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To Discharge In Bankruptcy Or Not?

In a simple, seven-page opinion, the Eighth Circuit Court of Appeals refused to allow environmental fines and penalties against a scrap tire dump operator to be discharged in bankruptcy.

That's a big sentence, but not an unusual holding. Here's a short article about the dangers to shareholders who receive distributions from bankrupt companies that may have environmental liability (an entirely different category than fines and penalties).

Even the automatic stay in bankruptcy does not slow down environmental claims. Ultimately the Chapter 11 reorganization, however, may be successful in temporarily eliminating environmental liability. In the Third Circuit. The law seemingly does not bind the government to such a limitation, and the USEPA and other governmental entities can pursue criminal fines and penalties without regard to bankruptcy. For contamination that continues or starts during BK protection, the government can force compliance, and then get in line in front of everyone else.

Bankruptcy courts do not have a consistent position on how to treat claims against debtors by other Potentially Responsible Parties. Some allow environmental claims for contribution to proceed, others do not. Except in one circumstance. When monies have already been expended for environmental cleanup by a PRP, claims for contribution are uniformly allowed.

Claims for future response costs are another story. Check your local listings. Courts vary in their treatment of these claims.

Then there's the question of whether you can sell contaminated assets out of a bankrupt estate. It's fraught with caveats and difficulties (download required).

But with substantial legal work, discharges of environmental liabilities have occurred - with payments and other restrictions. In instances where the discharge was pre-petition and the claims contemplated, under certain circumstances, some environmental claims may be discharged in bankruptcy.

How's that for a series of caveats?

There's no easy answer. I'm not a bankruptcy lawyer and this short summary does not cover all the facts and alternatives of your case. If you have questions, call a bankruptcy lawyer.

Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Saturday, February 28, 2004 at 10:23 Comments Closed (0) |
 
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