This morning, I presented, along with Judge Paul Bonapfel (Bankr. N.D. Ga.) and Rob Matson (a Sub V Trustee in the M.D. Ga.), the Subchapter V Update for the Middle District of Georgia Bankruptcy Law Institute. So, call me lazy, but it’s only fitting that we revisit Subchapter V issues based on this morning’s presentation. Click here for the prior Sub V quiz.

Click the image below to take the quiz. Have a nice weekend!

P.S. I’m happy to report that the average score on the September 9 “easy” quiz was 75% (the highest average to date).

Click here for prior quizzes.

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We’re on our firm retreat at Lake Oconee this weekend. Thus, I figured an “easy” quiz is appropriate for what I hope is an easy weekend for everyone. To guarantee it’s easy, I poured over the last 10 quizzes and selected prior questions that 75% or more of takers got right. Click the image below to take the quiz. Have a nice weekend and Go Dawgs!

Click here for prior quizzes.

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In this post, I’ll continue in my effort to provide, in a single post, short summaries of each month’s notable Subchapter V opinions from across the country. Rather than all-encompassing summaries, I’ll provide a roadmap of the issues and then you can click the opinions if you want to dig deeper. Here are the July 2023 Subchapter V opinions. Assuming my search was thorough enough, there were only two opinions in July:

Continue Reading Notable Subchapter V Bankruptcy Opinions: July 2023 Edition

Here’s this week’s Bankruptcy Quiz, with an emphasis on Chapter 5 avoidance actions. Click the image to take the quiz. Have a nice weekend!

Click here for prior quizzes.

If you enjoyed this post and would like to be the first to hear about new Bankruptcy Quizzes and other Chapter 11 updates, then you can subscribe to Plan Proponent via email here.

Here’s this week’s Bankruptcy Quiz, with an emphasis on consumer Chapter 7 issues.

Last Friday, we had our Annual Dinner for the W. Homer Drake, Jr. Georgia Bankruptcy American Inn of Court here in Macon at Capricorn Studios, which is probably most famous for The Allman Brothers Band (whose members were Macon natives), but if you follow bankruptcy, was the first Chapter 11 bankruptcy debtor in the Middle District of Georgia under the 1978 Bankruptcy Act. It was such a great idea by Inn Counselor Jenny Walker and her Executive Committee to choose such a cool dinner site!

Fittingly, Gus Small, a commercial bankruptcy legend in Georgia, spoke first, and told some great stories about the eight years or so, starting in the late 70s, when he was not only a bankruptcy attorney, but also Greg Allman’s personal attorney (after representing the Allman Brothers in Capricorn’s bankruptcy case). I was fortunate enough to sit at Gus’s table and hear more crazy stories about the Band and Greg (and Cher).

And then, after being introduced by our Inn President, Bankruptcy Judge Austin Carter, Prof.  Ishaq Kundawala spoke. Prof. Kundawala is the Associate Dean for Academic Affairs and has the Southeastern Bankruptcy Law Institute and W. Homer Drake Jr. Endowed Chair in Bankruptcy Law at Mercer Law.

He has been in the news lately because of the Consumer Bankruptcy Clinic that he started at Mercer Law and we were happy to hear him tell us all about it. The goal of the Clinic is to help consumer debtors in Middle Georgia who need Chapter 7 bankruptcy relief file their cases when they otherwise can’t afford it. The students in the Clinic, which is setup as a Spring externship at the Law School, act under the supervision of practicing attorneys. This year, those supervising attorneys were my friends Rob Matson and Alex Sanders. If I’m remembering correctly, the Clinic facilitated eight Chapter 7 bankruptcy cases, with Georgia Legal Services helping with client intake given the high demand for the Clinic’s assistance.

Professor Kundawala summarized it best when he was quoted in this article:

This is a serious access to justice issue with many people in our community . . . Oftentimes people find themselves in situations not of their own making — such as unexpected medical expenses, death of a family member or other circumstances — that prevent them from fulfilling their financial obligations. Our goal is to get our community members the help they desperately need. We want to bridge the gap that exists between people, lawyers and the justice system.

–Prof. Ishaq Kundawala

So in honor of this great Clinic and the eight cases that it helped file last Spring, here is an 8 question bankruptcy quiz that emphasizes consumer Chapter 7 issues. I tried to come up with real life questions that Prof. Kundawala’s students might face in the Clinic. And because Prof. Kundawala is a good friend of the blog and our biggest fan of the weekly quizzes, I’m making this week’s quiz open book. I promise I’m not trying to make these difficult!

