Category: Bankruptcy & Credit

Lender Alert: Bankruptcy Court Holds that Mortgage with Incorrect Legal Description is Avoidable in Bankruptcy
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Lender Alert: Bankruptcy Court Holds that Mortgage with Incorrect Legal Description is Avoidable in Bankruptcy | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov In a recent decision of consequence to mortgage lenders, the United States Bankruptcy Court for the District of Massachusetts concluded that a Chapter 7 Trustee may avoid a debtor’s mortgage and maintain it for the benefit of the bankruptcy estate. See Eastern Bank v. Benton (In re Thomas H. and Nancy C. Benton), 2016 WL 53581 (Bankr. D. Mass. Jan. 4, 2017). Simply put, the Bankruptcy Court held that, when a mortgage contains a correct street address but an incorrect legal description, the mortgage lien is avoidable by the bankruptcy trustee in his or her role as a hypothetical bona fide purchaser of a debtor’s property under section 544 of the Bankruptcy Code.

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An Unappealable Contempt Decision Providing Rachmones[1]
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An Unappealable Contempt Decision Providing Rachmones[1] | Wayne Greenwald

The American Bankruptcy Institute's ("ABI") VOLO Project had me synopsize the Second Circuit Court of Appeals' decision in U.S.A. v. Kerr-McGee Corp. (In re Tronox Inc.).[2] The sixty-two-page opinion boiled down to two "holdings."[3] They are:

a.) Claims derived through a debtor are bankruptcy estate property which only a trustee can assert;

b.) A District Court order on a contempt motion which:

1.) enforced an existing injunction; and

2.) made no contempt finding nor sanctions award was not a "final order"[4] subject to immediate appeal.

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Creditor Alert: Bankruptcy Judge Holds That Claim Filing Deadline Applies to Secured Creditors in Chapter 13 Cases
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`Creditor Alert: Bankruptcy Judge Holds That Claim Filing Deadline Applies to Secured Creditors in Chapter 13 Cases | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov

In an opinion dated February 6, 2017, the Bankruptcy Court for the Northern District of Ohio disallowed a mortgage servicer’s untimely proof of claim in a Chapter 13 case, holding that secured creditors are subject to the same 90-day deadline for filing proofs of claim as unsecured creditors. In re Dumbuya, 2017 WL 486917 (Bankr. N.D. Ohio Feb. 6, 2017). Read the full opinion here.

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Debt Cancellation – From the Frying Pan to the Fire?
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Debt Cancellation - From the Frying Pan to the Fire? | Wayne Greenwald

When you're floundering in debt, having some of it cancelled or forgiven sounds great. Be careful. You may be trading a junk-yard dog for Godzilla. To the Internal Revenue Service (the "IRS") forgiven debt creates Cancellation of Debt Income ("CODI").1 CODI is taxable unless the discharge:

(A) occurs in a bankruptcy case;

(B) occurs when the taxpayer is insolvent;

(C) is of qualified farm indebtedness;

(D) is of qualified real property business debt of anyone other than a C corporation; or

(E) is of debt from a qualified principal residence which occurred-

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Success Story: How Weltman & Moskowitz Bridged the Gap Between Mortgage Foreclosure and Chapter 13 to Successfully Protect Its Client’s Interests
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Success Story: How Weltman & Moskowitz Bridged the Gap Between Mortgage Foreclosure and Chapter 13 to Successfully Protect Its Client’s Interests | Michael L. Moskowitz

By Michael L. Moskowitz and Michele K. Jaspan

Our firm was tasked by one of our lender clients to file a residential mortgage foreclosure case in New Jersey after borrower’s failure to make mortgage payments. Borrower, assisted by a purported residential foreclosure defense expert, sought to place numerous roadblocks to the foreclosure action, including the filing of an answer containing the usual boilerplate meritless “defenses.” Ultimately, after extensive discovery and unnecessary litigation caused by borrower’s “scorched-earth” tactics, final judgment of foreclosure was rendered in favor of lender. Of course, this is not the end of the story, only the beginning.

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SCOTUS ALERT: Supreme Court Holds That Bankruptcy Courts Lack Power to Utilize Structured Dismissals in Violation of Priority Rules
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SCOTUS ALERT: Supreme Court Holds That Bankruptcy Courts Lack Power to Utilize Structured Dismissals in Violation of Priority Rules | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov

On March 22, 2017, the United States Supreme Court held that bankruptcy courts lack the power to dismiss chapter 11 cases by structured dismissal if they provide for distributions that do not adhere to the Bankruptcy Code’s priority rules without the consent of the affected creditors. Czyzewski et al. v. Jevic Holding Corp. et al. (Case No. 15-649) (Sup. Ct.).

