Why Wright Was Wrong: How the Third Circuit Misinterpreted the Bankruptcy Code . . . Again

By:  Alisha J. Turak

 

Whether a right to payment is a “claim” is one of the most important determinations in bankruptcy because only “claims” are subject to the bankruptcy process, including the all-important automatic stay and discharge provisions. The Bankruptcy Code (“Code”) provides a definition of claim in § 101(5), but courts have differed greatly in what “rights to payment” are covered by that definition. For twenty-six years, the Third Circuit was subject to one of “the most criticized and least followed precedents decided under the current Bankruptcy Code,” In re M. Frenville Co., which created the overly narrow state law accrual test. The Third Circuit finally heeded the criticism in 2010 and overruled Frenville in In re Grossman’s, in which it adopted the prepetition relationship test. In Wright v. Owens Corning, decided in May 2012, the Third Circuit set out to clarify the scope of its new test. Instead of clarifying, however, the court in Wright expanded the realm of “claims” in the Third Circuit to include those established by a preconfirmation, rather than a prepetition, relationship. It did so without adequately considering the language of the Code or the policy implications of its decision. This Note argues that a “claims” test should focus on the date of petition, not confirmation, to be consistent with the language and policy of the Code, and that Wright was therefore wrongly decided.

 

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