Blogs

On January 18, 2015, Fox Rothschild's Delaware Bankruptcy Litigation blog published a post
"Caesars Bankruptcy: Illinois Bankruptcy Proceeding Stayed by Delaware Bankruptcy Court". 

The article reviews a situation where creditors filed a petition for an involuntary chapter 11 bankruptcy on January 12, 2015 against Caesars Entertainment in the Bankruptcy Court in Delaware and then three days later Caesars Entertainment filed a voluntary chapter 11 case in the Bankruptcy Court of the Northern District of Illinois.

The Delaware Bankruptcy Court referred to this as a situation of  "parallel proceedings." In its January 15, 2015 order, the Delaware Bankruptcy Court ordered that the proceedings in the Illinois Bankruptcy case be stayed,  except for certain first day motions, pending "issuance of an order determining, if necessary, the venue in which the Debtor's chapter 11 case shall proceed."

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Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com

Nearly a year ago, The Supreme Court held in Law v. Siegel (In re Law), No. 12-5196, 571 U.S. ___ (March 4, 2014), that despite a debtor’s misdeeds, the Bankruptcy Court still has to follow the Bankruptcy Code and can’t just dispense its own sense of justice ad hoc. This same reasoning was recently applied in a bankruptcy court case in California, In re Arellano, 517 B.R. 228 (Bankr. S.D. Cal. 2014), the bankruptcy court there followed the Supreme Court’s logic in affirming that a bankruptcy trustee can’t object to a debtor’s amended claim of exemption based merely on a claim of “bad faith,” just because the debtor failed to disclose the asset in his original filing. Following the Law case, the bankruptcy court reasoned, any exception to a debtor’s claimed exemption must be based in law, not simply the bankruptcy court’s own sense of equitable considerations. This case prompted me to go back and cover the Law case.
In the Law case, the Supreme Court held that just because a Chapter 7 Bankruptcy debtor has committed some pretty serious misdeeds, that does not give the Bankruptcy Court the authority to “surcharge” his homestead exemption. Seriously, though, folks, don’t try this at home. Sometimes it takes really bad facts to get good law. The Chapter 7 bankruptcy debtor in this case—on appeal to the Supreme Court from the Ninth Circuit—was about as unsympathetic a character as one might imagine. The debtor, whose name was actually Law (no kidding) filed Chapter 7 bankruptcy in 2004. The only significant asset was debtor’s home in Hacienda Heights, California, valued at $363,348. The debtor claimed his California homestead exemption, protecting $75,000 of any equity in the property. The property was also encumbered by a valid note and first deed of trust in favor of Washington Mutual in the amount of $147,156.52. Debtor also claimed a second note and deed of trust (recorded in 1999) in favor of a “Lin’s Mortgage & Associates” in the amount of $156,929.04.
However, the bankruptcy court found that this second deed of trust was a fiction, manufactured by the debtor. The Chapter 7 trustee brought an adversary proceeding to invalidate the second deed of trust as fraudulent. Proving that truth is often stranger than fiction, two—count ’em, two—separate individuals claiming to be “Lily Lin,” (the named beneficiary of the fraudulent deed of trust) answered the bankruptcy trustee’s complaint. The first was an acquaintance of the debtor who denied ever lending the debtor the money that was supposedly secured by the deed of trust. This first Lily Lin cooperated with the bankruptcy trustee detailing how the debtor had attempted to involve her in the fraudulent deed of trust years before. Take this as a lesson: the debtor evidently planned his bankruptcy fraud for a long time, having recorded the fraudulent deed of trust in 1999—five years before he filed his Chapter 7 bankruptcy. It didn’t matter. Never, and I mean never, try to pull one over on the bankruptcy trustee or the Bankruptcy Court.
The second “Lily Lin” who answered the bankruptcy trustee’s complaint was purportedly a resident of China who spoke no English, but who nevertheless litigated the adversary proceeding for five years until, in 2009, the Bankruptcy Court found that no such person had ever lent the debtor any money for the fraudulent deed of trust. The court further found that it was in fact the debtor who likely “authored, signed, and filed” the pleadings on behalf of this purported second “Lily Lin.” The five years of bankruptcy litigation cost the Chapter 7 bankruptcy trustee over $500,000 in attorneys’ fees.
When the debtor’s fictitious straw person finally lost at trial, the Bankruptcy Court then imposed a “surcharge” against the debtor’s $75,000 homestead exemption in its entirety to defray the Chapter 7 trustee’s legal expenses. On appeal, the Ninth Circuit upheld this surcharge citing Latman v. Burdette, 366 F. 3d. 774 (2004), which had recognized the court’s authority to surcharge a statutory exemption among the court’s equitable powers where the debtor had engaged in fraudulent conduct.
Now, everyone can readily agree that this case presents a dishonest bankruptcy debtor for whom we can muster little sympathy. But the particularly unsavory debtor and his actions aren’t what make this case important and good for bankruptcy debtors generally. Like I said at the outset, sometimes it takes bad facts to result in good law. The technical issue before the Supreme Court was whether the bankruptcy court has the authority to take away a Chapter 7 bankruptcy debtor’s statutory exemptions, such as the California homestead exemption. The Ninth Circuit had held that bankruptcy courts do have such authority under either 11 U.S.C. §105(a), which grants the court the authority to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the Code, or the “inherent power” recognized in another Supreme Court case, Marrama v. Citizens Bank of Mass, 549 U.S. 365, 375-376 (2007), to “sanction ‘abusive litigation practices.’” The question before the Supreme Court was whether either of these gave the Bankruptcy Court the authority to ignore the debtor’s rightful statutory exemptions and “surcharge” the debtor’s homestead exemption.
The Ninth Circuit Court of Appeals ruled that the Bankruptcy Code plainly makes a debtor’s exemptions “not liable for payment of any administrative expense” 11 USC §522(k). Neither Bankruptcy Code §105(a) nor the “inherent power” to sanction recognized previously by the Supreme Court may contravene a specific provision of the Code. “The Bankruptcy Court thus violated §522’s express terms when it ordered that the $75,000 protected by [debtor’s] homestead exemption be made available to pay [the Trustee’s] attorney’s fees, an administrative expense.” Section 522(k) “does not give courts discretion to grant or withhold exemptions based on whatever considerations they deem appropriate.” The trustee could have timely objected to the claimed exemption but failed to do so. The debtor could also be denied a discharge under §727 or sanctioned under Rule 9011 or even prosecuted criminally, but the Bankruptcy Court has no authority to impose a “surcharge” on a claimed exemption.
The Law case has far reaching implications. At its core, it stands for the proposition that the bankruptcy court does not have the discretion to ignore the Bankruptcy Code or state law statutory exemptions available to every debtor, even unsavory ones.