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Bankruptcy Case Dismissals Negating Bankruptcy Stipulations
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Bankruptcy Case Dismissals Negating Bankruptcy Stipulations | Wayne Greenwald

Over one month ago, we had a big hearing in a big fight over the following facts:

A.) There was an adversary proceeding in a chapter 11 case ("Case 1").

B.) The adversary proceeding was settled during the chapter 11 case.1

C.) The non-debtor party defaulted under the stipulation.

D.) The chapter 11 case was dismissed without preserving any entered orders.2

E.) Two years later, the same debtor filed a chapter 7 case ("Case 2").

F.) The Case 2 chapter 7 trustee is suing for the debtor's rights under the Case 1 stipulation.

We say, "No way!" Why?

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Chapter 13 Alert: Lenders Must Confirm All Mortgage Payments Made By Borrower During Chapter 13 Plan
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Chapter 13 Alert: Lenders Must Confirm All Mortgage Payments Made By Borrower During Chapter 13 Plan | Michael L. Moskowitz

By Michael L. Moskowitz and Michele K. Jaspan

We previously reported about Lenders’ Chapter 13 obligations set forth in Bankruptcy Rule 3002.1, entitled Notice Relating to Claims Secured by Security Interest in the Debtor’s Principal Residence (click here). To reiterate, a mortgage lender must provide to debtor, debtor’s counsel, and the chapter 13 bankruptcy trustee, notice of any fees, expenses or charges incurred by lender in connection with its claim, following commencement of the chapter 13 case. In addition, lender must notify the same parties about any changes to the monthly mortgage payments which come due post-petition.

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Lender Alert: New Jersey Bankruptcy Court Allows Debtor to Strip Lien Securing Spousal Obligation
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Lender Alert: New Jersey Bankruptcy Court Allows Debtor to Strip Lien Securing Spousal Obligation | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov

On September 23, 2016, Bankruptcy Judge Christine M. Gravelle, U.S.B.J. held that a chapter 13 debtor may strip off a wholly unsecured lien on a primary residence where the debtor is the sole owner of the property, even if the non-debtor ex-spouse is liable on the debt which the debtor seeks to strip. In re Mensah-Narh, 2016 WL 5334973 (Bankr. D.N.J.. Sept. 23, 2016). Read the full opinion here.

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Diligence and Discharge
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Diligence and Discharge | Wayne Greenwald

Bankruptcy relief is not a sign of failure. It expresses hope. There is life after bankruptcy. Potentially, a better life. Bankruptcy discharges are "fresh starts" for individuals to build futures, where their pasts are not repairable. But, a debtor's past can prevent a bright, post-bankruptcy future. Dischargeability and Discharge Bankruptcy Code §§ 523 and 727 provide means for limiting or eliminating that fresh start. Section 523 identifies specific debts which can be excluded from discharge.

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Creditor Alert: Ninth Circuit Holds That Creditor Has an Affirmative Duty to File a Timely Proof of Claim to Participate in Chapter 13 Plan Distributions
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Creditor Alert: Ninth Circuit Holds That Creditor Has an Affirmative Duty to File a Timely Proof of Claim to Participate in Chapter 13 Plan Distributions | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov On October 27, 2016, the Court of Appeals for the Ninth Circuit held that a credit union’s proofs of claim were properly rejected by the Bankruptcy Court as untimely, and that the debtor’s acknowledgment of debt owed to the credit union in her bankruptcy schedules was not an informal proof of claim. In re Barker, 2016 WL 6276078 (9th Cir. Oct. 27, 2016). Read the full opinion here.

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Vendor Alert: Delaware Bankruptcy Court Upholds Creditor’s Reclamation Claim
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Vendor Alert: Delaware Bankruptcy Court Upholds Creditor’s Reclamation Claim | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov

Generally, the concept of “reclamation” protects vendors in Chapter 11 cases because it provides a way to either retrieve goods delivered to a debtor pre-petition or to recover the value of those goods. On August 24, 2016, Bankruptcy Judge Mary F. Walrath, sitting in the Bankruptcy Court for the District of Delaware, bolstered creditors’ reclamation rights when she overruled an objection to a vendor’s claim for reclamation under section 546(c) of the Bankruptcy Code. In re Reichold Holdings US, Inc., et al., 556 B.R. 107 (Bankr. D. Del. 2016). This decision marks a noteworthy success for vendors asserting reclamation rights under the Bankruptcy Code.

