On May 29, 2012, the U.S. Supreme Court issued its opinion in RadLAX Gateway Hotel, LLC v. Amalgamated Bank . The question was whether a debtor in a bankruptcy action may confirm a plan of reorganization that prohibits a secured creditor from credit-bidding the amount of its claim as part of an auction sale. A credit bid allows a secured lender to use the debt owed to it as “currency” to bid for the debtor’s assets in which it has a security interest.
By affirming the holding of the U.S. Court of Appeals for the Seventh Circuit, the Supreme Court resolved a split between the Seventh Circuit and the Third and Fifth Circuits over whether secured creditors could be stripped of the right to credit-bid in plan sales. Describing RadLAX as an “easy case,” Justice Antonin Scalia delivered the unanimous opinion of the court. The court ruled that a bankruptcy plan of reorganization may not be confirmed over the secured creditor’s objection if the plan provides for the sale of assets free and clear of the secured creditor’s lien and does not provide the secured creditor with the right to credit-bid.
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