Bankruptcy

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Definition of a lien

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a charge on the debtor's property that must be satisfied before the property or its proceeds is available for satisfaction of the claims of general creditors. It affects not just the creditor and debtor but other debtors since it withdraws some of the debtors resources that would otherwise be available to other creditors.

A lienor may resort to the encumbered property for the purpose of collecting its claim, yielding to other creditors that may have competing claims

A creditor is a lien creditor only to the extent to the value of the collateral

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Consensual Lien

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Governed by article nine of the ucc. Consensual liens on realty are mortgages.

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Judicial Liens

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Result from prejudgment collection efforts like attachment or garnishment, from the judgment itself, or recordation thereof, and from postjudgment efforts to enforce the judgment such as execution or garnishment

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Statutory Liens

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Landlords liens, mechanics liens, taxes

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Distinction between a Lien and Priority

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The major difference is drawn on the basis of when the interest arises. A priority does not arise until distribution of a debtor's assets on insolvency of the debtor.

Other differences:

Lien: Consensual, judicial, or statutory

Priority: Almost always created by statute

Lien: Interest in a particular property

Priority: Satisfied from the general assets of the debtor

Lien: In a distribution governed by state law, lien creditors are paid first. Some lien creditors have "priority" over lien creditors

Priorities: Priorities generally affect only the rights of one general creditor (or group thereof) vis-a-vis other general creditors. Accordingly, in a distribution under state law, creditors with a priority usually are paid after lien creditors and before general creditors without any priority

Liens: In a distribution governed by the bankruptcy code, liens that meet certain statutory standards are paid first

Priorities: All state-created priorities are invalid in a bankruptcy case. Bankruptcy contains its own priorities in 507

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Execution

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The process of seizure and sale of a debtors property. It is the only judicial collection remedy available to creditors without a consensual or statutory lien

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Levy

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Levy on real property requires some act of giving notice to the defendant of the lien and some act giving public notice that the debtor's realty is encumbered such as filing in the real estate record system

When the property is tangible it requires a seizure of the property

When it is possesory it can require the sheriff to actually take posession

Levy on a property creates a lien thereof (in some states this lien of attachment dates from the time of the levy although in some states the date of the lien relates back to the date of the issuance of the writ)

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Advantages of an attachment lien

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Security (it is subject against subsequent purchasers to obtain the lien, there needs to be a levy that puts subsequent purchasers on notice)

Priority (state law rules are first in time rules)

Jurisdiction (state courts can take jurisdiction over non-residents who have property in the state)

Leverage (a distinct advantage in bargaining)

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Attachment under the bankruptcy code

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Attachment lien obtained within 90 days of the filing of the bankruptcy petition is invalid if the debtor is insolvent when the lien was obtained

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Judgment Lien

Back 10

A form of judicial lien that can create priority standing for an unsecured creditor

A judgment lien operates as a general lien on all of the debtor's property subject thereto, not as a specific lien upon particular property

It creates a right to levy so if the property is sold without being levied, the creditor only has the rights to the sold property and not the value thereof and must proceed against the purchaser

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A writ of execution

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Issued by the clerk of the court in which a judgment has been rendered and ordering the sheriff to seize (levy, constructive or otherwise) property of the debtor, sell it, and use the money to satisfy the judgment

Execution creates a lien on the property seized by the sheriff

Delays in selling by the sheriff can result in the loss of the execution lien

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Garnishment

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Garnishor, Garnishee, and principal debtor

Postjudgment garnishment begins with the garnishor's filing of an affidavit, the court than orders a writ of garnishment that is served upon the garnishee and the principal debtor.

The service of the summons creates a lien.

The effect is to impound the property of the judgment debtor held by the garnishee

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Common law possesory lien

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Is the right to retain the property of another for some particular claim or charge upon the property so detained

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Setoff

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allows entities that owe each other money to apply their mutual debts against each other (usually in bank deposit situation)

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Recoupment

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Both debts must arise out of a single integrated transaction so that it would be inequitable for the debtor to enjoy the benefits without meeting obligations (distinct from setoff which does not require this junction)

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Workout

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A negotiated nonbankruptcy modification of debts

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Bankruptcy departure from state law

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All creditors within a class are treated the same
Creditors cannot improve their position by seizing assets
Preferential transfers are limited
Prospects for debtor relief are much greater