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LENDER ALERT PART II: Changes to New York Foreclosure Laws Effective December 20, 2016
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LENDER ALERT PART II: Changes to New York Foreclosure Laws Effective December 20, 2016 | Michael L. Moskowitz

By Michael L. Moskowitz and Michele K. Jaspan

In Part I we highlighted how the amendments to the NY Real Property Actions and Proceedings Law (“RPAPL”), which became effective on December 20, 2016, affect lenders duties and obligations with respect to vacant and abandoned properties in foreclosure. In Part II we will address how the RPAPL amendments impact the foreclosure settlement conferences and pre-foreclosure notices.

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LENDER ALERT PART I: Changes to New York Foreclosure Laws Effective December 20, 2016
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LENDER ALERT PART I: Changes to New York Foreclosure Laws Effective December 20, 2016 | Michael L. Moskowitz

On June 23, 2016, Governor Andrew Cuomo signed into law Chapter 73 of the Laws of New York 2016. We addressed the new law in a previous post which you can see here. We will address these changes in two separate blog posts. This first post addresses vacant and abandoned properties. Part II will address changes to foreclosure settlement conferences and the required pre-foreclosure notices.

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Creditor Alert: Supreme Court to Settle Circuit Court Split on Whether Filing a Stale Proof of Claim Violates the Fair Debt Collection Practices Act
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Creditor Alert: Supreme Court to Settle Circuit Court Split on Whether Filing a Stale Proof of Claim Violates the Fair Debt Collection Practices Act | Michael L. Moskowitz

We have previously reported on the interplay between the Bankruptcy Code and the Fair Debt Collection Practices Act (“FDCPA”), and the conflicting case law throughout the country regarding whether a creditor violates the FDCPA by knowingly filing a time-barred proof of claim in a bankruptcy case.

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CIRCUIT SPLIT: Tennessee District Court Holds That Tax Debt Resulting from Late-Filed Tax Return May be Dischargeable in Bankruptcy
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CIRCUIT SPLIT: Tennessee District Court Holds That Tax Debt Resulting from Late-Filed Tax Return May be Dischargeable in Bankruptcy | Michael L. Moskowitz

On September 9, 2016, District Judge Waverly D. Crenshaw, Jr., sitting in the United States District Court for the Middle District of Tennessee, held that a debtor’s tax debt relating to a late-filed tax return may be dischargeable in certain circumstances. Biggers v. Internal Revenue Service, 2016 WL 5121893 (M.D. Tenn. Sept. 9, 2016). Read the full opinion here.

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Lender Alert: Bankruptcy Judge Imposes Sanctions on Mortgage Servicer for Ignoring Bankruptcy Rules
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Lender Alert: Bankruptcy Judge Imposes Sanctions on Mortgage Servicer for Ignoring Bankruptcy Rules | Richard E. Weltman

On September 12, 2016, the Chief Bankruptcy Judge for the District of Vermont directed a mortgage servicer to pay $375,000 in sanctions for failing to adequately notify debtors before imposing certain post-petition mortgage account charges. The court relied upon Rule 3002.1 of the Federal Rules of Bankruptcy Procedure (“Rules”).  In re Gravel, 2016 WL 4765773 (Bankr. D. Vt. Sept. 12, 2016). Read the full decision here.

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Florida Bankruptcy Judge Expands Trustee’s Statute of Limitations to Ten Years
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Florida Bankruptcy Judge Expands Trustee’s Statute of Limitations to Ten Years | Michael L. Moskowitz

On August 31, 2016, Bankruptcy Judge Robert Mark, sitting in the Bankruptcy Court located in the Southern District of Florida, held that section 544(b) of the Bankruptcy Code permits a trustee to step into the shoes of the Internal Revenue Service (“IRS”) to avoid a transfer which occurred ten years prior to the petition date. Judge Mark held the trustee could avail himself of the IRS’s ten-year statute of limitations, rather than the three- to six-year period provided by most state statutes.Mukamal v. Citibank NA (In re Kipnis), 16-1045 (Bankr. S.D. Fla. Aug. 31, 2016).

