Bankruptcy

1. 29.2 a. If you're in the SBRA, DO has more power. A. Assignment 30 - cramming down secured CRs 1. If a secured Cr refuses to consent to the plan, the DO can turn to 1129(b)(2)(A) to confirm the plan. a. The cramdown rule for a secured party seems simple. It's the same standard as in ch 13: the secured CR must receive the amount of its allowed secured claim (namely, the amount of the debt or the value of its collateral, whichever is less) at its present value (ie, with interest). 1) In reality, value and interest rate may be barely measurable. 2. Valuation of claims and cost are the central problem with valuing the secured CR's collateral on cramdown is that there's no sale to test value on the open market. a. SCOTUS said in Associates Commercial Corp. v. Rash that in a reorganization, where the DO keeps the property over CR protest, the proper valuation standard is replacement value, not liquidation value. 3. Interest rate a. Ch 11 DOs and CRs tussel often over the right interest rate required to discount the payment owed to the SP to its present value. 4. Indubitable equivalence a. Section 1129(b)(2)(A)(iii) provides a plan proponent with a wildcard to satisfy cramdown of a secured CR in the form of an exchange that offers the "indubitable equivalent" of the collateral. 1) The most common use of this workaround is "dirt for debt," in which the DO gives of piece of property to the secured CR as payment for all or part of the price of property to the secured CR as payment for all or part of its debt, whether the CR wants to be a RE investor or not.

1. The 1111(b) election a. This election is a special cramdown protection to unsecured CRs. It's designed to keep the Do from lien-stripping the SP's interest at a low point in the market, with the DO hoping to real all of the benefit. b. For the usual undersecured CR with its combined secured-unsecured bifurcated claim under 506(a), 1111(b) gives the CR the option of waiving any unsecured deficiency claim that exists by virtue of the CR's collateral being worth less than the debt. This waiver prohibits the CR from voting on the plan as an unsecured CR. In exchange for this waiver, the DO must pay the secured CR the full nominal dollar amount of its entire (unbifurcated) claim. The DO isn't required to pay the present value of the entire claim, just its nominal amount in total dollars. Present value is required only for the allowed secured claim c. Two-part payment test stated in last two sentences of 1129(b)(2)(A)9i)(II) 2. Home mortgage cramdown redux: special rules for small business owners a. Individual DOs are statutorily barred from cramming down their home mortgages to the current value of the allowed secured claim in ch 13. So too in ch 11. This process is called lienstripping. b. A provision n the SBRA lifts this bar and permits lienstripping for a small business DO under particular circumstances, namely, the classic small business transaction where the lender demands a mortgage on the borrower's home to secure personal liability on the business loan.

1. 29.1 a. Get a big k after filing of bk. Have re-revised the plan, said unsecured CRs get 70%. b. What are the classes here? Unsecured and secured (at least). c. Class 1 is the bank. They're owed 10m. secured for 2.5m in equipment d. Class 2 are the unsecureds. What are they owed: 5m. what's their dividend? 70%. They'll get paid 3.5m. e. Is there another class? Yes, the shareholders. Class 3 is the shareholders. Shareholder here is Pichens, the owner. f. What is not stated, but true, about this case in respect to Pichens? Is he sticking around, will he be owner after bk? Yes. Is this a problem, is it fair and equitable if he gets to keep his shares at 100%, and keep the co that now has a huge k? nah. g. Our client convinces the unsecured CRs to vote against this. We need a class of unsecureds to vote for it. the bank is unimpaired, so they can't vote. Pickens will vote for it. h. Can we cramdown the unsecured? What we want is a situation where there is an impaired class that votes in favor of the plan that allows the plan to go forward and to force it on our client. That's what the DO wants. Cramdown is that your debt is reduced to 70 cents on the dollar. i. What's the leverage that we as the unhappy CR have: the absolute priority rule. Will say to the DO that there's enough money that the shareholder gets anything, the unsecured should've been paid first. What are we going to say to the bank? j. We can have a situation where there is a class of shareholders, Pickens, wants to keep ownership of the co but doesn't give no value. we have opportunity to challenge this plan not as fair and equitable, not fair and equitable that he's getting to keep his stock, violates rule. k. Let's assume there isn't enough cash to pay everybody 100%. Who should we be talking to? the bank. we don't want to go into ch 7. and under ch 7, bank's unsecured portion is only paid in part. What should we say to bank: will you take less and let us take more so that we can stay and feel good about this. What's the unsecured portion of their loan: 5m-ish. Maybe they're willing to split some of that with us. If so, maybe we're ok with the plan

a. What do we want to say to Pickens: is it ok for him to not put anything into co? No. if he wants to keep his shares, he's gotta put in some cash OR he splits up ownership of the co, unsecured CRs get some shares. There's no one way to solve this problem. Plan can be negotiated however they want. But it is subject to a class of CRs being upset, saying it's not fair and equitable, we get to challenge. Our threat: we'll push you into ch 7, shut the co down, split money with everybody. b. Pickens needs to come up with something of value to set off the new value rule. Perhaps then plan can be approved, no longer unfair and unequitable. And maybe bank will kick in something. Make the bank a little more impaired, now they can vote, cramdown works. c. SCOTUS says that the right to own an ongoing business is itself valuable, you need to pay for that. A living co has more value than a dead company. d. Problem for Pickens: if we put the bank in its own class, they're not impaired, they don't get to vote. So what we need is at least one class of impaired CRs to improve the plan. only think cramdown allows for is skipping the voting req. still has to be fair, feasible. Bank is only impaired if they say they'll take, for ex, 6m instead of 7m.

1. 10.3 a. Remember: in 13, option of cramdown exists. b. If we were under 506, secured claim would be the value of the property, aka the value. The remaining balance would be stripped off. We can't do that here, bc it's his principle residence. c. Section 1322b2, b5. What does this tell us? You can modify older secured claim - but it has to be principle residence. Cramdown language. d. Lookit definition of principle residence: there is none. e. We aren't allowed to change the nature of the lien on the property, we can't modify for principle residence. We can't strip the unsecured portion away - the plan has to call for payment in full. f. Bank has power to foreclose. Are they entitled to do so? Section 362 - are subject to automatic stay. But this doesn't last forever. Is in place for at least 3 years, up to five. If you're the bank, already have a late DO, you wanna foreclose and get out. So you're going to ask if you can have relief from stay. The basis to get relief from stay: collateral can't be necessary for DO to ... 362d. can foreclose if hey es either d1 or d2. g. D1: there's a calculation in the book that says SP gets the value of their claim. They're allowed to get that. Here, question will be whether there is adequate protection under d1 and d2. h. Mortgage doesn't go down in value quickly, so that probably won't be an issue. i. Ct therefore will deny relief of stay, but he's past due. Does he have to make good on past due debts in respect to secured debts? Yes 1322d5. D5 allows for cure. You add a payment every month to make the person current. You CAN require cure.

1. 10.4 a. Huge debt on car. Includes direct purchase price and refinance of credit card debt b. If this was an ordinary secured claim, what'd be the amount of the claim? 12k, that's what the car is worth. Does this fall under normal cramdown? Depends on when he bought car. He bought it two years ago. You can't cram down a car loan when it's purchased within x days. c. Negative equity. PMSI means the amount t of borrowing you had to do to buy the car. So is the visa debt that was refinanced part of the purchase price since it was used to buy the car? Took an unsecured loan and made it secured to help him get the car. SO: amount of credit car debt is probably included in the PMSI. Even though it wasn't part of the car transaction directly. Easy answer: anything that's wrapped up in the loan that gets you the car is probably part of PMSI. BUT: this loan is still a little different from PMSI d. You can't cram down the unsecured balance, bc purchased within 190 days (?). any debt you have to take on to get the car is part of the purchase price. 2. 10.5 a. Section 506. Esp 506a2, ie value, what's the car worth. b. Replacement value = probably what dealership would pay. You can deduct damage to the car if it is greater than what would be expected of a car of that age. c. Is this personal use? She uses the car in her work. if it isn't personal use, replacement value = as of the date of the filing of the petition without deduction for costs of sale or marketing.

1. General notes a. 1129(7) = means interest of the shareholders/corp. b. Cramdown is in 1129(b). go to 1129 if cramdown isn't consensual. Most plans are concensual bc they're negotiated. Most parties can negotiate, so we won't see this. Need at least one class of unsecured claims that approves the plan. c. 1129(b)(2)(A) - what does it mean for a plan to be fair and equitable. This section talks about secured claims. II: present value. there's an interest rate. If they're getting the money over time, they have to be paid interest. d. This is an instance where experts can testify. Judge cannot do valuation. V hard to value commercial property (cannot look at the price of similar property, like you can for residential property). They're just all so diff. so we really calculate the value of the property to the person buying it. valuation can be done saying this property is worth 10m, bc every year will generate rent of 500k (aka, can look at rental value as well for valuation). There's a factor - multiply by 20. Valuation is a guess. This math beyond what we are going to do. Just understand that the valuation of property for 1129 is value to DO calculated by some formula that takes in the value of that property to the DO. e. Second part of this is the interest rate. Prime is the interest rate a commercial bank charges to its best customers. It varies every day. Check WSJ. It's not fixed. Purpose of interest rate is to make sure the co is the value of their claim, which is the value of the property. f. 1) what's it worth, 2) what's the interest rate. g. If you have gotten a fixed rate loan last year at prime +1, would you be better off than getting a loan today at prime +1? h. For bk, how do we calculate the interest rate? Till case. plurality case. you pay more interest if you're a riskier borrower.

1. 30.2 a. We're cramming down secured CRs. Not about valuation. Arguing about interest. Og terms proposed by DO: interest: 6% fixed rate. 30 year amortization rate. Other term: balloon loan. At the end, DO will make a big payment. Where's the end in this payment: pay in full in 8 years. Balloon payment is the payment of the remaining balance - does NOT mean that the loan payment itself gets bigger. b. Bank thinks this is a bad deal. Why do they complain about this loan? If inflation costs go up, bank isn't protected against changes in the interest rate. c. What does Prior want: plan didn't provide that they kept their lien - plan should provide that the secured party keeps that. Second problem: Prior doesn't like interest rate - wants 8.5% bc it's a risky loan. Says it's crazy you're forcing us to have this interest rate when this DO is not a good debtor. The risk premium should be higher. d. Should the plan be approved the way the DO proposed it? problem if you raise the interest rate: gotta pay more money in interest; less money going to everybody else, makes the plan less likely to succeed. And remember - the plan has to be feasible. So there's a natural limit on what's going to work. what did SCOTUS tell us should be the risk premium in this case: Till case. 1-3%. Requires no thought whatsoever. If it's super risky here, let's make it 3%. e. What judge actually did: wants them to negotiate. DO says 5%, variable rate. Also has a five year balloon. Bank says they want out, make the balloon payment clear. amortization period is the same. Judge wields a lot of power to make the parties agree.

A. 1.165-7 1. Text a. (b)(1)`General Rule. — In the case of any casualty loss whether or not incurred in a trade or business or in any transaction entered into for profit, the amount of loss to be taken into account for purposes of section 165(a) shall be the lesser of either— 1) The amount which is equal to the fair market value of the property immediately before the casualty reduced by the fair market value of the property immediately after the casualty; or 2) The amount of the adjusted basis prescribed in § 1.1011-1 for determining the loss from the sale or other disposition of the property involved. b. However, if property used in a trade or business or held for the production of income is totally destroyed by casualty, and if the fair market value of such property immediately before the casualty is less than the adjusted basis of such property, the amount of the adjusted basis of such property shall be treated as the amount of the loss for purposes of section 165(a). 2. Notes a. If the property wasn't personal use property, and it was totally destroyed, then if fmv is less than the basis, then you can deduct the basis. That's the one place where adjusted basis will prevail. B. 165e 1. Text a. (e) Theft Losses — For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss. b. (f) Capital Losses — Losses from sales or exchanges of capital assets shall be allowed only to the extent allowed in sections 1211 and 1212. 2. Notes a. Any loss arising from theft shall be treated as occurring in the year that the T discovers it. b. What if it's not clear when a theft has actually occurred?

A. 165h1 1. Text a. (h)(1) Dollar Limitation Per Casualty — Any loss of an individual described in subsection (c)(3) shall be allowed only to the extent that the amount of the loss to such individual arising from each casualty, or from each theft, exceeds $500 ($100 for taxable years beginning after December 31, 2009). 2. Notes a. Some limits that arise in cases of individuals b. H1: de minimis rule. If somebody steals something of small value, you won't get a dediction for that. This threshold has been reduced to 100. c. H2A: limit for personal casualty losses. B. 165h2 1. Text a. (h)(2)(A) In General — If the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed for the taxable year only to the extent of the sum of— 1) the amount of the personal casualty gains for the taxable year, plus 2) so much of such excess as exceeds 10 percent of the adjusted gross income of the individual. b. (h)(2)(B) Special Rule Where Personal Casualty Gains Exceed Personal Casualty Losses — If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year— 1) all such gains shall be treated as gains from sales or exchanges of capital assets, and 2) all such losses shall be treated as losses from sales or exchanges of capital assets. 2. Notes a. When you have a net gain scenario, it'll be treated as a capital asset. C. 165h3 1. Text a. (h)(3)(A) Personal Casualty Gain — The term "personal casualty gain" means the recognized gain from any involuntary conversion of property which is described in subsection (c)(3) arising from fire, storm, shipwreck, or other casualty, or from theft. b. (h)(3)(B) Personal Casualty Loss — The term "personal casualty loss" means any loss described in subsection (c)(3). For purposes of paragraph (2), the amount of any personal casualty loss shall be determined after the application of paragraph (1) [$100 de minimis threshold]. 2. Notes a. Define personal casualty gain and loss

1. Ch 7 liens a. Lien on car or home survives bk b. Must be current on first and second home mortgages to retain home (called Keep and Pay) c. No bills or statements unless you reaffirm debt d. Lack of bills no defense to non-payment e. Must continue to pay even though no statements f. Must reaffirm debt, payoff debt, or abandon any vehicle or personal property subject to a lien or CR can recover vehicle g. Liens are NOT canceled by ch 7 2. Ch 7 surrender a. Right to abandon secured property b. Abandonment cancels the debt c. Abandonment equals no further obligation on the debt d. Reaffirmation equals new k with creditor with new legal obligation to pay e. Redemption is paying off the debt with new loan f. Reaffirmation obligations survive ch 7 discharge 3. Ch 7 common cases a. Most ch 7 no asset cases b. Purpose is to cancel all debt c. Abandon all property subject to liens d. Retain most if not all other property owned free of all liens e. If own home and less than 15k equity per DO, then if current on mortgages can keep and pay 4. Ch 7 discharge a. Normally discharged and closed within 3 months of meeting of CRs b. Discharge and co-Dos 1) Ch 7 discharge doesn't extend to co-debtors and guarantors 2) Authorized user could be held liable to extent of benefit of credit 3) Ch 7 filing doesn't stop legal action against co-debtors and guarantors 4) Only married couple file joint case 5. Ch 7 property a. Future earnings your property b. Future property belongs to you c. Inheritance within 180 days of filing belongs to the trustee d. Tax refunds owed as of filing belong to trustee

A. Ch 13 1. General terms a. Plan of reorganization b. Make monthly payments to trustee c. Stop foreclosures and catch up arrears d. Income greater than state median, may have to propose 60 month plan or pay 100% e. Pay value of vehicle unless purchase within 910 days of bk filing 2. Debts not canceled in ch 13 a. 401k loans not included in ch 13 b. Student loans usually survive ch 13 c. Alimony and child support obligations d. Certain other debts as provided by bk code 3. The ch 13 plan a. Consolidate most debts into one payment b. Future mortgage payments excluded c. You pay future mortgage payments direct d. Mortgage arrears in the plan e. All secured personal property debts in plan f. All credit card debts in plan g. All medical bills in plan h. All judgments in plan i. All charge-offs in plan j. All accounts in collection k. All deficiency claims from foreclosures or repos l. All unsecured debts in plan m. Usually no interest on unsecured debts n. Unsecured CRs generally receive a small percentage of their total debt - balance canceled when complete the plan

A. 12.2 - the net income test 1. Blackboard notes a. Forms prepared by casebook author. Based on old numbers. b. Number 37 - calculation for presumption of abuse c. Line 40: there are three possible answers 1) Happy debtor - no presumption of abuse bc disposable income for the 6 months less than minimum set in 707(b)(2)(A)(i)(I). note have listed as 8,176, but current this is 9,075 2) Sad debor: disposable income greater than amount set in 707(b)(2)(A)(i)(II). Note have listed as 13,650. Abuse is presumed if over this amount. But currently, this amount is 15,150. 3) Uncertain middle disposable income between 8,175 and 13,650 on this form. Debtors here in this problem fall in this section a) So must continue to do the 25% test - 202(b)(2)(A)(i)(I). bc debtor's disposable income is less than 25,000, no presumption of abuse. Therefore they may file ch 7. b) NOTE: They can voluntarily choose ch 13, it just isn't required 2. First thing to know: the way 707b works when you're doing this calculation is that sometimes the nos are national, sometimes the nos are local, and sometimes they're actual nos, what you actually pay. So there are certain nos you plug into this calculation that you just copy paste from a table. Other nos you put in as what the DO actually pays. 3. You deduct the total of all secured payments from your net income. This encourages DOs to have secured debt! 4. Go back to the form 122A2. Copy over what your gross income is. 5. Lars calculates that their gross income on a monthly basis is his income + her income = 144k (approximately). 6. They live in PA, have four members of their household. One kid has a lot of health expenses. 7. Part two of form - calculate your deductions. Take the total number, divide by 12. 8. What number goes in number 6: 1,900 - that's the IRS national standard. 9. Number 7: out of pocket healthcare expenses. IRS national number - 75*4 = 300. They get to deduct 300 a month. Plug that in on the form. 10. Ex of a local no: local standards for housing, utilities, and transportation. Organized by states' counties. 11. On the end of this form, you get to part 3. You have to calculate whether or not there's a presumption of abuse. How do you do that? There's two numbers that matter here - 9.075 and 15,150. You calculate your disposable income (here: 12,600). Is 12,600 less than 9,075? No. there's now maybe a presumption of abuse. However, it is less than 15,150? Yes. That means we have a confused debtor. How do we solve this confusion? Part 4. 12. Lookit nonpriority unsecured debt. Need to be able to pay 25%. If it's less, there's no presumption of abuse, you get to file ch 7.

A. Where we're left with the means test: if your gross income is less than the median income for the state you're in, can file ch 7. If higher, have to do net test. If your income is lower than the statutory amount, can file ch 7. If it's higher, can't file. If in between, you have to look at the amount of your nonpriority unsecured debt. If it's less, there's no presumption of abuse.

a. 26.1 1) Here we have a lease k. who is filing for bk: the landlord your client is leasing from. Question: can the ll reject the lease. Is this an executory k? Clearly the ll has to provide water, all you to stay on property, tenant has to pay. Yes, is executory. If the ll rejects the lease, what happens to the tenant? What are you doing when you reject a k under the bk code - you breach the k. the k doesn't just go away. Rejection is not vaporization. Gets converted into a claim against the estate. All you would have is a monetary claim. 2) Is there any protection in the code for tenants under leases? 365(h). protection for leasees whose lls go bk. H1Ai - the leasee first of all has an option to reject the k. you might want to do this anyway, bc you know you can get a better deal elsewhere, just sue the estate for the value of your loss. 3) What if you don't wanna walk away? Your tenancy k gives you a present interest in the k, you get to stay. Under other kinds of ks, the two parties can just breach if they want to. A lease is different bc it's a property k. so even though this k would be executory, the leasee is protected from rejection by the ll. 4) What if the tenant is the breaching party? They can walk away. They have better rememdies than a bk ll can. A tenant can walk away, just pay ds. So tenants have getter protection. 5) Q: can ll reject the lease? 3565h1Aii - tenant gets to stay. 6) What are their ds in this case (tenant)? You get to stay, but if you decide to do so, there's a limit on ds under h1Aii. That limit: cap is the amount of the rent. Here, 100k is annual rent. Hat means here you'd have to just eat 200k bc chosen to stay. Only claim is an offset against the rent for ds. 7) Ds capped if reject the rejection (ie keep lease) to amount of rent. 365(h)(1)(B).

a. 26.2 1) A: Here we have a k for delivery of gravel. 365(i) deals with ks for the sale of land. How quickly does Suzanna have to make a decision: 365(d)(1) - in the case of ch 7 bk, have to accept or reject within 60 days (or it has been converted to a ch 7 case). don't' have to do anything to reject. 2) Compare h1 and i1: ks for the sale of land can be rejected. If they are rejected, can treat k as terminated or remain in possession if they still have possession. 3) What if it is rejected? Remember specific performance isn't generally allowed the estate. Code doesn't allow that. So what does non-breaching party/buyer have against the estate: a claim, for which they can get paid ds. 4) What if they are in possession? 365i2B - if the person buying the property is in possession of he property as a buyer, then they actually do get specific performance. If they aren't in possession, can't get specific performance. 5) What if buyer has made a down payment? Buyer can convert the down payment to a lien so they get paid in full, can get their down payment back. That's ONLY true if you're not the buyer in possession. If you're BIP, you get to keep the land.

