Section 303 of the Bankruptcy Code provides creditors with a mechanism to force a recalcitrant debtor into bankruptcy through the filing of an involuntary petition for relief. Pursuant to this section, an involuntary bankruptcy case may be commenced only under Chapter 7 or 11 of the Bankruptcy Code, and may only be brought against a person otherwise qualified to file a voluntary petition. Where the purported debtor has fewer than 12 creditors, the involuntary petition need only be filed by a single creditor.
I want to share with you a recent development in California asbestos litigation concerning bankruptcy trust disclosures. More specifically, Judge Elias, the Los Angeles Asbestos Supervising Judge, recently issued an order relating to disclosures of bankruptcy trust information.
When a consumer debtor files a bankruptcy petition, a notice is mailed out by the court to all of the debtor’s scheduled creditors. In most bankruptcy courts, the notice contains the debtor’s filing date, case number, and other pertinent information meant to aid a creditor in identifying the debtor. In addition, the notice typically contains several important dates and deadlines.
What’s the News?
A US Bankruptcy Judge recently approved the sale of a package of RadioShack’s intellectual property assets—including consumer data obtained from RadioShack customers—to General Wireless Inc., the hedge fund affiliate that acquired over 1,700 RadioShack stores in February. The sale was not without controversy.
Current market conditions are straining business relationships in the oil and gas industry. In a growing number of cases, distressed companies are seeking chapter 11 bankruptcy protection. In that event, a creditor-debtor relationship is formed between the bankrupt company and the performing partner. For example, in the context of a joint operating agreement, an operator (the performing partner) may seek to recapture drilling costs from a non-operator (the bankrupt company).
“In bankruptcy, as in life, timing can be everything” – the Fifth Circuit.
Jurisdiction of Bankruptcy Courts to Enter Final Judgment on “Stern Claims” Based on Consent of Parties Affirmed
The U.S. Supreme Court in Wellness Int’l Network, Ltd. v. Sharif1 explicitly affirmed the jurisdiction of Article I bankruptcy courts to issue final decisions on claims for which litigants are constitutionally entitled to Article III adjudication if the parties consent to the bankruptcy court adjudicating such claims.
On June 1, 2015, the United States Supreme Court in Bank of America, N.A. v. Caulkett, 575 U.S. ____ (2015), unanimously held that a Chapter 7 debtor cannot strip off wholly “underwater” liens secured by the debtor’s property. In Caulkett, the debtor’s property was subject to two liens when the bankruptcy case was commenced. Since the obligation owed on the first lien exceeded the value of the property, the second lien was underwater and therefore had no value.
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.”
A collective sigh of relief was the main effect of this week’s much-awaited Supreme Court decision on bankruptcy jurisdiction in Wellness International Network, Ltd. v. Sharif, No. 13-935, ___ U.S.___ (May 26, 2015, Sotomayor, J.). While a number of minor issues remain, the majority’s ruling that bankruptcy judges can issue judgments and final orders with the parties’ consent means that the current bankruptcy system can continue to function normally.