While significant energy here at the Bankruptcy Cave is devoted to substantive bankruptcy matters, not all aspects of a general insolvency practice are always fun and litigation. Oftentimes insolvency lawyers add the most value by helping clients avoid a bankruptcy filing, or by successfully resolving a case through a consensual transactional restructuring.

(7th Cir. Jan. 30, 2017)

Wednesday, February 1 brought a welcome development for the many correspondent lenders currently defending against claims filed by (or threatened with future lawsuits by) Residential Funding Company (“RFC”) and its successor-in-interest, the ResCap Liquidating Trust (“ResCap”).

Why are so many chapter 11 retailers squeezed into liquidation?

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?

(Bankr. E.D. Ky. Feb. 2, 2017)

The bankruptcy court enters summary judgment in favor of the plaintiff trustee. The trustee sought to obtain title to a truck sold to the debtor prepetition by the defendant dealer. The dealer had not provided a certificate of title, but the debtor did receive physical possession of the truck pursuant to a bona fide sale. The court finds in favor of the trustee after applying Kentucky’s comprehensive automated motor vehicle registration and titling system contained in KRS §§ 186A.010-186A.990. Opinion below.

Judge: Schaaf

(Bankr. W.D. Ky. Feb. 1, 2017)

The bankruptcy court denies the creditor’s request for default rate interest on the secured claim. The value of the real property securing the claim was in excess of the claim amount. Case law establishes that there is a presumption in favor of the contractual rate of interest, but it is subject to rebuttal when evidence establishes the default rate is significantly higher without justification. Here, the default rate doubled the non-default rate and the court finds there was no justification under the evidence presented. Opinion below.

(6th Cir. B.A.P. Feb. 2, 2017)

The Sixth Circuit B.A.P. affirms the bankruptcy court’s judgment in favor of the plaintiffs in the nondischargeability action. Collateral estoppel prevented the debtor from defending against the claim that the debt arose from fraud and a willful and malicious injury. A Tennessee state court had entered a default judgment against the debtor that included specific factual findings that established a claim for nondischargeability under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6). Opinion below.

Judge: Opperman

(Bankr. S.D. Ind. Feb. 2, 2017)

The bankruptcy court makes additional findings of fact following the appeal and remand. The court’s original judgment stands, as the court concludes again that the plaintiff failed to prove that the debtor should have known of the fraud committed with his accounts. Opinion below

Prior opinion summary: click here

Judge: Carr

Bankruptcy & Corporate Restructuring Bulletin

On January 30, 2017, Louisiana Medical Center and Heart Hospital, LLC, a 132-bed acute-care hospital located in the heart of St. Tammany Parish in Lacombe, Louisiana, filed for bankruptcy. As reported in papers filed with the bankruptcy court, Louisiana Medical failed in its effort to sell its hospital as a going concern prior to commencing its bankruptcy case and is now swiftly winding down its operations due to continuing losses.