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Two forms of bankruptcy relief

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Liquidation
Rehabilitation-reorganization

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Chapter 7

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Liquidation - trustee collects the nonexempt property, converts the property to cash and then distributes it to creditors. The end is a discharge form further personal liability for her pre-petition debts

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Availability of Chapter 7, 11, and 13

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11 and 7: available to all forms of debtors

13: available to individuals with a regular income only

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Duties of a chapter 7 trustee

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1) collecting the property of the estate (the debtors property as of the filing of the bankruptcy petition)

2) Challenging certain prebankruptcy and postbankruptcy transfers of estate property

3) Selling the property of the estate

4) Objecting to creditor's claims that are improper

5) Sometimes objecting to the debtor's discharge

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Duties of a chapter 13 trustee

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One serves on the orders of the UST to be a standing 13 trustee for the district as opposed to one being appointed as in 7

The goal is not liquidation but is an action pursuant to a payment plan

Because the 13 trustee does not collect and liquidate the debtor's property, they instead review and where appropriate contest the plan of repayment. Once the plan is approved by the court, they become the disbursing agent to creditors

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Duties of a chapter 11 trustee

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there is a rarely a trustee in chapter 11 unless after notice and hearing, there is cause and appointment is in the interest of the creditors, any equity security holders, and other interests of the estate

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Voluntary Cases - who can file

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Must have credit counseling with 180 days

Can be a person, partnership, corporation

Generally, with railroad and stock broker exceptions, anyone who can file 7 can file 11

In 13: Must be an individual with a stable income for the making of payments (income can include welfare or other source of income), must have "noncontingent, liquidated" unsecured debts totaling less than 307,675 and secured, noncontingent, liquidated debts less than 922,975 (adjusted based on the cpi)

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Example of two debt classifications

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a one million dollar debt is secured by a property worth 800,000 - most courts say not disqulifying since one secured debt is 800,000 and one unsecured debt is 200,000

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Solvency for voluntary filing

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Not an issue, voluntary filing can be done under any section even when solvent

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Husband wife

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May file a single joint petition for voluntary relief as long as the chapter is available to each spouse. Under 13, a joint filing subjects their combined debts to 13 limits

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Frequent filing limitation

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ineligible to be a debtor under any chapter if he or she was a debtor in a bankruptcy case within the last 180 days that was:

Dismissed by the court for failure to abide by court orders or appear before the court

Dismissed on motion of the debtor following the filing of a request for relief from the automatic stay

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Voluntary filing procedure

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Must pay a fee, failure to do so can be a dismissal ground

Case is commenced when an eligible debtor files a petition. No formal adjudication is necessary.

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Limitations on involuntary petitions

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May be filed by creditors under 7 or 11 only

Charities, banks, insurers exempt

Petition must be filed by the requisite number of creditors, generally that is at least three with a cpi floor unless the debtor has less than 12 unsecured creditors in which case one creditor is sufficient but the floor remains

The filing does not serve as an adjudication or as an order for relief as in a voluntary filing

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Involuntary filing procedure

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After filing, debtor has the right to file an answer. If untimely, court can order relief. If timely, court shall order relief against debtor if the grounds for involuntary relief are established

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Basis for involuntary relief

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1) Generally, debtor is not paying debts as they come due (equitable insolvency)

or

2) Within 120 days before the filing, a receiver or assignee took possesion of substantially all of the debtor's property

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After involuntary filing, generally

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Usually a few weeks pass before an order of relief against the debtor is brought. Sometimes the court will appoint an interim trustee where it it seems necessary to preserve the property of the estate

Absent such appointment, the debtor can continue to operate until there's an order for relief

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Dismissal of chapter 7

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"for cause" and it applies to motions to dismiss by creditor or debtor

Abuse must be etablished:

1) by a bad faith filing or the totality of the circumstances of the debtor's financial situation

2) The means test

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Automatic Stay: Time established

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At the time of filing

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Automatic Stay: Scope

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Creditors are barred from obtaining, perfecting, or enforcing liens after filing

Domestic support obligations are not stayed and can be collected from non-estate property

Does not protect third parties such as guarantors (unless it is a 13 filing in which case there is protection where the debt is a consumer debt and the lender is not a banking type operation)

Section 105 gives the court broad powers to issue orders necessary to carry out the provisions of the title

