(Bankr. W.D. Ky. Oct. 11, 2016)

On October 11, 2016, the United States Supreme Court granted certiorari in the matter of Johnson v. Midland Funding LLC, on appeal from the Eleventh Circuit Court of Appeals, in order to resolve whether a conflict exists between the Fair Debt Collection Practices Act (“FDCPA”) and the Bankruptcy Code. In Midland Funding, the appellate court found a debt collector to have violated the FDCPA by filing a proof of claim on time-barred debt in a Chapter 13 bankruptcy.

“Equitable mootness” prevented the U.S. Court of Appeals for the Sixth Circuit from “unravel[ing] the entire Plan, … forc[ing] the City [Detroit] back into emergency oversight, and requir[ing] a wholesale recreation of the vast and complex web of negotiated settlements and agreements.” In re City of Detroit, 2016 U.S. App. LEXIS 17774, *14, *17 (6th Cir. Oct. 3, 2016) (2-1).

CR&B Alert

Commercial Restructuring & Bankruptcy News

OCTOBER 2016, ISSUE 3

In This Issue:

Delaware and New York at Odds over Reclamation Claims--2

Second Circuit Sets Out Standard for Determining Scope of Free and Clear Provision in Sale Order Under Section 363(F)--2

Good Faith Filing Requirement Alive and Well in Involuntary Bankruptcy Cases--4

Unpaid Compensation Payable Exclusively in Stock Constitutes Equity, Not an Unsecured Claim--5

The U.S. Court of Appeals for the Eleventh Circuit recently held that the word “surrender” in the Bankruptcy Code, 11 U.S.C. § 521(a)(2), requires that debtors relinquish all of their rights to the collateral.

In so ruling, the Court ordered the borrowers to “surrender” their house to the mortgagee in a foreclosure action, and held that the bankruptcy court had the authority to compel the borrowers to fulfill their mandatory duty under 11 U.S.C. § 521(a)(2) not to oppose a foreclosure action in state court.

(6th Cir. Oct. 3, 2016)

The Sixth Circuit affirms the district court’s dismissal of the pensioners’ challenge to the confirmation order entered in the Chapter 9 bankruptcy case filed by the City of Detroit, Michigan. The pensioners filed the action to challenge the plan’s reduction of their benefits. The Court holds that the doctrine of equitable mootness applies. The pensioners did not obtain a stay, the plan has been substantially consummated, and many actions have been undertaken or completed under the plan. Opinion below.

Judge: Batchelder

(Bankr. S.D. Ind. Oct. 6, 2016)

While the frequency of Bankruptcy filings is unpredictable year over year, their presence is certain when pursuing subrogation claims. Now, throw into the mix an unsteady economy and the threat of a Defendant filing for bankruptcy is present. The Federal Bankruptcy Code provides for insurers to get around the automatic stay of a bankruptcy filing in certain situations. Below is a description of the three most commonly used sections to avoid the automatic stay in bankruptcy filings.

New legislation ratifies a receiver’s right to sell property free and clear of liens.

The U.S. Court of Appeals for the Ninth Circuit, in a case of first impression and the first published circuit court opinion to address the issue, recently held that each and every debt collector — not just the first one to communicate with a debtor — must send the debt validation notice required by the federal Fair Debt Collection Practices Act.