Where a creditor has an unperfected lien (or an unrecorded mortgage) on a bankruptcy debtor’s property, the Bankruptcy Code empowers a trustee (or DIP, or entity that succeeds to the rights of a trustee or DIP) to avoid and preserve the lien for the benefit of the debtor’s bankruptcy estate. The trustee exercises this power through two strong arm provisions. First, the trustee may avoid the unperfected lien based upon its statutorily-granted status as judicial lien creditor or as bona fide purchaser of real property.  11 U.S.C. § 544(a)(1) & (3).   Second, […]

To purchase one’s collateral without cash. The term “credit bid” is a colloquial term (it does not appear in the Bankruptcy Code) for a secured creditor’s right to bid at the sale of its collateral and then, at closing, to offset the purchase price by the value of its outstanding claim secured by the collateral being purchased. This colloquial term aptly describes a secured creditor’s rights as articulated in section 363(k) of the Bankruptcy Code.  A creditor with an allowed secured claim may credit bid at a sale of its collateral […]

A bankruptcy case may be filed against a debtor under chapter 7 or 11 of the Bankruptcy Code.  The debtor may challenge the filing and the petitioning creditor(s) may have to post a bond to cover the debtor’s potential damages. If the debtor’s challenge succeeds, that petitioning creditor(s) may be liable for consequential or even punitive damages. If the debtor loses or does not make that challenge, an order of relief will be entered and the case will proceed as if it had been initiated by the debtor. To be […]

Adequate protection is relief, described in Bankruptcy Code section 361, that a debtor provides to a secured creditor. What is protected? The value of the secured creditor’s lien during the bankruptcy case. How is it protected? By the debtor making periodic payments or interest payments to the secured creditor; by the debtor granting secured creditor a replacement lien on other property; or by any other form determined by the court to be “adequate.” How can we tell that the protection is adequate? When it takes account of risks to the […]

A sale conducted per section 363(b)(1) of the Bankruptcy Code outside of the ordinary course of the business of the debtor, and not under any plan of reorganization. By a section 363 sale, a debtor (as DIP or via a chapter 7 trustee) may sell substantially all of its assets, or any part of its assets (e.g., a business line, a machine, intellectual property, etc.).  As occurred in the General Motors and Chrysler chapter 11 cases, a debtor may sell its business or part of it as a going concern.  Very […]

Upon the filing of a chapter 7 or a chapter 11 petition, a bankruptcy case starts.  With that start, a stop (or “stay”) is automatically imposed on creditor actions to collect debts from debtor or to control its property or operations – except within the bankruptcy case.  The foreclosure action, the collection calls, the post-judgment collection efforts, the perfection of security interests, and the acts to replace management per loan documents or bond indentures – all must cease.  If they do not, a debtor or trustee may seek relief (injunction, […]

In the context of a bankruptcy case, this refers to the date (set by the court) on or before which a proof of claim must be filed.  Otherwise, the claim may be barred and the claimant entitled to no distribution from a plan or from the proceeds of the liquidation of debtor’s assets.  Again, to distinguish this from the Match.com context, a creditor should not flirt with a bar date, but should compose its proof of claim and file it as soon as practicable, always keeping an eye on the […]

A potentially great information source for creditors, and possibly a chance for a DIP to re-assure creditors. Within a reasonable time after a bankruptcy case starts (including both chapter 7 and chapter 11 cases), the U.S. Trustee convenes a meeting of creditors and equity holders under section 341 of the Bankruptcy Code. A representative of the DIP or debtor is placed under oath and must answer questions posed by, among others, the creditors that are present.  The DIP or debtor is often made to explain why it filed and what it plans […]

Before the bankruptcy case, the creditor had a debt to collect, lawsuit, potential lawsuit, grievance, gripe about slow payment, mounting costs caused by debtor’s conduct or failure to act, or (and?) some other right to payment or other legal or equitable remedy that gives rise to a right to payment. The bankruptcy case begins, and now the creditor now has a claim.  The creditor pursues payment of the claim by filing a proof of claim with the bankruptcy court, then fighting off any objection, and then awaiting distribution under a chapter 11 […]

In large chapter 11 cases, the diffuse interests of a large number of creditors may be at stake. Bankruptcy law addresses potential collective action problems (see the brilliant  Mancur Olsen, Jr., The Logic of Collective Action: Public Goods and the Theory of Groups (1965)) by providing that the U.S. Trustee may appoint the membership of an official committee of unsecured creditors (often called “the committee”) having a fiduciary duty to all such creditors. The committee is usually composed of an odd number of the largest unsecured creditors that are willing to serve.  […]