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Left to right: Andrew Kassner and Joseph Argentina of Drinker Biddle & Reath. Left to right: Andrew Kassner and Joseph Argentina of Drinker Biddle & Reath.

The U.S. Bankruptcy Code provides distressed companies an array of tools to reorganize their business affairs and restructure their debt. These powers include, among other things, the imposition of the automatic stay, centralizing most disputes in the bankruptcy court, the ability to sell assets free and clear of interests, the ability to reject burdensome contracts, and the authority to obtain a discharge if the debtor complies with the code’s requirements. However, not everyone is entitled to file a bankruptcy case and obtain access to such relief. To utilize the process, a debtor must file the case in good faith. The term “good faith” is not defined in the code. Courts have interpreted good faith to mean the case must have a valid reorganization purpose. This issue was addressed in a recent decision issued on Feb. 13, by U.S. Bankruptcy Judge Laurie Selber Silverstein of the District of Delaware in In re Rent-A-Wreck of America, Case No. 17-11592. In a detailed 36-page opinion that thoroughly reviewed the record and case decisions regarding the good-faith requirement, the court held the debtors were not in financial distress at the time of the filing and filed the cases as part of a continuing two-party dispute with a franchisee, and directed dismissal of the cases for lack of good faith.

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