With the economy still lagging and an apparent end to federal assistance for state and local governments, some experts are predicting an increase in chapter 9 bankruptcy filings. Chapter 9 of the Bankruptcy Code provides a rarely used avenue for municipalities and other political subdivisions to obtain relief from creditors.

A series of recent court opinions have precipitated ominous warnings that we may be witnessing the erosion of secured creditors’ rights, an erosion that some have argued may herald substantially increased borrowing costs and a further dissipation of the credit markets as a whole.

In September 2009, the Third Circuit issued a ruling in Wawel Savings Bank v. Jersey Tractor Trailer Training Inc. (In re Jersey Tractor Trailer Training Inc.), 580 F.3d 147 (3d Cir. 2009), that addressed significant issues that can arise in situations where competing claims to a debtor’s accounts receivable exist between a traditional lender and a factor.

In In re Crescent Oil Company, et al., Case No. 09-20258, pending in the U.S. Bankruptcy Court for the District of Kansas, the court entered an order approving a gifting carve-out that could provide a road map for some undersecured lenders in their dealings with unsecured creditors’ committees.