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ORAL ARGUMENT IN S. CT. REGARDING STATE SOVEREIGN IMMUNITY

Sovereign Immunity (Whether Congress has the Authority Under the Bankruptcy Clause to Abrogate State Sovereign Immunity)

The issue in this case is whether the United States Constitution gives Congress, under the Bankruptcy Clause, the power to abrogate state sovereign immunity.

Pamela Hood received a Chapter 7 bankruptcy discharge in June 1999. Due to the prohibition in 11 U.S.C. section 523(a)(8) against discharging student loans held by governmental bodies except upon a showing of “undue
hardship,” Ms. Hood filed for a hardship discharge of her student loans in September 1999. The Tennessee Student Assistance Corp. (TSAC) moved for dismissal on grounds of sovereign immunity. The Bankruptcy Court for the Western District of Tenn. denied the motion, holding that the grant of authority under the Bankruptcy Clause of the U.S. Constitution allowed Congress to abrogate state sovereign immunity when it enacted the Bankruptcy Code. The Bankruptcy Appellate Panel affirmed, holding that Congress’ power to enact bankruptcy laws carries with it the authority to abrogate state sovereign immunity with respect to those laws. TSAC appealed. The Sixth Circuit Court of Appeals analyzed the facts under Seminole Tribe of Florida v. Florida and the original intent of the framers, holding that the Bankruptcy Clause of the Constitution, Article I, section 8, clause 4 gives Congress the authority to abrogate state sovereign immunity in bankruptcy law. On appeal to the United States Supreme Court, Tennessee argues nothing in the Constitution compels this interpretation, and that the facts of this case do not warrant abrogation of Tennessee’s rights.

Tenn. Student Assistance Corp. v. Hood
Date Argued: 03/01/04
Court Below: 319 F.3d 755
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RULING ON SUBSTANTIALLY CONTEMPORANEOUS TRANSACTION

A transaction can be substantially contemporaneous even if some temporal separation exists between the new value provided and the payment received. Ssection 547(c)(1) applies whether the new value is given before or after the transfer by the debtor; the statute requires only that the exchange be ‘substantially’ contemporaneous.

Where payment was made by EFT within 15 days of receipt of goods by the debtor per the agreement between the parties, the payments were intended to be, and were, substantially contemporaneous.

In re Payless Cashways, Inc. (8th Cir. BAP 2004)

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SPENDTHRIFT TRUST IS PROPERTY OF ESTATE WHEN CONTINGENCIES ARE SATISFIED

Where all events necessary to vest the interest of a beneficiary under a spendthrift trust have occurred, the beneficiary’s rights become property of the estate even if the trustee has not yet distributed the property to the beneficiary.

In re Revelle (Bankr. N.D. Tex. 2004)

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DEBTOR SOLE SHAREHOLDER MAY QUALIFY FOR ERISA

The working owner and sole shareholder and president of a professional corporation may qualify as a “participant” in a pension plan covered by ERISA. If the plan covers one or more employees other than the business owner and his or her spouse, the working owner may participate on equal terms with other plan participants. Such a working owner, in common with other employees, qualifies for the protections ERISA affords plan participants and is governed by the rights and remedies ERISA specifies

Yates v. Hendon (S.Ct. 2004)
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ATTORNEY’S FEES DISCHARGED

Fees earned by debtor’s attorneys during Chapter 11 proceeding were dischargeable following involuntary conversion of debtor’s case to a Chapter 7 case.

In re Fickling (2d Cir. 2004)

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DEBTOR’S POSTPETITION INCOME FROM CORPORATION APPORTIONED AS TO PROPERTY OF THE ESTATE

A corporation’s accounts receivable can be “wages” entitled to exclusion from property of the estate in an employee/owner/debtor’s bankruptcy, but the debtor must establish the extent to which the receivables are attributable to his efforts rather then the efforts of other employees of the corporation.

In re Christy (Bankr. C.D. Ill 2004)
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RETURN FILED AFTER SFR IS STILL A “RETURN”

A tax return filed after the IRS independently assesses a tax is still a “return” for purposes of determining dischargeability of the tax.

In re Payne (Bankr. N.D. Ill. 2004)

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