Br Chapter 1

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Automatic Stay

Back 1

Goes into effect as soon as the debtor files for BR.

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Discharge in BR

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-If granted a discharge, you are absolved from PERSONAL libality from all pre-bankruptcy debt.

-Property remains liable

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Issues

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1)notion of eligibility of BR

2)price of discharge

3)scope of relief

-Asset based model for companies or property

-

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BR courts are

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Article 1 Courts, 14 years terms. Could lower salary of BR judges.

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District Courts can

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refer cases to BR courts if it wishes too and can hear appeals and sit as an appellate court.

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Adversary Proceeding (Rule 90)

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Adversary proceeding is a federal lawsuit

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Contested Matter

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-Contested matter (relief can be sought by motion). Timeline is MUCH shorter than an adversary proceeding and the process is much more informal.

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Trustee

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-is a private party selected by the U.S. trustee or

-U.S. Trustee is the fed. agency in charge of being the watch dog of the BR system. Resides in the Department of Justice.

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Federal BR Law does not:

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Look to replace state law

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BR Code

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-Title 11 U.S.C.

-Chapters of general applicability and operational chapters

-chapter 1=genereal provisions

-can only be a debtor under 1 chapter at any given time.

-individuals will typically not file under chapter 11.

Front 11

Fresh Start (§524)

Back 11

Effect of discharge:524(a)(2) – a discharge in a case under thistitle operates as an injunction against the commencement or continuation of anaction, the employment of process, or an act, to collect, recover, or offsetany such debt as a personal liability of the debtor, whether or not dischargeof such debt is waived.

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Problem 3-1:D owes C $10,000. D files a Ch. 7 petition. C receives $500 from D's Ch.7 trustee as its Ch.7 Distribution. D receives a discharge which legitimately includes the debt owed to C. Can C sue D for the other $9,500?

Back 12

Price of getting a chapter 7 discharge is yougive up pre-bankruptcy property. Go to 524(a)(2) a discharge operates as aninjunction against the commencement of an action to collect a debt that wasdischarged under 727. So if C initiated a lawsuit against D post bankruptcy,then argue C was violating the discharge statute. Debtor could choose to ignorethe state lawsuit and bring its own lawsuit in state court against creditorsaying it violated the discharge injunction. Debtor in state court action couldanswer to say that they don’t have to pay the money because of dischargeinjunction and is entitled to damages from creditor for its violation and sogoing to bring a cross claim against the creditor for discharge injunction.

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3-1 (2):Same facts as 3-1 (1). Can C call D and politely ask D to pay the other $9,500?

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Instead of a formal lawsuit, creditor is tryingto make a phone call. No the creditor cannot do this, 524(a)(2) also operatesas an injunction against an act to collect such debt.

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3-1 (3):D corp owes C $100,000. D Corp files a Ch.11 petition. D Corps Ch.11 plan is confirmed and D. Corp obtains a discharge under section 1141(d). The plan provides for 10 monthly payments of $5,000 to C. D Corp. makes two of the monthly payments and then fails to make the other 8 monthly payments of $5,000. Can C sue D Corp. for $40,000. For $90,000?

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· 3. Debtor is going to propose achapter 11 reorganization plan which will set forth an organization plan. Debtorhas substituted a pre-bankruptcy obligation for a post-bankruptcy obligation. Pre-petition: anything before debtor filedfor bankruptcyPost-petition: events that occurred afterdebtor filed for bankruptcy**********WHAT?!

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3-2 "Discharge and what a secured Creditor can do" : D owes S $20,000. The debt is secured by a lien on D's truck. D files a Ch.7 petition, claims the truck as exempt, receives a discharge, and retains the truck. Can S still repo the truck if all it does is repo and sell according to state law, and does not threaten to pursue D for any defeciency between the $20 k owed and the net proceeds of sale?

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· $20k debt secured by lien on D’struck. Lien creates a relationship between a debt owed by a debtor and thecreditor. If under state law creditor tried to seize the exempted truck, wouldbe in violation of the tort of conversion. Does D’s discharge prohibit S fromexercising its state law remedies? If debtor defaults, then under state law,right to both repossess and sell the truck. Does repossessing the truck andselling it run afoul to 524(2)? Acts to collect debt based on in rem liabilityof the debtor’s property. D is not the same thing as D’s truck. D’s truck isthe debtor’s property, which is liable for the $20k debt. 524(a)(2) doesn’tapply here. To the extent the debtor’s property was liable for pre-bankruptcydebts will remain. If creditor only got $10k from the truck, creditor could notsue for the other $10k because it would be in violation of 524(a)(2) becausethat would be a personal liability on D. Keep a distinction between an inpersonam (524(a)(2)) applies and in rem.

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3-3 "Discharge and what a Creditor can do to 3rd Parties":1)D owes C $30k. The debt is guranteed by G. D files a chapter 7 petition. C receives $3k from D's chapter 7 trustee. D receives a discharge. Can C sue G for $27 k?

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. D is a primary obligor, and G is a secondaryobligor. If D doesn’t pay, C can look to G. C can no longer go after D under524(a)(2). C can go after G, no longer a contingent claim, so C now has a $27kclaim against G. This does not run afoul the discharge injunction because C isno longer trying to recover from the debtor, he is trying to recover from a 3rdparty. 524(e) discharge of a debt does not affect the liability of anotherentity for such debt. Entity includes individuals and legal entities. If theamount was $27 million, G may end up having to file for bankruptcy if it cannotpay that.

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3-3;2:C has a $1,000,000 mal practice judgment against Dr. D. D. files a chapter 7 petition and receives a discharge. Applicable law permits injured victims to sue insurance companies directly. Can C recover from D's malpractice insurer?

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· 2. If C wants to sue debtor’sinsurer as state law provides, C is going after a 3rd party who willbe liable for D’s discharged debt. 524(a)(2) doesn’t apply, and 524(e) saysthat the discharge does not affect the liability of the insurer for D’sdischarged debt