIS 8860, at *11 (2d Cir. May 22, 2017).

“[T]he debtor … did not retain sufficient rights in the assigned rents under Michigan law for those rents to be included in the bankruptcy estate,” held the U.S. Court of Appeals for the Sixth Circuit on May 2, 2017. In re Town Center Flats LLC, 201 U.S. App. LEXIS 7733, *2 (6th Cir. May 2, 2017). Relying on Michigan law and the language of the relevant documents, the court reversed the bankruptcy court’s holding that gave the Chapter 11 debtor access to the assigned rents as operating funds during its reorganization.

Relevance

Published in the Spring 2017 issue of The Bankers' Statement)

In a continuing effort to alert our lender clients and other friends to developments in the bankruptcy, restructuring, workout and creditors’ rights space, provided below is a summary of recent noteworthy court decisions.

Supreme Court Limits Priority-Skipping Structured Dismissals in Chapter 11

In a 5-3 decision written by Justice Stephen G.