Tag: secured debt

4th Circuit: In re Jackson – Debtor is Entitled to the Full Means Test Deduction under National or Local Standard

Summary:

The Bankruptcy Administrator moved to dismiss the Debtors case arguing that on the Means Test they were limited to deduction of the lesser of either the actual mortgage and vehicle expenses or the amounts under the applicable National or Local standard. In affirming denial of this motion by the the bankruptcy court, the Court of Appeals held that based on the plan language of 11 U.S.C. § 707(b)(2)(A)(ii)(I) “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards.” 11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphases supplied). In addition to the unambiguous application of the statutory language, the Court held that a contrary result would create the absurd result of “punishing frugal debtors”, by encouraging them to incur secured debts up to the amounts under the standards.… Read More

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Bankr. E.D.N.C.: In re Garner- Security Interest in Property taken by Attorney for Debtor

Summary:

The Debtors paid their attorney $10,000 prior to filing Chapter 11 for pre-petition services, with nothing owed to the attorneys at the time of filing. In order to secure fees for services rendered during the pendency of the case, the Debtors granted their attorneys two future advance deeds of trust on tracts of land owned by the Debtors. The Bankruptcy Administrator objected to the application to employ the attorneys, asserting that the attorneys were not disinterested persons as defined in § 101(14) and as required by § 327(a). The bankruptcy court agreed that the attorneys were not disinterested and further found that the proposed fee arrangement rearranges the priorities set forth in § 507 and § 726(b), and effectively ensures that the attorneys would be paid over any other administrative creditor in the event that a trustee is appointed, the case converts to a Chapter 7, or the case becomes administratively insolvent.… Read More

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Law Review: Zhang, Wei-The Paradoxes of Secured Lending: Is There a Less Uneasy Case for the Priority of Secured Claims in Bankruptcy?

Abstract:

This paper is inspired directly by two articles coauthored by Professors Bebchuk and Fried, which comprehensively questioned the efficiency of the bankruptcy priority awarded to secured claims. It starts by pointing out the following efficiency benefit of such priority largely unmentioned in the legal literature, including the Bebchuk and Fried articles: the priority of secured debts undermines borrowers’ incentives to pursue excessively risky investment projects under certain circumstances. However, this additional benefit also exposes two interrelated paradoxes pertaining to the welfare effects of secured claims with bankruptcy priority. For one thing, while issuance of secured senior debts helps constrain over-risky investment incentives in some contexts, it nevertheless promotes this kind of incentives in others.… Read More

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