A. Assignment 19 - Financing the Reorganization 1. Super-priority and priming liens 2. Cross-collateralization and rollups 3. The secured party in possession 4. General notes a. DIP: Debtor in possession - in a ch 11 that's the DO who is using the powers of the trustee. b. This ch is about getting money so the business can operate after the filing of bk, bc a ch 11 bk is for an operating business. You need money to be able to do that. You need cash, if you're the DO. c. DIP needs money - must get it through post petition financing. You file for bk, you have pre petition loans and post-petition loans. This is referred to as DIP financing. You might ask why anybody would loan money to a co that has just filed bk? Well, getting this financing isn't easy. So how does the code help us? First, note: some pre petition loans are secured loans. But after filing, we have 552a. says no post-petition after acquired property clauses. That lender then that was a SP before the bk and had a lien on stuff - anything that's acquired after bk filing is NOT subject to that lien. d. 364 is code's solution. 364 = DIP's financing solutions. This section allows DIP to have cash to pay their bills. 364 creates for the post petition DIP to get credit to continue to operate. e. 364b1: the incentive to do this. Post petition unsecured credit permitted under 364a has priority. f. 503: allowance of administrative expenses. There are a list of priority expenses that get paid first. Don't forget 507a1c - even the support obligations are subject to admin expenses. If unsecured debt is an admin expense, it beats out the existing creditors, even those with security. g. What if you need something to operate that you ahven't bought before? Not an ordinary expense. BUT: even the extraordinary expenses can be financed through unsecured debt by 364a and b if they are necessary. h. 507: we're beating out the priority with admin expenses. 364c: now you can get secured credit. DO needs cash to operate, can borrow money unsecured if in ordinary course, without approval. Can borrow extraordinary expenses via 364b. but if a bank won't loan to them, maybe they're kicked into c.

1. 19.1 a. They may have property with extraordinary value if it can be sold. DO needs money to put in a sewer. Will you give money to DO to let them install water and sewage? Yeah, you might do it. but it's not in the ordinary course, so no 364a. can we use b? no, you use b when you have permission for the ct, and ct has to find this is an appropriate expense. AND: b is unsecured. b. Next alternative: C. via c, they'll ask for a security interest. But here, we have real property - to get a security interest in property, have to file a mortgage doc. They're going to ask for a mortgage on the property. c. So in 19.1, can't use a bc it's an extraordinary expense. We can use b, bc it is necessary for the DO to improve the estate. And DO HAS to buy this, not the buyer. If they do the improvement, contractor might just do it via b. if they say no, or they won't finance it, but a bank will, they'll have to ask via c for a mortgage. Take a security interest. d. Diff between b and c in terms of the creditor: CR is secured, which means that they have a priority claim and they get paid out of the asset that they have a security interest in. their claim is covered by the property. e. If in the ordinary course, wouldn't have to ask for permission by the judge. f. B: extraordinary expenses, but unsecured g. C: secured, gives a lien. Judge will have to look first through a and b, though.

I. Collecting from consumer debtors A. Leverage 1. Leverage: the background to bankruptcy. Debtors and creditors have rels prior to the filing of relationship regarding the payment of debt. Biggest concern for creditor is to get paid. a. Aim: understand norms between rels of debtors, creditors in respect to payment of debt. 2. It's a complex thing to decide which creditor to get paid. If the debtor prioritizes the payment of debt that a creditor is unhappy with, creditor has to decide what leverage to use. 3. There are two types of leverage: informal and formal (formal = within the legal system). 4. Definitions: a. Creditor: person who's money/a debt from debtor b. Debtor: person who owes a debt to creditor c. Collections: general concept of a creditor going after money that owed. d. Dunning: persistent demand for payment. Series of requests over and over again to please pay your bills.

A. Informal Remedies for Nonpayment of Debt 1. Informal leverage system: has actions that include dunning the debtor 2. In this system, there are two types of people that could be collecting a debt: a. A CR collecting its OWN debt; b. A collections agent collecting for someone else. The rules vary depending on who's collecting 3. Informal collection agencies include motorcycle gangs, lawyers who sue to collect payment. a. Third party collectors are governed by the FDCPA - Fair Debt Collections Practices Act. 1) FDCPA is a fed law that governs the methods used by parties who are collecting. a) The FDCPA applies to collections agents, not the creditor collecting its own debt. If you're collecting your own debt, not responsible under FDCPA. 2) Henson v. Santander Consumer USA, Inc. a) SCOTUS talks about applicability of FDCPA to collectors vs CRs. b) Issue: Santander didn't make the loan - they just purchased the loan. Santander had been collecting for third parties, but here it was collecting for itself bc it bought the loan, was owed the money. Ct says that based on the def of debt collector in the statute, they weren't a collector here. Didn't have to be a loan that you MADE. If you own the loan, its yours, the money is owed to you. c) FDCPA puts limits on what third party collectors can do, reduce their leverage. But since doesn't apply to the cr, the cr can cont to do things that are otherwise illegal 3) McCollough v. Johnson, Rodenburg & Lauinger a) Question: is a lawyer subject to the FDCPA? Answer: Yes, if they are debt collectors. A) Debt collector under statue = collecting debts on a regular basis for third parties. If they meet this def, their debt collectors. 4. Other forms of leverage: credit reporting systems a. If you don't pay, we'll tell the agency you're late, lower your credit; leverage is that you don't pay, I tell the agency, you have harder time getting loans, pay higher interest rates 5. Informal method, therefore, is basically a system of dunning. Dunning can involve calling people, sending letters, people to their homes or jobs. That process of debt collection is diff depending on whether you're a cr or third party collector.

A. Starting a voluntary case 1. File a petition (defined term) by the DO a. What does petition have to include: 1) Schedules of assets and liabilities 2) Statement of financial affairs 3) Disclosure of compensation of attorneys 4) Credit counseling certificate (180 days before bk) B. What are the diff types of bk cases? There are four types of bk cases individuals can file: 1. Ch 7, known as "straight" bk or "liquidation" a. Requires individuals to give up property which isn't exempt, so property can be sold to pay creditors b. But most consumers who file ch 7 keep all of their property except: 1) Property which is very valuable or 2) Property subject to a lien which they can't avoid or afford to pay 2. Ch 13 a. A type of reorganization used by individuals b. Consumer submits plan to pay all or portion of debts over a period of years using current income c. Homeowner with mortgage default given time to get caught up, generally over longer period (often up to four years) rather than under workout agreement d. Unsecured debts such as credit cards may be paid either in full or a percentage of amount owed, over a three to five year period e. Late charges and interest after ch 13 filed don't usually have to be paid on unsecured debts 3. Ch 11 a. Known as "reorganization" - used by business and a few individuals whose debts are very large 4. Ch 12 a. Is for family farmers and fisherman b. Most consumers file under ch 7 or 13 c. Either type of case may be filed individually or by a married couple filing jointly.

A. What are the first steps in filing a bk 1. The first step is to complete and file a petition 2. A number of other forms requiring disclosure of the consumer's financial affairs must also be filed with the petition or shortly afterwards (usually within 15 days) 3. It's important that all forms be filled out completely and accurately 4. Bk is a legal proceeding with complicated rules and paperwork - it's difficult to complete without an attorney B. Complete disclosure 1. Honestly is mandatory 2. List ALL debts 3. Can't pick and choose 4. Must list all personal loans, including family 5. Must list all co-debtors or guarantors 6. List all property 7. Cannot favor one creditor over the other 8. Failure to provide true and complete disclosure is a federal crime up to five years prison or 500k fine or both 9. Your bk papers are subject to audit for accuracy and verification of all assets and debts C. What does it cost to file bk 1. Ch 7 filing fee now 338 and 313 for ch 13 2. Approximately 20 for credit counseling briefing and 20 for education course. a. Credit counseling cost of approximately 10-35. b. Within 180 days of filing c. As late as immediately before filing d. Limited exceptions temporary waiver e. Certificate of credit counseling and DO education 3. Can bk filing fee be waived? a. Ch 7 filing fees may be waived b. DO's income must be below 150% of poverty line 1) Figures for 2015 are 1,991.25 monthly for a family of two and 3,031.25 monthly for a family of four c. DO must be unable to pay for filing fee in installments

1. 19.2 a. Write out the list of debts and assets first under ch 11, then under ch 7. First issue to understand: this is a converted ch 11 into a ch 7. When there's a conversation, this affects our analysis. b. Start with the priorities that exist before the conversion to ch 11. c. FSB is owed 5m. Are they secured: yes, via inventory. Are they fully secured: yes, at start of bk. Via 506, they have an allowed secured claim of 5m. d. Another bank, Hanratty, will loan money to DO. They'll get a 2.5m loan, will take a security interest in equipment. e. FSB is pre petition, Hanratty is post petition financing. With pre petition, what's the problem for the Sp in respect to the acquisition of new collateral: they're stuck at 5m of inventory. What do they ask for first: relief from stay - 362d. on what basis would they ask for relief from stay: d2 - if they're fully secured, does DO have any equity in the inventory? No. But what is the collateral: it's inventory. Is inventory necessary for the co? Yes. We can't do d2, then. So what's their basis: Cause, including adequate protection - they don't think this DO will survive, ch 11 makes no sense, just pay us. f. So what does judge do, does he issue relief from stay? No. What is their adequate protection instead: 362d1 is rejected, but there's grant of adequate protection, security interest in accounts receivable. Now they're secured in inventory AND accounts. More likely to get paid. g. DIP folds, must convert to ch 7. Accounts are now worthless, and inventory is gone. So afterwards, on the day of conversion: SFB is owed 2.5m. Hanratty is owed 1m. other debts: unsecured creditors owed 2.5m. h. FSB is unsecured for 2.5m.

1. 19.2 a. Co had a loan from FSB. Then went out and got DIP financing for 2.5m. question now is who gets paid. b. Who has money owed to them: FSB is owed 2.5m, Harratty (H) is owed 1m. c. FSB has adequate protection. Their loan is pre-petition. d. H is post-petition financing. This loan is not secured bc their security interest was in equipment, and this was what's left after they sold it off. e. DO's lawyer is also owed money, 300k. f. There are 2.5m in general unsecured debts also. g. Now what are they assets: 3m in unencumbered assets. h. If you're unsecured CR with pre-petition debt, you have no security, probably not getting paid. i. H has protection. Basis for their protection: section 364. Compare to 507, which is a list of priorities. Admin expenses have priority. H has a priority DIP financing loan that gets paid early on. So they're good. Lookit 503b1, which tells us the actual costs of maintaining is treated as admin expenses. This is our basis for giving them priority. SO: this is an admin expense, via 503b1 and 364b. j. DO's lawyer: this is unsecured debt? Does it have any priority? Flip back to 503b4. Makes lawyer's payment an admin expense that is a little bit less priority - but they DO have priority, get paid earlier. So it's an admin expense via 503b4. k. FSB: Does FSB have a priority payment at all? Pre-petition loan, collateral is gone, can they ask to be paid before anybody else? 507 tells us priorities. 507b seems to give them some priority bc of their adequate protection granted under 362. l. FSB paid first, H is paid second, lawyer is paid third. That's the order of priority of payment for the creditors who have unsecured debt right now. Remember: if they had secured debt, they'd just take the collateral and leave. m. How much money is then left over: nothing. Admin expenses aren't fully paid. Admin expenses are paid, therefore, pro rata. After FSB is paid, 500k is left over. 500k/1.3m = 38%. H and DIP's lawyers share equally money that's left over for the unsecured expenses n. Question - did H screw up? Is there a section of the code that would allow them to beat everybody else? They could get super priority under 364d1. H's lawyers should be sued bc they didn't have H get super priority. o. Remember: this is a ch 7 bk converted from ch 11. That means we have a ch 7 trustee and trustee's lawyer. They're owed 110k. How do we know what kind of priority they get? 726 says the expenses of the converted estate have priority of the expenses of the previous estate. They get paid first. SO: 3m - 110k = 2.89 m. 2.89m - 2.5m = 390k. 390k is what's left to pay everybody else.

1. General notes a. We're in ch 11. Analogous to ch 13 stuff we've done already. Corp has filed bk and intends to keep operating. The way they come outta bk is that they adopt a plan that is voted on by some of the CRs and approved by the ct. a plan is a negotiation between the DO and all the contracting parties/their CRs. There are limits to what you can do. In ch 13, there was a lot of power for the ct for the DO to just force the deal on the CRs. That is not how ch 11 works - here, CRs have a right to participate in the creation of the plan. ultimately the ct does still approve the plan. b. Disclosure 1) In re Puff: a list of info that has to be provided through the disclosures. You can't vote intelligently on the plan unless you have all the info on the DO and the plan as it will be implemented. If there is some mistake in the disclosures, that affects you ability to vote on the plan. delay to disclosure is leverage - if DO hasn't disclosed, can say you won't vote for the plan. c. CRs vote by class 1) They create groups of CRs. That group is called a class. There's a group probably called the unsecured CRs, that group is represented by a committee. That committee works with the DO to negotiate a plan. 2) Section 1124: CRs who have claims that are not impaired don't get to vote. What does that mean? In a case in the bk, CR argued they weren't getting as much under bk law that they would get in state law. So what is impairment? Getting what you're owed under state law or bk law? Ct here said the key is bk law. You're not impaired if you're getting paid in full according to bk law. 3) 1124 says that if you're not impaired, you don't get to vote. You're getting everything you're entitled to already. So the only people voting are those who are getting less than what they would otherwise be entitled to 4) Standards for deciding impairment: what is entitled under bk law. If you're getting everything you're entitled to under bk law, you can't vote. If you can't vote, you have no leverage, have to just accept what the plan is doing for you, which is honestly ok.

1. More general notes a. Remember: we are in a ch 11. Hearing is required for a discussion of the disclosure BEFORE we get to the plan. at that point, CR can complain that they don't have enough info. If don't have enough info, they can't vote. In the case of a public co, this disclosure could be hundreds of pages b. DO proposes a plan, then asks for voes from CRs to approve it c. How do you vote? Have to be somebody the plan affects/have an impaired claim. For people getting paid everything they're entitled to, they don't get to vote. d. We put CRs in classes. The classes are diff types of CRs. Two maj categories of CRs seen in most bks: secured CRs, the unsecured CRs. If you're secured, you don't get to vote, deemed to have accepted it. but there can be CRs that are only partially/under secured. Then there are general unsecured. e. Who gets to decide the classifications to start with: the DO. That then gets litigated. f. In re Puff: all the info that needs to be included in the disclosure. g. 1125: he info that needs to be provided in disclosure. Aka, need to give adequate info. Standard: hypothetical investor of the class. h. 1122: the plan can tell people they are in diff classes. i. Piano class case 1) DO wanted to create a class of CRs who were selling pianos on consignment. Wants to rebuild a class in which he could use to rebuild his reputation. They have a special rel to this DO. Does it make since to make this special class and pay them first? Note that the plan can layer payments.

1. Problem 5.2 a. Blackboard notes 1) Yes - 52(b)(3)(B) - TBE b. His only asset is a house in PA. why can't creditors get this, or can they? Paragraph 3, exempt property. He's relying on PA law. It's bc his wife has an interest in the house. Lookit (B). what's the applicable non-bankruptcy law: property. If state has a TBE law, or a law that prevents creditors from attacking property of non-DO spouse, then the property is exempt. PA recognizes TBE. Note that there is no cap listed here. c. Does this seem fair? If you're a single person, you can't use this. NOTE: if wife had signed the debts too, was herself a DO, this wouldn't apply. Only applies if only one spouse has significant debt. d. Answer is yes, 522b3B, Tenancy by the Entirely

1. Problem 5.3A a. Blackboard notes 1) TX - homestead exemption. 10 acres, 200 acres (rental) 2) 522(p)1 - 189,050 3) One million purchase price - no bc more than 3.3 years 4) One million addition - depends. Is repair needed 5) Paid down mortgage - no. 6) Increase in value to 4m: no 7) File? Maybe not. no cap under TX law. b. Husband and wife live in TX. How to calculate TX homestead exemption - there's two different kinds. 41.002. ten acres, or 200 acres of rural land. So that means they get a homestead exemption here. c. Does fed law cap this? 522p1 - there's a cap of 189,050. What does this cap cover? 1215 days/3 years, four months. how does this work/apply in this problem? IF you buy a property during the 1215 days prior to filing bk, you're limited to 189,050. Can they double that? Yes, if married. Couple can double their exemptions - here, that means they have an exemption of 378,100. d. 1m purchase price. e. They added 1m to the house. Have also paid down the mortgage. House has also increased in value to 4m. what we have to figure out is which of these are subject to the cap. Purchase price no, bc it's more than three.3 years. What about the 1m addition - less than 3.3 years ago. Are home improvements covered by this cap? NO. but are home additions? Probably. "acquired property" seems to cover things you add on later, but not things that you fix. f. How about payment on the mortgage? Is that an acquisition? Probably not. you had an obligation at the time of acquisition - payments aren't "new," you're just paying down an old debt. g. 1m purchase price - no bc greater than 3.3 years h. 1m addition: depends - repair versus something "new" i. Paid down mortgage: No j. Increase in value to 4m: No. Didn't acquire anything. k. So: this cap is not a true, hard cap in the sense that it caps the value - has to be for things that you've added. l. Cap would only apply if addition was something "new" m. Should they file bk? Live in Tx, have unlimited homestead exemption. Does this homestead have a cap? No. they're actually better staying out of bk, bc the asset they care about is the home, and it has an unlimited level of protection under state law, but under fed bk law, there's a cap on anything they've bought or added to it within the past 3.3 years. So creditors may be able to go after it. So they probably shouldn't file, should just stick with TX homestead exemption. May be not bc no 522p cap under TX law

1. 17.2 a. We have a corp jet. CEO wants to keep it. balance on loan: 8.8m. value of the plane: 8.1m. Is there equity: we're under-secured by 700k. b. Planes don't go down in value quickly, so adequate protection prob isn't a concern. So d1 is a difficulty for us. c. The question for us is therefore d2B - is it necessary. Is this plane necessary for the bk? We represent the CWI. Cameron wants the plan. is there a problem here? He just likes flying around. There is a conflict between the interests of the corp and the CEO. The Corp is the DO. What's Cameron's relationship to the corp: he's the CEO. But we represent the DO. Can we in good faith go in front of the ct and say the DO needs the plane? No. Cameron is the one inconvenienced by not keeping the plane. Our DO doesn't need the plane to keep operating. Ct won't believe him - he can fly commercial. d. Who will complain if we keep the plane: the other CRs. To keep the plane, we have to keep paying for it. that's money going out every year. other CRs are going to say get rid of it. this might be a situation in a ch 11 where we need to get a trustee appointed. e. If we somehow overcome d2, which we prob can't, keep in mind that we're undersecured here, and it is a depreciating asset. Possible bank is like if you pay is 700k, you can keep the plane. But others CRs will still complain. f. CEO will fire us, though. That's a real risk. But no other lawyer will have a good shot bc the others CRs are going to step up. g. Is there equity, is it necessary. That's the analysis.

1. 17.3 a. Liquor license. Who grants the license: either local gov or state agency. gov grants it. who do they grant it to: individuals. Is it transferrable: no. Is it property? When we ask whether a right that the DO has is property, asking via 541. Ask first, is license to operate a brothel property: yes. Is the right to choose whether or not you get subchapter S filing status under IRS property: No. Is a law license property of the estate: no. Who decides if something is property: bk ct. in the first instance, what rules do we look at to see if something is property: state law. Are we limited by state law: no. 541 says "all legal and personal interests controlled by DO." If it's a right, might be property even if state law wouldn't treat it as such. b. Does this look like property or a personal interest? DO will want it to be property of estate bc there's an as, and they keep to keep operating their bar. As doesn't apply to non-property interests. if it's not property, the bar closes. Who also wants this to be property of the estate: CRs - if the store shuts down, they don't get paid. Who doesn't want it to be property: the government. if gov controls this right, they get to decide who gets the liquor license. c. Issued to an individual, non transferrable, granted by gov: factors for it not being property. Health, safety, and welfare look like privileges that gov has granted, and are not property. If was transferrable, looks more like a property. d. Issue will be centereed around health, safety, welfare. e. Would it be ok in this instance to issue a new license if somebody buys the store: Yes, routinely issue license. Gonna issue the license to whoever buys the store. And to get the license, they have to buy THIS property. That makes it seem more like property. f. This gets litigated not infrequently. There is no direct answer. Lookit health, safety, and welfare.

1. 20.1 a. What would your advice be if they found out they hadn't perfected? Bk has already been filed - can they now become perfected? No, bc of automatic stay prevents you from doing it. section 362a4. b. Can they ask for relief from stay? No. bc of 9-317, which says the lien creditor has priority. Given that they have priority, the DIP/trustee gets to wipe out the security interest. c. So, they're unperfected. Trustee/DIP = lien creditor. Lien creditor beats unperfected secured party, 9-317(a)(2)(A). note also 544(a)(1) - DIP/Trustee avoids lien as a result. 2. 20.2 a. Contrast to 20.1. they filed the perfection doc when they learned of the ch 11 filing. b. Whenever somebody does something after the filing of bk, think of the AS. c. Does this violate the AS? Remember from article 9 there's a grace period from PMSIs. This is 20-days. section 9-317(e). Lien creditor does NOT beat a SP that files within 21 days after delivery of the product to the DO, bc of the grace period. d. Here, we respect the grace period (which is state law) instead of fed law (which is the bk code). Bc: the voiding power is not absolute; it's limited. Go to 362b3. Article 9 creates a grace period under which you can file, and the voiding power of bk respects that grace period. AS is not e. Grace period exists bc of state law, not fed. f. NOTE: THIS ONLY WORKS BC WE HAVE A PMSI. ONLY PMSI has a grace period. g. What's the trick for 20.2: under 20.1, they just screwed up. But the language of PMSI in 20.2 - does it give PMSI in just one plane, or all the planes? Includes the old plane. h. So no AS. But does the voiding power go away as well? 546b. i. Absolutely covers the new plane. Does it cover the old plane? 546 says that to the extent the SI covers items not part of the PMSI (money not lent to buy them), the voiding power comes back. j. What collateral is covered by 546: collateral that was newly acquired and perfected under 9-317e. NOT preexisting collateral that they are now newly perfecting. They don't get to go back and fix their mistakes. Can't avoid voiding power for that. k. Is it a violation of AS? 362b3 - no problem with the AS bc of 9-317e grace period. l. 544(9)(1) - N/A for NEW plane bc of 9-317(e) and 546(b). m. BUT: 546 does not apply to the non-PMSI collateral

1. 20.3 a. 20.1 is the standard situation. All the following problems are the exceptions. Major rule: the trustee/DIP can usually avoid unperfected security interests. note: if they file and perfect before the bk, they're fine and good, no voiding power. b. 20.3 is another exception c. Ac was installed in a building. This is a fixture, not personal property. Where do you file to perfect a SI in a fixture? 9-501. You file fixture filings with the cnty registry of deeds. BUT also look at 501(b). SOS isn't where you should perfect - have to perfect with registry of deeds. HAS to be registry of deeds. d. Bk rule in respect to RE: trustee has status of BPV when voiding RE - EXCEPT for fixtures!! Fixtures aren't covered by this section. So we cannot rely on the BPV protections in the voiding power. 544a3. The bk trustee has the power of the BPV who beats unbody with an unperfected SI, except for fixtures. So we rely on 544a1, which is the unperfected section, which gives trustee/DIP status of a lien creditor e. If you file with SOS, which isn't really great, you DO beat: the lien creditor. And we know trustee has status of lien creditor. That means the only way trustee can avoid the SI is if the filing is not perfected, but art 9 allows perfection of filing with he SOS's office that beats lien creditor. f. So: real perfection in fixtures, file with deed registry. If you file with SOS for a fixture, you'll only beat lien creditor. But trustee has status of lien creditor with fixtures. g. 9-103(a)(41) is the definition of fixture. Ac is a fixture h. 9-501(a)(1) - file with registry of deeds for fixture filings, except can also file with the SOS via 501(b). i. 9-334(e)(3) - filing beats lien creditor. j. 544(a)(1) - Topson keeps lien despite filing in wrong office.

