Blogs

By: Jonathan Grasso

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In Walden v. Walker (In re Walker),

[1]

the Eleventh Circuit Court of Appeals held that the bankruptcy court has the power to remove a trustee sua sponte.  In Walker, the elected Chapter 7 trustee filed a verified statement claiming she had no significant connection with any party of interest and testified that she had no relationship with the second largest creditor.

[2]

 The debtor moved for removal and the trustee responded by asserting that a debtor in an insolvent estate had no pecuniary interest and thus was not a party in interest and lacked standing to challenge the trustee’s appointment.

[3]

  The court found that she had lied under oath concerning her relationship with the creditor and removed her as trustee.

[4]

  On appeal, the Eleventh Circuit held that bankruptcy judges possess the power to remove a trustee for lying under oath, sua sponte, after notice and a hearing.

[5]

By: Elizabeth L. Anderson

St. John's Law Student

American Bankrutpcy Institute Law Review Staff

Rejecting the Second Circuit’s Wagoner

[1]

rule and agreeing with the First, Third, Fifth, and Eleventh Circuits, United States Court of Appeals for the Eighth Circuit held that the collusion of corporate insiders with third parties to injure the corporation does not deprive the corporation’s trustee of standing to sue third parties.

[2]

However, such a situation may give rise to the defense of in pari delicto barring the trustee’s action.

[3]

By: Paola Chiarenza

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Although the “means test” added by the 2005 BAPCPA amendments

[1]

was designed to ensure that chapter 13 debtors repay creditors as much as they can afford, the Bankruptcy Court for the Southern District of New York followed a plain language approach to hold that in determining a debtor’s disposable income the proper deduction is the full amount of the rental allowance set forth in the objective IRS Standards, even though the actual rental expense is lower.

[2]

  After surveying numerous approaches to addressing the section 1325 (b)(3) and section 707 (b)(2)(A)(ii)(I) directives regarding disposable income, the Court noted that there is “no clear consensus” as to whether the IRS Standard or a lower actual amount applies.

[3]

By: Elizabeth Filardi

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In Morris v. St. John National Bank,

[1]

the Tenth Circuit concluded that a bankruptcy trustee who successfully avoids a lien under the Bankruptcy Code does not automatically assume all the rights the original lienholder may have against the debtor.

[2]

Here, the debtors borrowed $3,050 from the bank, using their 1980 Pontiac Trans Am as security.

[3]

 On the date the debtors filed for bankruptcy, they still owed the bank $3,237.50 on the loan, but the fair market value of the car was only $2,000.

[4]

  The Trustee successfully avoided the bank’s lien on the car.  While §551 preserved the lien for the benefit of the estate,

[5]

the issue was whether bankruptcy law permitted the trustee to recover the full amount owed or whether the trustee was limited to the value of the bank’s security interest in the car itself.

[6]

  The Tenth Circuit concluded that a trustee who avoids a lien pursuant to 11 U.S.C §544 and preserves it under §551 is limited to the value of the lien and does not acquire the bank’s right to collect any debt amount beyond the value of the security interest.

[7]

Consequently, the trustee’s recovery was limited to the $2,000 value of the secured interest on the debtor’s car and could not recoup the full $3,237.50 value owed on the loan at the time of the bankruptcy filing. 

By: Seth Meyer

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In a major expansion of the use of mandatory mediation, the Michigan Bankruptcy Court ordered mediation of nearly 1170 preference actions filed in conjunction with Collin& Aikman’s

[1]

Chapter 11 reorganization plan.

[2]

In re Collins & Aikman Corp., 376 B.R. 815 (Bankr. E.D. Mich. 2007.  The court concluded that mediation “will promote the just, speedy and inexpensive resolution of these adversary proceedings.”

[3]

  The court went further and both required defendants to share the costs of mediation and provided for default judgment to be entered against parties failing to engage in the mediation process.

[4]