The U.S. Supreme Court handed down only two rulings in 2012 concerning bankruptcy issues. In RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (2012), a unanimous Court upheld a ruling by the Seventh Circuit denying confirmation of a "cramdown" chapter 11 plan that contemplated the sale of encumbered assets free and clear of all liens without giving a secured creditor the right to credit-bid its claim in connection with the sale. By its ruling, the Supreme Court resolved a circuit split on the proper application of the "indubitable equivalent" prong of section 1129(b)(2)(A) of the Bankruptcy Code.
In Hall v. U.S., 132 S. Ct. 1882 (2012), the Court considered whether federal capital-gains-tax liability resulting from the sale by "family farmer" debtors of their farm property during a chapter 12 case was "incurred by the estate" under section 503(b) of the Bankruptcy Code. This is required to enable the debtor to strip the federal government's corresponding tax claim of its priority, pay the claim pro rata with other general unsecured claims, and discharge any remaining obligation to the government under section 1222(a)(2)(A)- the priority-stripping provision added to the Bankruptcy Code in 2005. The Court, affirming a ruling below by the Ninth Circuit, held by a 5-4 margin that "[t]he federal income tax liability resulting from petitioners' postpetition farm sale is not 'incurred by the estate' under § 503(b) of the Bankruptcy Code and thus is neither collectible nor dischargeable in the Chapter 12 plan."
On October 29, 2012, the Supreme Court agreed to review a case concerning the kinds of trustee misconduct that qualify as "defalcation" under section 523(a)(4) of the Bankruptcy Code and thus constitute a basis to deny discharge of a debt. In Bullock v. BankChampaign N.A. (In re Bullock), 670 F.3d 1160 (11th Cir.), cert. granted, 2012 BL 282292 (Oct. 29, 2012), the Eleventh Circuit aligned itself with the Fifth, Sixth, and Seventh Circuits by ruling that defalcation under section 523(a)(4) requires a showing of recklessness by the fiduciary.
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