I. Elements of an Acceptable Plan/ch 13 bk A. Chapter 13 bk 1. Contrast to chapter 7 a. Chapter 13 repayments differ. Chapter 7 focuses on liquidation - Dos effectively freeze their assets and debts at the moment they file for bk. Their non exempt assets are the source of paying claims. 1) Chapter 13 focuses on using future earnings rather than accumulated assets to pay creditors. This means chapter 13 lets the DO keep all assets in exchange for an agreement to relinquish future income for the benefit of creditors for a minimum of three years. a) Secured creditors must receive certain minimum payments for the Do to retain collateral, while unsecured creditors must be paid what remains of the DO's disposable income. The trustee takes a percentage of the DO's income for each pay period, deducts a part to cover administrative expenses, and then distributes the remainder to the creditors according to a court-approved plan. when the DO has completed the agreed payout, the DO's remaining obligations are discharged. b) If DO fails to complete the repayment plan, the case is dismissed, and the DO gets no discharge (although Do may be able to convert to chapter 7 or refile bk). 2. Every DO who is eligible for both chapter 7 and 13 must make a fundamental choice: a. Seek an immediate discharge is chapter 7 but lose non-exempt assets, or try to pay some or all debts in installments under a chapter 13 plan and get to keep assets.

1. Chapter 13 trustee a. Do retains control of the estate's property. b. Trustee makes a recommendation to the court on plan confirmation. Ordinarily, the plan provides that the Dos will make a lump su monthly payment to the trustee for distribution, though some secured creditors may be paid directly. c. IF DO's payments fall behind, it's usually the trustee who files to dismiss the DO's case for nonpayment. The trustee is responsible for ensuring that the DO gives up the required amount of income. d. The trustee can object to the DO's discharge. e. Trustee is charged with objecting to improper creditor claims, and making distributions to creditors. f. Trustee has duty to asset the DO in performance of DO's duties. 2. Payments to secured creditors a. One of the most common reasons for choosing ch 13 is DO's desire to keep property subject to a security interest. Ch 13 plan is often built around satisfying legal reqs for retaining property and structuring a new payment schedule b. Cts must solve two separate issues when a secured creditor wants to repo collateral: 1) Protection of the secured party's interest in the collateral while the case is going on. 2) Adequate payment to the Sp if the DO chooses to modify the debt. a) There's a statutory formula that calculates the minimum amount the Do must pay in order to keep collateral over the objection of the secured creditor. This process is called "cramdown."

A. Fraudulent Transfers 1. Assignment 23 a. Fraudulent conveyances are asset transfers tinged with fraud. b. Liability under the UVTA 1) Liability for actual intent to fraud a) Intent is proven under section 4(a), often with the help of tools from 4(b). 2) Constructive /presumptive fraud a) Cover transactions, like voidable preferences, that benefit some creditors at the expense of others. Section 5(a) permits a CR to avoid any transfer made 1) in exchange for an unfairly low consideration 2) at a time when the DO was insolvent. b) There is no intent on the part of the DO required. c) Obvious point: transfer without consideration is only a problem when the DO is insolvent. c. Fraudulent conveyance law in bk 1) Section 544b gives trustee/DIP power to attack a transfer of assets in certain situations. 2) Under 544, trustee's rights are derivative; there must be an actual unsecured CR eligible to bring the avoidance action under state fraudulent conveyance law into whose shoes the trustee can step. 3) 548: diff from state fraudulent conveyance law is statute of limitations. a) UVTA allows four years to bring an action, while the code has a two year limit d. Remedies for fraudulent conveyances 1) Sections 7 and 8 of UVTA allow two types of remedies: a) Property recovery action against the asset in rem b) A monetary claim against a transferee in personam. 2) Code takes the same approach as UVTA in 550

1. General in-class notes a. Section 544b: trustee can avoid transfers under UVTA. Under 548, there is the bk equivalent of UVTA. Two ways to get to this, then. b. UVTA: section 5 limited to transfers of present creditors when there isn't reasonable equivalent value. Allows CR to undo a transfer if transfer was for less than a reasonably equivalent value. Note this is not the DO's problem, it's the transferee's problem. c. If your client is buying property at a shockingly good price, what should you ask? Well, a bargain is ok, except when UVTA triggered. Who has to prove insolvency: CR. DO has to be insolvent for a bargain to be successfully challenged. d. Under 5a, reasonably equivalent value, wanna ask 1) why is the DO selling so cheaply 2) is there is a CR who's being affected by this (do they have debts out there that might be affected). 2. 23.1 a. Bk code section 544 allows trustee to use UVTA. b. Question here: we're told DO is insolvent. c. Lookit UVTA section 4 - what do we have to prove to void a transfer under this section: intent. 4a1 - shows how you prove intent. Here, we don't seem to have much evidence of intent. But we do know she's insolvent. We just don't know if it was done with an intent to hinder or delay collection of her loan. d. Look at UVTA section 5. Did the claim occur before the transfer? Yes. What will be the litigation, since we know she's insolvent: whether she received reasonably equivalent value. Don't have to get the SAME value - just REASONABLE value. Is their a percentage that we feel uncomfy with? This is a question of fact, will have to litigate it. e. So: under 4a, problem is intent. NOTE: under 4a1, can look to 4b for evidence of intent. Does not apply to 4(a)(2).

A. Exemptions and different from exclusions! Exclusions don't even make it into the estate. Exemptions are what the DO can take out of the estate. 1. Review a. 522b1 says that the DO may exempt property. DO can exempt property using two diff lists. Either paragraph 2, or, in the alt, paragraph 3. b. b2 says the federal exemptions are in d, unless the state opts out. Your state has the right to prevent you as a DO from taking advantage of fed exemptions if it so chooses. And 35 states have done that. c. Section 3 is the state property exemptions. They're exemptions from collections actions in that state. d. 3a: says that you can only use the state's exemptions in the first instance if you live there for 730 days prior to filing for bankruptcy. That's two years, total. 1) What happens if you didn't live somewhere for ten years prior to filing? Look at the 180 days prior to the 730 days and figure out where they were the longer period during that time.

1. Problem 5.1 a. Blackboard notes 1) Currently living - IL 2) 730 days? - Wisconsin 3) 180 days before 730 days a) 91 FL b) 89 IL 4) In FL, homestead is unlimited. But this is IL property, so he can't use FL homestead law. 5) 15k HS 6) Federal - 27,900. Last sentence of 522(b)(3). b. Kevin is battling a bunch of angry partners in a RE business scheme, who last week won 10m judgment for breach of k. He owns a condo in Chicago. He's lived in the condo for five years, except for about two and a half years ago when he rented an apartment in FL for 91 days. c. Was he in the state for 370 days prior to filing the petition? No. in the two years prior to filing the petition, DO hasn't met the 730 days rule. What's the homestead exemption in IL? 1500. He's looking at 1500 exemption. That's not a lot of money. d. 180 days before that? He was 89 days in IL, 91 days in FL. Note that he's always had a place in IL. e. Under FL law, he has an unlimited homestead exemption. Is there a problem with the homestead exemption in this case? Yeah, the home is in IL. And the exemption is for Florida. What happens, can he take an exemption for FL property and apply that to Chicago property? Can you use a homestead exemption from one state for property owned in another state? No. even though FL law applies here, he can't use the exemption. f. So what law do we apply then? We don't apply IL, bc he's in FL, and it doesn't count under the calculation. We'd apply the fed exemption. g. B3C: If the effect of the domiciliary requirement under subparagraph (A) is to render the DO ineligible for any exemption, the DO may elect to exempt property that's specified under (4). This is section 522. h. What's the fed exemption for property? 27900. i. So: he went from 1500, to unlimited, to 27900. That's still more than 15. 1) That's how you read 3b. 2) Note: if you lose a particular exemption, you can substitute the fed. He can still exempt things under FL law (??). You don't switch lists, bc if the state has opted out of an exemption, you can't stick in the fed exemption. j. Currently living IL. 730 days ago, in WI. 180 days before 730 days, 89 days in IL, 91 days in FL k. Decision tree 1) Are you in a state that allows you to pick the fed exemptions. 522b2, then you can. If state has opted out of fed options, you're fored into 522b3. 2) If haven't opted out, can either go with state exemptions or fed exemptions. a) NOTE: you get to pick, but you have to pick ALL of that list's exemptions. 3) What state list do we use: the state where you lived 730 days exclusively before bankruptcy. If didn't live exclusively there, it's where you mostly lived during the 180 period before the 730 days. 4) How do you prove where you were for the past? Where you're domiciled - physical location with the intent to remain indefinitely. 5) If you've lived in multiple places for 730 days, then you look at the 180 days.

A. When you file for bankruptcy, two things immediately happen by operation of law 1. Section 362: automatic stay. a. (a): a complete cessation of all collections under state law. It's a complete bar. b. There are exceptions in (B) and (C). These limits are specific, more limited, the courts read them in a limited fashion. So this is an ex of kinds of activities that can cont despite a bankruptcy filing. c. (A) stops all collections, subject to the exceptions in (b). first part: you don't delay prosecution of crimes just bc of bankruptcy. d. The automatic stay is protection for the DO bc it stops collection activity. It is a pause.

1. Section 541 - what's in the estate? This is set out in (a). these are the two main sections we'll deal with today. a. Does fed law tell us what your property is, what rights you have? no, it's based on state law. The code says your property is whatever state law says. b. Problem 3.1 1) Important part is "on the day he filed his bankruptcy petition:" the commencement of a case under this title creates an estate. 2) A) His parakeet: State law would tell us whether pets are property. Also, are pets excluded from the list in (b)? no. does state law say pets are property? Yes. If state law makes something property, and no (b) exception, then it's part of the estate. 3) B) Used Ford focus that is subject to a PMSI in an amount exceeding its value: the key here is that the debt exceeds its value. It's property. It's in the estate. Doesn't matter how much you owe, though. Yes, it's in the estate - the fact there's zero equity in it is not the answer. 4) C: snapshots of his friends, some of them intimate. Is this property? Yes. If these were pictures of Beyonce, they can be sold. Whether or not they're used as part of the solution to bankruptcy is a different question than whether they're just part of the estate. 5) D: two tickets to an upcoming Bjork concert: what are tickets under state law? A License. A license is not property. So it could be that licenses to use property are not actual property rights - just the limited right to enter. If they're not property under state law, they're not part of the estate. But: they could be property if the state says that it views licenses as property. So: maybe no, not property. If it's not property, trustee can't seize it. 6) E: Household furniture. Furniture is property, it is part of the estate. But there might be an exception. But first, yes, it's in the estate. 7) F: 25 shares of stock left to DO by his uncle. Stockholders don't have a direct ownership interest in the corp's property. Having stock only gives you the right to receive dividends. If you don't own an interest in the property, then the trustee can't go after it - trustee only has the same rights as the DO. So: Stock is property, but it is JUST the right to the dividend. 8) G: interest in a big game reserve: this is a tenancy in common (probably). It's property. 9) H: baseball game cards: this is property. 10) I: an arrangement with his brother that he could use his catcher's mitt. This is still Donald's property. This isn't a great property interest, though - bro could claim abandonment, adverse possession. Trustee might not be able to get the glove. But it is property, and trustee has whatever rights that Donald has. 11) J: a bank account on which Donald is the named trustee for the benefit of his niece Sherry. Legal owner of the trust under trust law: (remember in trusts, we distinguish between beneficial ownership and legal ownership. Trustees are the legal owners, beneficiaries are beneficial owners). Trustee cannot sell the trust here bc Donald is subject to the law of the state that dictates how a trust can be used. Trustee here only has legal ownership. 12) K: his salary for the month prior to the petition, which he received just hours after filing: section 541a6: key here is that he had already owend it, owned it at the time of filing. If he had earned it after filing, it wouldn't be part of the estate. 13) L: his retirement account, which he cannot touch until he retires: 541b7. This section says that certain retirement accounts are not included as property of the estate. So everything in unless specifically excluded under b. and it looks like they're excluded. C2, also, says "A restriction on the transfer of a beneficial interest of the debtor in a trust that's enforceable under applicable nonbankruptcy law is enforceable in a case under this title. Creditors can't go after your retirement accounts - there are limitations under fed law. So the answer is no (probably - bc the problem doesn't say what kind of account it is. If covered by arisa, then it's not part of the estate). 14) M: his interest in a trust which entitles him as sole beneficiary of this non-assignable trust to a monthly distribution until the creator of the trust dies, at which point he gets the remainder. Here, he has no legal interest, but he does have a beneficial interest, and that interest goes into the estate, but it's subject to a limitation: he isn't allowed to get the corpus until she dies, it's not his yet. If she dies before he files, that money IS part of the estate. Anything he's currently received is in the estate, the money he gets into the future is subject to the limitations of c2. But when she dies, depends on when she dies. If she dies within 180 days of filing bankruptcy, it becomes part of the estate. But as it is, the money isn't part of the estate. 15) Parakeet unexpectedly laid two eggs: a5 and 6. Pre petition, he had a bird. After the petition, he had eggs. A6, it's property of the estate. How about if he receives a dividend after he files for bankruptcy: a6, same thing.

I. Introduction A. Bk (bankruptcy) is: an organized system that helps Debtors, creditors figure out what is paid. 1. Ex: funeral home leaves body on the front step of debtors. a. Is a signal to other people that they need to pay. It also created pressure - guy had to do something with the body, and funeral home would take body back if he was paid. b. Was all about leverage. Creditor needed leverage. c. What kind of debt is debt to a funeral home? An unsecured debt. 1) If this had been a car, and not a dead body, what would the mechanic have been able to do: take the car back. In some businesses, you can get leverage by operation of law. 2) If there is no leverage, and person is legit out of money, you cannot get paid. If you have a ST, you might get your collateral back. d. Another way to get leverage: sue them. Can get a court order. B. Your economic life is divided into assets and liabilities. 1. Ex of assets: car, house, cash, stocks, jewelry, a business, rental property, bank account. 2. Ex of liabilities: mortgage, accounts payable, credit card (unsecured debt), signature loans, doctor's bills, utility bills C. Title 11 of the federal code governs bankruptcy. D. Definitions 1. Definition of debtor: the party that has filed for bankruptcy 2. Debt: liability on a claim. 3. Claim: 1) a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. 4. Creditor: an entity that has a claim against he debtor that arose at the time of or before the order for relief concerning the debtor

A. Problem 1.2: the dr is the debtor here. She's the person owing the money. All those debts are claims. We represent the creditor. But: we only have an unsecured loan. Probably a signature loan. She pays out 12,450 each month, makes 12,500. As unsecured, we might be last in line to get paid. 1. Which is secured, what isn't? secured: mortgage, car loan. Alimony payment is a judgment. High likelihood that dr will pay that. 2. The others: probably would pay us before the fitness center. But clearly D cannot meet their obligations. We'd prefer D pay us before other people. 3. how do we make our situation better? Renegotiate the loan. Can make the payment period longer. can also ask for collateral, ask for a security agreement; that would create leverage. 4. Could also sue and get a judgment - we could move ahead of at least the clothing store, bc we can try to enforce it. Problem: takes forever to sue. 5. What bankruptcy does for this: takes a situation in which at least one org isn't getting paid and imposes on the situation a sense of order, fair treatment of the creditors. B. Problem 1.1: list of assets, liabilities. Just like the list we did in class. 1. Blackboard notes a. Assets 1) Car 2) House 3) Cash 4) Stocks 5) Jewelry 6) Business 7) Rental property 8) Bank account b. Liabilities 1) Mortgage for house 2) Aul3 payable 3) Credit card - unsecured 4) Signature 5) Dr. bills 6) Utility bills c. Problem 1.2 1) Secured: mortgage, car loan 2) Judgment - alimony 3) Total debt service: 12,450

A. Regulation 1.165-5 1. Text a. (b) Ordinary Loss. — If any security which is not a capital asset becomes wholly worthless during the taxable year, the loss resulting therefrom may be deducted under section 165(a) as an ordinary loss. b. (c) Capital Loss. — If any security which is a capital asset becomes wholly worthless at any time during the taxable year, the loss resulting therefrom may be deducted under section 165(a) but only as though it were a loss from a sale or exchange, on the last day of the taxable year, of a capital asset. See section 165(g)(1). The amount so allowed as a deduction shall be subject to the limitations upon capital losses described in paragraph (c)(3) of § 1.165-1. 2. Notes a. If a stock that is not a capital asset becomes worthless, then its loss is treated as an ORDINARY loss. All 165 does is preserve the og character of the asset if it becomes worthless.

A. Section 166 - bad debts 1. Text a. (a)(1) Wholly Worthless Debts — There shall be allowed as a deduction any debt which becomes worthless within the taxable year. (a)(2) Partially Worthless Debts — When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction. b. (b) Amount Of Deduction — For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property. c. (d)(1) General Rule — In the case of a taxpayer other than a corporation— • subsection (a) shall not apply to any nonbusiness debt; and • where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year d. (d)(2) Nonbusiness Debt Defined — For purposes of paragraph (1), the term "nonbusiness debt" means a debt other than— 1) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or 2) a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business. e. (e) Worthless Securities — This section shall not apply to a debt which is evidenced by a security as defined in section 165(g)(2)(C). 2. Notes a. Generally speaking, the diff tween here and 165 is that 165 is dealing with publicly traded debt like corporate bonds - things that can be sold on public markets. b. A1, 2: there is a deduction for a debt that becomes worthless. c. B: so how much is the deduction? Amount of the deduction is the adjusted basis of the debt. If you lend 1k, your basis in that loan receivable is 1k. if you are unable to collect it, becomes worthless, then the extent of your loss deduction is 1k. is NOT the fmv. d. D1: applies to taxpayers other than corps. A deduction against ordinary income will not apply if we're talking about a non-business debt. So: there's a diff between business debt and non-business debt. What if you made a loan to your employee: that can be a business loan. e. E: if the debt you're concerned with is a security, as defined in 165g, then it'll be covered by section 165, not 166. Conversely, if the debt you're concerned with isn't a security as defined in 165, then it'll be a debt under 166, and you'll go through the analysis of whether it's bona fide, is it worthless, is it a business debt.

1. Ch 13 is nice bc Do can make up arrearages. 1325b5. 2. Gotta pay your mortgage, but get to keep your house as long as your plan allows for you to pay off the full amount that is due. 3. Disposable income calculation: there are two kinds - below median and 2) above median. These calculations are described in 707. Below median - 1325b2: plan is no good if you don't use all of your disposable income to pay all of your nonpriority unsecured creditors. Disposable is what's left over after we do all the deductions. For below median income debtors, it's the traditional test. Work through Ai, etc to determine what you can deduct. 4. Above median creditors: 1325b3. Refers us to 707b2. Happy, sad, and confused DO. This is where the means test from ch 7 gets imported into ch 13. Into this calculation, there are national numbers, local numbers, and then some actual nos from the DO. This means it's theoretically possible for an above median DO to have money left over, bc they have to use a statutory test instead of the trad test/judge deciding.

