On June 14, 2016, Judge Thuma of the Bankruptcy Court for the District of New Mexico issued a memorandum opinion holding that a debtor could reject a prepetition settlement agreement that was determined to be executory in nature.

Reversing a bankruptcy court order in favor of the debtor, the U.S. District Court for the District of Maryland recently held that a bank that had allowed amounts to be withdrawn from a home equity credit line after the HELOC had been frozen could still recover those amounts from the debtor.

A copy of the opinion is available at:  Link to Opinion.

(Bankr. E.D. Ky. June 23, 2016)

The bankruptcy court applies Kentucky’s borrowing statute, KRS § 413.320, to determine the applicable statute of limitations for the debtor’s defamation, breach of contract, and fraud claims. The court analyzes where each claim accrued and dismisses some but not all of the debtor’s claims. Opinion below.

Judge: Wise

Attorney for Debtor: Dann Law Firm, Brian D. Flick

Attorney for Defendants: Christopher M. Hill, John R. Wirthlin, Frost Brown Todd LLC, Patricia K. Burgess, Stephanie Smiley

(7th Cir. June 23, 2016)

The Seventh Circuit reverses the bankruptcy court, concluding that the bankruptcy code permits modification of a confirmed Chapter 13 plan based on increased income post-confirmation. While the code does not expressly permit modification on this basis, other courts have permitted this. The trustee had filed a motion to increase the debtors’ plan payments based on an alleged $50,000 post-confirmation increase in the debtors’ annual income. Opinion below.

Judge: Adelman

Attorney for Debtor: Eugene Wedoff

In recent years, constructively fraudulent transfer claims asserted in bankruptcy cases, especially those arising from LBOs and similar shareholder transactions, have hit a major road block.

The U.S. Bankruptcy Court for the District of Delaware recently issued an opinion that addresses, among other issues, the question of whether section 546(e) of the Bankruptcy Code preempts certain fraudulent transfer avoidance actions brought under state law. In re Physiotherapy Holdings Inc., No. 15-51238 (Bankr. D. Del. June 20, 2016).

It is relatively rare when a Circuit Court issues an opinion on the preference defenses under section 547(c) of the Bankruptcy Code. It is even more unusual when a decision examines the fact-focused “ordinary course” defense under section 547(c)(2). The ordinary course defense shields payments determined to have been made in the “ordinary course of business” of both the debtor and the creditor.

Ever since the U.S. Court of Appeals for the Second Circuit decided Zeig v. Mass. Bonding & Insurance Co. in 1928, it has been well-settled that a policyholder can compromise a disputed claim with its insurer for less than the full limits of the policy without putting its rights to excess coverage at risk.

On May 16, 2016, the United States Supreme Court in Husky International Electronics v. Ritz held that the phrase “actual fraud” under section 523(a)(2)(A) of the Bankruptcy Code may include fraudulent transfer schemes that were effectuated without a false representation. Section 523(a)(2)(A) provides that an individual debtor will not be discharged from certain debts to the extent that those debts were obtained by false pretenses, false representations or actual fraud.

Section 523(a)(2)(A) of the Bankruptcy Code allows a creditor to obtain a judgment denying its debtor a discharge of debts incurred by false pretenses or actual fraud. However, if the debt itself was not incurred by actual fraud, but the debtor subsequently transfers his assets with the intent prevent its creditors from obtaining payment, may the creditor still obtain a judgment denying the debtor’s discharge under § 523(a)(2)(A)?

A debtor’s pre-bankruptcy repurchase of its stock for $150 million was not a fraudulent transfer because the debtor “could have sold off enough of its assets or alternatively obtained sufficient credit to continue its business for the foreseeable future,” held the U.S. Court of Appeals for the Second Circuit on June 15, 2016. In re Adelphia Communications Corp., 2016 WL3315847, *2 (2d Cir. June 15, 2016). Affirming the lower courts, the Second Circuit stressed that “the issue of adequate capitalization,” the “sole issue presented on appeal ...