Wherein my 1111(b) article is cited by a Judge!

A thanks and tip of the hat to Bankruptcy Judge Eric Frank, Eastern District of Pennsylvania, for citing my article  The Section 1111(b) Election: A Primer, 31 Cal. Bankr. J. 755 (2011), written with Roksana Moradi-Brovia.   You can access the case here, In re Body Transit, Inc.  Pretty fun to be called a “commentator.”  Judge Frank writes, “One commentator explained it concisely as follows:” and goes on to quote two paragraphs from the article.

The issue to Judge Frank was whether the the bank’s “interest on account [of its claim] in [property of the estate] is of inconsequential value,” because if so, the bank cannot make the 1111(b) election.  The court said it was “inconsequential” under the facts of the case and pitched out the election.  Apparently here the value of the property was around $80,000 and the debt was $917,000 so the property was 8.2% of the debt.  Judge Frank rules that that is inconsequential, although comments that it is a close call.  I do not see it as a close call.  To force the debtor to pay the bank $917,000, certainly money taken away from other unsecured creditors, because its collateral is worth $80,000 is not a close call to me.

Judge Frank states astutely:

“[W]hile ‘the numbers’ provide an important starting point in deciding how much value is ‘inconsequential,’ the court also must consider other relevant circumstances presented in the case and make a holistic determination that takes into account the purpose and policy of the statutory provisions that govern the reorganization case.”

Here the bank was simply trying to scuttle the plan, in a subchapter V case by the way.  Judge Frank is absolutely correct here.

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