I. Slideshow - review of individual bk A. What is bk? 1. Bk is a process designed to help individuals and businesses get protection from their creditors 2. Right to file for bk is provided by fed law 3. All bk cases are handled in fed bk ct B. Purpose of bk 1. CRs: want fair treatment. DO wants fresh start. These have to be balanced 2. What can bk do a. Bk may make it possible to: 1) Stop home foreclosure and allow homeowner opportunity to catch up on missed payments a) But bk doesn't automatically eliminate mortgages and liens without payment 2) Prevent repo of car and other property (and even force CR to return repossessed property) 3) Stop wage garnishment, debt collection harassment, and similar CR actions to collect a debt 4) Restore or prevent termination of utility service 5) Lower the monthly payments on some debts 6) Allow consumer to challenge claims of creditors who have committed fraud or are trying to collect more than is really owed 3. What bk can't do a. Bk doesn't cure every financial problem nor is it the right step for every individual in financial trouble. b. In bk, it's usually not possible to: 1) Eliminate certain rights of "secured" CRs 2) Discharge some types of debts, such as child support, most student loans, criminal fines, and most taxes 3) Protect cosigners on debts (except in Ch 13 cases) 4) Discharged debts that arise after bk is filed

1. General notes a. 1129 talks about what's necessary for plan to be approved. (a) refers to a consensual plan. 1) 1129(b): if you don't have a consensual plan, b allows you to force the plan on people via cramdown. Does NOT eliminate feasibility, best interests req - just eliminates the voting req. need at least one group of unimpaired CRs to approve the plan to even get to this point. a) Standards: can't discriminate unfairly, is fair and equitable. These are undefined standards. A) Issue: What does it mean to not be discriminated unfairly against and be treated fair and equitable? 2) Demihoss case: SBA challenges the claim. 73% diff in the dividend rate for the unsecured vs secured CRs. How do we decide if this doesn't discriminate? Little bit of confusion about this. There are diff tests that diff js have used. Top of 628. Abuse of discretion on appeal is a fact question for the bk ct. so unless it's manifestly unreasonable, they're going to accept it. cts have wide latitude to decide what doesn't discriminate unfairly. a) Basic idea: it's just not gross mistreatment of one class over another. don't think we can drill down much more than that. Rules vary. Some circuits have adopted multi-factor tests. At the end of the day, discretionary decision by bk ct. you can discriminate, just can't discriminate unfairly. What happened in this case: gross disparity b. Fair and equitable standard: start talking about the absolute priority rule. One CR that is impaired shouldn't receive disproportionately less of the property than another impaired CR.

a. So what is the absolute priority rule? Classes are stratified. Basic diff between CRs are secured vs unsecured. But we're in ch 11, and in ch 11, we're talking about corps filing bk. There's another group of people that have interest in the DO who are involved in the bk: shareholders. Do they have an interest that's protectable under the law? Under corp law statute, if a co liquidates, do shareholders get money: yes, they get paid. One of the things you don't get is to be paid before the CRs. The common shareholders of a corp are the last ones to be paid when a co is liquidated. 1) Who is running the ch 11 bk? The DIP, aka the corp. but practically, management/the board is the DIP. What if management has an equity interest in the co? what if they're all shareholders? They'll prefer themselves when making the plan over the unsecured CRs. But state law says they don't get paid til everybody else gets paid. Via state law, cannot pay them first. But we're under bk law. Under bk law, DIP controls the plan. so as a result, there's an opportunity for high jinks, for owners to create a plan that is better for them. That's one of the ways the absolute priority rule works. Says there's no way you can give a reduced dividend to the unsecured CRs and also get paid. Aka if you had enough money to pay the shareholders, that means you have enough to pay the unsecured CRs in full. You shouldn't get a dime if could pay unsecured first bc they have priority. 2) Where this gets tricky: you need management to run the corp. if the people who own the co can't get anything out of the bk, they have little interest in sticking around. Need to incentivize management to stick around even though can't allow them to keep their stock b. The plan doesn't require you follow state law. Ct have created a non-statutory corollary to fair and equitable rule. New value corollary rule is common law. Rests on the foundation that a plan won't succeed if don't have the right people in place to keep it going.

A. The means test for net income isn't a straightforward yes/no 1. It's a yes/maybe/no. 2. You do your net income calculation. You get to the end. There are numbers at the end of statute, adjusted for inflation. If your test falls below those numbers, if your total leftover income falls below a particular number, then you're ok to file ch 7. If your number falls above that, you're not ok, have to file ch 13. 3. But there's a middle ground. Called "happy debtors" and "sad debtors" and "confused debtors." That calculation: what percentage of your leftover income is as a percentage of the unsecured debt. If your percentage is too low, it's presumed an abusive filing. B. Diff between the calculation of expenses and disposable income: if you're below median income, the calculation of disposable income is based on a decision by the ct. when we're above median, the calculation of disposable income is statutory - v little wiggle room. Ct might be able to raise your expenses for food by 5%, but that's the max. ct doesn't get to adjust. C. If you're an individual Do running a business and most of your debts are business debts, 707b (about abusive filings in ch 7) doesn't apply to you. Means test is dealing with CONSUMERS. D. Note about charity contributions: the debtor has to have been MAKING those payments before filing bk.

A. Best way to understand this is to use the form - is designed by bk courts. 1. He's given us two links under the notes for this lesson. 2. First link takes us to a page of bk forms. Lookit ch 7 statement of your current monthly income. B. 12.1 (use the form to calculate!) 1. Blackboard notes a. 1300 + 16400 + 8000 = 25,700. b. 25700/6 = 283. 283 * 12 = 51,396. c. Next, look at state median income tables 1) One person - currently - 58,864 2) Two people - 69,786 3) She's ok based on her current income. BUT if she waits two months: a) 12 * 6100 = 73,200 2. Decide if person's income is below or above median income for state. Your current monthly income is calculated based upon your income over the past six months, averaged over those six months. 3. Difficulty for "income received from all source" - can include amounts that aren't wages, and aren't strictly payment for services rendered as an employee. Can include gifts from people, payments of support paid by an ex-spouse for the upkeep, running of household. 4. Does she have to include unemployment? Yes. So first have to add two months of 650 (1350). Next, she gets paid a wage for four months of (4100). She also worked overtime those four months an additional 2k. add all of those together. 1300 + 16400 + 8000 = 25,700. Then divide 25,700 by six. That number is $4,283. That's our average monthly income. Go back to the form, plug that in. 5. Next: calculate your currently monthly income for the year. here, that is 51,396. We now have that number. If her son doesn't live with her, that's the number for her. If her son lives with her, we count him as a second person, it's a two person household. So how do we know whether that's too high? We go to the second link he gave us, which is about means testing. 6. First thing we do is pick a time frame under the second internet link. Click on Median Family income based on state and family size. She lives in Michigan. Michigan's nos: one earner - over 60k. she's fine if son doesn't live with her. There is no version of this test that, currently, she would fail. We're out, we can file ch 7. 7. But what if she had filed in 2016 with these same numbers? We'd have to go on to the net income text. She fails if son isn't in her household, she passes if he is. 8. What's her income per month if she waits two months to file? Her average monthly income would be greater, she fails the gross income test. She shouldn't wait to file.

I. Charitable Contributions - section 170 A. Estate planning, wealth transfer planning is really involved with Section 170 B. Section 170, A1: 1. Text a. (a)(1) General Rule — There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary 2. Notes a. there is allowed as a deduction any charitable contribution. That means a simple pledge of a contribution is not deductible. But when made, the contributions ARE deductible (within limits) b. Deduction is allowable only if contribution is verified. Verified = just documentation that is contemporaneous, issued by the org that receives the contribution. This is meant to get everybody involved in reporting these contributions, to the extent that they are extensive. C. C - what is a charitable contribution. It's a payment made to: c1, the gov. 1. Text a. (c) Charitable Contribution Defined — For purposes of this section, the term "charitable contribution" means a contribution or gift to or for the use of— b. (c)(1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes

A. C2: is a charitable contribution if it's to a corp, trust, community chest, fund, or foundation 1. Text a. (c)(2)— A corporation, trust, or community chest, fund, or foundation— 1) (A) — created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States; 2) (B) — organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals; 3) (C) — no part of the net earnings of which inures to the benefit of any private shareholder or individual; and 4) (D) — which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. 5) A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B). Rules similar to the rules of section 501(j) shall apply for purposes of this paragraph. 2. Notes a. That is created and organized in the US, AND operated expressly for the listed services. b. We're allowed to rely on info published by the fed gov, which publishes a list of all the orgs it has reviewed and approved as operating "exclusively" for these purposes. c. Note: not all nonprofits are tax deductible. d. The contributions are deductible ONLY if they're USED in the US. But there are ways to get around this use requirements. Sometimes it happens under bilateral tax treaties, like with Canada.

a. 25.3 1) What happens when there is an exec k that is in breach and DO wants to assume that k? 2) Types of failures: failure to pay rent, failure to maintain insurance. 3) What are the breaches that we have here: failure to pay rent; failure to maintain insurance. 4) Lookit section 365b. can you just assume a k if there's a breach: no. if breach exists at time of filing bk, before the filing date, b says there are certain reqs that must be met before the trustee/DIP can assume that k. essentially you have to cure the breach. 5) Under what circumstances can DIP/trustee reject an executory k or assume an executory k. 6) Ask: to what extent can you assume a k in default at time of bk. Answer: you have to cure. 7) Two ks are at issue here: non-residential commercial lease. Is it in default at time of bk: yes, didn't pay rent on time, and didn't have renter's insurance. These are the two defaults we have to talk about 8) Failure to pay rent default: DO, we know, wants to keep lease. He has to cure. How much is owed: 4,200. He can't assume the lease unless he pays the 4200. 9) K says we have five days to cure. Are we stuck with that, since we're in bk? No, not since we're in bk. We just have to "promptly" cure, bA. Also, we have to provide adequate assurance we're going to cure, and adequate assurance we'll perform in the future. How do we give adequate assurances we will cont to perform? He says there's some kind of doc we can give to show what our business is, that it will cont. 10) can we still assume if we pass the five day period? Can argue that this is no longer executory - no performance is still required by ll, he's not req to perform. Aka, if we don't act quickly, the lease is over, terminated by its terms, so k is not executory, if we don't act quick we lose this opportunity to assume the lease. If ll terminates within the terms of the lease, we can't assume it. so we have to file within the five day period - note that we just have to CURE within a reasonable amount of time. make sure you note this distinction - it's bc you can only assume ks that still exist.

1) 365b1(A): nonresidential leases: addressed below. 2) There are two breaches here. We're focusing on the monetary obligation, rent. What's the second breach: insurance. How do we cure that non-monetary breach: get it. is it possible to cure the breach prior to the filing of bk when we didn't have insurance, can we cure the past non-monetary breach? 3) Yes, we can cure the rent. Can we cure the insurance problem? We have a non-monetary breach, statute says we can cure it at time of assumption if it's impossible to cure the breach as it existed before the assumption. We can't fix the past lack of insurance. But we can assume the k and move forward, notwithstanding the impossible breach, if we get insurance and pay for any monetary losses SINCE this is a nonresidential lease. 4) What if this was a nonmonetary breach on a residential lease? Do we have to cure a nonmonetary breach? No. you don't have to cure a nonmonetary breach on a residential lease. 5) If it's residential: have to cure past due rent, but you don't have to cure any other breach. But you do have to pay any damages that occur and then continue to perform. 6) Defaults on real property lease - DIP wants to assume; he must cure default of failure to pay rent per 365(b)(1). He has to cure OR provide accurate assurance that the trustee will promptly cure. 7) Lack of insurance default: remember this is a non-resident lease of real property. Therefore, has to perform from the time of assumption of the k AND pay pecuniary losses. IMPOSSIBLE to cure. 8) NOW: what about the lease for the equipment? 9) Lease of personal property, not real property. How does our analysis under 365b change? Is the lack of insurance for the machine a curable or noncurable breach: noncurable, bc it's impossible to go back in time and get the insurance. The language in A doesn't say anything about personal property. We can't cure that default. Therefore: we cannot assume the lease for the personal property at all, ever. Could we argue that it's a nonmaterial breach and that this should've trigger this clause? Sure. If nonmaterial breach, then 365 doesn't apply. Don't have to cure nonmaterial breaches - under state law, nonmaterial breaches do not excuse performance by the nonbreaching party. 10) Personal property lease - default of insurance clause. Cannot be cured. 11) 365b1 has special provision for property leases. So the only time you have to worry about extra language is if you see a real property lease. 365b requires cure, but in the case of real property leases, there are some exceptions to that.

A. Formal Remedies for Nonpayment of Debt 1. Article 9 and repo: a. Repo is legally permitted. 1) Limit on repo: no breach of the peace a) Art 9 allows for creditor to reclaim the collateral without going to ct if you've defaulted on the loan. It's just automatic. But you cannot repo if you breach the peace while performing repo) b) If debtor attacks repo agent, commits physical violence, there is breach of the peace. c) Once you breach the peace, you must leave. You cannot stick around. This is a limit on the power to do a self-help repo. A) If can't repo without breach, have to go through ct, get replevin action 2. Another method: Can through a lawsuit get a writ of execution, have the sheriff levy and sell the property. This takes a long time 3. Another method: Can also go for garnishment of wages, bank account. Creditor sues a third party and gets the money from the third party instead of the debtor. 4. Remember: all of this is the background to bankruptcy; occurs prior to bankruptcy filing

1. Problem 2.2 a. Hypo is that the CR is the landlord, DO is former tenant. Debt is damage in excess of security deposit. What's your advice when it turns out that the former tenant is a law student, says that the lawyer who has sent the lawyer has violated the FDCA (as collector). b. First ask: does FDCPA apply? All lawyer did was send a lawyer about security deposit and tenancy. But is owing money on a lease a debt? Statute definitions tell us about this. Seems to include what we have here. If there is a debt, that means there's a DO, and there's a CR. But is the lawyer a debt collector? That's the bigger question. Definition: The term "Debt collector" means any person who uses any instrumentality of interstate commerce of the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another" c. This definition covers what the lawyer is doing here. What he regularly does is sue about money. Therefore they're collecting debts owed to third parties. So lawyer here should be covered by the FDCPA. d. Is it illegal to send a letter though? No. you can send a letter. Sending the letter isn't the problem. What is it that the former tenant is claiming: it's harassment. But nothing in this seems harassing yet. e. Section 1692e: A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. (False representation of: the character, amount, or legal status of any debt). f. Was anything lawyer said false or misleading? Look at how much is owed. Ll says 2k is owed, but how do we know that? The damage might actually be ordinary wear and tear. Or the damage might be something the ll is normally responsible for. Or what if the repairs are just a smaller amount? Could that be false or misleading? Also, the lawyer is threatening legal action - is that ok? Will ll actually go to ct for just 2k? g. Statute says that misrepresentation includes "The threat to take any action that cannot legally be taken or that isn't intended to be taken." h. This means: possible 1692e violations. Who is liable here? Not the ll - the lawyer would be responsible and liable under this statute.

1. Adequate protection a. A creditor can move to lift the automatic stay by arguing that its interest in the collateral isn't adequately protected. In chapter 7, bc an immediate liquidation is anticipated, adequate protection is rarely an issue. In ch 13, by contrast, DO proposes to retain the collateral and make payments over a long period of time, often on quite different terms from the original loan. 2. Adequate payment a. For the secured creditor that doesn't succeed in a lift stay motion, which would effectively let it bypass ch 13 and liquidate the collateral, the next battle is fighting for maximum payment under the ch 13 plan. unless the DO and the creditor make a deal, a plan will be crammed down on the secured creditor if the DO promises to pay a certain amount. b. A ct must make two factual determinations to est the minimum amount that a DO must pay to a secured creditor to present a permissible ch 13 plan: 1) The amount of the allowed secured claim under section 506(a) 2) The present value of the allowed secured claim under section 1325(a)(5)(B)(ii). c. The general rule about required payments to secured creditors is in 1325a5, which contains two requirements: 1) A secured creditor must be paid its full allowed secured claim 2) Creditor must be paid interest on that claim. a) Ie must be paid "value" of that claim, bc the Do in ch 13 spreads the payment over time. 3. Treatment of liens generally a. Recall: in ch 7, after bk, a secured creditor's lien remains on collateral; once the stay is over, creditor can go after that property in rem to redress default. But in ch 13, the Do's broad "modification" power of section 1322 includes the right to remove the lien altogether, at least after the plan is concluded. This accords the DO the power to strip a lien off encumbered property upon successful completion of a ch 13 plan. b. This treatment of an undersecured claim upon plan completion is often called "lienstripping." Bc it can be imposed over the secured creditor's objection, it's a form of cramdown.

1. Special rules for purchase money liens and mortgages a. Lienstripping rules have never applied to mortgages on DO's principla residence. Congress added another carveout in 2005 at the end of 1325a that covers certain PMSIs on personal property 1) Purchase money liens a) Exemptions seem to forbid lienstripping certain purchase money security interest on collateral acquired during specified periods before bk. If the secured creditor objects to the plan, a DO who wants to keep the collateral must promise to pay the purchase money debt in full. Ignoring nuance the "allowed secured claim" the debtor must pay for cramdown is the full debt, regardless of the collateral's value. b) The first purchase money security interest exempted from lienstripping is one granted within the year before bk, regardless of the nature of the collateral c) Second interest exempted is the holder of a PMSI in a motor vehicle. Time period is pushed back to two and a half years before the petition. 2) Home mortgages a) Ch 13 can help Dos keep them homes by enabling them to catch up on the arrears in the mortgage payments.

1. 21.1 a. A: easy ex of a preferential transfer. All five elements easily met. b. B: what if instead of cash, they said come get some equipment? Doesn't have to be cash - any property can be preferential transfer. This is the same as payment of cash bc CR is getting more than they're otherwise entitled to. Can be ANY type of property transferred. c. C: Shapiro case - issue was that there's a grace period. 547e - is granting of a SI transfer of property? Yes. Antecedent debt - if you have a loan and then grant a SI, 1) Element 3 is that it has to be on account of an antecedent debt. If transfer is on account of an existing debt, then it's pt. is granting of a lien a transfer of property - yes. If you transfer a SI in the property then you're transferring property to CR. But it's ok if it's not on account of an antecedent debt. That means a new loan with an SI is NOT a preferential transfer. In Shapiro, there was a new loan. 2) Lars note a) I appear to have created confusion about the answer to problem 21.1C. I apologize! b) The security interest was granted on May 20, for a loan that was already a year old at the time the security interest was granted. So the transfer of the security interest absolutely occured on account of an antecedent debt! c) The time frame of 547(e) that I was talking about at the end of class relates to calculating the date the transfer occured, when the transfer is the granting of a security interest that requires the filing of paperwork to perfect. That was the issue in the Shapiro case on p. 457. Two important facts in the case: First, the mortgage was signed on the same day the loan was made. Second, the mortgage was filed 72 days after the mortgage was signed. Therefore, even though the mortgage was signed, and thus granted, to the bank at the same time with the granting of the loan, under 547(e)(2)(B), the date of the transfer under Bankruptcy law was the date of filing of the mortgage, not the granting of the mortgage. If the bank had filed the mortgage within the time of the grace period, then the transfer would have occured on the date the mortgage was signed and thus granted, because of 547(e)(2)(A), which would have meant it was not on account of an antecedent debt. This last point is what I was trying to emphasize about the Shapiro case at the end of class. d) In problem 21.1C, they perfected on the same date as the security interest was granted, so under 547(e), it clearly is within the 30 grace period. So the date of the transfer was the date of the granting of the seucrity interest. Nevertheless, the granting of the security interest was done a year after the loan was made (thus on account of an antecedent debt) and during the 90 day period before the filing of bankruptcy.

1. Timing a. If mortgage and loan are assigned the same day, not an antecedent debt. b. ASK HIM ABOUT THIS 2. 21.2 a. 547b says trustee can avoid a preferential transfer if it meets five elements. Transfer is the granting of a SI. Handing over of cash is transfer of property interest. Creation of a SI = transfer of a property interest too. Filed outside of grace period here. b. 90 days before September 15th (date of filing bk) = June 15th. c. Answer: the transfer is a preference. Transfer is the granting of the SI, deemed to occur on date of perfection bc perfection happened more than 30 days after (situation of the Shapiro case) d. Was a secured loan, but failed to perfect in grace period. So date of perfection is July 6th, which is after June 15th, so transfer occurred in preference period. Allows trustee to avoid. Trustee can now go back and say that SI didn't happen. Avoids the creation of the SI, bc it occurred too late. e. Answer: date of filing is declared to be the date of transfer bc not within 30 days - 547e2B

A. 707(b)(7), Gross Income Bypass 1. Bifurcation under 707. First place to look is 707b7. You can file to challenge the right of the DO to file a ch 7 bk if there's bk abuse. First place to look: where does your household income in the median for your state to determine first just your gross income. 2. This intro language says that nobody, including judge and trustee, can challenge filing of ch 7 bk if you pass the means test for total household income. 3. How do you calculate the income a. Section 101(10(A) - how to calculate current monthly income. Looks at what you made over the past 6 months. b. You can't file ch 7, are pushed into ch 13 if you fail this test. 4. If you meet b7 test, aka income falls below, then nobody can challenge your filing under ch 7 as illegal. 5. How do you calculate household? Discuss about kids who don't live with you but for whom you have part custody of. Can call them essentially half a person, for bk purposes, when calculating your household. 6. After we work the gross income test, we can determine whether DO is above or below median. those who are below may now be free to file ch 7 or ch 13. If they choose ch 13, they can be done in three years. The above median debtors must continue descending into 707b2. B. Means Test Chart page 263 1. Gross income test a. Below median income DO has choice: ch 7 or traditional ch 13 b. Above median income DO has choice: 1) File ch 13 (New ch 13) 2) File ch 7 a) Can Pay Test section 707(b)(2) A) Pass: Choice between ch 7 and new ch 13 B) Fail: choice: new ch 13 or no bk 2. If you're below median, you have a choice between ch 7 and traditional ch 13.

A. 707b7. Means test is just a way to force people into ch 13 bk - we want people to do ch 13 if they have money to pay their unsecured creditors 1. There are two basic tests to see if you can file ch 7 bk. First test: basic gross income test. We add up all the money you earned in the six months prior to filing for bk. We then total that and divide by six. Then we multiply by twelve, and we see where you fall on the median income for your state, based on the census bureau. 2. If you fall below the median on that test, you are not presumed to have an abusive filing, you're entitled to file ch 7. 3. Test two: means test based on net income. If you fail the first test, you have to worry about this one. We haven't concluded yet that your filing is abusive. 4. Numbers are based on who is in a household. Discussion on whether house is just a person, an economic unit, does that unit get reduced by the amount of time they're in the house - not clear. The numbers we'll used are based on whole people who live in houses. That's where the census bureau gets their numbers. But in bk, it's not that way - we can have a percentage of a person 5. Second part of test: trying to see if your filing is presumed abusive. You may be able to rebut it, but is it PRESUMED. Based on, whether after you've paid your expenses for above median income earners, you have too much money left over. a. So it's possible for somebody to have above median income, but not be presumed abusive filing 6. In review: there are two tests a. Test one: are you below the median income for household b. Test two: is your net income lower than a certain number? c. If you fail both tests, you have to file ch 13.

