Emory Bankruptcy Developments Journal

Volume 30Issue 2
The Eleventh Annual Emory Bankruptcy Developments Journal Symposium

Rewriting 11 U.S.C. § 523 (a)(16): The Problems of Delayed Foreclosure and Judicial Activism

Jeffrey S. Adams | 30 Emory Bankr. Dev. J. 347 (2014)

To protect the interests of homeowners’ associations and other housing communities in situations where their member homeowners have declared bankruptcy, § 523(a)(16) of the Bankruptcy Code excepts from discharge any “fee or assessment” that becomes due after the order of relief, as long as the debtor has a “legal, equitable, or possessory ownership interest” in the property. This section was intended to unify through legislation a split of authority deciding how to handle such postpetition fees. Given that the Code as written has failed to accomplish the unity sought in curing the split of authority, Congress should revisit not only its language but also the policy that informed the amendment. The nation’s economic realities have changed since the 2005 amendment was passed, and these changes have brought into sharp focus the problems with the exception as it currently applies.

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The Preclusive Effect of Disgorgement Orders in Non-Dischargeability Actions under § 523(a)(19)

Holly Baird | 30 Emory Bankr. Dev. J. 383 (2014)

In two cases recently decided by the Ninth and Tenth Circuits, the courts independently considered whether a disgorgement order levied by securities regulators against a debtor is excepted from statutory discharge under § 523(a)(19) of the Code. The issue split the panels in both cases, producing vehement dissents. In both circuits, the majority held that § 523 does not except a debt arising from a disgorgement order from statutory discharge under § 727 if the debtor has not been charged with or convicted of violating state or federal securities laws. Thus, a debtor’s obligation to disgorge funds acquired through the fraudulent activity of a third party is a dischargeable obligation in bankruptcy.

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Government Payments: When do They Become Property of the Estate?

Patricia Boxold | 30 Emory Bankr. Dev. J. 429 (2014)

Government payments received by a debtor postpetition are often tied to prepetition events, presenting the issue of whether a legal or equitable interest existed as of the commencement of the case under § 541 of the Bankruptcy Code. The Fifth, Eighth, Ninth, and Eleventh Circuits have held that a debtor has no legal or equitable interest in a government payment until the legislation authorizing the payment is signed into law. These decisions, however, failed to articulate a clear standard, as evidenced by recent case law.

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Per Se Bad Faith? An Empirical Analysis of Good Faith in Chapter 13 Fee-Only Plans

Alexander F. Clamon | 30 Emory Bankr. Dev. J. 473 (2014)

Section 1325(a)(3) of the Bankruptcy Code requires chapter 13 plans to be “proposed in good faith and not by any means prevented by law.” Section 1325(a)(7) requires that “the action of the debtor in filing the petition was in good faith.” Courts evaluate both good faith provisions through a subjective inquiry into the totality of the circumstances in each case, typically using similar factors in the analysis. Many jurisdictions provide a list of factors for this assessment. Courts caution that any list is non-exhaustive and should not limit the subjective nature of the good faith inquiry.

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Retaining the Hope That Rejection Promises: Why Sunbeam is a Light That Should Not Be Followed

Benjamin H. Roth | 30 Emory Bankr. Dev. J. 529 (2014)

Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC incorrectly altered the remedies available to a trademark licensee after a debtor licensor has rejected the license. Decided in July 2012, this decision by the U.S. Court of Appeals for the Seventh Circuit conflicts with decisions going back more than twenty-five years, when the U.S. Court of Appeals for the Fourth Circuit decided Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. During that span of time, licensees had a single remedy upon rejection of the license: damages in the way of an unsecured prepetition claim. Licensees were not granted specific performance, and were not permitted to continue using the trademark or retain any other rights under the license, save for the claim for damages. Congress had granted guaranteed specific performance to the licensee of a patent, copyright, or trade secret through 11 U.S.C. § 365(n). However, when Congress enacted § 365(n) in 1989, Congress explicitly and unequivocally excluded trademark licenses from the protection of that provision.

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Debtors as Predators: The Proper Interpretation of “A Statement Respecting the Debtor’s . . . Financial Condition” in 11 U.S.C. § 523(a)(2)(A) and (B)

Mallory Velten | 30 Emory Bankr. Dev. J. 585 (2014)

U.S. Courts of Appeals disagree on the correct interpretation of the phrase “statement respecting the debtor's . . . financial condition” as it appears in the exceptions to discharge in 11 U.S.C. § 523(a)(2)(A), the fraud provision, and § 523(a)(2)(B), the false written statement provision. Two major viewpoints have emerged—the strict and the relaxed. Under the strict interpretation, for the fraud provisions to apply, the statement must comprise the overall financial condition of the debtor. According to the relaxed interpretation, the debtor’s fraudulent assertion of ownership of only a single item of property constitutes a statement respecting the debtor’s financial condition. This Comment interprets § 523(a)(2) and concludes that the correct reading of “financial condition” is the debtor’s overall financial health—the view of the courts that have adopted the strict interpretation. This Comment further proposes adding a definition of “financial condition” to 11 U.S.C. § 101 to resolve the circuit split.

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