The next time you negotiate a settlement payment with a financially troubled party, you may want to keep in mind an ancient term related to livestock herding: earmarking. The concept may be somewhat antiquated, but the Second Circuit has recently confirmed that it is still viable – and can help you keep the settlement payment if the other party later files for bankruptcy.

Reprinted with permission from the May 6, 2011 issue of The Legal Intelligencer © 2010 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

Over the last 12 months there has been a substantial increase in the number of preference recovery actions filed. The irony created by the current economic environment is that many such defendants are themselves financially distressed and unable to fully satisfy any judgment that might be rendered against them.

The making of a bankruptcy order alone will not deprive a judgment creditor of a final charging order where it is obtained before the bankruptcy order is made.

To avoid an asset reverting to a bankrupt after the end of his period of bankruptcy, the asset must be realised. An assignment of a beneficial interest for a future price does not amount to a realisation.

The courts have the power to and increasingly will make a civil restraint order where an individual persistently issues claims that are totally without merit.

Where the entirety of a debt is not included in an agreement to settle, a creditor can continue to prove in a bankruptcy for the balance.

Repossession of a bankrupt's property will be ordered unless there are exceptional circumstances making such an order inappropriate.

In Brittain v Haghighat, the only asset in the bankrupt's estate was the family home. One of the bankrupt's children was severely disabled with quadriplegic cerebral palsy, requiring continuous care. The trustee applied for an order for possession under s336 and s337 Insolvency Act 1986.

The absence of an intention to put assets out of the reach of creditors will thwart applications under the Insolvency Act to set declarations of trust or transfers aside.

In 7636156 Canada Inc. (Re)[1], the Ontario Court of Appeal ("OCA") confirmed the right of a commercial landlord to draw on a letter of credit given as security pursuant to a lease, even when the draw takes place after the termination of the lease by the tenant's trustee in bankruptcy.

The court will not assist a former bankrupt to enforce his interests under an unlawful trust where the purpose of the trust initially had been to deprive the trustee in bankruptcy of the bankrupt's interest.