When businesses experience financial difficulties, it is very common for them to “rob Peter to pay Paul.” Occasionally, this takes the form of using taxes that have been withheld from employees’ paychecks to pay expenses instead of remitting those funds to the IRS. Of course, it is well known that even though such obligations are corporate, individuals within the corporation determined to be “responsible persons” will be personally liable for such taxes.

The United States Bankruptcy Court for the Eastern District of Michigan recently allowed a debtor to modify his confirmed Chapter 13 plan based upon a mistake by the debtor’s counsel. The result of the modification was to reduce the plan to 36 months from 60 and reduce the repayment to unsecured creditors by 80 percent.

A copy of In re Luman is available at: Link to Opinion.

For many litigants, the decision whether to prosecute or defend a lawsuit vigorously boils down to a rather basic calculus: What are my chances of success? What is the potential recovery or loss? Is this a “bet the company” litigation? And, how much will I have to pay the lawyers? In many respects, it is not all that different from a poker player eyeing his chip stack and deciding whether the pot odds and implied odds warrant the call of a big bet.

LevFin Quarterly

Editors' Welcome

Lender's Security Interest in Funds Lost Upon Transfer to Debtor's Counsel

The United States Bankruptcy Code, pursuant to 11 U.S.C. Section 502(b)(6), caps a landlord's claim in bankruptcy for damages resulting from the termination of a real property lease. See In re PPI EnterprisesU.S., 324 F.3d 197, 207 (3rd Cir. 2003). Under Section 502(b)(6), a landlord-creditor is entitled to rent reserve from the greater of one lease year or 15 percent, not to exceed three years, of the remaining lease term.

(Bankr. S.D. Ind. Feb. 15, 2017)

In In re NewPage Corporation, et al., Adversary Proceeding No. 13-52429 (Bankr. D. Del. Feb. 13, 2017), a Delaware Bankruptcy Court applied a unique defense to certain preferential transfers targeted by a liquidating trustee. The defense focuses on a commonly overlooked element of a preferential transfer, section 547(b)(5).

Preference 101

A deposit into a checking or savings account seems like a pretty straightforward and innocuous transaction–unless the customer files for bankruptcy, and the bankruptcy trustee starts looking for assets to recover. Bankruptcy trustees will seek to recover money that once belonged to the borrower under various theories including fraudulent conveyance, particularly if the debtor-bank customer was running some sort of Ponzi or investment fraud scheme.

(S.D. Ind. Feb. 17, 2017)

The district court affirms the bankruptcy court’s judgment in favor of the plaintiff trust. The bankruptcy court held that the trust could pierce the corporate veil and hold the debtor personally liable to the trust. The district court analyzes Indiana law on veil piercing and finds no error. Opinion below.

Judge: Young

Attorney for Debtor: Goering Law LLC, Wilmer E. Goering, II

Attorney for Plaintiff: Kroger Gardis & Regas LLP, David E. Wright