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Termination of the stay

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The stay ends to property that is no longer part of the estate (for example when property with a lien in it is sold by the trustee, the lien holder can then proceed against the sold building)

(also, where a debtor had a previous bankruptcy dismissed within one year of the new filing, the stay terminates after 30 days without showing good faith. There are additional situations with multiple filings)

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Obtaining relief of a stay

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"for cause" which usually means "lack of adequate protection of an interest in property of such party in interest"

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Four questions of adequate protection

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1) who is the party in interest

2) what is the interest in the property

3) from what is it being protected

4) how much protection is adequate protection

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John Quincy Adams

Back 40

Helped negotiate the Treaty of Ghent, ending War of 1812.
In 1819, he drew up the Adams-Onis Treaty in which Spain gave the U.S. Florida in exchange for the U.S. dropping its claims to Texas. The Monroe Doctrine was mostly Adams' work. Elected President by the 'Corrupt Bargain' in 1824.

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What is being protected

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The secured parties interest in property, not the claim (so where a party is undersecured, the protection is for the lien position up to the value of the property rather than the total claim)

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What interest is being protected

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In the case of a depreciating asset, the decline in value

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Statutory methods of adequate protection

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1) periodic cash payments equal to the declining value

2) an additional or substitute lien on other property

3) "indubitable" (within judge's discretion)

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When adequate protection proves inadequate

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An administrative expense priority is granted for the resulting loss

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Obtaining relief by a lien creditor

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if the debtor does not have any equity in the encumbered property and the encumbered property is not necessary to an effective reorganization

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Measuring equity

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generally it is measured by determining the value of the property and subtracting the encumbrances

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"single asset real estate"

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Relief from stay can be granted to a creditor with a lien on single asset real estate unless within 90 days after the order for relief, the debtor has either filed a reorganization plan or started monthly payments

(where the reorg planned is filed it must have a reasonable plausibility of being confirmed; where the debtor is making monthly payments, the amount must be equal to the creditors "nondefault contract rate" on the value of the creditor's interest in the real estate - an undersecured has a right to interest)

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Creation of estate

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The filing of any bankruptcy petition automatically creates an "estate" and that estate includes the assets of the debtor as of the time of the bankruptcy filing.

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Property of the estate

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"all legal or equitable interests of the debtor in property as of the commencement of the case"

(interests includes partial ownership etc., and the case commences at the filing so that earnings after filing do not become estate property)

It also includes:

anything recovered by the trustee or dip.

Proceeds, product, offspring, rents or profits of or from property of the estate (contrast with personal income exceptions under chapter 7)

Under 11 and 13 post petition "earnings from services"

Any property that the debtor acquires or becomes entitled to within 180 days after the filing of the petition by a) bequest, devise or inheretance b) property settlement or divorce decree or c) as beneficiary of a liEfe insurance policy

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Frederick Douglas

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A self-educated slave who escaped in 1838, Douglas became the best-known abolitionist speaker. He edited an anti-slavery weekly, "The North Star." An advocate for later women's suffrage, he served as minister to Haiti after the Civil War.

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a

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a

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Opt Out

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Most states have statutes that preclude a state debtor from being able to use the federal exemptions

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Spouses

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Can combine and each person is entitled to the exemptions - however, the limitation exists that they must both file under federal or state if they file jointly

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Residency requirement for exemptions

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Must be domiciled for two years; if not the governing exemption law is the law of the state that the debtor lived in two and a half years prior - cut off dates are two years and 2.5 years

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Amendments on homesteads

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The amount exempt will be reduced by the amount deemed to have been hindered or delayed by fraud

Also, value added to the homestead within 1215 days is capped at 125,000

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Timely Objection

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Exemptions must be objected to

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Creditors that can access exempt property

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1) tax claimants

2) Spouses

3) Higher education fraud

4) Creditors with liens on exempt property that are neither avoided nor extinguished through redeption (this generally this will only be available for certain types of judicial and consensual liens that are not pmsi) If there is a judicial lien on exempt property, the debtor can avoid it to the extent it impairs the exemption

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To calculate the amount subtracted (judicial lien)

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To calculate add all liens and the exemption total, then subtract the house value - the difference can be taken off of the judicial lien

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Redemption

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Can be applied to any security interest in exempt property - you can do that by paying the lienor the replacement value of the property (a debtor will not use this when they can get their lien reduced)

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Avoidance

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voluntary, involuntary, absolute, and security transfers (mortgages and judgment liens)

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Questions when dealing with avoidance

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What are the consequences of avoiding a transfer

Which transfers can be avoided

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What happens when an absolute transfer of property is voided

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It becomes property of the estate

It can affect the amount of the creditors claim

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What happens when a security transfer is avoided?

