Bankruptcy & Debtor/creditor Rights - Cpa

Front 1

Types of insolvency

Back 1

Bankruptcy insolvency: debtor's liabilities greater than assets

Equitable insolvency: debtor is unable to pay debts as they come due

Front 2

Debtors not eligible for bankruptcy:
Voluntary bankruptcy
Involuntary bankruptcy

Back 2

Voluntary: Banks, insurance companies, charities

Involuntary: Banks, insurance companies, farmers, railroads, Chapter 13 debtors

Front 3

Order for relief: difference between voluntary and involuntary bankruptcy

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Voluntary: order is immediate

Involuntary: order entered 20 days after successful petition by creditor

Front 4

Involuntary bankruptcy: requirements for creditors

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Must prove equitable insolvency of debtor

Petition must be brought by at least 3 creditors whose unsecured claims total $12,300

(Or only 1 creditor needed if total number of creditors is under 12)

Front 5

Bankruptcy trustee:
Which chapter?
Duties?

Back 5

Chapter 7

Collect debtor's property
Avoid liens if preferential or fraudulent
Determine validity of claims

Front 6

Chapter 7 discharge: who is eligible?

Back 6

Individuals only

Front 7

Reasons a trustee might deny general discharge

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Dishonesty or lack of cooperation of debtor

Prior discharge within last 8 years

Front 8

Individual debts that cannot be discharged

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-Taxes within 3 years of filing
-Debts acquired through fraud or false financial statements
-Unscheduled debts
-Larceny, embezzlement, defalcation by fiduciary
-Child support and alimony
-Willful and malicious torts
-Fines and penalties owed to government
-Certain student loans
-Debts not discharged in prior bankruptcy

Front 9

Satisfaction of perfected liens

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Proceeds of sale of secured property must be applied

Leftover amount becomes unsecured debt

Front 10

Order of priority of unsecured claims

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-Administrative expenses
-Gap creditors
-Wages ($10K per employee earned within 90 days prior to petition)
-Employee benefit plan contributions ($10K per employee)
-Consumer deposits up to $1,950
-Spousal or child support
-Taxes (owed from previous 3 years)
-General unsecured claims (timely filed claims are paid first)
-Fines, penalties, punitive damages
-Interest on claims

Front 11

Makeup of Chapter 11 creditors' committee

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7 largest unsecured creditors willing to serve

Front 12

Chapter 11 reorganization plan can be confirmed if:

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Accepted by every class of creditors

OR

Approved by bankruptcy court if found to be "fair and equitable"

Front 13

Chapter 13: requirements of debtor

Back 13

Must be an individual
Must have regular income
Must have unsecured debt less than $307,675
Must have secured debt less than $922,975

Front 14

Chapter 13 reorganization plan: requirements

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Must be approved by court, not creditors

Must pay creditors at least as much as they would have received under Chapter 7 liquidation

Plan cannot exceed 5 years

Front 15

Components of order for relief

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Automatic stay
Creation of bankruptcy estate
Debtor comes under jurisdiction of bankruptcy court

Front 16

Effect of automatic stay
Exceptions

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Stops creditor actions without notice to creditors

-Criminal actions
-Spousal/child support actions
-Regulatory agency actions
-Tax notices (notices allowed; collections stayed)

Front 17

Duration of automatic stay

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Chapter 7: until dismissal or discharge

Chapter 11 or 13: until reorganization plan is confirmed

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Creditor may be granted relief from stay if:

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Asset is not adequately protected

Property is not needed for reorganization

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Property included in the bankruptcy estate (list)

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Property owned on date of bankruptcy

Property brought in through trustee's avoiding powers

"180-day rule" property

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180-day rule property

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Property to which debtor becomes entitled within 180 days after filing bankruptcy, limited to:

Life insurance proceeds
Inheritance
Property settlement with spouse

Front 21

Property acquired through trustee's avoiding powers: list

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Preferential transfers
Fraudulent conveyances
Certain statutory liens
Post petition transfers

Front 22

Requirement to qualify as a preferential transfer

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Transfer is to or for benefit of creditor

Transfer is for antecedent debt

Debtor insolvent at time of transfer

Transfer made within 90 days preceding bankruptcy (or 1 year for insiders)

Creditor's position improved by transfer

Front 23

Exceptions to preferential transfer rule

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Contemporaneous transfer for new value

Transfer in ordinary course of business

Transfer less than $600

Front 24

Distinction between surety and guarantor

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Surety = primary liability (creditor may go after surety before principal debtor

Guarantor = secondary liability (creditor may go after guarantor only if principal debtor fails to perform)

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Defenses available to surety

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Forgery of debtor's signature

Fraud in the inducement

Creditor's breach of contract with debtor

Creditor's action that impairs value of collateral

Creditor's release of principal debtor

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Defenses not available to surety

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Bankruptcy of principal debtor

Infancy or insanity of principal debtor

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Actions that release surety/guarantor

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Payment or performance by principal debtor

Creditor's granting extension of time to principal debtor

Modification of principal debtor's obligation w/o surety's consent (but if surety is compensated, modification must injure surety for surety to be released)

Front 28

Co-surety's rights

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Exoneration: if surety is sued, may force principal debtor or other co-sureties to pay

Subrogation: if surety pays debt, may proceed against principal debtor

Contribution: if surety pays debt, may seek reimbursement from co-sureties