Business Law - Management 4540 Bankruptcy Law Ch. 30

Front 1

Initial bankruptcy laws only protected:

Back 1

Creditors

Front 2

What kind of debts were the first to be eligible for discharge?

Back 2

Business debts

Front 3

Two purposes of bankruptcy law:

Back 3

1. Provide a fresh start for an honest debtor overburdened with debt.
2. Provide equitable treatment for creditors.

Front 4

Liquidation Proceeding

Back 4

A bankruptcy case in which the non-exempt assets of the debtor are sold to pay unsecured creditors. Chapter 7

Front 5

Exempt property (liquidation proceeding)

Back 5

Property that the debtor is allowed to keep in a chapter 7 liquidation.

Front 6

Rehabilitation

Back 6

A bankruptcy proceeding in which a debtor may potentially retain nonexempt assets and pay creditors in installments.

Front 7

Bankruptcy Estate

Back 7

All the money and property of the debtor that is not exempt. The trustee collects non exempt property for distribution to creditors in ch. 7.

Front 8

Claim

Back 8

A document filed with the bankruptcy court demonstrating a right to receive money or property from the bankruptcy estate.

Front 9

Secured Claim

Back 9

The creditor has the perfected security interest with the debtor's property as collateral

Front 10

Unsecured claim

Back 10

The creditor has no security interest or an unperfected security interest in the debtor's property.

Front 11

Allowed claim

Back 11

A claim approved by the judge assigned to the case

Front 12

Dividend

Back 12

A payment to the creditor from the planned payments or the bankruptcy estate (the non exempt assets that the debtor may not keep)

Front 13

Workouts

Back 13

Negotiations with creditors outside the bankruptcy process to restructure debt.

Front 14

Corporate bankruptcy vs. consumer bankruptcy

Back 14

Consumer bankruptcy the primary issue is usually dischargability of debts.

Corporate is focused on the division of assets

Front 15

Trustee in bankruptcy defined

Back 15

The person selected by the federal govt or by unsecured creditors to represent the unsecured creditors in the bankruptcy case.

Front 16

Three purposes of the trustee in bankruptcy

Back 16

1.Reviews bankruptcy petition and reviews the debtor under oath at the first meeting of creditors to verify income, property, financial and exemption schedules.
2. Collects non-exempt assets for sale and distribution (ch. 7)
3. Collects plan payments from the debtor to distribute to creditors (ch. 12 and 13)

Front 17

Chapter 7 Bankruptcy

Back 17

The liquidation chapter where non exempt assets are sold to repay creditors and the debtor is discharged from the obligation to pay most debts.

The debtor keeps exempt assets.

Front 18

Chapter 7 eligibility

Back 18

Individuals and business entities, excluding railroads and financial institutions.

Front 19

If someone applying for chapter 7 is capable of repaying debts...

Back 19

They will probably not receive a discharge. The case will be dismissed.

Front 20

Chapter 11 bankruptcy

Back 20

The reorganization chapter used primarily by businesses to restructure debt. The debtor receives a discharge after fulfilling the plan including paying the planned payments.

Front 21

Chapter 11 eligibility

Back 21

All persons eligible for chapter 7 plus railroads

Front 22

Chapter 12 Bankruptcy

Back 22

The family farmer chapter used to adjust the farmer's debt payments. The debtor must be a family farmer and will receive a discharge after paying the planned payments.

Front 23

Chapter 13 bankruptcy

Back 23

The chapter used by individuals (no business entities) to adjust debt payments. The debtor receives a super discharge after paying the planned payments.

Front 24

List Chapter 7 procedure

Back 24

Petition
Automatic Stay
First meeting of creditors
Period for claims and challenges
Discharge

Front 25

Chapter 7 procedure - petition

Back 25

Petition is filed requesting bankruptcy relief under chapter 7. (petition could request relief under another chapter instead.

The debtor must attend credit counseling within 180 days of filing consumer bankruptcy and must get financial management counseling as a prerequistite to discharge

Front 26

Means test -

Back 26

Requirements for consumer debtors who want to file chapter 7. If you make more than your state's median income, abuse of chapter 7 is presumed if you have disposable income over 5 years so that:
1. You can pay more than $10,000, or
2. You can pay 25% of your debt and your total payment would be at least $6000.
3. Disposable income: net income minus necessary living expenses

Front 27

Chapter 7 - Automatic Stay

Back 27

Issued upon filing petition.

A court order requiring that all collection activity against the debtor be stopped upon notice that the debtor has filed bankruptcy.

Includes passive means of collection such as garnishments and automatic deductions

Front 28

Automatic stay is limited or unavailable for:

Back 28

Unavailable for collection activities on support debts and some other debts.

Debtors with recent filings under the 2005 law.

If one filinf dismissed in the last year, the stay lasts only 30 days unless debtor gets an extension order from the judge.

If more than one filing dismissed in the last year, the stay does not go into effect at all unless the court orders it.

