Bankruptcy & Creditor Rights Flashcards

In a Chapter 11 case, a 'debtor in possession' (DIP) financing order typically grants the DIP lender:

Answer: Super-priority administrative expense claims and potentially priming liens over pre-petition secured debt

DIP lenders often receive super-priority administrative claims and, if necessary, priming liens over existing secured creditors to incentivize post-petition lending.

The 'equitable subordination' doctrine under Bankruptcy Code Section 510(c) allows a court to subordinate a creditor's claim when:

Answer: The creditor engaged in inequitable conduct that harmed other creditors or conferred an unfair advantage

Equitable subordination is an equitable remedy applied when a creditor, often a controlling insider, engaged in misconduct that harmed the debtor or other creditors.

A financial litigator evaluating a potential fraudulent transfer claim for a creditor outside of bankruptcy would typically use which state law framework?

Answer: The Uniform Fraudulent Transfer Act (UFTA) or Uniform Voidable Transactions Act (UVTA)

State law fraudulent transfer claims are brought under the UFTA/UVTA (adopted in most states), which provides a longer look-back period than the 2-year federal bankruptcy provision.

In bankruptcy, the 'relation back' doctrine for preference and fraudulent transfer purposes means that a security interest that was perfected late but within the 30-day grace period:

Answer: Is treated as perfected on the date of attachment, avoiding preference status

Section 547(e)(2)(A) provides that a transfer is deemed made when it takes effect if perfected within 30 days, allowing the security interest to relate back to the attachment date and avoid preference treatment.

When a secured creditor's collateral is worth less than the outstanding debt in a bankruptcy case, the creditor is said to be 'undersecured.' Under Section 506(a), the undersecured creditor has:

Answer: A secured claim to the extent of the collateral's value and an unsecured deficiency claim for the remainder

Section 506(a) bifurcates the undersecured creditor's claim into a secured portion (up to collateral value) and an unsecured deficiency, each treated differently in the plan.

A landlord seeking to enforce a lease termination clause triggered by a bankruptcy filing faces which specific bankruptcy protection?

Answer: The anti-ipso-facto rule, which invalidates contractual provisions triggered solely by the debtor's insolvency or bankruptcy filing

Section 365(e) prohibits enforcement of ipso-facto clauses that terminate or modify contracts based solely on insolvency or bankruptcy filing, protecting the estate's ability to assume valuable contracts.