(§ AND Strong-arms powers 544(a)(1) § 544(a)(3)) Preferential avoidance Fraudulent transfer avoidance (common law equitable doctrine)… Marshaling D owns 2 parcels of (RP1 and RP2) C1 holds on RP1, AND real property TD on RP2… C2 holds on RP2… TD1 TD2 C2 is one source of recovery (TD2 on RP2) singly-funded C1 is two sources of recovery (TD on RP1 AND on doubly-funded TD1 RP2) RP1 is (ONLY C1’s singly-encumbered TD) RP2 is (C1’s AND C2’s doubly-encumbered TD1 TD2) As per a may compel a marshaling, singly-funded junior C doubly-funded to first pursue leaving senior C singly-encumbered asset, doubly-encumbered for remainder of debt thus, court will require C1 to go after RP1 first, asset then RP2 (if still owed $$) Courts are mixed re: whether can invoke (on C2’s trustee marshaling behalf)… AND, whether can (i.e. if C3 held on RP1, trustee marshaling TD2 … then would want C1 to go after RP2 first) Trusts… If D is trustee of Cs entitled to D’s general assets, AND express beneficiaries (of entitled to trust assets… express trust) Bankruptcy estate is comprised of all of D’s legal AND equitable interests (§ AND, D holds legal title to trust assets (beneficiaries hold 541(a)(1))… equitable title)… BUT, carve-out protecting D’s trust beneficiaries (§ NOT 541(d)) … property to which D holds legal, but NOT equitable, title facilitators”… “1031 Investors put million$ into own segregated accounts (organized under IRC to be used for purchase of property when files § 1031) facilitator” “1031 for bankruptcy, investors argue that should apply… § 541(d) BUT, holds legal AND equitable title NOT a facilitator” trust, … “1031 merely a restricted account (investors could have set up a BUT chose trust, NOT to)…
Strong-arms powers (§ 544(a)(1) AND § 544(a)(3)) Preferential avoidance Fraudulent transfer avoidance Marshaling (common law equitable doctrine)… D owns 2 parcels of real property (RP1 and RP2) C1 holds TD on RP1, AND TD1 on RP2… C2 holds TD2 on RP2… C2 is singly-funded one source of recovery (TD2 on RP2) C1 is doubly-funded two sources of recovery (TD on RP1 AND TD1 on RP2) RP1 is singly-encumbered (ONLY C1’s TD) RP2 is doubly-encumbered (C1’s TD1 AND C2’s TD2) As per marshaling, a singly-funded junior C may compel a doubly-funded senior C to first pursue singly-encumbered asset, leaving doubly-encumbered asset for remainder of debt thus, court will require C1 to go after RP1 first, then RP2 (if still owed $$) Courts are mixed re: whether trustee can invoke marshaling (on C2’s behalf)… … AND, whether trustee can marshaling (i.e. if C3 held TD2 on RP1, then would want C1 to go after RP2 first) Trusts… If D is trustee of express Cs entitled to D’s general assets, AND beneficiaries (of express trust) entitled to trust assets… Bankruptcy estate is comprised of all of D’s legal AND equitable interests (§ 541(a)(1))… AND, D holds legal title to trust assets (beneficiaries hold equitable title)… … BUT, carve-out protecting D’s trust beneficiaries (§ 541(d)) NOT property to which D holds legal, but NOT equitable, title “1031 facilitators”… Investors put million$ into own segregated accounts (organized under IRC § 1031) to be used for purchase of property when “1031 facilitator” files for bankruptcy, investors argue that § 541(d) should apply… … BUT, “1031 facilitator” holds legal AND equitable title NOT a trust, merely a restricted account (investors could have set up a trust, BUT chose NOT to)…
Bankruptcy_Schechter-Fall-2009.docx