Business Law Chapter 31

when a petition is filed, and automatic stay suspends all acton by creditors against the debtor. (exceptions, limitations~ secured debts- adequate protection doctrine, secured debts- other protection)

Automatic Stay- Liquidation (ch 7)

Interest in property presently held; community property; property transferred in a transaction voidable by the trustee; proceeds and profits; life insurance death proceeds to which the debtor becomes entitled within 180 days after filing. Property that isn't included is property acquired after filing the petition except as noted before as well as withholdings for employee benefit plan contributions are excluded

Bankruptcy Estate- Liquidation (Ch 7)

Bankruptcy courts: where the bankruptcy proceedings are held under authority of federal district courts, which rulings can be appealed. Anyone liable to a creditor can declare bankruptcy.

Bankruptcy proceedings

a committee of unsecured creditors is appointed to consult with the trustee or DIP. other committees may represent special-interest creditors. Some small businesses can avoid creditors' committees

Creditor's committees- Reorganization Ch11

The trustee calls the meeting within twenty and forty days of the petition. The debtor must attend (unless excused by court) and submit to examination under oath. At the meeting, the trustee ensures that the debtor is advised of the potential consequences of bankruptcy and of his or her ability to file for bankruptcy under a different chapter

Creditor's meeting- Liquidation Ch7

exceptions-debts that may not be discharged (claims for back taxes, amounts borrowed to pay back taxes, goods obtained by fraud, debts that were not listed in a petition, domestic support, student loans, certain cash advances, and others

Discharge- Liquidation Ch7

after completion of payments, debts provided for by the plan are dischargeable. Many debts ( tax claims, domestic obligations, student loans, and others) are not dischargeable. A discharge obtained by fraud can be revoked within one year

Discharge- Repayment plan Ch13

Any amount remaining after the property is distributed to creditors is turned over to the debtor. (secured creditors, unsecured creditors

Distribution of property-liquidation Ch 7

include domestic support obligations (owed to a spouse, former spouse, debtor's child...), related proceedings, securities regulation investigations, property tax liens, prior eviction actions, and withholding to repay retirement account loans

Exceptions- automatic stay

Federal Law- exempts such property as interests in residence to $21,625, a motor vehicle to $3,450, certain household goods to $11,525, tools of trade to $2,175, and retirement and education savings accounts, and the rights to receive social security, domestic support, ad other benefits. State Law- most states preclude the use of federal exemptions, others allow a debtor to choose between state and federal. State exemptions may include different value limits and exempt different property

Exemptions- Liquidation Ch 7

a case can be initiated by voluntary filing of a petition or by conversion of a chapter 7 case. Debtor must act in good faith at the time of the filing plan and the petition. A trustee is appointed.

Filing the petition-Ch13

a trustee can avoid fraudulent transfers made within TWO YEARS of a petition's filing of if they were made with intent to delay, defraud, or hinder a creditor. Transfers for less than reasonably equivalent consideration may also be avoided if, by making them, a debtor became insolvent, was left in business with little capital, or intended to incur debts that he or she could not pay.

Fraudulent transfers-trustee

Who is eligible-Individuals with regular income and unsecured debts of less than $360,475 or secured debts less than $1,081,400 are eligible (only debtors can initiate chapter 13.

Individuals' repayment plans Chapter 13

a debtor's creditors can force the debtor into bankruptcy proceedings.

Involuntary Bankruptcy- Liquidations (ch 7)

a creditor or other party "in interest" can ask for relief from the automatic stay, which then expires in 60 days, unless the court extends it. Secured-debts ( doctrine protects secured creditors by requiring payments or other collateral or relief, to the extent that the stay may cause the value of their collateral to decrease)

Limitations- automatic stay

Most familiar type of bankruptcy proceeding. A debtor declares his or her debts and gives all assets to a trustee, who sells the nonexempt assets and distributes the proceeds to creditors.

Liquidation Proceeding (Chapter 7)

a trustee can recover a debtor's payment or transfer of property made to a creditor within ninety days before the petition in preference to others. preference to insiders-within a year of the petition can be recovered.

Preferences- trustee

A debtor's agreement to pay a dischargeable debt can be made only after certain disclosures and before a discharge is granted, usually requires court approval, and will be denied if it will cause undue hardship. The debtor can rescind a reaffirmation within sixty days or before a discharge is granted, whichever is later.

Reaffirmation of Debt- Liquidation Ch7

The creditors and debtors formulate a plan under which the debtor pays a portion of the debts, is discharges of the rest, and continues in business.

Reorganizations Chapter 11

If collateral is surrendered, a secured party can accept it in full satisfaction of the debt or sell it, apply the proceeds to the debt, and become an unsecured creditor for the difference.

Secured Creditors -distribution of property

to use this exemption a debtor must have lived in the state for two years before filing a petition. If the home was acquired within the previous three and a half years, the exemption is limited to $146,450. In certain cases of substantial abuse and criminal or tortuous acts, no amount is exempt.

