It seems that most bankruptcy decisions by the U.S. Supreme Court involve individual debtors, and the Supreme Court’s latest opinion is no exception. Even though the decision is not in a business bankruptcy case, it examines the bankruptcy court’s powers under Section 105(a) of the Bankruptcy Code.
On March 4, 2014, the Supreme Court decided Law v.
Introduction
Stephen Law filed a chapter 7 petition in California. His only valuable asset was his home, which he scheduled at a value of $363,348. Washington Mutual Bank held a lien against the home to secure a loan in the amount of $156,929. Law asserted a homestead exemption under California law of $75,000. In order to prevent the bankruptcy trustee from selling his home, Law fabricated a second lien against his home which consumed his entire equity, and obtained the cooperation of a Chinese national named Lili Lin to assert that she was actually owed money by the debtor. 
The U.S. Court of Appeals for the Fourth Circuit, on Feb. 21, 2014, affirmed the dismissal of a bankruptcy trustee’s fraudulent transfer complaint against a “warehouse” lender who had been paid by a distressed home mortgage originator several months prior to the originator’s bankruptcy. Gold v. First Tennessee Bank, N.A., 2014 U.S. App. LEXIS 3279 (4th Cir. Feb. 21, 2014) (2-1). Affirming the lower courts, the Fourth Circuit held that “the bank accepted the payments” from its borrower “in good faith.” Id., at *2.
The debtor in Law listed his house on his bankruptcy schedules, claiming a homestead exemption in the amount of $75,000 under Cal. Civ. Proc. Code § 704.730(a)(1). The debtor represented that the house was encumbered by two liens: a note and deed of trust for $147,156.52 in favor of Washington Mutual Bank, and a second note and deed of trust for $156,929.04 in favor of “Lin’s Mortgage & Associates.” Based on these representations, the debtor made it appear as if there was no nonexempt value in the house that the trustee could realize for the benefit of the estate.
On March 4, 2014, the Supreme Court issued a unanimous opinion in Law v. Seigel, Case No. 12-5196, 571 U.S.
The Court of Appeals of Wisconsin, applying Wisconsin law, has held that a policyholder's bankruptcy did not relieve an insurer of its obligations to pay for "loss" under a policy endorsement that included a bankruptcy provision.Hollingsworth v. Landing Condos. of Waukesha Ass'n, Inc., 2014 WL 839244 (Wis. Ct. App. Mar. 5, 2014).
Bankruptcy court denizens, especially buyers of secured debt at a discount, were jolted by the recent Delaware Bankruptcy Court decision in In re Fisker Automotive Holdings, Inc. In that decision, the court capped at $25 million the amount a secured creditor was permitted to credit bid its $168 million claim at a bankruptcy Section 363 sale. The $25 million credit bid cap correlated to the amount the secured creditor paid for the debt. While Section 363(k) of the Bankruptcy Code permits a bankruptcy court to limit credit bidding “for cause,” the concerns he
First published in LES Insights