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What is a “bona fide dispute”?

Two provisions of the Bankruptcy Code turn on the existence of a “bona fide dispute.”  An involuntary petition may not be filed by an alleged creditor against the alleged debtor if the creditor’s claim is “the subject of a bona fide dispute as to liability or amount.”  11 U.S.C. § 303(b)(1).  A trustee may sell property free and clear of an interest that is “in bona fide dispute.”  11 U.S.C. § 363(f)(4).  These disparate statutory...

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Chicago District Court Considered Non-Debtor’s Attempt to Extend Protection of Automatic Stay from the Los Angeles Bankruptcy Cases of Girardi and Girardi & Keese

By Michael G. D’Alba Introduction The automatic stay that arises in a bankruptcy case can be a heavy shield, but it generally only protects the debtor.  When a California attorney was recently sued in an Illinois district court, he tried to invoke the protection of the automatic stay from the Los Angeles bankruptcy cases of his former firm and its owner—Girardi & Keese and Thomas Girardi.  The attorney was not entitled to a stay under...

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Fraudulent Transfer Claim Defendant Obtains Insurance Coverage for Defending Claim

By Michael D’Alba Introduction A litigation trust tasked with prosecuting the debtor’s avoidance claims under a reorganization plan sued Verizon.  Verizon sought coverage from its insurers for defending against the trustee.  The insurers denied coverage.  After Verizon settled the avoidance claims by paying the trustee, it sued the insurers in the Delaware Superior Court.  The court determined that Verizon was entitled to insurance coverage under the policies. Facts In March 2008, Verizon Communications, Inc., transferred...

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Second Circuit Analyzes Concealment of a Debtor’s Beneficial Interest in Assets in the Name of Another Under Section 727(a)(2)(A): Gasson v. Premier Capital, LLC, 43 F.4th 37 (2d Cir. 2022)

By Shantal Malmed Brief Summary A creditor obtained judgment against the chapter 7 debtor for denial of the debtor’s discharge under 11 U.S.C. § 727.  On the first appeal, the district court affirmed.  On further appeal to the Second Circuit, the debtor challenged the court’s determinations that he had an interest in in an entity, that he concealed that interest with an intent to hinder creditors, and that the concealment occurred within the one-year statutory...

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Ninth Circuit to Consider Whether Mechanic’s Lien is Enforceable in Bankruptcy Case

By Michael G. D’Alba Introduction The filing of a bankruptcy case “operates as a stay . . . of . . . any act to create, perfect, or enforce any lien against property of the [bankruptcy] estate.”  11 U.S.C. § 362(a)(4) (emphasis added).  The Bankruptcy Code defines the term “lien” as an “interest in property to secure payment of a debt . . . .”  Id. at § 101(37).  However, there are also exceptions to...

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