Consumer Bankruptcy

By: Deanna Scorzelli

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In a novel approach, the Court uses the § 362(b)(11)

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exception from the automatic stay to insulate a consumer debtor from the trustee’s attempt to require her to “turnover” the amounts reflected by pre-petition checks and debits that were paid by her bank shortly after filing bankruptcy and thus were no longer in the account at the time it was remitted to the estate. In In re Minter-Higgins

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the Chapter 7 Trustee sought turnover from the debtor of money that had been in the debtor’s bank account at the instant of filing for bankruptcy. The debtor objected to the turnover, however, because she had issued checks and initiated debit transfers before filing for bankruptcy that were not honored by the bank until after the filing.  If the Trustee were successful in obtaining the turnover, the debtor would be liable to the estate for the amount of those items and effectively pay twice – once when the funds in her account were used to honor the check and debit transfers and a second time in response to the turnover. 

By: Christina Kormylo

St. John's Law Student

American Bankruptcy Institute Law Review Staff

The addition of section 1115 to the Bankruptcy Code by the 2005 BAPCPA amendments created an exception to the “absolute priority rule” for individual Chapter 11 debtors according to the bankruptcy court in In re Tegeder.

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  In Tegeder, the general unsecured creditor class did not accept the Chapter 11 plan proposed by an individual debtor who was engaged in business, thereby triggering the “cram down” provisions of 11 U.S.C. § 1129(b).

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 Although all other requirements for plan confirmation under section 1129(a) were met, the U.S. Trustee argued that the debtor, as a holder of interests junior to the dissenting class, could not retain any property pursuant to the absolute priority rule of section 1129(b)(2)(B)(ii).

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  The absolute priority rule, as amended by BAPCPA, states, “the holder of any claim or interest that is junior to the claims of such class will not receive or retain . . . any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115.”

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  Addressing the effect of the cross-reference to section 1115, the Tegeder court held that the absolute priority rule does not prevent a plan’s confirmation where both pre- and post-petition assets are retained by an individual debtor.

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  The court explained that the 2005 BAPCPA amendment and the addition of section 1115 created an exception to the rule, allowing an individual debtor to retain property included in the estate.

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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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