U.S. Supreme Court Dismisses Writ in Recharacterization of Debt Proceeding

Late last week, the United States Supreme Court said that it erred when it granted certiorari to resolve a bankruptcy dispute over whether state or federal law should apply to the recharacterization of debt.  In In re Province Grande Olde Liberty, LLC, the Fourth Circuit affirmed the judgment of the bankruptcy court and district court, both of which had relied on the Bankruptcy Code to recharacterize a debt from a secured claim to a capital investment.  The high Court took the matter up in June presumably to address the current circuit split on the issue.  Five of the circuits that have addressed the recharacterization of debt have applied federal law while two other circuits, including the Fifth Circuit, have applied state law.  In dismissing the writ, the Court simply stated that it "improvidently granted" certiorari.  Accordingly, the Court will not address the merits of the issue.