Lien Stripping in Chapter 11 Bankruptcy Cases: Lessons for Secured Creditors

Guidance for Secured Creditors on Lien Ride-Throughs After In re N. New Eng. Tel. Operations

Recording of a 90-minute CLE webinar with Q&A

Conducted on Wednesday, January 27, 2016

Recorded event now available

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Program Materials

This CLE webinar will discuss the concept of lien-stripping of a secured lienholder’s interest in situations where a secured creditor does not participate in a Chapter 11 bankruptcy case, and the recent Second Circuit decision in In re N. New Eng. Tel. Operations.

Description

In Chapter 7 liquidations, the Supreme Court holds that a lien passes through the bankruptcy case unaffected, notwithstanding the discharge of the debtor’s other unsecured debt. Thus, a secured creditor could elect to abstain from participating in a bankruptcy case and the lien securing the collateral would remain intact after the bankruptcy case is over.

The Bankruptcy Code preserved this rule in Chapter 11 cases with one statutory exception: Liens are extinguished if the property securing the lien was “dealt with” by a confirmed plan under Chapter 11. Specifically, Section 1141(c) of the Bankruptcy Code provides that “after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor,” and makes no distinction between secured and unsecured creditors.

In a recent case of first impression, the Second Circuit considered lien stripping in Chapter 11 cases. The court held that, where a plan “deals” with a secured creditor’s lien and the secured creditor “participates” in the bankruptcy case, confirmation of a plan extinguishing the lien can be valid, notwithstanding the maxim. The court’s decision will now guide how lower courts in the Second Circuit treat lienholders whose lien was contemplated to be extinguished under a plan and failed to actively participate in the bankruptcy case.

Listen as our authoritative panel of bankruptcy practitioners reviews the lienstripping jurisprudence that has developed over the past few decades, with a specific focus on Chapter 11 cases.

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Outline

  1. What is a properly perfected lien? What types of liens exist?
  2. Discussion of Dewsnup v. Timm
  3. Cases interpreting pass-through and interpreting Dewsnup v. Timm
  4. Section 1141(c) and its legislative history
  5. In re N. New Eng. Tel. Operations and its aftermath.
  6. What constitutes “participation” as indicated in In re N. New Eng. Tel. Operations?

Benefits

The panel will review these and other key issues:

  • What is a properly perfected lien and what types of liens exist?
  • How have courts interpreted Section 1141(c) regarding extinguishing liens through plan confirmation?
  • What guidance did the Second Circuit provide for treating lienholders whose lien was contemplated to be extinguished under a plan and failed to actively participate in the bankruptcy case?

Faculty

Marc E. Hirschfield
Marc E. Hirschfield
Partner
BakerHostetler

Mr. Hirschfield is an experienced practitioner in all aspects of insolvency and reorganization law. He regularly...  |  Read More

Marc Skapof
Marc Skapof
Counsel
BakerHostetler

Mr. Skapof is experienced in all aspects of insolvency and reorganization matters. He regularly represents receivers,...  |  Read More

George Klidonas
George Klidonas
BakerHostetler

Mr. Klidonas is a bankruptcy attorney who focuses his practice on financial restructurings, insolvency, and...  |  Read More

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