A. Ftx situation 1. People will want to take theft loss deductions. But is it really theft? 2. We got Rev. Rul 2009-9 thanks to Madoff. Addresses seven questions. a. (1) Is a loss from criminal fraud or embezzlement in a transaction entered into for profit a theft loss or a capital loss under §165 of the Internal Revenue Code? b. (2) Is such a loss subject to either the personal loss limits in §165(h) or the limits on itemized deductions in §§67 and 68? c. (3) In what year is such a loss deductible? d. (4) How is the amount of such a loss determined? e. (5) Can such a loss create or increase a net operating loss under §172? f. (6) Does such a loss qualify for the computation of tax provided by §1341 for the restoration of an amount held under a claim of right? g. (7) Does such a loss qualify for the application of §§1311-1314 to adjust tax liability in years that are otherwise barred by the period of limitations on filing a claim for refund under §6511? h. For federal income tax purposes, "theft" is a word of general and broad connotation, covering any criminal appropriation of another's property to the use of the taker, including theft by swindling, false pretenses and any other form of guile. i. A taxpayer claiming a theft loss must prove that the loss resulted from a taking of property that was illegal under the law of the jurisdiction in which it occurred and was done with criminal intent. However, a taxpayer need not show a conviction for theft. j. A loss from criminal fraud or embezzlement in a transaction entered into for profit is a theft loss, not a capital loss, under §165. k. A theft loss in a transaction entered into for profit is deductible under §165(c)(2), not §165(c)(3), as an itemized deduction that is not subject to the personal loss limits in §165(h), or the limits on itemized deductions in §§67 and 68. l. A theft loss in a transaction entered into for profit is deductible in the year the loss is discovered, provided that the loss is not covered by a claim for reimbursement or recovery with respect to which there is a reasonable prospect of recovery. 3. Theft is a broad concept. FTX would see to be theft under this definition 4. "Illegal under the law of the j:" here, that would be the law of the Bahamas. 5. Reg says that a loss from criminal fraud or embezzlement is a theft loss, BOT a capital loss, under 165

A. Page 830 problems 1. B: we know it's 10k bc insurance co paid 20k for the vase. 2. F: not attributable to a federal emergency. 3. G: won't make any diff via h4E - cannot affect the amount of loss she can get based upon whether or not she files. Whether or not she files with insurance is irrelevant. 4. H: what difference if, instead of auto casualties, her uninsured house is totally destroyed in fire that IS a federally declared disaster a. Begin with adjusted basis bc it's less than fmv. 40k then becomes the basis for determining the amount of loss. b. Do agi calculation bc this loss is attributable to fed disaster. c. Look back on h5B. if there's gains in the year, A (fed declared disasters) won't apply to the portion of the loss that isn't attributable to the disaster, to the extent that loss doesn't exceed gain. 10k therefore is allowable in this case. bc T has personal casualty gain. d. The losses here will be ordinary losses bc no sale or exchange - the amount of the losses exceeded the amount of gains, so recharacterization rule doesn't apply.

A. Business bk: plans and beyond A. Assignment 27 - negotiating the plan 1. Ch 11 is described as an invitation to negotiation - both operational matters and financial matters are up for grabs a. Remember: the key requirement for confirmation is that a statutory majority of each class of CRs must vote in favor of the plan for the plan to be confirmed. 2. Campaigning for the vote: disclosure and solicitation a. Disclosure 1) Code requires disclosure at several points prior to the reorganization plan. the petition and accompanying schedules, the section 341 meeting of creditors, quarterly reports during the ch 11, and proof of claim are all disclosures. CRs' committee has the right to access the DO's financial records. 2) The disclosure statement must be approved by the bk ct before any solicitation of votes can begin. b. Solicitation and the "safe harbor" 1) When a business attempts to reorganize under ch 11, it makes statements about the operations of the co, projections, and proposed distributions of stock. depending on the business, those statements and distributions could be subject to state and fed laws regulating the sale of securities. 2) Securities and Exchange Act blocks SEC injunctive actions in which SEC seeks to enjoin a defendant from further violations of securities laws c. Eligibility to vote - impairment 1) First rule of voting: Some CRs are barred from the polls. Code deems unimpaired cases to have accepted the plan. reasoning: if CRs in a class aren't being deprived of their bk rights by the plan, why should their approval of the plan be required? Noe that CRs fighting confirmation will resist their classification as unimpaired.

a. Gerrymandering the vote: classification 1) Voting is done by class in reorganization. A class votes in favor of a plan only when a two part majority is achieved: a simple majority by number of CRs and a two-thirds majority by amount of debt. Both thresholds must be met. 2) Means that DO wants to ensure "safe" votes by putting dissenting CRs into classes where they can be outvoted. Code has little guidance on how the DO can populate the classes that vote on the plan. a) Section 1122 prohibits dissimilar claims from being put into the same class. b) BUT; the circumstances under which claims that are at leas arguably similar in some areas can be classified separately for strategic purposes. c) Code gives no clue on which legally simiarl CRs might be allocated to separate classes.

1. 19.3 a. What's a "rollup:" when you can buy pre and post petition debt. Rolls up pre petition debt into post-petition financing. You have money owed to you before bk that's then pulled into post petition financing b. Turning pre petition nonprioiryt debt into post petition priority debt by turning it into an admin expense. Jumping ahead of the cue. Making old money have new priority c. Cross-collateralization: taking money that's owed pre petition and including it in a loan that is owed post petiton. Getting admin benefit AND a security interest. We have a case that says you can't do that. d. In many js, can do rollup and cross-collaterlization. But key for it to work: the mootness doctrine. Some cts are willing to say if we made a loan decision early on and ignored the complaints of others CRs, and bk goes on, it doesn't affect the validity of any debt so incurred. Aka, it's not reviewable. So if ct says yeah we'll include your pre petition debt in a rollup, and appellate ct says no you can't do that, there's an argument that 364 says it's too late, they already did it. it's deemed appropriate if they already did it. some js vary from this, though. e. 313 talks about rollup, cross-collateralization. f. MI has a 6m loan, there is 4m in collateral. They're undersecured g. Yankee financing (Y): Y has proposed a loan of 1.5m. that's DIP financing. h. VEI has 3m unemcumbered debt. i. You're Y. you want to get paid first. So what section of the code do you use to protect your 1.5m loan? Lookit 364d1. D1 lets you prime the lien on collateral of existing loans. There still had to be adequate protection though. They can't use d1 here bc the RE isn't valued enough to cover even the first loan on it. but we have 3m in unencumbered assets, so all we really need is 364c secured loan. j. Now you're Murphy, an unsecured creditor: You're then paid less money if Y does this. This is not good for you. BUT: if the business survives, might be more money left over for everybody to get paid. k. Murphy's complaint: interest rate too high. There's 1.5m left over, VEI is owed 2m. so they're already not getting paid enough. Does DIP financing include interest? Yes. That further reduces the amount Murphy gets paid if Y gets interest when they're fully secured. l. What are the chances of getting ct approval for Murphy? Murphy wants to do the DIP financing. They're owed 2m unsecured. In order to feel good about doing DIP financing, they'll want security on their 2m, which is pre-petition debt. They're going to propose the DIP financing that they grant would rollup the 2m. in addition, they'll also ask that their SI on the 3m also covers their 2m pre-petition. They wanna get paid everything, it's gotta be priority, and if they won't, they won't do it. BUT they'll charge less interest.

1. 19.5 In an emergency on a Sat, DO goes to judge's house and proposes something. What's weird about that: DO and reps of DIP financing are there. 364c though requires, for this to be approved, there must be notice and hearing. This was an ex parte hearing. Got to give notice, but there's one exception: e.

1. 28.2 a. Here we're looking at feasibility, 1129(a)(11). b. "not feasible" not defined, but, look at whether likely to result in ch 7 or another ch 11. What facts are we given that make us think the plan is feasible? The challenging CR is the CR that made things WORSE. So whose fault is the bk? BB&T's. other facts that support this reorganization: the DO started paying them back. From the day the initial order was made, payments were made on time, in accordance with the og orders. What else: the farmers care about this co, have the most vested interest in co surviving, are in favor of the plan that was proposed. c. Factors 1) Factors that indicate yes, the plan is feasible a) The DO was forced into bad decisions by the turnaround consultant, and he's gone now that John Paul has regained control as DIP b) The DO has continued to operate during the case c) The bank apparently couldn't figure out if the co was making or losing money either, except by noting bounced checks as a bad sign. d) The DO made adequate protection payments every months since the CR requested them e) The secured debt will be paid in full with interest. This reflects a high degree of confidence in the business' ability to generate revenue. f) The DO has had several months to stabilize the business

1) Factors that indicate no, the plan isn't feasible a) The DO hired a restructuring consultant before the bank and it didn't work. if Toller couldn't fix the co, John Paul surely can't. b) The DO didn't always meet the operating plan. c) The DO couldn't give the bank accurate financial reports in the years before the bk and still has no help with accounting. d) DO has shown negative P&L statements and has barely made the payments. e) The secured debt negatively amortized throughout the entire bk. BB&T already bore much of the risk of the reorganization with its debt growing larger f) DO has been hanging around in ch 11 for a couple of years; the delay in confirmation reflects the lack of confidence that CRs generally have about the co and the lack of the DO's management capacity. a. Attorney Prior says: hold on a second, that's all nice, but there's evidence that suggests the plan isn't feasible: other lawyer doesn't know if the grain coming into the grainery isn't sufficient to sell his bills when he sells it off. Also, the co is bouncing checks when making payments. You don't bounce checks if you know what you're doing. That's a bad way to operate. b. So there's an argument here on whether this plan is feasible or not. Do you shut this co down or let it keep going on if you're the judge? 1. 28.3 a. Question about the small business recovery act, voting and the like. Not going to do this today.

A. Alternative management will pursue bc it doesn't want to kill the business is ch 11 1. Control occurs via the debtor in possession 2. For now, concentrate on CORP ch 11, even though individuals can file ch 11 too. 3. In ch 13, in contrast, CRs take the plan they're given. In ch 11, there's a committee of the unsecured CRs, and they get to vote on the plan. 4. Seen when corp has good business and cash flow, but too many debts. That's the kind of business that uses this. This type of bk happens all the time, and customers don't notice bc the co keeps operating. 5. If you're a corp, bd of directors and officers run the business. The debtor in possession is that team. The DO itself is the corp. the corp continues operating as the DO in possession. 6. Debtor in possession: when you file ch 11 as a corp, you become one. You get the powers of a trustee. They control the estate. So it's basically like nothing has changed. The co is still run by the people who caused it to fail. 7. There's a plan for the co to come out of bk and keep operating. What if the plan's no good, what if after some time we realize the co is dying? You convert to ch 7 and kill it off, sell off the pieces. 8. If co has filed ch 11 and CRs are worried: can petition ct to appoint a trustee. This requires clear and convincing evidence. a. Strong presumption of continuing to allow DO to operate.

1. 16.1: a. Say we have a closely held corp and the business is dying. They file ch 7, what happens to that business: it dissolves, goes away. Does that mean the president isn't allowed to start a new business? No. can just start a new corp, start doing tax returns again. That's fine. But there's this personal debt. What do we do with that? Might tell this DO we really need two bks - your bk, and the corp's bk. One of the debts this president owes is a debt to his corp for the payment of his wife's medical care. As a result, when he files personal bk, he's going to list one of his debts a bill he owes to thoe corp for having used corp funds to pay for a personal debt. Issue: you need two lawyers, bc they have separate interests. 2. 16.2 a. 1104 allows for the appoint of a trustee instead of a DO in possession b. Challenge of DO in possession needs the authority of the ct to make business decisions. That's a challenge in a big corp. if you have to go to ct every time a decision needs to be made, that would actually put the ct 11 organization at risk. So there's authority to continue operating the business as it was generally operated. c. K not good if it's not in the process of ordinarily transacting business. If you engage in an act after filing that's not normal for that co after filing bk, no good. d. Part of answer: is this part of normal operations of bus? If so, probably enforceable k. A. The scope of the DIP's control B. Losing control: when the DIP model fails

1. 707b a. B3: assume you've passed means test. There is a second change for you to be refused discharge. Second exception to discharge b. Lookit whether the DO filed in bad faith (bad faith = there's evidence you're gaming the system, you didn't disclose all your info, didn't list some assets you wanted to keep). c. B3b: totality of the circumstances test. Ct CANNOT use this test as a second means test. Cannot use it to substitute you own means test. d. First, when we file the petition for bk, along with that you fill out forms. Those are the means test forms. Those means test forms are dictation by 707b2. If you fail the means test (there's a presumption of abuse based on the calculation of means test), you're pushed into ch 13. You've passed the means test, not presumably abusive filing of ch 7. On a motion, one of the parties or a creditor can file a request under 707b3 that says nevertheless, this is still an abusive filing bc of A (good faith) or B (totality of circumstances test - overall, we just don't think you should get ch 7). e. What does he mean by substituting means test: c can't come back and reassess the means test under its own numbers. f. Ex of kinda scuzzy under totality of the circumstances: 1) you go out day before filing bk and get a SI in a boat. That SI will lower the total amount you have to pay unsecured creditors. That's all we're looking at - is there's something bad with how you've structured your plan. 2) Ex: bought a lot of luxury goods before bk. Ct said that looks fishy, deny discharge. What would ct have wanted to see in order for there not to be a totality of circumstances situation: the plan includes the sale of all these high value items to pay off these debts. Don't wanna see you're living the high life, not people who want to just write off some unsecured debt.

1. Derzinsky case a. What was the asset that caused the problem for the TOC test: house worth a ton of money. Ct asks what abut the house. It's way more than the DO needs. "Do you need this much house." What should plan have included: sale of the home, rental/purchase of a much cheaper place. show us you're making an effort tto pay off unsecured creditors. b. Is there a limit on ch 13 like for ch 7? Yes c. 1325a3 - plan must be in good faith. 1325a7 - the overall filing of bk was done in good faith. d. Diff tween ch 7 TOC test and these tests? You have to have good faith to meet TOC tests. 2. Crager case a. Normally in ch 7, DO gets to keep property, pay unsecured priority debts, other unsecured get discharged. The dividend: how much is coming out of bk for the unsecured creditors. In many cases, dividend is zero b. This is a ch 13 case, so we expect to see some unsecured creditors getting paid. c. Question here was whether the plan was filed in good faith. d. She filed ch 13 bc she couldn't currently file ch 7, but she knew she wanted to file ch 7 in the future. What is result: she gets to keep her house; also, the attorney is paid. Statute says: 3330aB - in ch 13, ct may allow reasonable compensation to DO's attorney. So what we see here is essentially a ch 7 being worked as a ch 13, and the only person getting paid is her lawyer. Is this bad faith? Ct says if lawyer's fees are below a certain point, we won't question it, provided the fees are still reasonable. Here, that means it's ok these fees are challenged. BUT: here ct approved a ch 13 plan that provided no payments to unsecured creditors other than the lawyer. e. Think: if you have a client that could file either 7 or 13, you'd want them to file 13 bc you'd get paid. But then you have an ethical issue. f. Why might it not be an ethical problem: in ch 7, if DO is in a desperate situation, have to pay filing fees up front. Maybe ch 13 is all they can really do.

A. Exceptions to the Stay 1. Exception for police and regulatory power a. In re Fulton 1) City had a process of taking peoples cars, taking them to an impound lot. 2) City code allowed them to take a lien on car if you having tickets. 3) Was this a violation of the automatic stay? AS says creditor couldn't take any action via 362a unless they're given permission. DO needs the car. Bk is imperiled bc the DO can't get their car back. Fulton couldn't get his car, so his bk was at issue. 4) Ct said this was violation of as, city had to return car. Some circuits of appeals don't agree with this. SCOTUS, since book has been written, has looked at this. 5) Now: not sure that we don't get to a similar, but not identical place. the full question addressed in 7th cir isn't dealt with SCOTUS 6) SCOTUS has to answer the question does the as include an obligation to return collateral. Why might the city have to return the car? The car is, vis a vis the bk, part of the estate. Does the city have a better interest than the bk estate? No. 541 - all legal and beneficial interests of the DO are now part of the estate. Is part of estate bc DO owned it at time of bk. 7) Is there an obligation for CR of the estate to return property to the trustee? Yes. Section that requires return: 542. 362a3 doesn't require the car's return, but that doesn't mean city gets to keep it. so the 7th cir argument that it's a violation of 362 is overturned, but SCOTUS says that you don't get to say it's a violation of the as. 362k - this is why DO wants to be in 362; they can go after the CR. Via 542, how do you get your property back? First of all, you have a hearing. 8) There is a gap in between you filing bk and getting your car back. Sotomayor says this is stupid, congress needs to fix it. 2. Lifting the stay a. Cause, including lack of adequate protection b. No equity and not necessary for reorganization

1. 17.1 a. Balance on loan - 180k b. PACB - client c. Q = do we ask for collateral back. d. How do we get the collateral back? What's the process? We have to get relief from stay. Section 362d2. For cause, and bc the property is not needed, and there's no equity. e. What's the concern here - do we have a basis for cause here? There has to be something about the cause to justify the ct giving it back. Here, we could argue B, inadequate protection, aka the value of collateral is not stable and is decreasing quickly. is this collateral going down in value quickly? we have three separate values we could argue for. The lowest we could argue for: 140k, which is the wholesale value. We don't use that value in bk - we use the replacement value, the market value, which here is 220k. the third number: quicksale number, what happens if you sold it today. f. If value of collateral is going down quickly, there's an argument for no adequate protection. How do we calculate whether we have adequate protection: 361. g. Can ask that they make cash payments to offset the loss of money on the loan. Aka, we need more money so that the value of our loan doesn't go below collateral's value h. Another way to protect ourselves: get a lien on another property. Here, there is no other property. i. If we want t oforce a sale to get relief from stay, have to argue 362d1, or that there's no equity and not necessary. j. First, ask if there's equity in this property. How do you calculate equity: loan price minus the value. What's that called: equity. Answers the question fia 362d2. Can't do this bc there is equity k. 362d1 - the equity provides adequate protection for CR against the risk they won't get paid. This asset is worth more than they're owed by a significant margin. l. If you have equity, couldn't use d2, and equity cushion is by itself adequate protection. m. So which valuation are we going to argue for if we're the bank: 160k, bc there's negative equity. No equity cushion. Is it going down in value - maybe. n. Think about the purpose of why you want a particular valuation. o. If there's a chance this DO will come out of bk, you want the 200k valuation, bc you'll continue to get interest. p. If you want relief from stay, need a low no so you can foreclose and sell If you want to continue to earn interest, want a high number.

1. Cash collateral - Right of setoff a. Just bc somebody owes you money, you can offset the debt you owe to them b. DO owes money to CR, CR owes money to DO, you sort it out. c. Key: setoff is this concept that if you have debts running in both directions, then you can offset them, you net out what is owed. 2. 18.1 a. Lookit 363c1. Note "must be authorized." You need the ct to allow you to do stuff. Has to be in the ordinary course of business, and ct has to say it's ok. b. What do you do with cash collateral: 9315. Proceeds problem, when cash collateral is proceeds. answer this problem by going to 363c2. Normally via c1, they can do whatever they want in ordinary use of business. But if it involves cash collateral, they need special permission. Why: cash is liquid. If there is a lien on the cash, need special permission. To use cash collateral to cont to operate the business, you need special permission. Here, they allowed the DO to take money that was otherwise subject to the CR's lien in order to continue running the business - can't do anything without it. and the whole point of ch 11 is saving the business. c. We tell the DO to go to ct, get ordinary permission, ask for special permission to use cash, will get some leeway to continue to operate. d. 362c1 - must be authorized e. 363c2 - permission for cash collateral

1. 18.2 a. DO is furniture. Bank is Citywide. The vendor is Winston. There is 61k in a bank account. Winston is owed 50k. DO owes money to a vendor, have money in a bank account. Then, Winston sells the debt to Citywide for 40k. now question is: bank says you have to pay us, but does the DO really? b. If there is a right of setoff, how much is the right of setoff? Winston doesn't owe the debt anymore. How much is now owed by the DO to citywide? 50k. Debt itself is still 50k. money owed under the agreement is 50k. c. Next question: is the account cash collateral? An unsecured debt subject to setoff looks a lot like secured debt, bc that CR has access to money immediately bc of the right of setoff - they don't have to wait. Question is does Citywide have a right of setoff for the 61k in the bank for up to 50k? under state law, absolutely have a right to setoff. Under state law, it would be 61k, bank takes 50k, 11k is still left in the account. Is this true under bk law, is this cash collateral? Lookit 506. If the bank is owed money that it can setoff via the money in the account, it is secured. 506a creates the security interest. d. So we start with 506a in bk law. Says that setoff = secured interest. Then go to 553. Tells us when setoff is appropriate. Lookit a2B. you're entitled to setoff, unless you're not. is it possible this bank doesn't have a right? Calculate 553a2B. when did transfer occur: a month ago. That's less than 90 days. 533a2B. are they insolvent? Don't know, but there is a presumption - 533c - within 90 days before filing. e. Is the money cash collateral? If not, you wouldn't need a court order to use it - paying employees is in the normal course of business. Just need to get order first to operate in the normal course of business. f. Note: this is a unique situation bc normally cash in a bank is subject to a lien already bc it is proceeds from some other loan.

1. 18.3 a. Debt: 450k. b. Creditor: First national. c. DO: Teddy. d. Bank's loan is unsecured. But remember: a right to setoff is considered secured. e. Compensating balance - 10% = 45k. that's how much the bank requires to be in the account in order to have access to cash to make payments. Want this to be a sort of a way to setoff. They want the ability to setoff. Bank account with FNB creates possibility of setoff. f. Balance in the account is 100k. bank has brought a motion to setoff the 100k (brought a motion bc there's an automatic stay. You don't get to just take stuff. Question is: can they? g. 362a7 - state prohibits setoff without permission. Is there a limit on the cash collateral in this case? is there an "unless" that helps us here? 553a3. A2 is about transferred debts. 3 is just about debts owed to the og CR. Remember: cash collateral UNLESS: 1, 2, 3 are the "unless." What's the debt owed to the DO? If you're FNB, the debt owed to the DO bc your account is a promise to pay back what you deposited in the bank. This is a loan you have given the bank. You're essentially loaning the bank money. That's the debt we have here. The account is the debt running from the bank to the DO. Has to be incurred by such creditor within 90 days while DO was insolvent to be excluded from setoff. How much of the money in the account fits that definition? Maybe the required 10% - they came up with this balance to ensure that DO doesn't pay. Bk doesn't allow them to do that if it occurs within 90 days if DO is insolvent and was meant for setoff. We presume DO was insolvent. Was it done within 90 days: Yes. So how much of the account is cash collateral: 553a3 - three elements: insolvent, within 90 days before the filing, created for purpose of setoff. Here, that's the compensating balance. Compensating balance is not cash collateral bc it meets the three factors. That means the CR only gets 55k; DO gets to use the 45k without requiring the permission of the bank bc it's just property of the estate; and if they have an order from ct saying they can use the money in the ordinary course of business, they can use it. h. The cash that is not cash collateral we can spend in ordinary course of business. 2. We have a cause of action if a CR shows up and hauls away property. Don't hav e aright to do that under bk bc of automatic stay, even if they could do it via state law/art 9.

