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Appellate court rules that subchapter V small business debtors don’t need to be for profit businesses

By Zev Shechtman In re RS Air, LLC, __ B.R. __, 2022 WL 1288608 (B.A.P. 9th Cir. April 26, 2022) Case Synopsis In order to qualify for small business reorganization under subchapter V of chapter 11 of the Bankruptcy Code, a debtor must be “engaged in commercial or business activities.”  In this case, the Bankruptcy Appellate Panel of the Ninth Circuit determined that a debtor does not need to have a “profit motive” in order...

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Bankruptcy Appellate Decision Subordinates Judgment Liens Under Section 510(b)

By Eric P. Israel and Alphamorlai “Mo” Kebeh Recently, the Bankruptcy Appellate Panel for the Ninth Circuit (the “BAP”) issued a ruling on an important issue.  In Kurtin v. Ehrenberg (In re Elieff), 637 B.R. 612, 2022 WL 832417 (B.A.P. 9th Cir. March 21, 2022), the BAP ruled that, when a claim is subordinated under Section 510(b), any judgment and other liens and encumbrances securing said claim are subordinated as well.  The BAP analyzed this issue...

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Subchapter V Debt Limit Likely to Sunset at the End March

The subchapter V debt limit is likely to revert to $2,725,625 on March 28, 2022. Hope remains that Congress will soon restore it to $7.5 million. By Aaron E. de Leest, Danielle R. Gabai, and Zev Shechtman On March 28, 2022, the provision in the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act,” which increased the eligible debt limit for subchapter V debtors to $7,500,000 will sunset, and the debt limit will...

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Recent Case Adds to Trend of Courts Allowing Bankruptcy Trustees to “Look Back” as Far as 10 Years to Avoid Transfers When the IRS is a Creditor

In the recent case of Mitchell v Zagaroli, 2020 WL 6495156 (Bankr. W.D.N.C. 2020), 2020 WL 6495156 (Bankr. W.D.N.C. 2020), the bankruptcy court ruled that a chapter 7 trustee under 11 U.S.C. § 544(b) could “step into the shoes” of the IRS as an actual creditor to avoid a fraudulent transfer of property occurring up to ten years prior to the petition date. Under section 544(b) of the Bankruptcy Code, the trustee of a bankruptcy estate...

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Debtors Beware: Exemption Planning in California Now Subject to Challenge

Nearly two decades after the Ninth Circuit ruled that debtors could protect their assets from creditors by converting them to exempt status before they file for bankruptcy, the Court of Appeals for the Second District of California has determined that such a transmutation may be challenged as a fraudulent conveyance under California law. In Nagel v. Westen, 59 Cal. App. 5th 740 (2021), Nicole Nagel (“Nagel”) received a 4.5 million dollar arbitration award against Tracy...

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