Summary:
The bankruptcy court denied a motion to dismiss two chapter 11 cases, which had employed the infamous 'Texas Two Step" to address (avoid? skirt?) liability for asbestos mass torts claims, holding that :
- The lack of “financial distress” does not divest the court of subject matter jurisdiction, and
- There is no violation of the Bankruptcy Clause of the Constitution when the debtor has no “financial distress.”
Finding “no provisions in the Bankruptcy Code evidencing a congressional intent to impose a jurisdictional insolvency or ‘financial distress’ requirement to file bankruptcy”, the constitutional challenges were “not challenges to the Court’s subject matter jurisdiction.”
Commentary:
Leaving the Chapter 11 commentary to others more well versed there, but solvent debtors (particularly in states with terrible homestead exemptions like North Carolina) are not at all uncommon in Chapter 13 cases. And while certainly most of those are facing "financial distress", whether being cash poor despite having non-liquid assets, facing foreclosure, to provide for an orderly and controlled payment of debts or for a host of other reasons and tools available only in bankruptcy.
To read a copy of the transcript, please see:
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