1. 18.4 a. Can bring your code, outline to the final. b. About ability to reclaim, can a seller reclaim. Looking at 546c1. Has to be within 45 days or no reclamation. Another issue: insolvency. Insolvency isn't presumed in this section. Must est that 1) was DO insolvent; 2) were the deliveries within 45 days. c. This problem says delivery was three weeks/21 days ago. When does the notice that they're reclaiming have to be sent out? There's a 20 days period of time where you get an extra ability to make this claim. Chart out the timeline. 45 - 21 is 24. It's 20 days after filing, and then 21 days for a total of 45 days. problem is going to be working through the dates in the statute. d. Must figure out when 45 day period starts. Have 45 days to send the notice, but they have 20 days after the commencement of the case. 20 day safe harbor. 45 adys total from the date of receipt e. When were the goods received? Hopefully seller will having tracking info on their packages and can est what date. f. They came and repod: not ok, there was automatic stay. g. A seller of goods to a DO in bk has a right to reclaim those goods that have been shipped to DO within a short window of time. Have to provide notice, DO must be insolvent. Can only do it for goods delivered within 45 days. h. Remember: have to est insolvency. There's an argument that the DO might not be insolvent when goods are reclaimed.

1. 20.4 a. Talking about mortgages. b. Mortgagee doesn't know about filing. Is this fixture situation? No. it's a mechanics lien/statutory lien. Can the trustee/DIP have priority and void statutory liens? This is a lien that covers RE. 544a3. This is BPV status. c. Chris isn't subject to mechnics lien bc he doesn't know about it. trustee ain't subject to it bc it wasn't perfected. d. Scenario 1: vendor has done everything to need to perfect, trustee can't avoid their lien e. Scenario 2: NI has not filed. Chris, the mortgagee, has no notice. Why's no notice significant? State creats a law that says mechanics lien is good in two situations: 1) mortgagee has notice of the line. Under state law, Chris not subject to mechanic's lien. A mechanics lien can have greater priority than a mortgage that was pre-filed in this state. Here it doesn't though. f. Order of priority under 545b under situation 1: NI, mortgage, estate. g. Order of priority in situation 2: mortgage, (NI avoided bc not perfected, but lien doesn't go away) 551 - trustee steps into NI's lien, estate. Via 551: Trustee steps into the shoes of the avoided lien. That's why it has second priority. h. Scenario 3: Chris knows of mechanics lien. State law says: NI's lien good against mortgage - under state law. Can trustee avoid lien if NI didn't file? Yes, 545(2). Order of priority: trustee - under 551 steps into NI's shoes, bc voided under 545; mortgage; estate. i. Think: Chris can't avoid the lien bc he knew about it. but the trustee can avoid it, take it's place. j. Scenario 1: property worth 400k. then we'd have it being distributed. 400k, first pay off NI bc it's perfected (75k). Then pay off mortgage of 300k. what's left over goes to estate (25k). k. Scenario 2: 300k mortgagee is paid first. 75k NI - trustee - paid next. Remainder of 25k goes to estate (these last two effectively collapse - the same person) l. Scenario 3: paid first - trustee (NI's lien), then the mortgage. Remainder to estate. m. If lien is not perfected via state law, trustee can avoid the lien

1. 20.5 a. A: 545 statutory liens. Trustee can avoid a lien that's in favor of a ll. Can trustee here avoid the ll's interest in the personal property on the rented property? Trustee CAN avoid the statutory lien - it's totally avoidable. Problem: lease also has a SI in it. did ll perfect the SI? Appears they did. If they did perfect, you can't avoid the ll's lien. Not statutory, is consensual. You can grant a SI in your property to ll for rent, and ll can perfect it. BUT do we have to protect those liens in bk? 1129(b)(2)(A) - requires that you pay the secured creditors in full in ch 11. b. Answer: avoid the statutory lien based on rent, but not avoid the SI that was consensually given IF it was perfected. If not perfected, 544 - can be avoided by trustee in bk. c. B: we have two liens: judicial lien that's recorded six months ago, and an unperfected statutory lien. What's the weird rule here: an unperfected statutory lien has priority over a judicial lien. That's the state law priority system. U nder fed law, can either be avoided by trustee in bk? Can't avoid judicial lien if it's a proper lien. Can he avoid mechanics/statutory lien? Yes - hasn't been perfected. So order of priority after trustee has avoided liens they can avoid: through 545 and 551 - trustee; judicial lien. d. Assignment 21 - preferences e. 537(b) - multi factor test to see if transfer of property is preferenced. If it is a preferential transfer, trustee can avoid it. ex: cash was paid out, cash comes back in through the avoidance power. Aka, trustee asks CR to give something back that they have been given to make estate bigger to help unsecured crs. f. All five factors must be met. It is not a preference if any element is missing. g. Insolvent = you owe more than you have

1. 21.3 a. Have two secured CRs. Diff between them: one is over secured, one is under secured. If you are over secured and get paid 90 days before the date of filing bk, is that a preference? Element 5. You would be able to get that anyway. So the transfer cannot be recovered from the CR that is oversecured. b. What about the other CR: tey are paid 50k. how much of that payment is a preference? What would they get in bk: whatever they were secured for. The rest would be a preference. They would have gotten 300k, even though they were owed 350k. LOOK AT THE WORDING OF THIS ONE. c. Over secured - not a performance bc have enough collateral to cover payment. 547b5. They would get paid in full under ch 7. Not a preference. d. Under-secured: is a preference. 547b5. e. Remember: if payment falls outside of 90 days, we're NOT insiders, definitely not a preference.

1. 21.4 a. FRB is owed 250k, secured for 250k. collateral is worth 150k. b. Granting of a SI is a transfer of property. Party that sold them the collateral doesn't have a SI. The party with a SI is the pre-existing FRB. FRB has collateral worth 150k 90 days before filing of bk. During the 90 days period, they get more collateral than they would have otherwise. Is that a transfer that is a preference? c. What does the code say is the day of the transfer: whenever the DO receives rights in the property - e3. The SI was created long ago, but that was before the collateral was acquired. Transfer occurred within the 90 days period bc no transfer until the DO acquires rights. so the date of the SI: date that the DO acquires rights. d. So: this is a preference. e. E3 - date of transfer is date DO obtains rights. f. Transfer IS the creation of the SI via AAPC. g. Attachment of a SI to after-acquired property during the 90 day property: think about this fact pattern.

1. Indirect preferences a. Suppose there are two secured lenders secured by the same collateral. Senior lender, A, is over secured. Junior lender, B, is under secured, with only half of its loan covered. We know that any payments to B during the lookback period while the DO is insolvent are presumptively voidable preferences. But what about payments to A? Since A is oversecured, any payments to it will not improve its position - so no preference, right? Well, consider: 1) If A is paid a big chunk of money to whittle down its loan balance, then it has a lesser claim on the collateral, which improves B's coverage to, say, 75% coverage of its loan. Payments to A are called an indirect preference to B. b. Theory: payment to A of a guaranteed debt reduces the exposure of the inside guarantor, thus "benefitting" the insider, even though the transfer wasn't "to" him. Since the insider was a creditor, on account of his contingent right to reimbursement by the corp, the transfer to the bank was for the benefit of the insider creditor and thus fell under the preference statute. 1) Kicker: trustee doesn't have to sue the insider CR if the transferee seems more attractive - recovery is available from EITHER the transferee OR the CR who benefits indirectly.

1. Extra-statutory defenses to preferences a. Most significant extra-statutory defense: earmarking doctrine 1) Applies when there's a substitution of one creditor for another. 2) Ex: Do wants to refinance its loan from SB to a more attractive one offered by ESL. Mechanically, ESL may wire funds to SB directly to retire the old loan and become the DO's new lender. Or it may even wire the money to the DO directly and have the DO retire the SB loan. The point is, for the trustee to attack SB for receiving a preference by this loan repayment seems odd. A) Some cts have said this isn't really a transfer to DO at all, but it's a transfer of ESL's property to SB, "earmarked" directly for SB's use even if it happens to pass through the DO's accounts en route. 2. Setoff preferences a. While formula in 553b is similar to 547c5, the application is somewhat different. the most important difference is that the avoidance power applies only if the CR actually offsets before bk. The CR who holds back from dismembering the DO in the lookback period and waits until bk to ask the judge to lift the stay to allow setoff is rewarded. Such a CR isn't required to surrender any improvement in a setoff position obtained during the 90 day period, even though the first day order depleting the account by setoff may have the exact same effect.

1. 21.5 a. June 1st: 2.8m loan. Collateral is worth 3m. b. July 1st: payment of 200k c. July 15th: fire destroys collateral. What happens to HB: bank transforms from one type of CR to another. they become oversecured. Collateral now worth 3m, they're owed 2.8m. is the 200k extra a preferential transfer? Not as of July 11th. But on July 15th, they become unsecured bc they have no collateral. Was there any insurance: no. d. Art 9: insurance payments are proceeds. so if there had been insurance of 3m, that would've been proceeds of the collateral. e. Aug 1st: bk. Is the payment on July 11th a preference? Happened within the 90 days, but on Aug 1st they're unsecured. On the day of bk they are unsecured. Does the unsecured CR on the day of bk get a payment that would make them better off than they would be in ch 7? Yes. They got cash in the 90 day window at a time when they were unsecured. NOT about where they unsecured at time of payment - were they unsecured at the of BANKRUPTCY. If are unsecured, get payment within 90 days, that's a preference. f. Yes, is a preference bc HB was unsecured on the date of bk filing g. B: they were unsecured, then they weren't. preference bc debtor acquired property during 90 day period.

1. 21.6 a. Moving now into exceptions. 547c. b. They deliver gasoline for a cash payment. They show up, put it in the tanks, now owe vendor 3400. Then after the gas is in the tanks, vendor gets paid 3400. Could that be a preference? Yes. Bc it's the payment of money on account of an antecedent debt. A technical reading of b would allow that transaction to be a preference. But that sounds crappy. So the policy behind preferential transfer rule: we don't want people dealing with the DO while they're going through bk. So to avoid it being a preferential transfer, they ACCEPT the transfer due to c1 - it's substantially contemporaneous. c. So when the truck shows up, co pays cash, is not a preferential transfer bc it's accepted under the substantially contemporaneous. You bring me stuff, I pay you right then. Contemporaneous exchange. d. Cash payments for delivery of goods ok bc the exchange was substantially contemporaneous. e. Three times the truck shows up, and DO doesn't have cash, DO says they'll pay later. Are THOSE preferential transfers? Are done within 90 days. A debt has been occurred, but they pay for it within 3-5 days. is 3-5 days substantially contemporaneous? C9. 3x 3400 = more than 7575. Do we add all of the individual credit instances together or not? For our purposes, an aggregate means aggregate, add up the total amount of credit extended. It's over 7575, so these are preferential transfers when they pay later. f. Answer: three payments on credit = preference. Not ordinary course of business. Not substantially contemporaneous. Substantially contemporaneous = occurs roughly at the same time the transfers occurs. 547c1.

1. Equitable subordination a. Is used to set aside special advantages enjoyed by certain favored creditors b. A CR that finds its claim "equitably subordinated" goes to the back of the line and has to wait until everyone else is paid in full before receiving anything c. Equitable subordination has been applied in some recurrent fact patterns: 1) An insider extracts favorable treatment from the DO 2) A seeming outsider acts like an insider and extracts favorable treatment from the DO 3) A CR does something just too icky for comfort 2. 21.7 a. 547c: lump sum payment, doesn't sound like ordinary course. b. Is a late penalty in the ordinary course of business? Probably. CR on an ongoing course take the payments, keeps plugging on c. Part 3: payment of 500k unsecured loan. It's a single payment of a huge amount of money. Raises the flag that this is a CR getting something that is avoidable preference. What can CR argue: we have a regular loan, we have a payment term, payment term comes up, they pay the loan. Nothing unusual about that. That feels like a good argument. Not having a CR that's being given more money than they were expected to get leading up to the time of bk. What we have here would just be business. 547b2B d. But: trustee can and would probably still challenge this.

1. 21.8 a. Key fact here that c4 seems to capture? This is an exception to a preference. Exception of after transfer CR gives new value to the DO that's not secured by an otherwise unavoidable SI, and not on account of which new value the DO didn't make an otherwise unavoidable transfer to or for the benefit of such a CR. b. What is the event that seems to shelter at least some of these payments? What's the new value that was given: the new credit. BUT: this has to happen within the 90 days before bk to raise issue of preference. January 10 - were any payments made that occurred prior to 90 day period? Yes, payment of 5k on January 3rd. outside of 90 days, cannot be a preference. c. Payment at 2/10, 3/10, 3/20, 4/1: the 2/10 payment is shielded, as is 3/10: credit is extended afterwards. d. Still have issue with 3/20 and 4/1 payments. No new credit after those payments. e. So: they can shield 8k, in total, of their payments. 2. 21.9 a. Part 1: does a floating lien exempt a CR from the application of the preference rule? What's the transfer? Here, the SI increases in value. The gold goes from one price to another price, CR has more collateral, they're better off. They were already secured in the existing gold. It's just that the value of the gold has gone up. b. Issue: there is no more transfer of property. It's just that the value of the property increases. As long as there's no change in the no of units covered, there's no preferential transfer 3. 21.10 a. Special rules about inventory and receivables bc there's a constant turnover. The concept of an account/inventory is not a static idea. If the inventory changes in value, are you better off? 547c5. Determine the value of either inventory or accounts as of two times. Two times we need to do the evaluation as of: 1) 90 days before date of filing bk; 2) the date of filing bk. If there is a change in value, when is that a preference: if the value on date of filing is greater than it was 90 days before filing. b. Here, the preference is 20k. we don't care at all what happens to the value in between these dates. But: they were oversecured 90 days before. Are they made better off by this increase in value? No. They get paid in full either way - so there's no preference. They're not made better off than they were 90 days before bk; they're getting paid the same amount of money.

A. Assignment 22 1. UVTA: state law allows other CRs to challenge the payment to an insider. If president of co is sitting there, decides to take his money, the CRs can challenge that disposition. 2. 22.1 a. Under bk law, we have the possibility of challenging this transfer based on 547. BUT we're not in bk yet. Is there a state law analog to the preference rules? b. There's two periods of time for preferential transfers in bk: 90 days for non-insiders, a year for insiders. Lookit 547b. c. Problem under bk law: have to prove insolvency during the time period that the transfer to the insider occurred, since the presumption of insolvency is only 90 days before bk. d. State law can help us here, via UVTA. e. We have an insider. Insiders are people who have authority over the DO or are related to people who have authority over the DO. 257(8) in UVTA. f. Was there value given? There's an antecedent debt owed by the Co to the president (Shinefeld). g. Don't even need a bk filing for the UVTA. Just have to be a CR who thinks you have been cheated, and then you can sue under state law. h. ASK HIM ABOUT THIS CONCEPT

1. 22.2 a. Earmarking. Can we use the earmarking concept here. b. Does 547 include the earmarking exception? c. The remaining unsecured CRs are not worse off bc of this transaction is the argument - one CR stepped in and just replaced another CR. Why should we void something as a preference that doesn't increase the size of the estate for other CRs. BUT: this is not statutory. It is case law. d. Will earmarking doctrine work? Is there maybe a transfer that takes this outside of the no harm no foul rule? The old CRs were unsecured. They're being replaced by a secured CR. If a DO ransfers a SI to the NYB that didn't exist before, there is collateral not available to the unsecured CRs. That's a problem. This is not a no harm no foul situation. So this looks like a preference that makes the unsecured CRs worse off. e. If they were unsecured: more likely ct would apply the earmarking doctrine; looks ok. 2. 22.3 a. 553b, setoff (DO and CR each owe each other money, instead of saying the CR has to declare its loan as a debt and then make a claim, get paid to the full amount of the setoff). b. Is there any challenge here to the setoff? We have a timing issue. If a CR offsets a debt on or within 90 days of the bk filing, they can recover to the extent it reduces the insufficiency. c. Our advice: don't setoff until after bk is filed; then just ask for relief from stay. d. If you wan to take advantage of setoff right now, have to force an involuntary bk.

1. 27.1 a. At what point are we: we've already had meeting about disclosures, discussed the plan, plan is going out to CRs according to class, and they've approved it. just need a final confirmation of the plan by the ct. this is late in the game. Question: Can you withdraw your vote and approval of the plan afterwards? Can you withdraw your vote? No. what is this issue this CR has given where they are in the process? They have new info, are suing to recover a preference. In the plan, this CR is getting paid 70 cents on the dollar. But their og claim is premised on the claim they're keeping the payment that came in in March. Is that a preference, since they filed in June? The whole polint of the plan is to show how we're going forward. Is this a preference payment? Falls in the 90 days. remember there are many exceptions tho. First thing we should decide - is this is preference at all anyways. Not a preference if it's in the OCB. This payment was 25% of the whole debt, which makes it not look OCB. The plan though doesn't say anything about this, whether they're taking money back or not. b. What's happening: after plan is approved, DO is saying they'll sue CR for the money back. Would we expect to see in the plan an intent from the DO to get the money back? Yes. c. You can't take back you vote probably, but before plan gets approved, ct has to approve it. at the hearing for approval, the CR will argue via 1125. d. What needs to be in the plan anyway - 1123. What part has been violated: 1123(a)(3). They are impaired, plan needs to talk about how they'll deal with the impaired claims. e. So CR will argue if you're going to use your voidance power, you have to tell CRs about it. f. How specific does DO need to be? Just say "DO will pursue all preference claims?" there needs to be language to put CR on notice they'll have to pay something back, so won't even get as much as they think they will. Will here actually only get 450k. there needs to be some language about suing CRs for preference payments. g. 1125b: the plan depends on there being a lot of backorders. But you have to provide adequate info ( = a reasonable investor would need to know to make their decision). So when we go to the hearing, will also argue the plan didn't disclose important info - there were less ks waiting to be fulfilled than the plan proposed. h. Answer: we can't undo our vote. But there's a process for getting these things approved. i. Process: have talked about first day orders. There are temporary orders that allow DIP to operate til plan is approved. Plan is about to get approved. Hinges on people getting adequate info before voting, people vote, only then will ct approve.

1. 27.2 a. Same CR as previous case. want to kill the plan. how does the CR kill the plan? they've re-balloted, in order for plan to be approved, CRs have to vote. How does voting work? 1126. You vote by class. b. Who must accept: 1126(c). you calculate based on the total amount. Need 2/3 of the value of the debt, as represented by votes, to approve the plan. also need a majority of CRs from each class to approve (?). twofold calculation. c. 1122: DO can propose a plan and the plan can have a group of small CRs separate in their own class. That class could approve it, which would leave all the other, dissenting CRs in their own group. This section does permit that though. d. 1126: voting. 300k of the CRs are getting a special deal - the president is personally guaranteeing their debt so they'll approve. Is there a mechanism for dealing with CRs who are getting a special deal? The statute seems to have a mech to deal with them. Their claim to the DO is impaired, but they're getting paid bc somebody other than the DO is paying them. Lookit 1126(e). C says you have to vote by members of the class, except members excluded under e, which says we can exclude some DOs from a class if you prove bad faith. e. 1124(2): you're also not impaired if you're getting paid in full. Can also argue that these CRs are no longer impaired. Getting paid in full by an insider as well, which doesn't look like good faith. f. Subtract them out from the total amount of debt, amount is now 4.7m. go to 34% - that's enough to kill the plan. if we can exclude the special group of CRs getting paid in full via special deal, we can change percentages required for approval of the plan. can go to ct, say under 1126(e) this group of CRs can't vote. Their votes were solicited in bad faith - this is trickery by DO to get plan approved. g. We need to know: plan has to be voted under CRs by two calculations: 1) bare majority of CRs in a class; 2) the amount of debt in that class. h. Voting by class - 1126(c). half of number of CRs, 2/3 of value of CRs. i. Only impaired CRs vote. Can exclude CRs under 1126(e). j. Here voting was: 1.6m/5m = 32%. If we exclude those special CRs: 1.6m/4.7m = 34%. Don't have 2/3 of the votes.

1. Best Interests a. The best interests test can be raised by any single CR. If ch 11 is like a democratic voting process, this test can be thought of as a constitutional protection that safeguards against the tyranny of the majority. b. This test requires a finding that the objecting CR will receive at least as much under the plan as that CR would have received in a liquidation under ch 7. The consequence is that the ct must do a hypothetical liquidation analysis, estimating the amount that could be obtained by selling each asset and then calculating the resulting dividend that would be paid to the CR. c. This absolute entitlement gives CRs that are outvoted in their class a minimum dividend. 2. Feasibility a. Feasibility goes to the likelihood that the plan will succeed and that the business will survive and proper - at least long enough to make the scheduled payments. b. The case is applied on a case-by case basis and reflects the best business judgment of the bk judge based on the testimony of witnesses. c. Feasibility can be raised by a single CR, even when it has been outvoted. 1) Could raise problems. If most CRs believe the business can succeed, shouldn't they be permitted to go forward? A single dissenting CR might view feasibility as the ultimate protection against the "hopeless naivete of its deluded peers." d. Feasibility challenges are often thrown in as kitchen-sink objections, or threats of feasibility objections could be used as leverage in negotiations. 3. Special rules for small businesses SBRA says that small business should be treated differently in bk.