If you ask any bankruptcy lawyer what they feel the best time is for filing bankruptcy, you’ll likely hear a resounding, “Now!” In truth, waiting around to file bankruptcy increases your risk for wage garnishments, lawsuits, auto repossession, and even foreclosure of you home. The New Year is here now, and there are many reasons […]
The post Reasons to File Bankruptcy at the Beginning of the New Year appeared first on Allmand Law Firm PLLC.

RadioShack Corp. is reportedly preparing to file for bankruptcy as early as February, according to a recent Wall Street Journal article.
Sources familiar with the situation spoke with the Wall Street Journal regarding the electronics chain’s recent financial situation. They confirmed a filing could come in the first week of next month.
Texas-based RadioShack is speaking with a private-equity firm that could potentially purchase its assets out of bankruptcy, according to the sources. However, these talks might not produce an agreement; sources stated RadioShack might attempt a traditional debt resolution method, such as bankruptcy.
The electronics chain has openly admitted it has been critically low on funds after posting losses in the last 11 quarters. RadioShack’s stock-market value has fallen to $50 million; on Wednesday, its shares dropped 13 percent to 41 cents each.
In December, RadioShack released a securities filing that warned it could be pushed into bankruptcy court if it was unable to raise new funds or receive assistance from lenders.
The securities filing reported RadioShack had $62.6 million as of November 1: $43.3 million in cash and $19.3 in borrowing accessibility.
Chief Executive Joe Magnacca unsuccessfully attempted to overhaul the company as a smartphone repair store. Almost three years of straight losses forced RadioShack to seek debt investors in order to stay in business.
RadioShack has been attempting to close 1,100 of its 5,000 stores since March 2014 but have failed to raise the funds to do so: only 175 stores have closed since the end of last October.
The 94-year-old chain began in the 1920s in Boston, first selling transistor radios and typewriters. The retailer became an American icon over the years but became irrelevant in recent years with the rise of technology and the internet.
As of late 2014, 24,000 people are employed by RadioShack.