Click the image to take the quiz. Have a nice weekend!

Click here for prior quizzes.

If you enjoyed this post and would like to be the first to hear about new Bankruptcy Quizzes, then you can subscribe to Plan Proponent via email here.

Picking up where I left off last month, I’ll continue my experiment of providing short summaries of each month’s notable Subchapter V opinions. Again, these are not going to be all-encompassing summaries. Rather, we’ll provide a roadmap of the issues and then you can click the cases if you want to dig deeper. Here are the June 2023 Subchapter V opinions:

1. In re Hillman (Bankr. N.D.N.Y. Jun. 2, 2023)

Hillman is yet another Sub V eligibility case. The debtor owned a 50% interest in two entities on the petition date and was in litigation in state court with her largest business creditor. That creditor raised the eligibility issue, arguing that the debtor was not “engaged in commercial or business activities” on the petition date because one entity was closed, her sole source of income was Social Security and an annuity payment, and the other entity was a hobby at best.

The court held that the debtor had satisfied her burden of establishing Sub V eligibility. First, it adopted what it described as the majority view that “engaged in” requires activity as of the petition date based on a totality of the circumstances, with “commercial or business activities” being read broadly in a debtor’s favor. And winding up counts even if the entity has ceased its traditional business operations. Thus, the pending litigation with the business creditor regarding the debtor and one of her entities was enough.

Second, the court addressed the difficult “Nexus Requirement” issue that we saw in some of the May 2023 opinions and it adopted the “seminal” In re Ikalowych case where the Colorado bankruptcy court determined that, under § 1182(1)(A), more than 50% of the debtor’s debts must arise from the specific activity that the debtor relies on for eligibility.

Because the debt in the state court litigation was more than 50% of her debts, the debtor also satisfied the Nexus Requirement.

2. In re 2 Monkey Trading, LLC (M.D. Fla. Jun. 12, 2023)

I almost didn’t cover this opinion because it’s merely a procedural development in an April 2023 opinion where the Florida court held that a § 523(a)(6) dischargeability action was not available against a non-individual debtor because § 523 applies to individuals, only. I believe Bill Rochelle covered that opinion in his daily email series but click here to read it.

In the June opinion, the bankruptcy court certified the § 523 issue for direct appeal because while there was already binding Eleventh Circuit authority that § 523 is not applicable to corporate debtors, the Eleventh Circuit issued that opinion before Subchapter V existed, such that there was not, under Rule 8006, at least one question of law controlled by the Eleventh Circuit or Supreme Court.

Note: The Fourth Circuit appears to be the only court that has taken the opposite view. Click here for an inventory of the cases on the § 523 issue in Subchapter V.

3. In re Macedon Consulting, Inc. (Bankr. E.D. Va. Jun. 14, 2023)

Macedon Consulting is a work flow solutions IT provider whose landlords moved for dismissal on Sub V eligibility grounds and on the allegation that Macedon filed in bad faith. I’ll focus just on the former, pure Sub V issue.

While the debtor scheduled its lease obligations based on its calculation of the capped rejection damages under § 502(b)(6), the combined uncapped lease obligations were over $14 million and exceeded the $7.5 million Sub V debt limit. Hence the eligibility dispute.

Were the liabilities merely contingent so as to avoid Subchapter V’s emphasis on noncontingent liabilities for the debt limit? Alternatively, what counted for the debt limit: the uncapped or the capped calculation of the lease liability?

On the first issue, the court determined that the lease liabilities were noncontingent because all events necessary to give rise to those liabilities occurred pre-petition and they didn’t depend on “some future extrinsic event.”

On the second issue, and using a similar rationale, the court determined that the full lease liability applied rather than the capped rejection liability because the capped rejection liability depended on a future, post-petition event (i.e., the debtor deciding to reject the leases and the court approving that rejection decision).

Thus, the court revoked the debtor’s Sub V designation (but didn’t dismiss the case).

4. In re Curiel (B.A.P. 9th Cir. Jun. 23, 2023)

Curiel is a lengthy Sub V plan confirmation opinion that justifies a separate post. However, I doubt I’ll come back to it separately because much of it is a mind-numbingly detailed and extremely case-specific review of the trial record on plan feasibility. That said, if you’re a lawyer with young associates or a judge with law clerks, then Curiel could be required reading on how a competent and fully engaged court evaluates feasibility evidence. It’s dense!