1. 28.1 a. Claim: 1m. other unsecured CRs - 4m. number: ... b. Value: 20%. Less than 1/3 vote. If all the other unsecured CRs vote for this plan, it passes. He's only one person, and the value of his debt is only 20% of the total debt. c. What is the CR's argument in this case? Under this plan he's paid 50 cents on the dollar. Aka, paid half of what he is owed. Wants to close the place down, get what he can. This is a best interests question. Lookit 1129(a)(7). d. How much is First State owed: well rn they're fully secured. Were owed 10m, got payment of 7.5m. have security interest in a lien for the remaining balance. When was bk filed: June 1st. when was the 7m payment made: April 1st. this raises the issue of preference. Was this within 90 days? Lookit 547c(2). 7.5 payment on a 10m loan does NOT sound like OCB payment. e. If not a preference, what assets are left over? 2.5m. problem with those assets: Already got a lien on it. lien for First State. That can't help unsecured CRs. There is also RE, but we can't sell it and pay off CRs. So if we challenge this as a preference, and it is a preference, assets are: 2.5m equipment and 7.5m cash. Is the cash subject to the lien of the secured party? Probably not. their security interest is only in equipment. Would have to sell equipment for it to be proceeds. doesn't look like proceeds. if not proceeds, no lien on it, so can use it to pay unsecured CRs. f. How to calculate the dividend that comes out of the estate under ch7? g. Total amount of unsecured CRs if is a preference: 1m - Pany, 4m - other unsecured, 7.5m - First State. Total is 12.5m. where does that go in our calculation of payment to the CRs pro rata? The numerator is 7.5m - that's the amount of cash we have. can't include the amount of equipment bc it has a lien on it. 7.5m / 12.5m = 60%. h. The plan is proposing 50%. Does this meet the best interests test? No. violates 1129a7. We can challenge the plan. i. If you see dates in a problem, you've gotta think preference. j. Practicality issue: is it likely the DIP that has proposed a plan is going to sue First State for a preference payment? No. the likely thinking is that bc the DIP has said already 'here's my plan,' unlikely. Means that a CR will have to challenge this. Will lose the class vote, but will win the 1129a7A(2) argument. How should the DO deal with this to avoid this problem? Change the plan, make it 60 cents on the dollar. This may affect the feasibility analysis, but in terms of best interests, now we're good. k. If you're Penny, you need to go to the DO, say I'm not happy with what I'm getting. Also get the other DOs to agree with you. Remember: Ch 11 is a negotiation. DO might offer to pay Penny 60%, have the other CRs agree to it. remember: we don't have to treat all DOs the same. Can put Penny in her own class. And other CRs might agree if Penny is a much smaller DO monetarily.

A. Different Sections 1. 7.1 a. 400 - 360 = 40,000 + 25,000 = 65,000. This is the total non exempt assets of the estate (see 522 to determine exemptions) b. Priorities under 507: 1) 16000 - a4 - cap is 15,150. 2) Nurse's wages 3) Within 180 days 2. 7.2 a. 1,600 - (9)(8)(C) - ss taxes on nurse's wages 3. 7.3 a. 9k taxes - (a)(8)(B). Note: property taxes. meaning: could have been paid. b. 1500 in penalties. c. 3k is priority - gets priority bc "payable" without penalties "after one year before" date petition filed. d. 6k - no priority. 1500 - penalty, paid last per 728 e. Note regard the 3k and 6k: 1) Could NOT have been paid without penalty "after one year before." No priority. 4. 7.4 a. 300 dollars - priority - full amount. Section (9)(7). b. Deposit for purchase of property 5. 7.5 a. 4k in state taxes, 14k in federal tax. Section (9)(8)(A)(i). b. Let's visualize the taxes from 2016, 2017, 2018, 2019, 2020 1) Before: 4/7/2017 2) After: 2016 taxes 6. 7.6 a. No priority - not part of bk post-filing expenses 7. 7.7 a. 500 - no priority b. Attorneys fees of 1,250 - no priority via 330(a)(1). Attorney not mentioned in first part of language of subsection, therefore no priority for unpaid legal fees to help file bk petition. 8. 7.8 a. 25,000 - is it lump sum alimony? If yes = domestic support obligation priority under (a)(1)(A). If not, no priority. 9. 7.9 a. Deficiency balance on car loan - unsecured, no priority 10. 7.10 a. 507(a)(2) - 503(b)(1 and 2) - 330(a). trustee's fees priority 11. 7.11 a. 507(a)(2) - admin expenses, priority 12. 7.12 a. 507(a)(2) - admin expenses, priority 13. 7.13 - no priority 14. 7.14 - no priority

1. Alternative A - ex-wife claim is for domestic support a. Trustee 1) 4k 2) A1 or 2 b. Sue 1) 25k 2) A1 c. Insurer 1) 750 2) A 1 or 2 d. Costs of sale 1) 2,800 2) A1 or 2 e. Nurse 1) 15,150 2) A4 f. George 1) 300 2) A7 - paid in full through this claim g. Social security 1) 1600 2) A8 3) Note: all taxes paid pro rata bc all fall into subsection a8 a) Pro rata calculation: total distributable money/total taxes. Here: 12,400/22,600 = .55 h. Property taxes 1) 3k 2) A8 3) Same note as for SS i. Income taxes 1) 18k 2) A8 - pays to 12,400 to taxes, pro rata 3) Same note as for SS j. Other unsecured 1) 27,800 2) No money paid out k. Subordinated tax: 1,500 l. Total: 99,900 2. Alternative B - if Sue belongs with the general unsecured, then the list is: a. Trustee 1) 4k 2) A2 b. Insurer 1) 750 2) A2 c. Costs of sale 1) 2800 2) A2 d. Nurse 1) 15,150 2) A4 e. George 1) 300 2) A7 f. Social security 1) 1600 2) A8 g. Property taxes 1) 3k 2) A8 h. Income taxes 1) 18k 2) A8 - paid in full through this claim i. Other unsecured 1) 52,800 2) Pays to 19,400 pro rata 3) Pro rata calculation: a) 19400/52800 = .37, or 37%. Remaining creditors paid 37 cents for each dollar of debt j. Subordinated tax 1) 1500 k. Total: 99,900

1. Question 8, assignment 7 a. Alimony, child support are priority payments. b. Car, is that a priority debt? What kind of loan was it - it was a car loan, which means it was likely a secured loan. Do secured loans get priority? Yes. But THIS loan does not get priority, bc it was sold prior to bk. If there's a balance, that's called a deficiency. But if you sold the car off, then the amount that's left after they foreclosed on the car is unsecured. And that wouldn't have priority in the list under 507. So the deficiency balance receives no priority. c. Trustees fee for performing legal work. 507a1c. Trustee gets paid before child support if the work that they do benefits the priority payment under a. work has to benefit the domestic support obligation, that's a priority debt, it gets paid before child support. Now, what if this wasn't a k for alimony, and this isn't an a1 obligation? A1c is part of a1, and a1 deals with domestic support obligations. What about all the other obligations? A2. Lookit 503b. then look at 330a. breakdown: 507a2, then 503b1 and 2, and then 330a. this is a long way of saying that trustee gets paid first. BUT NOTE: trustee gets paid first under two diff sections. What might the trustee might not have priority on?? If the work they're doing doesn't support the child support agreement. OR DOES IT??? Ask HIM ABOUT THIS!! d. Insurance premiums for non-exempt personal property: what is non-exempt personal property - property of the estate. If it's property of the estate, it can be sold and used to pay off other debts. That's part of the admin of the estate. Section 2 says administrative expenses, go back to 503bi under 338. Insurance premium gets paid, but under a2. So it comes after the payment of the cs if it is cs. See 507(9)(2) e. Sale of his nonexempt real estate: 507(a)(2) f. Jury verdict for hitting a pedestrian: this is a judgment against the DO for a personal injury tort. Is there anything in 507 that gives it priority? No. no priority is given for tort claims. That 10k gets looped into the total amount of claims left over. No priority g. No priority for no. 14 h. If taxes aren't priority, they're paid out pro rata

1. Alternative A, the ex-wife's claim is domestic support: a. Trustee: 4k, via a1 or 2 b. Sue: 25k, via a1 c. Insurer: 750, via a1 or 2 d. Costs of sale: 2.8k.... ON SLIDE 2. Alt b: if sue belongs with the general unsecureds, then the list is: a. Trustee: 4k via a2 b. Insurer: 750, a2 c. This is how a priority payment works. They get paid first according to category. In B, if there's no cs or alimony, taxes get paid in full. 726b. d. We will work alt B 1) There is 65k to divide up. With that 65k, you have to pay off everyone. Certain people get paid first. They get the money off the top, don't have to share with anybody else. 2) Subtract out the debts. We find out there's 19,400 left over. So how do you pay people off in a category? Pro rata. How to pay off pro rata: divide the total amount left over by the total of the debts. Here, that calculates to 37.6%. you then take a particular bill in any category, and it's the total amount of the debt, times that percentage. And that's what they get. 3) But in Ex A, unsecured still get pro rata. Everybody in the aa category gets 54%. There isn't enough to pay all the taxes off for a8.

A. Problem 4.1 1. Blackboard notes a. Household furniture and appliances 1) Value: 8k 2) Texas exemption: a1 3) Value: yes b. Clothing 1) Value: 2k 2) Texas exemption: a5 3) Value: yes c. Lois's law books (if she's a lawyer) 1) Value: 2.4k 2) Texas exemption: a4 3) Value: yes d. Lois's moped: 1) Value: 800 2) Texas exemption: a9 3) Value: yes e. Harv's 1970 convertible (left over from high school, now up on blocks) 1) Value: 500 2) Texas exemption: a9 3) Value: yes f. Cash value on Lois's insurance 1) Value: 2k 2) Texas exemption: 1108.87 3) Value: yes g. Lois's wedding ring: 1) 1k 2) Texas exemption: a6 3) Value: yes. h. Lois's computer 1) Value: 1.2k 2) Texas exemption: a4 3) Value: yes. A1? i. 100 shares of Disney 1) Value: 5k 2) No exemption j. Joint checking account 1) Value: 400 2) No exemption k. Harv's customized computer setup 1) Value: 7.5k 2) Exemption: a4 l. 1804 French one-pounder cannon 1) Value: 6k 2) Exemption: a1? m. Harv's motorized wheelchair 1) Value: 18k 2) Exemption: 42.001(b)(2) n. Fluffy the Persian cat 1) Value: 200 2) Exemption: a1 o. Soccer ball 1) Value: 2 2) Exemption: a8 p. Anticipated tax refund thought to arrive in a few weeks 1) Value: 1k 2) Nonexempt q. Total: 56002. r. Lawsuit for 250k 1) Non exempt in Texas 2) But: 522d11(D-I): partially or wholly exempt. a) 522(D)(5) is the wildcard provision. BLANK used property exemption

1. Asks us to look at the TX exemptions first. First question: what's the total amount of exemption under TX law? 100k. on this list, the total amount of the property is 56,002. The first question is whether they can exempt everything, is that how TX law works? Not exactly. Lookit section 42.002. you get 100k, but you only get 100k of things that fall into the category of section a. we have to go through this list, figure out whether there's an exemption applicable to this property. They don't necessary get every piece of property. 2. Household furniture and appliances: a1 3. Clothing: a5 4. Lawbooks: a4 (these sections are listed on page 76). If she's actually a lawyer, these books are covered. If she's not yet a lawyer, or they're books she just happens to own, they're not. 5. Her moped: a9. Any one member of the family gets to exempt one vehicle - this is a cool exemption. 6. Convertible: does a9 cover this? It doesn't have wheels. Crux: is it still a car. We're going to say yes, a9 covers it 7. Cash value on her insurance: page 78 of casebook. But not in section 42.002, it's 1108.51. but it still should be exempt 8. Wedding ring: a6. There is a cap on this - 25k, and we're well below that 9. Her computer: maybe a4, bc it could be equipment, if she's using it for work. what if it's used for personal use? Maybe a1? Would you consider a pc a home furnishing? Maybe. 10. 100 shares of stock: not exempt. The trustee gets to sell it. Only argument is that a TX ct might say it's an heirloom under a1 11. Joint checking account: not exempt. Trustee can grab it. 12. Harv's customized computer set-up: he's a computer programmer, which means we can probably fit it under a4. 13. 1804 French one-pounder cannon: this is artillery, not a firearm. Firearms are typically thought of something that's hand-hand. What else could apply: maybe an heirloom that's a home furnishing via a1. But this is still questionable 14. Harv's motorized wheelchair: it may be a motor vehicle via a9. But there's a better argument: section 42.001 subpart b2: it's a health aid. AND it doesn't decrease our 100k limit. 15. Fluffy the cat: a11, household pets are exempt 16. Soccer ball: a8, sporting equipment 17. Anticipated tax refund: non exempt, trustee will take it. This means that if you're expecting a big tax refund before you file bankruptcy, then it'll be smart to use that refund to buy a lot of exempt property, that trustee can't go after. 18. He has a potential lawsuit. Is a lawsuit property under TX law? Nonexempt under TX exemptions. But what about under fed law? Section 522d11, D and E. partially or wholly exempt. Personal injury lawsuit exemptions. Depends on how it's characterized. 19. NOTE: Section 522d5 - wild card exemption. You can shift the value of one exemption to another. Shift unused property exemption. So what was excluded from fed law could be brought back in.

I. What happens next? What happens at the end of bk? Assignment 9 A. Section 524 - ct orders discharge. This is what happens. 1. Lookit a2. Prior to the discharge, the automatic stay is in place, no collection efforts are possible. After the discharge, there is also a permanent injunction. a. But does this mean they're forbidden for paying their creditors? No, they can pay if they want to. 1) BUT: the creditor has an injunction against any action to collect. B. Problem 1: DO has filed, gotten a discharge for their health club's monthly fee. DO now wants to go back to the gym. Is this gym allowed to collect on their loan? No. see 523a2. 1. BUT: the DO wants to go to gym. If DO pays the debt off, the gym can still choose not to give them credit, though. They have no obligation in respect to that DO if their previous debt has been discharged in bk. They might try to renegotiate - they can reaffirm this debt. 2. What's the reaffirmation process? a. You take back the obligation they had, DO agrees to pay it even though it was discharged. Aka, say to this creditor I know I don't owe you, but I'm choosing to pay you anyway. What does this process require: has to be before discharge. Note that creditors CAN ask Dos if they want to reaffirmation. But they cannot make a demand (Duke case says this). 362a6 - It's a violation of the automatic stay if they do that. This is essentially a negotiation, bc both sides will have leverage.

1. Blackboard notes a. Debtor makes 9600/year. b. Car loan 5000 - 500. car - 8k c. Tort judgment - 200,000 d. 1700 rent e. 8k - 6k/month f. 6000 - 1700 = 4300 g. Car loan - FMC h. Reaffirmation 524(C) i. Surrender j. Redemption 722 1) 8k - 5k k. Requirements to keep property in ch 7 individual bk 1) 521(a)(2)(A) - filing requirement 2) 521(a)(2)(B) - performance 3) File statement of intent, perform statement of intent. l. For car: 1) If don't timely file statement - stay is lifted via 362(h)(1)(A) 2) If don't timely perform - stay is lifted via 326(h)(1)(B)

A. Problem 1a, page 777 1. This is five-year property. We're told that T recouped 100% of the cost under 168k, which allows for bonus depreciation. Adjusted basis at end of year 1 is zero, bc it's been totally recaptured. 2. Under a, asks us what result if it sells in year 7 for 30k. that is a disposition subject to 1245 recpature. It's not agift, transfer at death. And so have to determine the recomputed basis of the equipment. Recomputed basis is 100k for this equipment. a. Amount realized is lower than the computed basis, so we'll take that number. Amount of gain is 30k. 1231 would say this is LTCG bc it was equipment used in the business, was used for seven year. but 1245 comes in and says no. to the extent of the recapture amount, which is 30k, that gain is going to be recharacterized as OI. So on this sale, T will report a gain of 30k as OI. b. 1231 and 1245 can and do come into conflict with each other, but 1245 overrides. c. The recapture is limited to the amount of the actual gain, which, here, is 30k. thank goodness we don't have to recapture the entire 100k. 3. B: what difference if T elected to use 179. Instead of doing bonus depreciation under 169, they said they'll elected to deduct the cost of the equipment under 179. 1245 tells us that this will be treated as an amortization deduction. So the answer here is that there is no diff - we'll recapture the 179 expense deduction in the same way we'd recapture a 169 depreciation deduction.

1. C: what result in a if T had failed to take any depreciation deductions on the equipment. Would he want to see a refund, or be content? This is five year property, which means the entire cost would be recovered in five years, under ANY method. Our adjusted basis is still zero. Here, he didn't get any tax benefit from deductions. a. Section 1245 1) Text 2) Notes a) A2B: if T can est that amount allowed for depreciation was less than the amount allowable, the amount added for such period shall be the amount allowed. In short, all 30k should be characterized as LTCG, bc under 1245 you take the lower of the recomputed amount or amount realized. And here, the recomputed amount is zero. So there is no 1245 override. 2. D: what result if he resells the equipment to his spouse? Interspousal transactions have no gain or loss recognized. Gifts are not dispositions for 1245 purposes, via 1041. 1041 controls bc of the nature of the transfer. 3. E: what if, bc of scarcity of equipment, T can sell it for 110k. Now our amount realized is 110k, not 30k. the recomputed basis is the lower amount here. So the recomputed basis becomes the limit of the recharacterization, not the Amount realized. Bc the recomputed basis is 100, that's the limit of the 1245 recharacterization. 1245 will say that 100k of the 110k gain is OI. a. The remaining 10k falls under 1231. Will receive characterization as LTCG, bc it's equipment used in a business. 4. F: what if, in addition, T sold some land used for storage in the business for 9k. He'd owned the land for 3 years, so had a long term holding period. This is land, so we aren't concerning ourselves with depreciation. This won't therefore come under 1250 recapture bc there was no depreciation. But it does generate a loss. there's a loss of 11k on the land. Why is he saying that the land generated 11k of ordinary loss? the reason is that 1231 and 1245 are working at the same time. 1231 is dealing with the 10k of 1231 gain on the equipment, and the 11k loss on the land. Both assets were used in the business is why. When the losses on the 1231 assets exceed the gain on the 1231 assets, then the loss is OI, and the gain is OI too. So under 1231, we have 10k of OI gain on the equipment, 11k of OI loss on the land via 1231. And under 1245, we have the depreciation recapture override of 100k. 110k of OI gain, 11k of OI loss will be reported on the tax return. In net, T will report 99k net in OI for the sale of the equipment and the land. 5. G: sale price of the land is 15k.

1. Assignment 8 a. 8.1 1) Perfect? Not reasonable - probably b. 8.2 1) Lied about stack. Transferred chalet to daughter c. 8.3 1) 523(a)(6) - don't have to...(?) d. 8.4 1) 523(9)(2)(A) + (C)(i) + (C)(ii)(11) e. Assignment 8 deals with this concept: section 727 discharge. The ct shall grant a discharge. The discharge is the debt is no longer collectible against the DO. DO has been separated from the debt. That doesn't mean the security interest has gone away. Are you automatically allowed a discharge as an individual: yes, unless somebody challenges it. f. Nonrecourse loan: loans where the DO is not personally liable. If you get a mortgage, you can sell the house and assign it to somebody else. The person who buys the house can have a nonrecourse debt. That doesn't mean the debt or lien goes away. If the debt doesn't get paid on nonrecourse debt, the co that holds the mortgage can still take your house. g. A2, a3: Do has done something bad. h. A4: fraudulently making a false account. i. A5: failing to explain piles of cash. Where did the money come from, if you post a picture surrounded by cash. j. 7273a requires DO: to keep a record. You should have records of your debts. If you don't keep a record, you might have a problem. How forgiving should we be of the average person that doesn't keep good records? Should they be denied a discharge? A3 says if you fail this, you don't get a discharge at all. k. 727a3 creates a standard where you have to do something, BUT you don't have to be perfect. How the DO has interacted with the ct will matter a lot in this determination.

1. Problem 2 a. Guy has lied before the bk about how much shares he had. This is a statement made to a creditor prior to bk. He also fraudulently transferred his chalet to his daughter. Creditor gets a judgment against him, is about to execute, and then he files bk. b. What do we have to work against the DO in this case? he doesn't get a discharge bc of a2 - acted with the intent to defraud a creditor. If you're the creditor, do you proceed under 727a2A? there's a problem for you. If there's no discharge, then the other creditors don't have their debts discharged either. All the debts are still in place. that's bad for this creditor, bc they're ALL due. So what should she do: section 523 and get a "rifle shot." This is a person bringing a challenge just for one discharge. If it doesn't get discharged, they can sue DO after the case is over. 2. Problem 3 a. Guy uses collection methods like breaking bones. But he has a lot of debt, and files for bk. One of his creditors has a tort judgment against him for breaking his fingers. b. Torts are not priority claims. How to get around this: was this willful or malicious? Yeah. That's generally illegal, and there's a judgment against DO for this. The claim includes proof of willful or malicious conduct. Do we have to have a hearing about this? NO. you don't have to relitigate cases on which there's already a final judgment. If creditor's argument is he has a claim that's not in final judgment, you'll have to have litigation in bk to prove it's willful or malicious. c. In sum via 523a6, due to malicious injury, this is not a tort claim that is dischargeable.

