Articles Posted in Bankruptcy

In a dispute occurring as part of a South Florida bankruptcy case, a federal judge ruled against dismissing the case on account of the debtor’s bad faith in filing the Chapter 11 petition. The bankruptcy court decided, in refusing to dismiss, not that the debtor lacked bad faith but that dismissing the petition might possibly run contrary to the best interest of some of the debtor’s unsecured creditors, leaving dismissal as an unfair outcome for them.

The debtor who filed for bankruptcy in this case was a part-owner of commercial property in Miami. In 2010, the business filed a lawsuit against its bank, from which it had borrowed money repeatedly on a series of Small Business Administration loans. The bank later sued the business, and the bank won, receiving a damages award of $667,000 on Aug. 16, 2012. In a Feb. 2015 order, the court ordered the business to pay the bank $841,000 in attorney’s fees.

As part of this process, the business’ commercial property was ordered to be sold in a foreclosure sale. That sale was postponed twice. On the day before the third scheduled foreclosure sale, the business filed its petition for Chapter 11 bankruptcy. The debtor had a reorganization plan that involved renting space in its commercial property to a medical marijuana business.

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In almost any legal agreement, it is important to review and understand all of the terms of that agreement before you sign off on it. That’s because, once it is completed, you are legally bound by its terms and can create problems for yourself by not following it. This includes settlement agreements made relative to your creditor claim in a Chapter 11 case. For one South Florida creditor who settled but then violated the agreement’s terms, that meant being forced by the court to pay attorney’s fees.

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A case currently pending before the U.S. Supreme Court could have a massive impact on the future of Chapter 11 bankruptcy law. In the case, the bankruptcy court approved a settlement that allowed some creditors with inferior claims to obtain a recovery, while other creditors with superior claims got nothing. According to a New York Times report, the high court’s ruling “could upend the common practice that ranks lenders, employees and other creditors in order of priority as they try to recover their money when a company files for bankruptcy.”

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Filing for bankruptcy can potentially provide some important benefits for the entities that choose that path. One of these benefits is the automatic stay. The rules related to the automatic stay block the ongoing pursuit of almost all types of claims against a debtor, but not everything. One example of a claim that the automatic stay could not prevent from going forward emerged in a recent case before the U.S. District Court, Middle District of Florida. In that case, the District Judge ruled that the U.S. government could continue its pursuit of the debtor because its action under the False Claims Act fell under the “police or regulatory” exemption to the automatic stay.

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In the latest chapter of a long-running dispute between the federal government and a Tampa Bay-area nursing home, the 11th Circuit Court of Appeals upheld the decision of a district court, which concluded that the protections afforded debtors in Chapter 11 bankruptcy cases do not allow the nursing home to escape the consequences of a U.S. Department of Health and Human Services decision to terminate its Medicare provider agreement with the facility. The result offers an illustration that Chapter 11 protections can be very valuable benefits, but bankruptcy protection only goes so far.

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