Consumer Bankruptcy

By: Craig Kavanagh

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Recently, the New Jersey Bankruptcy Court, in In re Bursztyn,

[1]

held that Fourth Amendment limitations applied to a trustee’s conduct in seeking to search a debtor’s residence with the intention of seizing undisclosed assets.  However, the Court reasoned that, by filing bankruptcy, the debtor had reduced her reasonable expectations of privacy

[2]

and the Court held that the trustee’s actions did not exceed the Fourth Amendment standards of reasonableness.

[3]

In Bursztyn, based on an investigation of court records of the debtor's recent divorce, the trustee suspected that the debtor was hiding valuable jewelry and artwork that was not listed in the debtor’s bankruptcy petition or financial affairs statements.

[4]

The trustee requested from the Court, ex parte, an order allowing her to search the debtor’s home with the hopes of obtaining the art and jewelry that now belonged to the estate.

[5]

The Court granted authorization, and the United States Marshals Service and the trustee served the order upon the debtor at her residence, and proceeded to search her bedroom and closets.

[6]

The search uncovered nearly two hundred pieces of fine jewelry and ten works of art, valued at nearly $250,000.

[7]

Claiming that the search and seizure violated her Fourth Amendment rights, the debtor sought to suppress all evidence uncovered by the trustee’s search.

[8]

By: Deanna Scorzelli

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In a novel approach, the Court uses the § 362(b)(11)

[1]

exception from the automatic stay to insulate a consumer debtor from the trustee’s attempt to require her to “turnover” the amounts reflected by pre-petition checks and debits that were paid by her bank shortly after filing bankruptcy and thus were no longer in the account at the time it was remitted to the estate. In In re Minter-Higgins

[2]

the Chapter 7 Trustee sought turnover from the debtor of money that had been in the debtor’s bank account at the instant of filing for bankruptcy. The debtor objected to the turnover, however, because she had issued checks and initiated debit transfers before filing for bankruptcy that were not honored by the bank until after the filing.  If the Trustee were successful in obtaining the turnover, the debtor would be liable to the estate for the amount of those items and effectively pay twice – once when the funds in her account were used to honor the check and debit transfers and a second time in response to the turnover. 

By: Christina Kormylo

St. John's Law Student

American Bankruptcy Institute Law Review Staff

The addition of section 1115 to the Bankruptcy Code by the 2005 BAPCPA amendments created an exception to the “absolute priority rule” for individual Chapter 11 debtors according to the bankruptcy court in In re Tegeder.

[1]

  In Tegeder, the general unsecured creditor class did not accept the Chapter 11 plan proposed by an individual debtor who was engaged in business, thereby triggering the “cram down” provisions of 11 U.S.C. § 1129(b).

[2]

 Although all other requirements for plan confirmation under section 1129(a) were met, the U.S. Trustee argued that the debtor, as a holder of interests junior to the dissenting class, could not retain any property pursuant to the absolute priority rule of section 1129(b)(2)(B)(ii).

[3]

  The absolute priority rule, as amended by BAPCPA, states, “the holder of any claim or interest that is junior to the claims of such class will not receive or retain . . . any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115.”

[4]

  Addressing the effect of the cross-reference to section 1115, the Tegeder court held that the absolute priority rule does not prevent a plan’s confirmation where both pre- and post-petition assets are retained by an individual debtor.

[5]

  The court explained that the 2005 BAPCPA amendment and the addition of section 1115 created an exception to the rule, allowing an individual debtor to retain property included in the estate.

[6]