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Weltman & Moskowitz Founding Partners Named Super Lawyers for 2016
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Weltman & Moskowitz Founding Partners Named Super Lawyers for 2016  | Richard Weltman

Weltman & Moskowitz, LLP is proud to announce that Richard Weltman and Michael Moskowitz have both been selected as Metro New York Area Super Lawyers for 2016. This is the third consecutive year each has been recognized as a top bankruptcy/debtor and creditors’ rights attorney. This honor is a product of a rigorous investigative process by the publishers of Law and Politics. Attorneys are selected based on professional accomplishments, licensing and certifications, peer recognition and personal achievement. The final published list represents no more than 5% of the lawyers in each state. The Super Lawyers objective is to create a credible list of outstanding attorneys, and the partners of Weltman & Moskowitz, LLP are proud to be recognized for their hard work and client dedication.

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Weltman & Moskowitz Founding Partners Named Super Lawyers for 2016
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Weltman & Moskowitz Founding Partners Named Super Lawyers for 2016 | Michael L. Moskowitz

Weltman & Moskowitz, LLP is proud to announce that Richard Weltman and Michael Moskowitz have both been selected as Metro New York Area Super Lawyers for 2016. This is the third consecutive year each has been recognized as a top bankruptcy/debtor and creditors’ rights attorney. This honor is a product of a rigorous investigative process by the publishers of Law and Politics. Attorneys are selected based on professional accomplishments, licensing and certifications, peer recognition and personal achievement. The final published list represents no more than 5% of the lawyers in each state. The Super Lawyers objective is to create a credible list of outstanding attorneys, and the partners of Weltman & Moskowitz, LLP are proud to be recognized for their hard work and client dedication.

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Lenders Beware: Bankruptcy Judge Orders Mortgage Lender to Pay $250,000 in Punitive Damages for $297.72 Stay Violation
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Lenders Beware: Bankruptcy Judge Orders Mortgage Lender to Pay $250,000 in Punitive Damages for $297.72 Stay Violation | Michael L. Moskowitz

In June, a Bankruptcy Judge for the Northern District of Ohio calculated $250,000 in punitive damages against a mortgage lender for violating the automatic stay by incorrectly filing a proof of claim on a car loan that had not been transferred to that lender. In re Mocella, 552 B.R. 706 (Bankr. N.D. Ohio 2016).

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Creditor Alert: Debt Collectors May Face FDCPA Liability for Filing Stale Bankruptcy Claims
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Creditor Alert: Debt Collectors May Face FDCPA Liability for Filing Stale Bankruptcy Claims | Michael L. Moskowitz

We’ve previously covered the interplay between the Bankruptcy Code and Fair Debt Collection Practices Act (“FDCPA”). Recent litigation has focused on debtor challenges to time-barred proofs of claim. This has resulted in conflicting statutory interpretation. In a recent decision, the United States Court of Appeals for the Eleventh Circuit held that debt collectors, defined as a type of creditor under the FDCPA, may face FDCPA liability for knowingly filing a time-barred proof of claim in a bankruptcy case. Johnson v. Midland Funding, LLC, 2016 WL 2996372 (May 24, 2016).

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CREDITORS TAKE NOTICE: Filing of Stale Claim in a Bankruptcy Case May Not Violate the Fair Debt Collection Practices Act
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CREDITORS TAKE NOTICE: Filing of Stale Claim in a Bankruptcy Case May Not Violate the Fair Debt Collection Practices Act | Michael L. Moskowitz

In a recent decision out of the United States Bankruptcy Court for the Northern District of Illinois, Judge Benjamin Goldgar dismissed Debtor’s adversary proceeding complaint in which the debtor alleged the debt collector violated the Fair Debt Collection Practices Act (“FDCPA”) by merely filing a proof of claim.  In re Murff, 2015 WL 3690994 (Bankr. N.D. Ill. June 15, 2015).

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Supreme Court Agrees to Resolve Circuit Split Regarding Structured Dismissals
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Supreme Court Agrees to Resolve Circuit Split Regarding Structured Dismissals | Michael L. Moskowitz

The United States Supreme Court (SCOTUS) has agreed to resolve another bankruptcy issue which has split the circuit courts. This time, the high court will address a chapter 11 reorganization issue. The most recent SCOTUS decisions have focused primarily on consumer bankruptcy issues.

