A corporation ordinarily is not liable for the debts of other entities or for the debts of its owners in the absence of an express agreement, such as a guarantee. However, a creditor of one company may try to impose liability on one or more non-debtor entities under “alter ego” or “successor liability” theories in certain circumstances.

Earlier this week, the U.S. Supreme Court held that a creditor who deliberately files a bankruptcy proof of claim for a time-barred claim does not violate the Fair Debt Collection Practices Act (FDCPA). Midland Funding v. Johnson, No. 16-348, 581 U.S. __ (May 15, 2017) (slip op.). The 5-3 decision authored by Justice Stephen Breyer was met with a blistering dissent by Justice Sonia Sotomayor. While the decision will help unscrupulous debt collectors, it will likely hurt legitimate creditors such as banks.

In chapter 11 bankruptcy cases, it is not uncommon for secured parties/lenders to provide a “carve-out” for various professional fees. Frequently there may be a “carve-out” for “all chapter 11 professionals” or the “carve-out” may be broken out in different amounts for the debtor’s professionals as opposed to, for example, Creditors’ Committee professionals. These “carve-outs” can often be in a Cash Collateral Order (assuming the debtor is using the secured party’s collateral) or in a DIP Order (debtor-in-possession financing). So what does a carve-out mean?

In a recent decision, the United States Bankruptcy Court for the Eastern District of Massachusetts sent a reminder to practitioners and family business owners that it is critical to maintain corporate formalities in order to avoid unintended liabilities. In the case of In re Cameron Construction & Roofing Co., Adv. P. No. 15-1121, 2016 WL 7241337 (Bankr. D. Mass. December 14, 2016), the Bankruptcy Court applied the concept of substantive consolidation and made the assets of a non-bankrupt related entity available to creditors in the bankruptcy proceeding.

In a win for secured creditors, the Ninth Circuit Court of Appeals recently held that a debtor who sought to cure a pre-petition default of its loan through its Chapter 11 plan must pay the default rate of interest set forth in the note. In Pacifica L 51 LLC v. New Investments Inc., the debtor proposed to pay the outstanding amount due under the note at the pre-default interest rate.

Your business real estate may not be safe from a separate, but related, company’s bankruptcy.

Massachusetts bankruptcy courts have invalidated mortgages containing defects, including the failure of lenders to observe strict formalities in the execution of mortgage acknowledgements. See our prior post on this very topic at Lender Beware: The Tragic Consequences of Defective Mortgage Acknowledgements.

You might wonder whether lenders can enforce a guaranty of a loan from an individual or entity that has no formal connection with the borrower, i.e. someone who is not an owner or affiliated company. Generally, the answer is yes with some qualifications for potentially insolvent guarantors discussed below. However, lenders are well-advised to take the steps outlined at the end of this post to minimize the risk of a subsequent challenge by the guarantor.

The Connecticut Appellate Court has weighed in on the topic of whether or not a lender foreclosing a mortgage in Connecticut must comply with the statutory process to make the administrator of the decedent a party to the action to ensure a proper judgment of foreclosure enter…sort of.

Imagine that you are an unsecured lender who has learned that a borrower has filed for bankruptcy and has little to no assets available to pay creditors. Is there any way to prevent your debt from being extinguished? This is a common question and often the answer unfortunately is no; however, if the debtor is an individual and the debt meets certain requirements established by the Bankruptcy Code, the court may declare the debt nondischargeable (in other words, the debt will remain with the debtor after the bankruptcy case is closed).