Blogs

By: Klevis Peshtani

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Does the equitable right of an individual, whose property has been damaged by the debtor’s pollution, to injunctive clean-up relief constitute a “claim” that may be discharged in the debtor’s Chapter 11 bankruptcy?  Yes, according to the Pennsylvania Bankruptcy Court, which in Krafczek v. Exide

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  held that individual plaintiffs who are not exercising the state’s police and regulatory powers, cannot qualify for the narrow exclusion that allows for state enforcement actions to survive a Chapter 11 bankruptcy discharge.

By: Brian Lacoff

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In a decision of importance to Chapter 13 debtors’ attorneys, the Bankruptcy Court for the District of New Jersey ruled that an undersecured creditor, Ford Motor Credit Co., was entitled not only to adequate protection payments, but that the section 507(b)

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“super-priority” status of the inadequate adequate protection provided during the case meant that the Chapter 13 plan had to pay those amounts before paying any of the debtor’s attorneys fees.

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Ford Motor Credit objected to the debtor’s Chapter 13 plan for failure to provide adequate protection payments, violating 11 U.S.C. §§ 361, 1325 and 1326.

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  The debtor modified the plan to include adequate protection payments, but objected to the creditor’s contention that those payments had super-priority over debtor’s attorney fees.

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  The court agreed with Ford Motor Credit, reasoning that the creditor, having a lien on the debtor’s property, must be afforded protection against the daily depreciation of its property.

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By: Joe Scolavino

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Although the Second Circuit generally treats severance payments as priority administrative expenses when employment is terminated during the employer’s bankruptcy,

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early retirement benefits triggered by severance are not entitled to administrative expense treatment.

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  In Supplee v. Bethlehem Steel Corp. (In re Bethlehem Steel Corp.) the early retirement withdrawal penalty was waived due to the employee’s termination.

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  The employee argued that the extra money derived from the waived penalty constituted a severance payment that was entitled to an administrative priority in the Bethlehem bankruptcy.

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  The court disagreed, reasoning that that the lump-sum retirement benefits for which the employee became eligible at termination did not constitute a new benefit earned at termination, and was thus not entitled to administrative priority.

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By: Robert Ryan

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Firmly adopting the “exclusive” view of claim objections, the Tenth Circuit Bankruptcy Appellate Panel in B-Line, LLC v. Kirkland

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held that a claim could not be disallowed under 11 U.S.C. § 502

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for failure to submit supporting documentation with a proof of claim since that is not one of the grounds expressly stated in the statute.

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  Although Federal Rule of Bankruptcy Procedure 3001 requires that supporting documentation be provided with a proof of claim,

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neither the Rule nor the statute clearly states what to do if a creditor fails to submit supporting documentation.

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 The court held that section 502(b) provided an exclusive list of reasons why a claim should be dismissed, reasoning that the “shall allow … except” command in section 502(b) and the absence of an expansive term like “including” indicated that the list was exclusive.

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  Since the Rules cannot modify substantive rights, technical defects in the proof of claim are not grounds for objection.

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By: James Lynch

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Although the Bankruptcy Abuse Protection Act of 2005 (“BAPCPA”) largely eliminated the so-called “ride through” option for security interests in personal property, the Connecticut Bankruptcy Court in In re Caraballo

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held that the option remains available for liens secured by real estate.  Under the ride through, a debtor whose real estate mortgage is not in default does not have to reaffirm the debt or surrender the real estate, but can retain the real estate by continuing to make the scheduled mortgage payments.

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  Thus, since the debtor in Caraballo was not in default, the Court disapproved the debtor’s mortgage reaffirmation agreement as not being in her best interests “because she could retain the subject real property without reaffirming the [d]ebt.”

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