FIN 240 ch 31

discharged

-The termination of an obligation, such as occurs when the parties to a contract have fully performed their contractual obligations. -The termination of a bankruptcy debtor's obligation to pay debts

voluntary bankruptcy

-debtors must receive credit counseling within 180 days of filing and submit certificate -debtor must confirm accuracy of contents; attorney must file affidavit informing debtor about other chapters -must be sworn under oath

what must the repayment plan include

-turning over of future earnings to execute plan -full payment thru deferred cash payments of priority claims like taxes -must be timely payments -must report changes in income

chapter 7 bankruptcy schedules

1. A list of both secured and unsecured creditors, their addresses, and the amount of debt owed to each. 2. A statement of the financial affairs of the debtor. 3. A list of all property owned by the debtor, including property that the debtor claims is exempt. 4. A list of current income and expenses. 5. A certificate of credit counseling (as mentioned previously). 6. Proof of payments received from employers within sixty days prior to the filing of the petition. 7. A statement of the amount of monthly income, itemized to show how the amount is calculated. 8. A copy of the debtor's federal income tax return for the most recent year ending immediately before the filing of the petition.

Federal Exemptions:

1. A portion of equity in the debtor's home (the homestead exemption). 2. Motor vehicles, up to a certain value (usually just one vehicle). 3. Reasonably necessary clothing, household goods and furnishings, and household appliances (the aggregate value not to exceed a certain amount). 4. Jewelry, up to a certain value. 5. Tools of the debtor's trade or profession, up to a certain value. 6. A portion of unpaid but earned wages. 7. Pensions. 8. Public benefits, including public assistance (welfare), Social Security, and unemployment compensation, accumulated in a bank account. 9. Damages awarded for personal injury up to a certain amount.

the 4 chapters w/ most important types of relief debtors seek

1. Chapter 7 provides for liquidation proceedings (the selling of all nonexempt assets and the distribution of the proceeds to the debtor's creditors). 2. Chapter 11 governs reorganizations. 3. Chapter 12 adjustment of debts of family farmers and fishermen w/ regular incomes 4. chapter 13 (for individuals) provide for the adjustment of debts by persons with regular incomes.

exceptions to discharge

1. Claims for back taxes accruing within two years prior to bankruptcy. 2. Claims for amounts borrowed by the debtor to pay federal taxes or any nondischargeable taxes. 3. Claims against property or funds obtained by the debtor under false pretenses or by false representations. 4. Claims by creditors who were not notified of the bankruptcy. These claims did not appear on the schedules the debtor was required to file. 5. Claims based on fraudFootnote or misuse of funds by the debtor while acting in a fiduciary capacity or claims involving the debtor's embezzlement or larceny. 6. Domestic-support obligations and property settlements as provided for in a separation agreement or divorce decree. 7. Claims for amounts due on a retirement account loan. 8. Claims based on willful or malicious conduct by the debtor toward another or the property of another. 9. Certain government fines and penalties. 10. Student loans, unless payment of the loans imposes an undue hardship on the debtor and the debtor's dependents. (For an example of what constitutes undue hardship, see Case in Point 31.6, which follows this list.) 11. Consumer debts of more than $650 for luxury goods or services owed to a single creditor incurred within ninety days of the order for relief. 12. Cash advances totaling more than $925 that are extensions of open-end consumer credit obtained by the debtor within seventy days of the order for relief. 13. Judgments against a debtor as a result of the debtor's operation of a motor vehicle while intoxicated. 14. Fees or assessments arising from property in a homeowners' association, as long as the debtor retained an interest in the property. 15. Taxes with respect to which the debtor failed to provide required or requested tax documents.

Exceptions to Automatic Stay

1. Collection efforts for domestic support obligations, including child support and debts to former spouses etc 2. Proceedings against the debtor related to divorce, child custody, and domestic violence 3. Investigations by a securities regulatory agency 4. Certain statutory liens for property taxes

estate in bankruptcy includes

1. Community property 2. Property transferred in a transaction voidable by trustee 3. Proceeds and profits from the property of the estate 4. after acquired property like inheritances or life insurance death proceeds w/n 180 days of filing

requirements for involuntary bankruptcy

1. Debtor has 12 or more creditors, and 3 of these having unsecured claims totaling at least $15,325 2. Debtor has less than 12, one or more creditors having a claim totaling at least $15,325

reorganization plan must do the following

1. Designate classes of claims and interests. 2. Specify the treatment to be afforded to the classes of creditors. (The plan must provide the same treatment for all claims in a particular class.) 3. Provide an adequate means for the plan's execution. (Individual debtors are required to utilize postpetition assets as necessary to execute the plan.) 4. Provide for payment of tax claims over a five-year period.

