We currently have a case before the United States Court of Appeals for the Sixth Circuit in which we argue that recharacterization, under section 105 of the Bankruptcy Code, of a claim against a bankruptcy estate is not within the powers of a bankruptcy court. (To recharacterize a claim means, in effect, to subordinate it to other claims without complying with the section of the Bankruptcy Code that expressly governs subordination. Section 105 is a general provision that does not mention recharacterization.) Although this must seem obscure to most non-lawyers, it’s been a hot topic for several decades among bankruptcy practitioners, particularly those involved in chapter 11 reorganizations where debt owed to insiders is at issue. The Sixth Circuit, in a 2001 case called AutoStyle Plastics, said that recharacterization is allowed, and several other circuit courts of appeals have agreed, but several recent cases in the Supreme Court have shown that the bankruptcy courts do not have the authority to invent remedies or causes of action such as recharacterization. Call us if you have a recharacterization case or require representation in any bankruptcy litigation. We have considerable experience in bankruptcy litigation, and have had considerable involvement in the cutting-edge issues.
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