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It will generally become an unsecured claim

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550a provision

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A court can order the recovery of "value of the property" transferred, rather than the property - this is important when an asset has depreciated in value

(transfers made with two mortgages can effect the other mortgage by increasing the amount of equity cushion for the second debtor who is otherwise undersecured - this benefit can be ordered to be recovered)

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Elements of a preference

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a trustee may void any property of the debtor if he or she can establish:

1) transfer was to the benefit of a creditor

2) transfer was made for or on account of an "antecedent debt", ie a debt owed prior to the transfer

3) Debtor was insolvent at the time of transfer (there is a rebbutable presumption of insolvency 90 days before filing)

4) Transfer was made within 90 days before the date of filing (or one year with an insider - this can vary based on when the state law deems the transfer to have occured)

5) The transfer has the effect of increasing the amount that the transferee would receive in a chapter 7 case (this element is satisfied unless the transferee has a claim secured by property worth more than the amount of its claim or the transferee has a secured claim and all that is transferred to her is part or all of the collateral that secured the claim or the estate is sufficiently large to pay all claims)

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Indirect Preferences

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Section 550 allows the trustee to recover a preference from either the actual transferee or "the entity for whose benefit the transfer was made"

-Where there is an insider gaurentor and the payment is made to an insider, it can recoverable as a preference based on the gaurentor

This section can also allow recovery where the payment to one lien holder acts as a benefit to another by increasing the value of his collateral

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Exceptions of preferences

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1) the transfer was intended to be for a new value, not an antecedent debt

2) did in fact occur at a time "substantially contemporaneous" with the time time that the debt arose (this looks to the nature of the debt and the nature of the payments and the debt must be in the ordinary course of business and the payment must be in the ordinary course of business or according to ordinary business terms - subjective and objective tests)

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Enabling Loans

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Enabling loans are excepted where:

The creditor gives the debtor "new value" to acquire certain real or personal property

The debtor signs a security agreement giving the creditor a security interest in the property

The debtor in fact use the "new value" supplied by the creditor

The creditor perfects its security interest no later than 30 days after the debtor receives possesion

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"after such transfer"

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Where a creditor who received a preference and "after such transfer" extends further unsecured credit, the trustee can only recover the amount as reduced by the new advance even if the transfer was a preference

(the order of the transfers is critical for this exception)

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Floating liens

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Under article nine, there can be a preference exception

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Security interest in inventory or accounts receivable

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Subject to a preference attack only to the extent that it improves its position during the 90 day period before bankruptcy

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Applying the "two step test"

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1) determine the amount of debt on the date of the bankruptcy petition

2) determine the value of the debtor's accounts and-or inventory encumbered by the secured creditor's lien on the date of the petition

3) Subtract 2 from 1

4) Determine the amount of debt 90 days before the petition

5) Determine the value of the debtor's accounts and or inventory encumbered by the secured creditor's lien 90 days before the petition

6) Subtract #5 and #4

7) Subtract the answer in #3 from the answer in #6

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Setoffs

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For when a person is both a debtor and a creditor (most commonly this is between a bank and a depositor)

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Setoffs as avoidable preferences

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1) a right of setoff is defined as a secured claim - because taking collateral is not giving the creditor more under the chap 7 requirements.

Also, setoffs are excluded by the bankruptcy code

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Limitations on Setoffs

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1) mutual debt

2) arose before the commencement of the case (both debt and claim)

3) Disallowed

4) Acquired claims (as in where one creditor purchases a debt that can then allow it to pursue a setoff) (claims against the bankrupt acquired from a third party may not be set off against a debt owed to a bankrupt if the claim was acquired 90 days before the bankruptcy petition and the bankrupt was insolvent when the claim was acquired)

5) Build Ups

6) Improvements in position.