Order for Relief for Involuntary Bankruptcy

1. The debtor is not paying debts as they come due. 2. A general receiver, assignee, or custodian took possession of, or was appointed to take charge of, substantially all of the debtor's property within 120 days before the filing of the petition.

objections to discharge

1. The debtor's concealment or destruction of property with the intent to hinder, delay, or defraud a creditor. 2. The debtor's fraudulent concealment or destruction of financial records. 3. The grant of a discharge to the debtor within 8 years before the petition was filed. 4. The debtor's failure to complete the required consumer education course. 5. Proceedings in which the debtor could be found guilty of a felony (basically, a court may not discharge any debt until the completion of felony proceedings against the debtor).

rehabilition by repayment plan:

1. The turning over to the trustee of such future earnings or income of the debtor as is necessary for execution of the plan. 2. Full payment through deferred cash payments of all claims entitled to priority, such as taxes.Footnote 3. Identical treatment of all claims within a particular class. (The Code permits the debtor to list co-debtors, such as guarantors or sureties, as a separate class.)

what are the two main goals of bankruptcy law

1. To protect a debtor by giving him or her a fresh start without creditors' claims. 2. To ensure equitable treatment of creditors who are competing for a debtor's assets.

If the collateral is surrendered to the secured party, the secured creditor can enforce the security interest. The secured party can either

1. accept the property in full satisfaction of the debt or 2. sell the collateral and use the proceeds to pay off the debt.

A trustee may avoid fraudulent transfers if they

1. were made within two years prior to the filing of the petition or 2. were made with actual intent to hinder, delay, or defraud a creditor.

order for relief

A court's grant of assistance to a complainant. In bankruptcy proceedings, the order relieves the debtor of the immediate obligation to pay the debts listed in the bankruptcy petition.

proof of claim

A document required to be filed by a creditor that states the amount of his or her claim against the debtor

US trustee

A government official who performs certain administrative tasks that a bankruptcy judge would otherwise have to perform.

Voluntary Bankruptcy Petition

A petition filed in the bankruptcy court by the debtor that includes the names of creditors; list of debts; and a list of the debtor's assets, income, and expenses.

cram-down provision

A provision of the Bankruptcy Code that allows a court to confirm a debtor's Chapter 11 reorganization plan even though only one class of creditors has accepted it.

reaffirmation agreement

An agreement between a debtor and a creditor in which the debtor voluntarily agrees to pay a debt dischargeable in bankruptcy.

workouts

An alternative to Bankruptcy Code Chapter 11. An out-of-court agreement of how parties can work out a payment plan.

who can declare bankruptcy

Anyone obligated to a creditor

what section of the constitution deals with bankruptcies?

Article I, Section 8, of the U.S. Constitution gave Congress the power to establish "uniform laws on the subject of bankruptcies throughout the United States

what rules do bankruptcy courts follow

Federal Rules of Bankruptcy Procedure rather than the Federal Rules of Civil Procedure.

why might a court dismiss a chapter 7 bankruptcy? (2 situations)

First, if the debtor has been convicted of a violent crime or a drug-trafficking offense, the victim can file a motion to dismiss the voluntary petition. Second, if the debtor fails to pay postpetition domestic-support obligations (which include child and spousal support), the court may dismiss the debtor's petition.

Requests for Relief from Automatic Stay

If a creditor or other party requests relief from the stay, the stay will automatically terminate sixty days after the request, unless the court grants an extension or the parties agree otherwise.