The Homestead Exemption-liquidation Ch7

Who can file a plan-only a debtor within 120 ays after the date of an order for relief. What the plan must do-Be fair and equitable, designate classes of claims and interest. The plan is submitted to creditors for acceptance (2/3 of the total claims must be approved) if only one class accepts, court may confirm. Discharge- a plan is binding on confirmation, claims aren't discharged if they would be denied in a liquidation proceeding.

The Reorganization Plan- Ch11

(1) if the debtor's family income exceeds the median family income in the geographic area- abuse may be presumed, and a creditor can file a motion to dismiss the petition. A debtor can rebut the presumption by showing "special circumstance." (2) if the debtor's family income does not exceed the median family income in the geographic area- a court can dismiss a petition for bad faith or another factor.

The court may dismiss a petition for substantial abuse under the "means test"- Voluntary bankruptcy

The debtor schedules with the court within 45 days. a debtor must form a list that (1) creditors and the debt to each, (2) the debtor's financial affairs, (3) the debtor's property, (4) current income and expenses, (5) payments from employers within the previous 60 days, (6) a certificate providing the receipt of credit counseling, (7) an itemized calculation of monthly income, and (8) the debtor's most recent federal tax return.

The debtor files a petition with the court- Voluntary bankruptcy

A 3 year File. Only a debtor can file a plan, which must provide for (1) turnover to the trustee of the debtor's future income, (2) full payment of all claims entitled to priority, and (3) the same treatment of each claim within a particular class

The repayment plan- Ch13

Initial duties: a trustee must state whether a filing constitutes substantial abuse under the "means test" within TEN DAYS of the creditors' meeting, notify creditors within five days, and fie a motion to dismiss or convert to chapter 11 within 40 days. A trustee must provide a party to whom this support is owed with certain information

The trustee's duties

Has the right to possess the debtor's property, strong arm power (the same right a as a lien creditor who could have levied execution on debtor's property), avoidance powers (any voidable rights and the power to avoid preferences, certain statutory liens, and fraudulent transfers), liens on debtor's property (can avoid fixing certain statutory liens on a debtor's property)

The trustee's powers

after the oder for relief, an interim trustee is appointed to preside over the debtor's property until the first meeting of creditors, when a permanent trustee is elected. a trustee's duty is to collect and reduce money the property of the estate and distribute the proceeds

The trustee- liquidation Ch 7

Paid in order or priority. Each class is pad before the next class is entitled to anything. 1. Claims for domestic support obligations. 2. administrative expenses (court costs, trustee and attorney fees). 3. in an involuntary bankruptcy, expenses incurred by a debtor in the ordinary course of business. 4. Unpaid wages, salaries, and commissions earned within 90 days of a petition. 5. Unsecured claims for contributors to employee benefit plans 6. consumer deposits 7. taxes due to the government 8. Claims of general creditors

Unsecured Creditor- distribution of property

A trustee can use any ground- including fraud, duress, incapacity, and mutual mistake- that a debtor can use to obtain return of debtor's property.

Voidable rights- trustee

The debtor receives credit counseling from an approved nonprofit agency within 6 months before filing petition. The debtor files a petition with the court. The debtor's attorney files an affidavit. The court or other party "of interest" asks for more information. The court may dismiss a petition for substantial abuse under the "means test". Filing the petition constitutes an order for relief

Voluntary Bankruptcy-Liquidation (ch 7)

It has to do with 2 goals: (1) to protect a debtor by giving him or her a fresh start and (2) to ensure equitable treatment to creditors competing for a debtor's assets.

What is Bankruptcy Law

A debtor with twelve or more creditors, at least three or more of whom (with unsecured claims of at least $15,475) file a petition. A debtor with fewer than twelve creditors, one or more of whom (with a claim of $15,475) files. Not a farmer or a charitable institution.

Who can be forced into involuntary proceedings?

any "person"- individuals, partnerships, and corporations (spouses can file jointly)- except railroads, insurance companies, banks, savings, and loan associations, and credit unions.

Who can file for a Liquidation

Any debtor ( except a stockbroker or a commodities broker) who is eligible for Ch7 relief is eligible under Ch11. With some exceptions, the same principles apply that govern liquidation proceedings.

Who is eligible for relief under chapter 11

a case may be dismissed if this is in the creditor's best interest, there is no reasonable likelihood of rehabilitation, a debtor is unable to affect a plan, or there is an unreasonable delay. creditors may prefer a workout ( a privately negotiated settlement) to bankruptcy

Why a case may be dismissed- Reorganization Ch11

a court will confirm a plan (1) if the secured creditors accept it, (2) if it provides that secured creditors retain their liens until there is full payment or a discharge, or (3) if a debtor surrenders property that secures claims to the creditors, Also, a creditor with a purchase-money security interest in a car bought within 910 days before filing must be paid in full

confirming the plan- repayment plan Ch13

within 90 days of the meeting, a creditor must file a proof of claim if its amount is disputed. If the debtor's schedule list a claim as liquidated, proof is not needed

creditor's claims- Liquidation Ch7

the time for payment is 5 years if a debtor's income exceeds the state median under the "means test" and three years if it doesn't. Payments must be timely, or the court can convert the case to a liquidation or dismiss the petition.

payments under the plan- repayment plan Ch13