When a creditor is the target of a bankruptcy trustee or debtor’s claim to take back money paid before bankruptcy on a legitimate debt, it’s bitter justice. The concept is fair enough: pulling funds back into the bankruptcy estate so they can be redistributed to creditors in accordance with the Bankruptcy Code’s priority scheme and on a pro rata basis. In practice, though, it’s hard to see the fairness of giving back money you were entitled to receive. Two statutory amendments that will take effect in late February of 2020 have the potential to put a damper on some preference claims.

The U.S. Court of Appeals for the Third Circuit recently held, in a case of first impression in that circuit, that a secured creditor’s failure to turn over collateral repossessed prior to the filing of the bankruptcy petition does not violate the automatic stay.

A copy of the opinion inIn re Denby-Peterson is available at: Link to Opinion.

The Bankruptcy Code gives a trustee powers to avoid certain pre-bankruptcy transfers of the debtor’s property to other entities. For example, a trustee can avoid transfers made with the intent to impair the ability of creditors to collect on their debts. 11 U.S.C. § 548(a)(1)(A). The Code gives the trustee the power to recover the transferred property from the initial recipient, and also from subsequent recipients, “to the extent the transfer is avoided.” 11 U.S.C. § 550(a).

On October 7, California Governor Gavin Newsome signed SB 616 into law. This new law, which goes into effect on September 1, 2020, includes changes to California law regarding garnishments.

It has long been the law that creditors are rarely entitled to contractually prohibit a debtor from filing for bankruptcy, whether such restriction is contained in the debt instruments or in the corporate governance documents. In contrast, governance provisions which condition a bankruptcy filing on the vote or consent of certain equity holders that are unaffiliated with any creditor are frequently enforced. Many equity sponsors, for example, wear two hats: they are both shareholders and lenders to their portfolio companies.

The U.S. Court of Appeals for the Fifth Circuit recently affirmed a bankruptcy court order denying a bank’s motion to compel arbitration, holding that when a debtor seeks to enforce a discharge injunction, a bankruptcy court may decline to compel arbitration because it implicates a bankruptcy court’s ability to enforce its own orders.

A copy of the opinion in Henry v. Educational Financial Service is available at: Link to Opinion.

The Consumer Financial Protection Bureau published its quarterly consumer credit trends report on September 25. In the Report, the CFPB gave an in-depth look at bankruptcy trends and the impact of filing for the period 2001-2018, which includes the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and the Great Recession.

On September 11, 2019, the Delaware district court affirmed the bankruptcy court’s decision to expunge a proof of claim filed by a claims trader in the Woodbridge Group of Companies, LLC bankruptcy case.

The U.S. Court of Appeals for the Seventh Circuit recently reversed a bankruptcy court’s ruling that a lender failed to perfect its security interest because its UCC financing statement failed to provide sufficient indication of the secured collateral under Article 9 of the Uniform Commercial Code.

In 1930, Clarence Bennett’s wealthy uncle died. He left behind shares in Berry Holding Company ("BHC") that were subdivided into three groups. Bennett was the beneficiary of dividends paid out of one of these groups and, for many years, received his share of dividends from BHC. In 1986, BHC became Berry Petroleum Company ("BPC"), a publicly traded company, and Bennett’s interest changed.