Here are the high points:

  • Feasibility findings get abuse of discretion review (but factual inferences about financial condition and future prospects get a little more deference with clearly erroneous review).
  • Modifying a secured debt (that is unrelated to a debtor’s residence) under §§ 1123(a)(5)(E) and (b)(5) (e.g., extending the repayment term) is permitted and is not the same as the more limited ability to cure a default under §§ 1123(a)(5)(G) and 1124(2)(A) (e.g., reinstating a debt).
  • For consensual Sub V plans, a debtor need only prove, under § 1129(a)(11), that the plan has a reasonable probability (but more than a mere possibility) of success.
  • However, in non-consensual Sub V cramdown plans under § 1191(b), the plan must be “fair and equitable” as to each class. And because § 1191(c)(3) requires that the debtor prove that (i) it will be able to make the plan payments or (ii) there’s a reasonable likelihood it can make them and the plan contains appropriate remedies, a court must make a more rigorous examination of feasibility under § 1191(c)(3) than it must make if only § 1129(a)(11) applies on the feasibility issue.
  • Interesting nuance that I’ve never thought of: While a debtor who owns property may opine as a lay witness to the property’s current value, it cannot opine as to future values without first establishing its expertise for such opinions.

Ultimately, the court reversed on the basis that the bankruptcy court’s feasibility findings were clearly erroneous because the budget, balloon payment, and value evidence was unrealistic, unsupported, and/or inadmissible.

5. In re Evergreen Site Holdings, Inc. (Bankr. S.D. Ohio Jun. 21, 2023)

Another eligibility opinion. The issue: Was the debtor a single asset real estate (SARE) debtor and, thus, ineligible for Sub V because its two real properties comprised a single property or single project? The court said “No” and permitted Sub V status.

First, the court adopted what it called the majority view that the debtor has the burden of establishing its Sub V eligibility.

Second, the court determined that Evergreen was not a SARE debtor and, thus, could proceed as a Sub V debtor. It starts by explaining that two or more properties are a “single project” and, thus, constitute SARE property when they’re “linked together in some fashion in a common plan or scheme involving their use.” The mere fact of common ownership or even a common border will not suffice. Rather, the common plan or scheme must govern the use.

For example, apartments, office buildings, shopping centers, and large resorts are usually SARE properties while two adjacent properties, with one rented and the other vacant, are not necessarily a SARE property. The determination is a factual one, with an emphasis on:

  • whether the properties are presently used in a common scheme/plan
  • the use of the properties
  • the circumstances surrounding their acquisition (including timing and funding)
  • the location and proximity of the properties
  • any plans for future development, sale, or abandonment

In this case, the debtor owned two adjoining parcels, the 80 Acre Parcel and the 60 Acre Parcel. The 80 Acre Parcel consists of a small mobile home park, a residential single-family home, a mobile home used as an office, and a zipline course. The 60 Acre Parcel is, other than a dormant paintball course used by a prior tenant, vacant land.

Ultimately, the court determined that the two parcels were not part of a common scheme because the 80 Acre Parcel was used for various unrelated purposes while the 60 Acre Parcel was altogether vacant and unrelated, with it being irrelevant what the debtor might let any of the 80 Acre tenants do on the 60 Acre Parcel in the future.

Thus, the debtor was not a SARE debtor and was otherwise eligible for Subchapter V.

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Here’s this week’s Bankruptcy Quiz, coming to you from ABI Southeast at Amelia. It’s only fitting then that this quiz focuses on session topics from this year’s seminar. Click the image to take the quiz.

Click here for prior quizzes.

If you enjoyed this post and would like to be the first to hear about new Bankruptcy Quizzes, then you can subscribe to Plan Proponent via email here.

Here’s this week’s Bankruptcy Quiz. In this quiz, I’m using or adapting questions from prior American Bankruptcy Board of Certification sample exams. Click the image to take the quiz.

Click here for prior quizzes.

If you enjoyed this post and would like to be the first to hear about new Bankruptcy Quizzes, then you can subscribe to Plan Proponent via email here.

Here’s this week’s Bankruptcy Quiz. In this quiz, I’ll test which of you read the “ABI Headlines Delivered” emails from John Hartgen. Click the image to take the quiz and have a great 4th of July Week!

Click here for prior quizzes.

If you enjoyed this post and would like to be the first to hear about new Bankruptcy Quizzes, then you can subscribe to Plan Proponent via email here.