Front 29

Chapter 7 (and all bankruptcy chapters)- First meeting of creditors

Back 29

An opportunity for the trustee and the creditors to question the debtor under oath.

The appearence of the debtor and the trustee is required.

Front 30

Chapter 7 (and all bankruptcy chapters) - Period for claims and challenges

Back 30

The first meeting of creditors begins a period for filinf claims and challenges to dischargability of some or all debts

Claims: must typically be filed within 90 days of the first meeting

Challenges: must typically be filed within 60 days of the first meeting

Front 31

Chapter 7 (and all rehabilitation chapters) - Discharge

Back 31

The order of discharge releaves the debtor of the obligation to pay all dischargable debts.

Many types of debts are non dischargable.

Front 32

Avoidance power:

Back 32

The power of the trustee to extinguish claims and liens and to set aside transfers to increase the bankruptcy estate (property available to creditors)

Front 33

List the four avoidance powers of the trustee

Back 33

The power to avoid liens by using his/her status as a perfected , secured creditor.

The power to avoid post-petition transfers.

Avoidance of fraudulent transfers.

Avoidance of preferences.

Front 34

Four avoidance powers of the trustee: The power to avoid liens:

Back 34

Trustee has prioroty over unperfected liens.

Trustee has priority over liens perfected after bankruptcy is filed.

Front 35

Four avoidance powers of the trustee: The power to avoid post-petition transfers:

Back 35

Transfers by the debtor of non-exempt assets after the bankruptcy petition is filed because the trustee now holds the title.

Front 36

Four avoidance powers of the trustee: Avoidance of fraudulent transfers

Back 36

Transfers made by the debtor for less than adequate consideration within 2 years before filing bankruptcy

Giving up to 15% of gross annual income to charity is not fraudulent.

Example: Giving car to brother before filing to avoid losing it to creditors.

Front 37

Four avoidance powers of the trustee: Avoidance of preferences

Back 37

Prior to bankruptcy a creditor is paid more than its bankruptcy share of the debtor's assets.

Transfer is set aside and money placed in the bankruptcy estate so that creditorsa are treated fairly under the priorities of the bankruptcy code.

Front 38

list the five steps to proving preferences

Back 38

The debtor made a transfer or transfers of money or property:
1. To or for the benefit of a creditor.
2. On account of a pre-existing debt. Not a simultaneous exchange of value. Not in the ordinary course of business or payment schedule.
3. Within the required time period. Insiders: transfers within one year of filing. Others: transfers within 90 days before filing.
4. Where the debtor was insolvent after the transfer and
5. Where the creditor received more than it would have in a chapter 7 if the reansfer had not been made.

Front 39

Asset cases:

Back 39

cases where there are non-exempt assets available to create a bankruptcy estate.

Front 40

Asset case exemptions

Back 40

Each state has it's own exemption scheme based on either the federal exemptions, its state exemptions or the debtors option to select one or the other.

Front 41

Missouri exemption scheme

Back 41

Household goods: $3000 for a single debtor, $6000 for a married couple

Automobile: $3000 for single, $6000 if married

Homestead: $15000 ( 1 per family)

Head of household (1 per family): $1250 plus $350 for each unmarried, minor dependant. Wild card exemption - applies to any type of asset.

Tools of trade: $3000

Mobile home: $5000

Support, disability and retirement payments.

Exemptions apply to the debtors equity in the property.

Front 42

State of Missouri exemptions - Things to remember

Back 42

Title to non- exempt assets is transferred to the trustee immediately upon filing.

Creditors must file claims to participate in dividend payements

Front 43

List the priorities (order of payments) in asset cases

Back 43

1. Domestic support obligations
2. Administrative expenses: Filing fees, trustee's fees
3. Unpaid wages or commisions earned within 180 days of filing for up to $10,050
4. Taxes generally and income taxes which accrued within 3 years of bankruptcy filing
5. Claims for death or injuries resulting from DWI
6. General unsecured creditors

Front 44

What do secured creditors have the right to?

Back 44

Adequate protection of their interests in all bankruptcy chapters

Front 45

In a chapter 7, what must the debtor do to protect the secured creditors?

Back 45

They must either Reaffirm, redeem or surrender their debts

Front 46

Define reaffirmation of debts in a chapter 7

Back 46

The debtor reobligates himself to the installment debt.

Usually done to allow the debtor to keep important collateral.

Front 47

Define redemption of debts in a chapter 7

Back 47

The debtor redeems the creditor by paying fair market value or they surrender the collateral to the creditor.

Front 48

Definition of surrender in a chapter 7

Back 48

Giving your collateral to the secured creditor

Front 49

The debtor has how many days after the first meeting of creditors to agree to repay secured creditors, or the secured creditors are freed of the automatic stay?

Back 49

45 days

Front 50

A bankruptcy discharge...