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Determining an improvement in position for the purpose of disallowing a setoff

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1) determine the amount of claim against the debtor 90 days before the date of the filing of the petition

2) Determine the mutual debt owing to the bankrupt by the holder of such claims 90 days before filing

3) Subtract 2 from 1 to determine the insufficiency

4) Determine the amount of the debt on the date that the right of setoff was asserted

5) Determine the amount of the setoff

6) Subtract 5 from 4 to determine the insufficiency

7) Subtract the answer in 6 from the answer in 3 to determine what part, if any, of the amount of setoff the trustee may recover

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Strong Arm (determine)

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To apply the strong arm provisions, determine:

1) nonbankruptcy law public notice requirements have been satisfied

2) and whether a creditor who extended credit and obtained a lien on the date that the bankruptcy petition was filed or a bona fide purchaser of real property on the date of the bankruptcy petition comes within the class of persons protected by state law

The trustee is thus empowered to invalidate any transfer that under nonbankruptcy law is voidable as to a creditor who extended credit and obtained a lien on the date of filing

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General rules for invalidating transfers under strong arm

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1) if the transfer has been recorded or otherwise perfected prior to the date that the bankruptcy petition was filed, the trustee cannot invalidate

2) Except as noted in 3, if the transfer was not recorded or otherwise perfected by the date that the bankruptcy petition was filed, the bankruptcy trustee will be able to invalidate the transfer

3) the trustee will not be able to invalidate a pmsi perfected within 10 days after the delivery of the collateral to the debtor even if the debtor files a bankruptcy petition in the gap between the creation of the security interest and perfection

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Perfecting (for the purposes of invalidating due to preference)

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If done within 30 days, transfer is considered to have happened at the date of transfer

If not, it is considered at the date of perfection

It will be deemed to have been made at the time of a bankruptcy filing if not made within 30 days

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Perfecting (for the purpose of invalidating due to fraudulent conveyance)

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It is considered so perfected when the transfer is so far perfected that no subsequent bona fide purchaser of the property from the debtor can acquire rights in the property superior to those of the transferee

(the purpose is to prevent a fraudulent conveyance from escaping invalidation by being kept secret)

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Seller's reclamation and return rights

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Request must be in writing and the seller has a 45 day period - after the receipt of goods on credit to make a written reclamation demand

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Postbankruptcy Transfers

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Primarily an issue for Chapter 7 since only in 7 do the rights of possession pass to the trustee, only in 7 are the proceeds of liquidation what is distributed

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Filing of petition

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Property in the debtors possesion becomes property of the estate at the time of filing

Loss of possession doesn't occur until a trustee is appointed

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Section 549 and the protection of transferee

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Protection is provided if:

The transfer was authorized by the code or court

the transfer was after an involuntary petition for postbankruptcy consideration (regardless of transferees knowledge)

-or-

the transfer was a real property transfer that was recorded before the bankruptcy was noted in the records

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Transfers of property of the estate by third parties

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A third party who in good faith makes a transfer of the debtor's property is protected if they did not have notice

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Secured claim

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A creditor has a secured claim if it holds a lien on or has a right of setoff against property of the estate. The claim is secured only to the extent of the value of "such creditor's interest in the estate's interest in such property"

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"such creditors interest"

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becomes important when there are multiple liens on the same property

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"estate's interest"

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becomes important when the debtor is a co-owner or has an otherwise limited interest in the encumbered property

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Lien invalidation

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Converts a secured claim to an unsecured claim

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Impact of bankruptcy on secured claims

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How can the debtor's bankruptcy filing adversely affect the holder of a secured claim?

How can a secured claim be satisfied when the debtor is in bankruptcy

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Interest after filing

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claim can only contain unpaid principal and the matured interest unless the creditor is over-secured (the appropriate rate is not set by law)

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Loss of priority

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The bankruptcy court can grant a post-petition creditor a lien on encumbered property that has priority over all pre-petition liens

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Requirements for "super priority"

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1) Notice and a hearing

2) the dip or trustee is unable to obtain credit otherwise

3) the holder of the pre-petition lien is adequately protected

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Limitations on floating liens

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In commercial credit transactions agreements generally provide that collateral is property the debtor will later acquire (after-acquired clauses)

These requirements are cut off in bankruptcy (the exception is where the pre-petition lien reaches proceeds and earnings that are a product of prepetition collateral)

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Seized property

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Must be returned to the debtor when filing occurs

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Discharge

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Does not wife out liens or the ability of creditors to obtain relief from other parties

(so, while the creditor may be bared from obtaining the value of a lien from the debtor nothing stops them from seizing and selling its collateral - if the sale does not cover the debt, the creditor cannot then pursue an unsecured claim)

Recovery of collateral extinguishes a secured claim

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Ways for a secured creditor to recover

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By obtaining relief from the stay under 362d and foreclosing on its lien. A trustee can voluntarily turn over property to a lien holder. Or a reorg plan can provide a surrender.

