Amid the economic hardships brought upon us by the Great Recession, the plight of cities, towns, and other municipalities across the U.S. has received a significant amount of media exposure. The media has been particularly interested in the spate of recent chapter 9 bankruptcy filings by Vallejo, Stockton, San Bernardino, and Mammoth Lakes, California; Jefferson County, Alabama; Harrisburg, Pennsylvania; and Central Falls, Rhode Island. A variety of factors have combined to create a virtual maelstrom of woes for U.S.
On Dec. 4, 2012, the U.S. Court of Appeals for the 9th Circuit delivered its long-awaited decision in Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency, Inc.). The Bellingham decision effectively clears away much of the analytical underbrush that had surrounded—at least in the 9th Circuit —several important post-Stern v. Marshall questions.
In re 1701 Commerce, LLC, 477 B.R. 652 (Bankr. N.D. Tex. 2012) –
The capital stack for Presidio Hotel Fort Worth, L.P. consisted of (1) a senior loan of $39.6 million from Dougherty Funding, LLC, (2) a junior loan from Vestin Originations, Inc. and (3) a 20-year tax agreement with the City of Fort Worth pursuant to which the City made annual grant payments.
The trustee in the bankruptcy of an LLC member asked the Bankruptcy Court for a declaration that the LLC was dissolved pursuant to its operating agreement. The operating agreement mandated dissolution upon the bankruptcy of a member, but the court denied the trustee’s motion, relying on provisions in the Bankruptcy Act that trump contractual limitations. In re Warner, 480 B.R. 641 (Bankr. N.D. W.Va. Sept. 27, 2012).
Is a bankrupt pledgor legally bound to fulfill its promise to pledge a gift; or will a nonprofit have a successful claim against a pledgor if there is a subsequent failure to make payment because of a bankruptcy filing? A district court in Arizona recently held that St. Joseph's, a nonprofit hospital, did not have an enforceable claim in Bashas' Inc.'s bankruptcy for Bashas' $50,000 charitable pledge because of Bashas' bankruptcy. In re Bashas' Inc., 2012 WL 5289501 (D. Ariz. Oct. 25, 2012).
Particularly in the current economy, it is not uncommon for purchasers, anywhere along the supply-to-distribution chain, to claim financial distress and file for bankruptcy relief. How can a person or entity hope to collect on debts owed by a “bankrupt” purchaser? There follows a basic primer on bankruptcy terms and procedures, as well as steps an unsecured creditor may follow to be in the best position to collect on what is owed without incurring substantial attorneys’ fees.
A Primer
The ability of a trustee or chapter 11 debtor in possession (“DIP”) to sell bankruptcy estate assets “free and clear” of competing interests in the property has long been recognized as one of the most important advantages of a bankruptcy filing as a vehicle for restructuring a debtor’s balance sheet and generating value. Still, section 363(f) of the Bankruptcy Code, which delineates the circumstances under which an asset can be sold free and clear of “any interest in such property,” has generated a fair amount of controversy.
In re Creekside Senior Apartments, LP, 477 B.R. 40 (6th Cir. B.A.P. 2012) –
In valuing a bank claim secured by a low-income housing project for purposes of a plan of reorganization, should the remaining federal low‑income housing tax credits allocated to the project be taken into consideration? In Creekside the bankruptcy court said yes, and the bankruptcy appellate panel agreed.
Pension issues in the American Airlines (AMR) bankruptcy1 have resulted in the Internal Revenue Service (IRS) issuing new final regulations, effective November 8, 2012 (Final Regulations), which broadly impact all debtors facing underfunded pension plan obligations. The Final Regulations provide chapter 11 bankruptcy debtors facing distress terminations of their tax-qualified defined benefit pension plans with the additional option of amending the plans to eliminate accelerated payment options.