Back 50

Discharges the debtor from the obligation to pay dischargeable debts

Front 51

List the 6 nondischargeable debts

Back 51

1. Claims for back taxes or loans to pay back taxes accruing within 3 years.

2. Claims where the debtor obtained money or property through fraud.

3. Domestic support obligations, including most divorce settlement obligations.

4. Property damage or personal injury claims intentionally caused by the debtor.

5. Student loans unless payment causes undue hardship.

6. Judgments against the debtor for DWI

Front 52

List the four objections to discharge and state what having any one of them being granted means:

Back 52

If one of these is granted, the debtor is still obligated to all debts.

1. Concealment or destruction of property or financial records.

2. Discharge in a bankruptcy case occurring 8 years prior to the current filing.

3. Failure to complete the required financial management course

4. Possible felony conviction

Front 53

Involuntary bankruptcy

Back 53

The creditors file bankruptcy against the debtor.

Front 54

What are the requirements for an involuntary filing?

Back 54

1. The debtor must be insolvent

2. The requirements as to the number of creditors must be met:
a.) If 12 or more creditors, at least 3 must file
b.) If < 12, 1 or more may file
c.) The creditors who file are owed at least $13,475 in the aggregate

3. The debtor is not a family farmer

4. There are no involuntary filings for chapters 12 and 13

Front 55

Chapter 11 eligibility

Back 55

Everyone eligible for chapter 7 plus railroads

Front 56

In chapter 11, the trustee may either be:

Back 56

1. The Debtor

2. Appointed if the the debtor is inept or dishonest

Front 57

A chapter 11 divides creditors into classes, and specifies how much they will be paid, such as:

Back 57

1. Over secured creditors - must be paid in full

2. Under secured creditors- eligible for forced redemption over time.

3. Priority creditors

4. General unsecured creditors

Front 58

Adequate protection in a chapter 11

Back 58

secured creditors must receive at least the present value of their collateral or be paid in full

1. retained collateral must be insured

2. Installment payments must include interest

Front 59

Nondiscrimination in a chapter 11

Back 59

Plan may not treat a lower priority creditor like a higher priority creditor.

Plan may not treat creditors with the same priority differently

Front 60

Confirmation in a chapter 11

Back 60

1. Approval by vote of the creditors

2. Cramdown by court if plan:
a.) does not discriminate
b.) Provides adequate protection
c.) is feasible

Front 61

Chapter 13 eligibility

Back 61

a.) The debtor must be an individual with regular income

b.) The debtor must meet the debt limits of:
1.) $250,000 ($350,000)unsecured debt indexed to inflation
2.) $750,000 ($1 Million) secured debt indexed to inflation

Front 62

For confirmation in a chapter 13
the debtor must:

Back 62

1. File a plan within 15 days of filing the petition

2. Not have received a bankruptcy discharge in a chapter 13 case within 2 years or 4 years for any other chapter

3. Pay all disposable income to the trustee for a 3-5 year period, or pay debts in full
(5 years if over median income)

4. Provide adequate protection and not discriminate against creditors.
a.) no lien stripping on car loans less than 2.5 years old
b.) Otherwise follow priorities

5. Meet the best interest of creditors test
a.) unsecured creditors must receive at least as much as they would have in a chapter 7

6. All priority creditors must be paid in full

Front 63

Describe the super discharge of a chapter 13

Back 63

1. All debts that are dischargeable in chapter 7

2. Additional debts discharged:
a.) marital debts created in divorce
b.) Debts incurred to pay a non-dischargeable debt
c.) Debts that could not be discharged in a previous bankruptcy
d.) Intentional damage to the property of another

Front 64

Chapter 12 - family farmer. Same as chapter 13 except: Eligibility:

Back 64

The debtor must be a family farmer:
1. The debtor must be engaged in a farming endeavor, or be a business entity at least 50% owned by a family farmer and relatives.

2. At least 50% of the debtors income and 50% of the debt must be farm related.

3. The debt must not be more than $3.5 million

Front 65

Chapter 12 - family farmer. Same as chapter 13 except: Period to file:

Back 65

You have 90 days to file your plan

Front 66

Chapter 12 - family farmer. Same as chapter 13 except: Adequate protection

Back 66

There are relaxed rules for adequate protection.

It allows the farmers to keep the farming equipment more easily.

Front 67

Chapter 12 - family farmer. Same as chapter 13 except: Farm expenses

Back 67

Farm expenses are deducted in disposable income calculation

Front 68

Voluntary conversion

Back 68

Generally a debtor may voluntarily convert from one type of bankruptcy to any other chapter that the debtor is eligible for.

Front 69

Involuntary conversion

Back 69

Generally a creditor may force a conversion where the best interest of the creditors will be better served in another chapter except:

a.) No involuntary conversion to Ch. 12 or 13, though you can be forced into 13 through the substantial abuse laws.

b.) No involuntary conversion against farmers or family farmers