A holder of a secured claim cannot recover by abandonment

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Payments to secured creditors

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If a secured creditor does not recover its collateral, it should receive a payment at least equal to the value of the collateral

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In chapter 7 -

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Payment can come from trustees sale of the collateral or payments can come from the debtor

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Cramdown (in 7)

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a debtor even without agreement can extinguish a lien by paying the holder of the secured claim an amount equal to the amount of the allowed secured claim

(not available in reaffirmation agreements - only chapter 7 where the property is exempt or abandoned, where the collateral is tangible personal property, only property that is intended for personal or household use)

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Cramdown (in 11 or 13)

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Cramdown:

section1129 limits a bankruptcy court's confirmation of a cram down of a secured claim to a plan that provides for distributions to the holder of that claim that have a present value at least equal to the value of the collateral.

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Questions for a chapter 11 cramdown

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1) what is the amount of the value of the collateral

2) how much more than that amount has to be paid if the amount is paid in installments over the life of the plan instead of in cash on the effective date of the plan

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Present value test

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Most payment plans are plans in installments - what is less clear is the issue of interest

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Interest in cramdown v. interest in over-secured debt

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Only a claim that is fully secured will draw interest from the time of the bankruptcy filing until the confirmation of a plan

and

any claim that is paid in installments will draw interest from the time of the confirmation of the plan until the time of the last plan payment

So, under 506b which is available under all chapters, an oversecured claim can generate interest from the time of the petition to the time of the distribution (for chapter 7) or the time of confirmation of the chapter 11-13 plan.

Under 1129 etc, all secured claims can generate interest after confirmation

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Cramdown differences in 13 from 11

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For claims secured by pmsi in motor vehicles that were purchased with 910 days of filing, changes in payments, interest rate, and amount can be crammed down. However, under 13, the total amount to be paid cannot be stripped down to the value of the collateral

Similarly, for all secured debt incurred within one year of filing, changes can be made as above but the total cannot be lowered to the value of the collateral

And in the case of mortgages, there is no cram down available

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What is a claim

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"right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, secured, under secured, etc."

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What is an unsecured claim

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A claim is unsecured if the creditor has not obtained a consensual, judicial, or statutory lien or if the value of the property subject to the lien is less than the amount of the claim

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Collecting unsecured claims

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Generally, unsecured creditors have to look to the property of the estate to satisfy their claims

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Four exceptions to unsecured claimants exclusive rights to the property of the estate under chapter 7

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Exempt property

Transfer to third parties

Liens remain valid

Administrative expenses

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Distribution to unsecured claims under chapter 13

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Plan must be approved by judge and creditors can object
Plan must commit all disposable income to repayment

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Distribution to unsecured creditors under chapter 11

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Plan controls, however:

chapter 11 does not require that all disposable income be used to make payments

the holders of unsecured claims can file a plan

holders of unsecured claims vote on the proposed plan

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Which holders of unsecured claims are eligible to participate in the bankruptcy distribution?

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The debtor will file a list of creditors, the court will then send notice of the bankruptcy to those listed, they must then file a proof of claim (in 11, they must only do so if its claim is scheduled as disputerd, contingent, etc)

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Allowance

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Under 7, distribution is only available to claims that are allowed

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Disallowance

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1) the claim is unenforceable against the debtor or the property of the debtor by reason of any agreement or applicable law

2) a claim for unmatured interest

3) if a claim is for property tax of some kind that exceeds value of property

4) If the claim is by a debtor's attorney or insider where that claim is unreasonable

5) Postpetition alimony or child support (since it is nondischargeable)

6) if the claim is that of a landlord for future rent, it will be limited to the greater of one years payment on a lease, or 15 percent of the lease where it is less than a 3 year total (note that this only amounts to claims in leases for the future)

7) an employment claim is limited to back wages due at filing and one year after

8) taxes

9) claims not filed on time

10) where a creditor has received a voidable transfer and not returned the property

