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69 Cards in this Set

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Initial bankruptcy laws only protected:
Creditors
What kind of debts were the first to be eligible for discharge?
Business debts
Two purposes of bankruptcy law:
1. Provide a fresh start for an honest debtor overburdened with debt.
2. Provide equitable treatment for creditors.
Liquidation Proceeding
A bankruptcy case in which the non-exempt assets of the debtor are sold to pay unsecured creditors. Chapter 7
Exempt property (liquidation proceeding)
Property that the debtor is allowed to keep in a chapter 7 liquidation.
Rehabilitation
A bankruptcy proceeding in which a debtor may potentially retain nonexempt assets and pay creditors in installments.
Bankruptcy Estate
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.
Claim
A document filed with the bankruptcy court demonstrating a right to receive money or property from the bankruptcy estate.
Secured Claim
The creditor has the perfected security interest with the debtor's property as collateral
Unsecured claim
The creditor has no security interest or an unperfected security interest in the debtor's property.
Allowed claim
A claim approved by the judge assigned to the case
Dividend
A payment to the creditor from the planned payments or the bankruptcy estate (the non exempt assets that the debtor may not keep)
Workouts
Negotiations with creditors outside the bankruptcy process to restructure debt.
Corporate bankruptcy vs. consumer bankruptcy
Consumer bankruptcy the primary issue is usually dischargability of debts.

Corporate is focused on the division of assets
Trustee in bankruptcy defined
The person selected by the federal govt or by unsecured creditors to represent the unsecured creditors in the bankruptcy case.
Three purposes of the trustee in bankruptcy
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)
Chapter 7 Bankruptcy
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.
Chapter 7 eligibility
Individuals and business entities, excluding railroads and financial institutions.
If someone applying for chapter 7 is capable of repaying debts...
They will probably not receive a discharge. The case will be dismissed.
Chapter 11 bankruptcy
The reorganization chapter used primarily by businesses to restructure debt. The debtor receives a discharge after fulfilling the plan including paying the planned payments.
Chapter 11 eligibility
All persons eligible for chapter 7 plus railroads
Chapter 12 Bankruptcy
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.
Chapter 13 bankruptcy
The chapter used by individuals (no business entities) to adjust debt payments. The debtor receives a super discharge after paying the planned payments.
List Chapter 7 procedure
Petition
Automatic Stay
First meeting of creditors
Period for claims and challenges
Discharge
Chapter 7 procedure - petition
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
Means test -
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
Chapter 7 - Automatic Stay
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
Automatic stay is limited or unavailable for:
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.
Chapter 7 (and all bankruptcy chapters)- First meeting of creditors
An opportunity for the trustee and the creditors to question the debtor under oath.

The appearence of the debtor and the trustee is required.
Chapter 7 (and all bankruptcy chapters) - Period for claims and challenges
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
Chapter 7 (and all rehabilitation chapters) - Discharge
The order of discharge releaves the debtor of the obligation to pay all dischargable debts.

Many types of debts are non dischargable.
Avoidance power:
The power of the trustee to extinguish claims and liens and to set aside transfers to increase the bankruptcy estate (property available to creditors)
List the four avoidance powers of the trustee
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.
Four avoidance powers of the trustee: The power to avoid liens:
Trustee has prioroty over unperfected liens.

Trustee has priority over liens perfected after bankruptcy is filed.
Four avoidance powers of the trustee: The power to avoid post-petition transfers:
Transfers by the debtor of non-exempt assets after the bankruptcy petition is filed because the trustee now holds the title.
Four avoidance powers of the trustee: Avoidance of fraudulent transfers
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.
Four avoidance powers of the trustee: Avoidance of preferences
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.
list the five steps to proving preferences
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.
Asset cases:
cases where there are non-exempt assets available to create a bankruptcy estate.
Asset case exemptions
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.
Missouri exemption scheme
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.
State of Missouri exemptions - Things to remember
Title to non- exempt assets is transferred to the trustee immediately upon filing.

Creditors must file claims to participate in dividend payements
List the priorities (order of payments) in asset cases
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
What do secured creditors have the right to?
Adequate protection of their interests in all bankruptcy chapters
In a chapter 7, what must the debtor do to protect the secured creditors?
They must either Reaffirm, redeem or surrender their debts
Define reaffirmation of debts in a chapter 7
The debtor reobligates himself to the installment debt.

Usually done to allow the debtor to keep important collateral.
Define redemption of debts in a chapter 7
The debtor redeems the creditor by paying fair market value or they surrender the collateral to the creditor.
Definition of surrender in a chapter 7
Giving your collateral to the secured creditor
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?
45 days
A bankruptcy discharge...
Discharges the debtor from the obligation to pay dischargeable debts
List the 6 nondischargeable debts
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
List the four objections to discharge and state what having any one of them being granted means:
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
Involuntary bankruptcy
The creditors file bankruptcy against the debtor.
What are the requirements for an involuntary filing?
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
Chapter 11 eligibility
Everyone eligible for chapter 7 plus railroads
In chapter 11, the trustee may either be:
1. The Debtor

2. Appointed if the the debtor is inept or dishonest
A chapter 11 divides creditors into classes, and specifies how much they will be paid, such as:
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
Adequate protection in a chapter 11
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
Nondiscrimination in a chapter 11
Plan may not treat a lower priority creditor like a higher priority creditor.

Plan may not treat creditors with the same priority differently
Confirmation in a chapter 11
1. Approval by vote of the creditors

2. Cramdown by court if plan:
a.) does not discriminate
b.) Provides adequate protection
c.) is feasible
Chapter 13 eligibility
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
For confirmation in a chapter 13
the debtor must:
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
Describe the super discharge of a chapter 13
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
Chapter 12 - family farmer. Same as chapter 13 except: Eligibility:
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
Chapter 12 - family farmer. Same as chapter 13 except: Period to file:
You have 90 days to file your plan
Chapter 12 - family farmer. Same as chapter 13 except: Adequate protection
There are relaxed rules for adequate protection.

It allows the farmers to keep the farming equipment more easily.
Chapter 12 - family farmer. Same as chapter 13 except: Farm expenses
Farm expenses are deducted in disposable income calculation
Voluntary conversion
Generally a debtor may voluntarily convert from one type of bankruptcy to any other chapter that the debtor is eligible for.
Involuntary conversion
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