The Court of Appeals for the First Circuit recently held that an oversecured lender holds at least an unsecured claim for contractual prepayment penalties against a solvent debtor. UPS Capital Business Credit v. Gencarelli (In re Gencarelli), 2007 BL 91656 (1st Cir., Aug. 30, 2007). As the court explained, "[t]his is a difficult question that has significant ramifications for the commercial lending industry." Id. at 16.

On June 16th, the Supreme Court of the United States issued a decision that is likely to have a significant impact on how debtors will sell assets in bankruptcy. InFlorida Department of Revenue v.

Resolving a split among various circuits, the United States Supreme Court has ruled that the exemption from state stamp taxes under section 1146(a) of the Bankruptcy Code does not apply to asset sales under section 363 of the Bankruptcy Code that took place before confirmation of a debtor’s chapter 11 plan—an event that may take months or years to accomplish.1

In the case of Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc.,¹ the United States Supreme Court ruled that the exemption from the payment of stamp taxes or similar taxes on transfers of property of a Chapter 11 debtor’s estate, contained in section 1146(a) of the Bankruptcy Code,² does not apply to transfers of property made before a Chapter 11 plan is confirmed.

The Court of Appeals for the Sixth Circuit became the first circuit court to rule on the issue of whether a bankruptcy court has authority to retain a case filed in improper venue. The Court found that a bankruptcy court may not retain jurisdiction on a case that was filed in an improper venue. In Thompson v. Greenwood, 507 F.3d 416 (6th Cir. 2007), the Sixth Circuit follows strict statutory construction in holding that where there is improper venue a bankruptcy court must dismiss the case or transfer it to a district where it could have been brought originally.

Debtors operating under Chapter 11 bankruptcy protection routinely sell some or all of their assets during the course of their bankruptcy case. As part of a bankruptcy court approved sale process, debtors often request that the court exempt such transfers from stamp taxes1 pursuant to Bankruptcy Code § 1146(a). The exemption generally reduces obligations encumbering a debtor’s property and allows for a greater portion of sale proceeds to be available for distribution to creditors.

Sales of assets under a confirmed plan in a Chapter 11 bankruptcy are exempt from transfer taxes. Many courts had interpreted the exemption broadly and applied the exemption to sales that occur during a bankruptcy, but before a Chapter 11 plan had actually been confirmed, so long as the sale was generally in furtherance of the ultimate goals of bankruptcy. The Supreme Court imposed a strict interpretation of the statute stating that transfer taxes must be paid unless the sale actually occurs pursuant to an already confirmed plan. Florida Department of Revenue v.

We previously posted on March 17, 2008 about a bankruptcy judgment in favor of a reinsured, Acceptance Insurance Companies, Inc. (“Acceptance”), which sought to be excused from the payment of $9 million in premium owed to its reinsurer for the remaining term of a five year contract because it had ceased writing the underlying crop insurance which was the subject of the reinsurance contract.

Last year, the Ninth Circuit BAP determined that the Bankruptcy Code does not permit a secured creditor to credit bid its debt, and purchase estate property free and clear of non-consenting junior liens, outside a plan of reorganization. Uncertainty resulting from the decision in Clear Channel Outdoor, Inc. v. Nancy Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008) may chill bidding and asset sales in the Ninth Circuit.

There is a sense of inevitability that Congress will pass legislation allowing a Chapter 13 bankruptcy plan (also referred to as a wage-earner’s plan) to "cram-down" the value of a mortgage on a consumer's principal residence to its market value and/or reset debtor interest rate and monthly payments to an amount that permits them to remain in their homes. This alert summarizes the latest version of H.R.