BankruptcyProf Blog

NACBA Program in Las Vegas Next Week

Save the Dates!
Fall 2007 Bankruptcy Workshop: A Sure Bet (Don’t Gamble With Your Practice)
Fall Workshop October 26-27, 2007
JW Marriott Resort, Las Vegas, NV

Course offerings include:

• A Mini-Boot Camp on Mortgage Issues featuring O. Max Gardner, III and John Rao
• Bankruptcy Basics for New Practitioners
• Hot Issues in Bankruptcy Law
• Consumer Law for Bankruptcy Attorneys
• Office Management and Technology
  and more.

Agenda:
Each day of the program will offer two tracks.  Members may select one track each day.  In addition, Friday's program will include a plenary session on Hot Issues in Bankruptcy Law.

Friday, October 26, 2007:
Consumer Law for Bankruptcy Attorneys
Office Management and Technology

Saturday, October 27, 2007:
Mini-Boot Camp on Mortgage Issues
Bankruptcy Basics for New Practitioners

Effect of Chapter 11 Post-Plan Confirmation Conversion to Chapter 7 on New Creditors?

I have a friend who represents a creditor.  The creditor seems to be screwed by Section 348.  What am I missing?

• Individual debtor filed chapter 11 pre-BAPCPA,
• Chapter 11 Plan was confirmed transferring all assets to himself as reorganized debtor,
• Confirmation Order says if case is subsequently converted to chapter 7, all assets of the estate return to the estate,
• Debtor of course ignores the confirmed plan and two years later the case is converted to chapter 7 pursuant to Section 1112,
• Creditor is a post-confirmation creditor,
• Section 348(d) says creditor's claim is treated as if it was pre-petition,
• Section 541(a)(6) says proceeds of property of the estate other than earnings of the individual are property of the estate, Section 541(a)(7) says property acquired by the estate is property of the estate.

It appears then that the debt is discharged but property acquired by this bad guy after confirmation of the plan cannot be taken by the chapter 7 trustee.  The debtor gets to keep it, no matter how much it is, but all the debts go away.

Can this be right?  what am I missing?

More on Big Case Forum Shopping

The Los Angeles Daily Journal yesterday had a front page article entitled "Bankruptcy Companies Turn to East Coast Courts."  It and a companion article discuss the recent bankruptcy filing of "Northern California logging giant Pacific Lumber Co."  The cause of its financial troubles according to Pacific Lumber was California's environmental restrictions.  Lots of litigation was pending in California. 

The chapter 11 was filed in the Southern District of Texas.  I'll bet you're asking, "Why Southern Texas?"  That is the location of a subsidiary of Pacific Lumber which filed first.  Of course the subsidiary was formed about six months before the filing and occupied a $500 a month office in Corpus Christi.  When creditors filed the motion to transfer the case to Oakland where it belonged, Judge Richard S. Schmidt, the sole bankruptcy judge in the district, denied the motion.  In fairness to him, he also granted relief to allow significant litigation to proceed in California saying that "It is unlikely that the bankruptcy court will be deciding the significant environmental and regulatory issues facing Pacific Lumber."      

Bankruptcy Jurisprudence from the Supreme Court - Long v. Bullard

Bankruptcy history told through Supreme Court decisions is fascinating to me.  A great example, is the comment I have made a million times to students, colleagues and certainly clients - "liens don't go away in bankruptcy."  I didn't realize myself until I started reading the Supreme Court opinions that that rule was set down by the Supreme Court 120 years ago in Long v. Bullard. 

Long v. Bullard,  117 U.S. 617 (1886)

Issue:  Does the bankruptcy discharge terminate the right of a secured creditor to foreclose its lien on the debtor’s exempt homestead?   

Held:   No, The rights of the secured creditor to foreclose its lien survive the discharge.  The homestead exemption does not change that result.         

Chief Justice Morrison R. Waite   

The debtor received a loan from Bullard in 1872 giving Bullard a lien on his home.  The debtor “was adjudged a bankrupt” in 1873 and received his discharge in 1874.  Creditor Bullard thereafter filed an action to foreclose his lien on the home.  The debtor defended on the basis that the debt was discharged and that the residence was exempt under the bankruptcy code.  He argued that the action “charging the property with the debt ‘is in violation of his discharge in bankruptcy,’” “in contravention and in violation of that act of congress” and “insisted that [his] homestead rights . . . were superior to the claim of Bullard under his conveyance, and that the property could not be sold to pay him.”  The court ruled in favor of the creditor giving him a judgment ordering foreclosure notwithstanding a state law defense of usury and the Court of Appeals affirmed. 

The Supreme Court affirmed also saying,
“[T]here cannot be a doubt of the correctness of the decision.  By section 5119 of the Revised Statutes the discharge releases the bankrupt only from debts which were or might have been proved, and by section 5075 debts secured by mortgage or pledge can only be proved for the balance remaining due after deducting the value of the security, unless all claim upon the security is released.  The dispute in the court below was as to the existence of the lien at the time of the commencement of the proceedings in bankruptcy.  That depended entirely on the state laws, as to which the judgment of the state court is final and not subject to review here.  The setting apart of the homestead to the bankrupt under section 5045 of the Revised Statutes did not relieve the property from the operation of liens created by contract before the bankruptcy.  It is not the decree in this case which constitutes the lien on the property, but the conveyance of Long and wife before the bankruptcy.”