Bad faith in automatic stay

If the debtor had two or more bankruptcy petitions dismissed during the prior year, the Code presumes bad faith. In such a situation, the automatic stay does not go into effect until the court determines that the petition was filed in good faith.

debtor in possession (DIP)

In Chapter 11 bankruptcy proceedings, a debtor who is allowed to continue in possession of the estate in property (the business) and to continue business operations.

adequate protection doctrine

In bankruptcy law, a doctrine that protects secured creditors from losing their security as a result of an automatic stay on legal proceedings by creditors against the debtor once the debtor petitions for bankruptcy relief. In certain circumstances, the bankruptcy court may provide adequate protection by requiring the debtor or trustee to pay the creditor or provide additional guaranties to protect the creditor against the losses suffered by the creditor as a result of the stay.

preference

In bankruptcy proceedings, a property transfer or payment made by the debtor that favors one creditor over others.

automatic stay

In bankruptcy proceedings, the suspension of virtually all litigation and other action by creditors against the debtor or the debtor's property; the stay is effective the moment the debtor files a petition in bankruptcy.

limitations on the homestead exemption

In general, if the debtor acquired the homestead within three and a half years preceding the date of filing, the maximum equity exempted is $155,675, even if state law would permit a higher amount. In addition, the state homestead exemption is available only if the debtor has lived in a state for two years before filing the bankruptcy petition. Furthermore, a debtor who has violated securities laws, been convicted of a felony, or engaged in certain other intentional misconduct may not be permitted to claim the homestead exemption.

preferred creditor

In the context of bankruptcy, a creditor who has received a preferential transfer from a debtor.

Ordinary Bankruptcy

Liquidation under Chapter 7 of the Bankruptcy Code is probably the most familiar type of bankruptcy proceeding and is often referred to as an ordinary, or straight, bankruptcy.

bankruptcy code

Name given to federal bankruptcy law, as amended

consumer-debtor

One whose debts result primarily from the purchases of goods for personal, family, or household use.

trustee's powers

Powers can be exercised by a trustee pursuant to a) the terms of the trust b) the terms of a statute or c) the court decree These fiduciary powers also encompass what an executor or administrator of a decedent's estate can do

bankruptcy trustee's duty

The basic duty of the trustee is to collect the debtor's available estate and reduce it to cash for distribution, preserving the interests of both the debtor and the unsecured creditors. The trustee is held accountable for administering the debtor's estate.

Chapter 7 Bankruptcy

The forfeiture of an individual's assets in exchange for the discharge of debts.

liquidation

The sale of the nonexempt assets of a debtor and the distribution of the funds received to creditors.

Substantial Abuse-Means Test

Today, the law provides a means test to determine a debtor's eligibility for Chapter 7. The purpose of the test is to keep upper-income people from abusing the bankruptcy process by filing for Chapter 7, as was thought to have happened in the past. The test forces more people to file for Chapter 13 bankruptcy rather than have their debts discharged under Chapter 7.

bankruptcy trustee preferences

a debtor cannot transfer property or make a payment that gives a preference to one creditor over another (though the trustee can do so)

bankruptcy trustee

a person appointed by the court to manage the debtor's funds

involuntary bankruptcy

bankruptcy procedures filed by a debtor's creditors -cannot be against farmer or charity

how is an ordinary bankruptcy commenced

by filing a voluntary or involuntary petition in bankruptcy

who usually files ch 11 bankruptcy

corporations

Reorganizations (Chapter 11)

debtor comes up with a plan to keep business alive and pay creditors over time

Tax Returns during Bankruptcy

debtor may be required to file a tax return at end of each tax year while case is pending and provide a copy to the court

duties for means testing

determines whether there is substantial abuse. Powers: Can force creditors to return debtor property Can set aside certain transfers Can assert defenses on behalf of the debtor (fraud, lack of capacity, etc.)

insider

is an individual, partner, partnership, corporation, or officer or director of a corporation (or a relative of one of these) who has a close relationship with the debtor

Transfers that do not constitute preferences

payments for services within 15 days, payments made in ordinary course of business, and generally debts that are not preexisting

petition in bankruptcy

the document that is filed with a bankruptcy court to initiate bankruptcy proceedings

what is the primary purpose of liquidation

to obtain a fresh start thru discharge of debts

creditors meeting

w/n no more than forty days, the trustee must call a meeting of the creditors listed in the schedules filed by the debtor. The debtor is required to attend (unless excused by the court) and to submit to examination under oath by the creditors and the trustee. At the meeting, the trustee ensures that the debtor is aware of the potential consequences of bankruptcy and of the possibility of filing under a different chapter of the Code.