Banking Focus: Spring 2018

Banking Focus Newsletter

Substitution of judge – a right of delay? Maybe not.

In Illinois, parties to a lawsuit each have one right to substitution of judge (SOJ). While this right is liberally granted, it is not absolute. In recent years and as a result of the Great Recession, many troubled real estate investors have faced judicial foreclosure proceedings. In most of these cases, the defendants benefit from a delay in proceedings which allows them to retain the properties during the pendency of the foreclosure process.

While SOJs were not intended to delay proceedings, some defendants have exercised the right to simply buy additional time. The substitution process can take some time, depending on the courts caseload and administrative capacity.

In some cases, the SOJ tactic has been taken a step further. To read more, click here.

Third Circuit holds that vendor must have physical possession of goods for administrative expense priority claim pursuant to Section 503(b)(9) of the Bankruptcy Code

In a recent opinion, the Court of Appeals for the Third Circuit reversed the lower courts’ rulings by holding that a debtor “receives” goods for purposes of section 503(b)(9) of the Bankruptcy Code when the debtor obtains physical possession of those goods. In re World Imports, Ltd., read the full opinion here.

The Third Circuit examined section 503(b)(9) of the Bankruptcy Code, together with section 546(c) of the Bankruptcy Code and the correlating non-bankruptcy law. Section 503(b)(9) of the Bankruptcy Code provides vendors with an administrative expense priority claim for the value of goods received by a debtor during the 20-day period prior to the petition date.

As such, vendor claims that do not satisfy the conditions of section 503(b)(9) are usually regarded as general unsecured claims, thereby receiving only a pro rata share of the debtor’s unencumbered assets. Section 546(c) of the Bankruptcy Code provides that a seller of goods, with certain exceptions, may reclaim goods from a debtor if received while insolvent and within 45 days of the bankruptcy filing.

To continue reading about this issue, click here.

A lender’s dilemma: Redeeming property taxes during chapter 13 bankruptcies

When borrowers find themselves in significant arrears on their home mortgage and seek to restructure their debts in order to bring the loan current they will often file for chapter 13 bankruptcy protection. Under their bankruptcy plan they are given the opportunity to make monthly payments to the trustee over five years to pay off the arrearage, while at the same time making their current monthly payments directly to the lender.

Debtors also employ this tool to help them pay off sold property taxes through their bankruptcy plans to prevent the tax buyer from obtaining a tax deed to the mortgaged property once the redemption period expires. If the debtors make all of their bankruptcy plan payments, then all is well—the delinquent mortgage is brought current and the sold taxes are redeemed.

However, lenders can face significant peril if their debtors default on the bankruptcy plan and the trustee moves for dismissal of the bankruptcy case, especially if the deadline to redeem the sold property taxes already expired.

Bankruptcy courts generally take one of three positions regarding how a chapter 13 bankruptcy filing affects the redemption of property taxes. To read about them, click here.

Featured Attorneys

Francisco E. Connell,
Principal

fconnell@chuhak.com

Melissa A. Guseynov,
Of Counsel
mguseynov@chuhak.com

Michael L. Moskowitz,
Of Counsel
mmoskowitz@chuhak.com

Aaron D. White Jr.,
Associate

awhite@chuhak.com

Meet the rest of our Banking team

Is there a topic you would like to see covered in the newsletter?

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New Face in the Banking Group

Shweta Van Beveren

Shweta Van Beveren knows how to navigate through the complex maze of challenges in today’s banking environment by finding solutions that go above and beyond in order to achieve her clients’ goals. Shweta possesses over 10 years of experience as a banking attorney where she gained knowledge in drafting and reviewing commercial loan documents along with negotiating business transactions and commercial real estate deals.

Shweta's full bio >>>

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