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Contingent claims

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The fact that a claim is contingent or unliquidated at the time of the filing does not affect its allowance (so a tort filing is not going to be disallowed by a bankruptcy petition)

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Exceptions to the rule that only claims that predate the filing can be made under chapter 7

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In an involuntary case, claims arising in the debtors ordinary course of business after the commencement of the case but before the earlier of the appointment of a trustee or the order of relief will be allowed as if the claims had arisen for the petition

claims arising from the rejection of an executory contract or unexpired lease

A claim arising from the recovery of property because of a voidable transfer will be determined and allowed

tax stuff

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Priority claims under chapter 7

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Priorities under section 507

Allowed unsecured claims which were either timely filed or tardily filed by a creditor who was unaware of bankruptcy

Allowed unsecured claims which were tardily filed by creditors with notice or actual knowledge of the bankruptcy

Fines and punitive damages

Post petition interest on pre-petition claims

(all claims are paid in order and claims on equal footing are distributed pro rata)

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Priority claims under 11,12,13

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the law requires the payment of all priority claims but the claims can be stretched over time

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507 priority

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Domestic support obligations

Administrative Expenses (which include the costs of maintaining, repairing, and restoring the property, trustee fees, also includes priority for the value of goods sold on credit to the debtor in the ordinary course of business and received by the debtor within 20 days before the commencement of the case)

DUI is last priority and has no cap

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510 Subordination

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1 - where there is a subordination agreement that would be enforceable under non-bankruptcy law

2 - when a seller or purchaser of equity securities seeks damages or rescission

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Treating a lease or executory contract

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1) Rejection

2) Assumption

3) Assignment

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Rejection

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No property of the estate

Claims: Unsecured claim for prepetition default, breach resulting from rejection, administrative expense priority claim for postpetition obligations, if any

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Assumption

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Property of the estate: debtor's rights under the contact or lease

Claims: Administrative expense priority claim for all obligations under contract or lease, post petition or prepetition

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Assignment

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Property: proceeds, if any, from assignment of debtor's rights under contract or lease

Claims: No claim against the estate. Nondebtor party to an assigned contract or lease looks solely to the assignee.

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Discharge

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Ask:

1) which debtors receive a discharge

2) which debts are discharged

3) what is the effect of the discharge

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Grounds for denial of discharge

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Generally, some form of dishonesty or lack of cooperation

Fraudulent Transfers with 12 months preceding filing

Making a false oath

Presenting or using a false claim against the estate

receiving or giving consideration for action or inaction in the proceeding

withholding books

Failure to explain satisfactorily any loss or deficiency of assets

Refusing to testify

Dealing with an insider

If a debtor has received a discharge in chapter 7 or 11 in the past 8 years

discharge under 13 in the last 6 years (measured from filing date to filing date for both)

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Procedure for objecting to discharge

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Initiated by complaints and any complaint must be submitted within 60 days of creditors meeting

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In chapter 11

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Confirmation of the plan operates as a discharge

Not so in chapter 13

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Which obligations are affected by discharge

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Debt

Under 7: debts that arose before the order for relief

11 - debts that arose before the date of confirmation

13 - all debts under the plan

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Chapter 7 discharge

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relieves debtor of personal liability for debts that are both

1) incurred prior to the time of the order for relief

2) not within one of the exceptions to discharge set out in section 523

Fraudulent debts are exceptions
-where debtor provided creditor with a written false financial statement and other fraud

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Difference in chapter 11

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discharge relates to debts that arose before the date of the order for relief

other issues because it is a corporation sometimes

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Difference between 13 and 7 discharge

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debts for willful and malicious injury to property
tax
divorce

are dischargeable

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Reaffirmation

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What is a reaffirmation agreement

why would a debtor enter into a reaffirmation agreement

what are the bankruptcy law issues related to reaffirmation

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What is a reaffirmation

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An agreement, it cannot be done by the debtor alone (requires assent by both parties)

It is essentially an agreement to pay a dischargeable debt usually to keep encumbered property or protect a co-debtor, or protect a relationship with a creditor`

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Limitation on enforceability of reaffirmation agreement

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1) the agreement must be executed before the discharge is granted

2) giving the debtor a right to rescind

3) before any reaffirmation is signed, the creditor must disclose details

4) must be filed with the court

5) hearing

6) attorney

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May file for chapter 13 if:

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an individual and

has a regular income

and has fixed unsecured debts of less than 307,675 and fixed secured debts of less than 925,975

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Co-debtor stay

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available under chapter 13 which is available only if:

the debt is a consumer debt

the co-debtor is not in the credit business

(it is automatically over when the case is closed, dismissed or converted)

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Filing a plan

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Only the debtor can file a chapter 13 plan

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the plan

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may provide for less than full payment to other unsecured claims but may not arbitrarily discriminate and must treat all claims the same

May modify the rights of a mortgage holder on the debtor's store or car but not where the debtor has a mortgage agreement. The plan cannot modify a claim secured only by the debtor's principal residence but can provide for periodic payments of mortgage payments in arrears

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"best interest of creditors"

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a chapter 13 test for unsecured claims:

the present value of the proposed proposed payments to a holder of an unsecured claim must be at least equal to the amount they would receive under chapter 7

payment plans do not have sum totals for the purposes of present value

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"best efforts"

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plan must pay all unsecured claims with interest or commit all disposable income to the comitment period

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"disposable income"

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"current monthly income" other than child support income that is not necessary to provide support for the debtor and their dependants

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Secured claims are protected by

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1) acceptance of the plan

or

2) continuation of the lien and proposed payments to such a creditor of a present value that at least equals the value of the collateral

3) surrender of the collateral to the creditor

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Cramdown in chapter 13

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A chapter 13 plan can propose modifications of a secured claim to which the holder of the claim consents

Secured claim plan confirmation issues arise only if the plan proposes that

the debtor retain the encumbered property

and

the secured claim be modified

and

the holder of the secured claim does not accept the plan

No strip down is allowed for debt incurred within one year of filing and within 910 days for a car pmsi - however the interest can be crammed down and so can the amount of each payment

cramdown is still possible in a case where the debt was not incurred within a year of bankruptcy, the collateral is not a personal use automobile, and the collateral is not the debtor's home

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Mortgages under chapter 13

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Cannot be affected, the rate as well

Defaults can be cured, however and short term mortgages may be different

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Classification of unsecured claims under chapter 13

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Debtor can pay off one creditor completely even if she cannot pay all creditors in full

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Converting a case from 13 to 7

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raises questions about the treatment of post petition claims and property

Chapter 7: automatic stay of section 362 protects the debtor from creditors collection efforts - property of the estate as described in 541 is distributed to creditors

Chapter 13: Automatic stay of protects debtor and co-debtor except as provided in the plan debtor keeps property of the estate

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Use of encumbered property in chapter 11

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Allows for liens to stand that create a right to proceeds generated by the pre-petition collateral but will void any agreement to future inventory not so acquired

The stay stops repo

the dip can still use, sell, and lease encumbered assets as long as the lien creditor has adequate protection for its interest (the purpose of the requirement is to ensure that the creditor has the collateral, payments of that value, or a combination of collateral and payments for the total - the depreciation in the value of the asset must be addressed

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If adequate protection proves inadequate?

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a creditor may seek and administrative expense claim for the amount by the which the protection ordered missed

(if there is conversion, chapter 7 admin expenses come before others)

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Use of encumbered assets that is not cash collateral

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encumbered property that is not cash may be used sold or leased without a judicial decision that there is adequate protection as long as it is within the course of business

If not, there needs to be a judicial hearing

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Cash collateral

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Cash collateral is defined as having components:

1) cash collateral must be collateral, ie property that a creditor has an interest in because its lien extends to the property

2) Cash collateral must be cash or cash equivalent

3) Cash collateral can be derived from other collateral like rents, etc.

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Use of cash collateral

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only with lienholders consent or after a finding of adequate protection

a debtor can offer secured creditors a replacement lien on post petition inventory and accounts receivable as adequate protection for cash collateral and a priority

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post petition credit

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can become an administrative expense wherein the borrow has the authority to run the business and the borrowing is in the normal course of business

Where unsecured credit cannot be obtained, the dip can have court approved special priority liens or with other liens not interfering with existing liens

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Obtaining Priming Secured Credit

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Court can allow a senior lien on encumbered property after a hearing

if:

the trustee is unable to obtain credit otherwise

and

the interests of the prepetition lienholders on the property whose liens are displaced are adequately protected

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Cross-collateralization

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Where a pre-petition lender seeks to improve its pre-petition standing by lending funds post petition