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Lender Alert: New York Legislation Requires Lenders to Maintain Abandoned Homes Before Foreclosure
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Lender Alert: New York Legislation Requires Lenders to Maintain Abandoned Homes Before Foreclosure | Michael L. Moskowitz

On June 23, 2016, New York Governor Andrew Cuomo signed into law legislation which amends section 1307 of the New York Real Property Actions and Proceedings Law (RPAPL). The new law becomes effective 90 days from June 23, 2016. Section 1307 addresses the duty of a mortgagee, or its loan servicing agent, to maintain real property secured by a delinquent mortgage. Lenders will be subject to civil penalties of up to $500 per day for failure to maintain abandoned property once they become aware the property has become vacant. The old law required lenders to take responsibility following a foreclosure judgment which left hundreds of “zombie properties” across the state.

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SCOTUS: False Representation Now Unnecessary to Find Consumer Bankruptcy Fraud
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SCOTUS: False Representation Now Unnecessary to Find Consumer Bankruptcy Fraud | Richard E. Weltman

By Richard E. Weltman and Melissa A. Guseynov We previously reported on the split among the federal circuit courts of appeal concerning circumstances under which a debtor’s discharge with regard to a particular debt may be denied based on actual fraud if, prior to filing, the debtor transferred assets away from creditors without directly misleading them. In Husky International Electronics, Inc. v. Ritz, the United States Supreme Court settled the split of opinion among the lower courts, holding that debtor’s actual misrepresentation is not a necessary prerequisite to demonstrate “actual fraud” under section 523(a)(2)(A). Husky Inter. Elect., Inc. v. Ritz, 136 S.Ct. 1581 (2016).

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Bankruptcy Update: New Jersey Bankruptcy Judge Allows Debtor to Retain Inherited IRA
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Bankruptcy Update: New Jersey Bankruptcy Judge Allows Debtor to Retain Inherited IRA | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov In 2013 the Supreme Court held that funds held in an inherited non-spousal IRA were not exempt under Section 522 of the Bankruptcy Code. You can read our blog article on Clark v. Rameker here. However, in a New Jersey bankruptcy court decision handed down last month, Bankruptcy Judge Christine M. Gravelle held that an inherited IRA is not property of the debtor’s bankruptcy estate, regardless of whether it would be characterized as an exempt asset under the Bankruptcy Code.  In re Norris, 2016 WL 2989234 (Bankr. D.N.J. May 20, 2016).

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Bankruptcy Update: Seventh Circuit Holds That Tenant’s Pre-Petition Termination of Lease May be Voidable in Bankruptcy
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Bankruptcy Update: Seventh Circuit Holds That Tenant’s Pre-Petition Termination of Lease May be Voidable in Bankruptcy | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov On March 11, 2016, the Court of Appeals for the Seventh Circuit held that a tenant debtor’s pre-petition lease termination may be voidable as a fraudulent conveyance or a preferential transfer in the tenant’s subsequent bankruptcy case. In re Great Lakes Quick Lube LP, 816 F.3d 482 (7th Cir. 2016).

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Madoff Update: Mere Suspicion of Fraud Not Enough to Extend Trustee “Claw-Back” to Six Years
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Madoff Update: Mere Suspicion of Fraud Not Enough to Extend Trustee “Claw-Back” to Six Years | Michael L. Moskowitz

We have previously reported on Bernard Madoff’s massive Ponzi scheme and the resultant “clawback” lawsuits pending in the bankruptcy and district courts for the Southern District of New York. In a decision dated March 14, 2016, Bankruptcy Judge Stuart Bernstein granted partial relief to an investment fund seeking to dismiss a “clawback” lawsuit filed by Irving Picard, the trustee for Bernard L. Madoff Investment Securities, LLC (“BLMIS”).

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Bankruptcy Update: District Court Prohibits Chapter 13 Debtors From Compelling Mortgagee to Accept Title to Surrendered Property
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Bankruptcy Update: District Court Prohibits Chapter 13 Debtors From Compelling Mortgagee to Accept Title to Surrendered Property | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov We previously reported on In re Sherwood, a Southern District of New York bankruptcy decision, wherein the court held a debtor could not confirm a chapter 13 plan over a lender’s objection where the plan would vest title to surrendered property in the mortgagee without its consent. See In re Sherwood, 2016 WL 355520, at * 7 (Bankr. S.D.N.Y. Jan. 28, 2016).

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