A. Problems page 796 1. Problem 1 a. Lawyer bills client 1k. client doesn't pay. Six years down the road, becomes obvious client isn't going to pay. Now it's time to determine if a bad debt deduction is allowed. Won't be in 165, bc it's a receivable, not a publicly traded debt. What else must be known in order to determine if lawyer is entlted to a deduction? Well, first of all, we can say that yes there is a bona fide debt in this case. and we can assume it's a bad debt bc problem tells us so. this is likely a business debt - providing legal services was the lawyer's trade. Fair to say this is a business bad debt. Issue is reg 1.166-1. Income has to have been counted as income for the year in which the debt was due. Have to know the method of accounting. If the method was cash .... Then the debt is not deductable. By contrast, if the lawyer is an accrual method taxpayer, then a bad debt deduction IS allowed. He would've included the income in year one and have a basis of 1k in the receivable, so that six years down the road. What will be he character of any allowable deduction? It will be an ordinary deduction, or a deduction allowable against ordinary income. That's bc it's a business income. b. B: assuming the IRS commissioner asserts that the debt becme worthless in year 2, is lawyer's use of the bad debt deduction is necessarily foreclosed by SOL? If the three year SOL applied, there's nothing that can be done. But we saw in 6511d1 that the SOL for purposes of taking deduction for bad debt is actually extended to seven years. So: the lawyer has a seven year SOL, and lawyer is still in that period. What the lawyer would do is amend the return for year two, claim 1k bad debt deduction, and would be entitled to a refund (presumably). c. C: assume lawyer was allowed a deduction for year six. What tax consequences if in year 7 client pays the 1k obligation. Any amount attributable that was allowed as a deduction as bad debt shall be included in the income. He would include 1k of income in year 7 on the basis of recovery of a bad debt from year six. Reg 1.166-1f. d. What consequences upon payment in year 7 if lawyer properly wasn't allowed a deduction in year six? That question is highlighting that in order for the gross income rule to apply, there must have been a tax benefit. Section 111 would say that if the amount of the taxes wasn't reduced in the year that the deduction was taken, then the amount of the recovery isn't taxable. Taxes weren't reduced in year six, so no income in year seven when debt is recovered.

1. Problem 2: this is not a bona fide debt - is an equity contribution. If the note is worthless, it's fair to say that the equity interest is also worthless, since creditors have senior rights to shareholders. Also: she acquired it two years ago. This is a capital interest, long term holding period in a worthless security. a. 2: She owns common stock that also becomes worthless, which she bought three years ago. Another capital asset that is worthless, with a long term holding period. Two years ago, she loaned her friend money. That loan becomes worthless. Assume loan was bona fide. Assume also she owned some tax exempt state bonds she bought several years ago. b. A: to what extent will the transactions reduce her taxable income for the year (which is 40k)? on slides. Unless she's in the business of making loans, the loan to her friend is non-business. The loss on the loan we know is a short term capital loss, bc it wasn't business. But the loss on the note and the stock was long term. So what we have is capital losses of 10,600. So why is he saying she can only take 7k? the capital gain of 4k plus the 1211b of 3k allows for a 7k capital loss deduction. So her agi is 57k. we're told she had 20k in other deductions, and that makes her taxable income 37k. c. B: what is her capital loss carryover to the succeeding year? her capital losses were 10,600, but she could only deduct 7k. the remainder is her carryover. The loan to the friend is STCL. Carryover is 3600. Based on 1212b1. The amount of the carryover is 3,600, and the character of it is LTCL. d. C: she sold some stock for 20k - amount realized is 20k. she has a long term holding period, cost basis is 9k. what is her taxable income. The 10k,600 in capital losses is now less than the 14k of capital gains. So all of the capital losses are allowable as a deduction. Her taxable income therefore goes up to 44k and not 40k. what does that new 4k represent? e. D: must she report any income if in the following year her friend repays her? She did get a tax benefit bc her capital gains were reduced by 2,600; therefore her taxable income was reduced by 2600. Therefore the recovery of the bad debt would be treated as gross income. What is the character of this income? The recovery should follow the same character as the deduction. Bc the loss on the loan reduced capital gains as a STCL, the recovery the next year should be treated as gross income and a STCG.

1. Problem 5.3B a. Blackboard notes 1) 522(p)(1) - cap = 189,050 2) 550,000 - 300,000 = 189,050. Bc 522p1. b. Move from NV to RI. He has a big debt. Is he entitled to the exemptions under bk law? Yes, he can pick state law under 522b3. Is there a cap applied to homestead exemptions under bk law? Yes, 522p. Did he acquire property within 3.3 years before filing for bk? Yes - bought a house in RI that was cheaper than NV house. He's moved from a high exemption state to a medium exemption state, freeing up cash for creditors. Is there protection when you roll over equity from one home to the next? Yes. Look at 522p1B - but this doesn't help him out here bc he acquired the property within 1215 days. p1 is a limitation on the homestead exemption. He can only protect 300k under RI law. c. What's the cap on how much he can protect if 522p1 applies = 189,050 d. Went from state with 550k exemption to state with 300k exemption, now falls to a 189,050 exemption bc of 522p1. e. He'll keep his condo under RI law bc it's less than 300k. but under fed bk law, he'll lose his house bc of cap. So maybe he shouldn't file bk. f. There's a diff tween 303b2 g. If you don't file bk, then creditors force you into bk, that's an involuntary case. in this case, there's a limit on when creditor can be forced into bk. Must have more than 12 creditors to not be forced into it. If he has more than 12, they can't push him into bk.

1. Problem 5.4 a. NOT TESTED. There are methods of cheating creditors. You can do debt planning by filing with offshore trust entities that own your property, you're the beneficiary of your property. Means you give up control a little bit. This is more of a concern if you have stocks and bonds. 2. Problem 5.5 a. Should we just have a fixed no instead of categories? Thought: why are we protecting some special types of property, like guns? Wouldn't it make more sense to put that in the hands of DO, tell them to just pick the property

A. B1, b2 1. Text a. (b)(1) Individuals — In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs. b. (b)(2) Corporations — In the case of a corporation, the total deductions under subsection (a) for any taxable year (other than for contributions to which subparagraph (B) or (C) applies) shall not exceed 10 percent of the taxpayer's taxable income. 2. Notes a. Separate treatment for individuals vs. corps. b. For individuals, deduction is limited. There are four diff limitation schemes. c. For corps, they have a single limitation. The contribution can't exceed 10% of the corp's taxable income. 3. First limitation on individuals' contributions' deductions a. Aggregate contributions to publicly supported organizations ("public charities"), private operating foundations, and two special types of private nonoperating are limited to 50% of the individual's contribution base for the tax year. 1) Aggregate contributions to public charities, private operating foundations (Bill Gates foundation doesn't count - it's privately funded by Gates and Buffet), and two special types of private nonoperating orgs are limited to 50% of the individual's contribution base for the tax year. 2) Private operating foundation: a v particular kind of private foundation. Distinction: operating foundations run their own programs through its own employees (usually). 3) The operating foundation will market itself, solicit applications, review applications, make decisions about which students to receive scholarships. Their level of involvement in contrast to a private foundation is v different.

1. Second limit: aggregate contributions to semi-public charities and private foundations and to contributions "for the use of" any charitable org are limited to 30% of the individual's contribution base for the tax year. a. Aggregate contributions to semi-public charities and private foundations, and to contributions "for the use of" any charitable organization, are limited to 30% of the individual's contribution base for the tax year. b. Contributions of capital gain property to public charities are also subject to the 30% limitation. The maximum deduction allowable for such contributions is an amount equal to the lesser of: (1) 30% of the taxpayer's contribution base; or (2) the amount of the taxpayer's 50% limitation remaining after the taxpayer's contributions to public charities are considered. 2. Third limit: contributions of capital gain property to public charities are also subject to the 30% limit. The max deduction allowable for such contributions is an amount equal to the lesser of 1) 30% of the taxpayer's contribution base; or 2) the amount of the taxpayer's 50% limitation remaining after the taxpayer's contributions to public charities are considered. 1) Say you own appreciated stock. you give that stock to ole miss. You'll get a deduction for that contribution, but it'll be subject to the 30% limit. 3. Contributions of appreciated property to semi-public charities and private foundations are deductible only to the extent of 20% of the donor's contribution base a. Contributions of appreciated property to semi-public charities and private foundations are deductible only to the extent of 20% of the donor's contribution base. 4. Fourth limit: 170b1G 1) Text a) (b)(1)(G) In General — In the case of any contribution of cash to an organization described in subparagraph (A), the total amount of such contributions which may be taken into account under subsection (a) for any taxable year beginning after December 31, 2017, and before January 1, 2026, shall not exceed 60 percent of the taxpayer's contribution base for such year. 2) Notes Contribution of cash gets a deduction if its made between 2018 - 2025 has a limit of 60% of taxpayer's contribution base.

J. Ways that allow the DIP to remove or limit liens. 1. Two main situation: a. When the lender fails to comply with the reqs to perfect its lien, DIP or trustee can avoid it in bk b. Second scenario involves some statutory liens under state law. There are three situations in which the code simply tosses those liens aside as an exercise of supremacy clause might. 2. The strong arm clause a. Trustee, or DIP, has the right a levying CR would have against other CRs. b. The strongarm clause test the strength of the "lock" mortgagees have put on the property. Fi they have locked up the property so that it would prevail over a bona fide purchaser, then the lock will hold in bk. But if the property was unlocked at the time of bk, the CR will just be one more head in a sea of unsecured CRs 3. Federal tax liens 4. Statutory liens a. Section 545 targets three specific categories of state liens: 1) Landlords' liens 2) Bankruptcy priority liens (liens that only apply when DO goes bk) 3) Unperfected liens

1. Section 544 - trustee as lien creditor a. This section governs the ability of the trustee in bk to avoid certain liens. Strongarm power: come in, take something that was a SI, turn it into an unsecured creditor. Has power to avoid liens that are not perfected. b. In ch 11, DIP has power of trustee. That means the DO will challenge its own debts, avoid it. c. Bk takes away the authority of the SP to do what they would otherwise be able to do = foreclose. Lose ability to foreclose. That's what the strong arm power does d. Two primary ways the strong arm power works: 1) gives the trustee in bk the power of a lien creditor (hypothetical lien creditor). See 544a1. 2) 544a3 - bona fide purchaser of value for real estate. Means there's more authority for the trustee when dealing with RE than with personal property. With real estate, get BFP status, who beats everybody. With personal property, only get status of lien creditor. e. If you see a CR that has lent money on a piece of property, and they have not taken steps to perfect their lien, then the bk trustee can effectively push their lien to the side. Become an unsecured CR, can't foreclose. f. 9-317 g. Article 9.discusses rel between secured parties and lien creditors.

I. Exemptions A. Section 541 1. Talks about what's included in the estate, but Exemptions governed by 522 B. Section 522 governs exemptions 1. allows DO to exempt certain property from the estate - CR won't have the right to go after this property. Trustee can't sell it. 2. Congress has bifurcated the way exemptions work. There are two types of exemptions a. 522B says you have the right to claim an exemption. Way we calculate what this is: there are two lists. 1) First list is created by fed gov. 2) The second list - state can create its own list. a) AND: state can opt out. B2: that's the opt out. MS has opted out. b. D: has the fed exemptions. This is done by categories. 1) Important question: can you fit the property into the category so that it is therefore exempt. a) Ex: for firearms: you can only exclude two from the bankruptcy. You can, however, shift more than two guns into a diff category to exempt them. c. Valuation: DO has to come up with a value, and then trustee can challenge those values. If you lie about the value, that can result in the inability to get discharge in bk. But an honest dispute is ok. If property value exceeds the value of the exemption, what then? Then you have partially exempt property. The only way the exemption can then be realized is for the trustee to sell the property, then exclude part of the money.

1. Secured creditors get paid even if there is an exemption. They still get to take their collateral and sell it. B4. Secured creditors avoid exemptions, for the most part. 2. There's an exception to the exception for the exemption: f1. a. Gives the DO the ability to avoid certain k-created and judicial liens. K created liens have to be a nonpossessory interest. 3. The fed exemptions are indexed for inflation: d. d1 - note the "og" amounts. a. States, however, might not do that inflation adjustment, in which case you're trapped if you have to use a state exemption

A. Assignment 29 - Cramming Down Unsecured CRs 1. The concept of cramdown: confirmation without consent a. Even if a plan satisfies the best interests test as to every non-accepting CR and meets the test of feasibility, the plan must still be accepte by the statutory majority of CRs in each impaired class. If any class rejects the plan, then the plan can't be confirmed as a consensual plan under 1129a. the remaining shot at confirmation is cramdown under 1129b. 1) Cramdown is the available strategy to reorganize when despite the DO's best efforts at gerrymandering/classification, DO faces a recalcitrant class that insists on voting no. 2. To qualify for cramdown, the plan must attract at least one consenting class of impaired CRs. Without the consent of at least one class with skin in the game, plan can't be confirmed even with cramdown.

1. The "unfair discrimination" bar 2. The "fair and equitable" requirement a. Absolute priority rule - no parties "junior" to the objecting class can get a distribution under the plan. 1) Ex: if a plan proposes to pay a dividend to the equity holders of a co, the plan can't be crammed down over the objection of the unsecured CR class. Bc equity is "junior" to unsecured CRs (stockholders only get paid afer the CRs), a plan already sufficiently repugnant to the unsecured CRs to trigger a negative vote can't be confirmed through cramdown. b. Equity's reprieve: the new value "corollary" 1) Corollary to the absolute priority rule: while you can't get anything under the plan on account of being a shareholder, you can on account of being a new investor c. "Valuing" the new value 1) A promise of future services can't be exchanged in any market for something of value to the CRs today.

A. Running the business 1. Upon filing the petition, the DO's managers may only get the time to breathe one sigh of relief before they must address a host of issues 2. First day orders a. DO often ahs to ask for a judge's permission within hours of filing on the issues that immediately threaten to derail the business's operation. These requests come to the judge as first day orders. Common exs: 1) Additional injunctive relief beyond the automatic stay 2) The content of required operating reports 3) Authorization to buy or sell outside of the ordinary course 4) Authorization to pay employees wages 5) Use of cash collateral 6) Approval of a postpetition financing arrangement 3. Cash collateral a. Ch 11 requires a balance between DIP's control and the CRs' need to make sure DIP doesn't do anything foolish with the co's assets/cash. Code provides a couple of CR backstops: 1) DIP has to go to court for permission to engage in transactions outside the ordinary course of business 2) DIP has to go to ct for permission to use "cash collateral," aka money that's subject to a lien. Cannot be used without ct's permission.

1. Trade suppliers and vendors a. DO has to continue shipments from its suppliers once it has permission to use cash collateral to pay them. Skeptical suppliers owed money old invoices may be tempted to jump ship. Some may want to refuse to do further business until those invoices are paid, but that would violate the as. So they may try another weapon: their common law rights of reclamation to claw back recently shipped goods b. Reclaiming sellers have an opportunity to exercise such rights when a DO enters a ch 11 within 45 days of shipment, even if state law provides for a shorter reclamation period. They also get a priority claim for invoices if the DO files bk within 20 days of shipment, even if they can't reclaim for some reason. 2. How it is that DOP has power a. 1107a says that DOP has the powers of the trustee b. 1101: the DOP is the debtor c. The only time that we end up with a trustee is via 1104. Standards: for cause, there's some problem; possibility of a conflict, etc. d. Section 552a - you are entitled under art 9 to have a lien on assets acquired by the DO after the loan is made. That's called the after acquired property clause; makes the lien on the property that was acquired later as good as the lien that the DO had at the time the loan was made. Bk stops this. When ch 11 is filed, and loans that have after acquired property clauses have no effect in regards to those clauses. It is NEWLY acquired collateral after the filing of bk. Proceeds, via 552, are not part of that. Proceeds are NOT eliminated. Proceeds = anything exchanged for the collateral. e. If prior to bk the DO has an asset, get cash, put it in an account, that collateral is covered as proceeds prior to bk. After bk they sell collateral and they receive cash, that cash remains subject. f. Chart this out: filing. Via 522a, no AAPC. If before they have bk, the lien on the loan that covered AAPC goes up to, but ends, at date of filing. Say they acquire property 2, so it's not collateral of the loan, after filing, UNLESS it is proceeds under 552b.

I. Unsecured creditors in chapter 13 A. In-class notes 1. Secured creditors get present value. What do unsecured creditors get: whatever left over pro rata. The pot is the amount of money that's left over for non priority unsecured debt. They're paid the dollar value. Priority unsecured people get paid all of it, in dollar value. 2. In ch 7, certain debts are and aren't dischargeable. Some debts, even if priority, may get partially discharged. You can't do a 13 bk unless the priority people get paid in full = 1322a2. Bk plan can't stiff the priority claims at all. If you can't pay in full, you can't do a ch 13 bk. 3. Calculating disposable income: 1325. Definition of disposable income: current monthly income received by the DO less amounts reasonably necessary to be expended for domestic support, necessary business expenses. B. The floor for unsecured creditors is found in three provisions of 1325 1. Dos must pay priority creditors in full, though without interest 2. Each creditor must receive at least as much as that creditor would have received if the DO had gone into a ch 7 bk. 3. Dos must devote all their projected disposable income to funding the pot for unsecured creditor payments over the life of the chapter plan.

A. 11.1 1. Blackboard notes a. 1325(b)(1)(B - must use disposable income for unsecured creditors. b. 1325(b)(2) c. 1329 - modify later 2. What can she claim as reasonable expenses? He ct decides what disposable income is. 3. Are piano lessons and orthodontics necessary to support a dependent? The judge will decide. 4. Also, should she be allowed to have a little bit extra in case of emergency? The judge decides 5. Three questions: 1) are piano lessons important 2) is the tooth work important (Note: could approve the plan without care, modify afteryou know how much it is). 6. Below median debtors: judge gets to decide. 7. 11.1 8. Section 1325b1b - all disposable income must go to the payment of unsecured debts 9. 1325b2 10. DO is obligated to pay over disposable income. 11. B1 only comes into place if... 12. 11.1 asks what do we do with the 60 dollars 13. How to calculate disposable income: 1325b2. 14. For over median debtors in 1325b2, we look at the means test. We don't' have to get to the means test in this problem bc the DO so obviously earns so little they won't be subject to the means test of disposable income. So disposable income is calculated by the ct. 15. What do you do about the orthodonture? 1329, you can modify the plan if you need to. 16. 1325b1B - must use disposable income for unsecured creditors. Question is, ethically, if you can ask the judge to allow you the cushion. Just know who your judge is. Can always modify later, too. 17. 1325b2 18. 1329 - modify later

A. 165h4 1. Text a. (h)(4)(A) Personal Casualty Losses Allowable In Computing Adjusted Gross Income To The Extent Of Personal Casualty Gains — In any case to which paragraph (2)(A) applies, the deduction for personal casualty losses for any taxable year shall be treated as a deduction allowable in computing adjusted gross income [above the line deduction] to the extent such losses do not exceed the personal casualty gains for the taxable year. b. (h)(4)(E) Claim Required To Be Filed In Certain Cases — Any loss of an individual described in subsection (c)(3) to the extent covered by insurance shall be taken into account under this section only if the individual files a timely insurance claim with respect to such loss. 2. Notes a. Second-level limitations b. If personal causalty losses exceed personal casualty gains, to that extent T will receive an above the line deduction. c. H4E: you can only claim a loss to the extent that it exceeds the amount of your insurance recovery, whether ror not you actually applied for that recovery. B. 165b 1. Text a. (b) Miscellaneous Itemized Deductions — For purposes of this section, the term "miscellaneous itemized deductions" means the itemized deductions other than— (b)(3)— the deduction under section 165(a) for casualty or theft losses described in paragraph (2) or (3) of section 165(c) or for losses described in section 165(d), 2. Notes Defines miscellaneous itemized deductions.

A. 165h5 and (i) 1. Text a. (h)(5)(A) In General — In the case of an individual, except as provided in subparagraph (B), any personal casualty loss which (but for this paragraph) would be deductible in a taxable year beginning after December 31, 2017, and before January 1, 2026, shall be allowed as a deduction under subsection (a) only to the extent it is attributable to a Federally declared disaster (as defined in subsection (i)(5)). b. (h)(5)(B) Exception Related To Personal Casualty Gains — If a taxpayer has personal casualty gains for any taxable year to which subparagraph (A) applies— 1) subparagraph (A) shall not apply to the portion of the personal casualty loss not attributable to a Federally declared disaster (as so defined) to the extent such loss does not exceed such gains, and 2) in applying paragraph (2) for purposes of subparagraph (A) to the portion of personal casualty loss which is so attributable to such a disaster, the amount of personal casualty gains taken into account under paragraph (2)(A) shall be reduced by the portion of such gains taken into account under clause (i) [above]. c. (i)(5)(A) In General — The term "Federally declared disaster" means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. d. (i)(5)(B) Disaster Area — The term "disaster area" means the area so determined to warrant such assistance. 2. Notes a. Third level limitation. b. Has to do with personal casualty losses between 2018 and 2025. Will only be deductible if they're attributable to a federally declared disaster. H5B: if you have personal casualty loss no arising from fed disaster, can still deduct it to the extent of your gains. If you have personal casualty gains, your losses are still deductible, but NOT in excess of that.

A. 9.4 1. Blackboard notes a. Presumption of undue hardship b. Monthly income - monthly expenses less than monthly cost of reaffirmation. 2. Does she have any equity in the car? No, she owes more than the car is worth. What's the situation - she's in v tough financial circumstances. She wants to keep the car, but should she? No. if she surrenders the car, we have to do a calculation. This is in 506. Have to calculation how much of the loan is, isn't secured. Question wants us to ask whether or not this is an undue hardship. We've calculated the claim should be bifurcated. But should she do this/is it a good deal for her? 524c. then we go to m. what's the presumption of undo hardship? If DO's monthly income, minus monthly expenses, is less than the payments of the reaffirmed debt. Take monthly income, as disclosed by the DO, subtract the monthly expenses that the DO has disclosed. Then, it's undo if that no. is less than the monthly cost of reaffirmation. That's our formula. In this case, it is PRESUMED to be an undo hardship. Does that mean they can't pay? Scroll to k6A. look at all the things the DO has to disclose. Have to fill in the blanks. They have to explain to the ct how they can afford to make these payments. What would you as a lawyer need to see on this form to approve the reaffirmation? Well, as a lawyer, you're generally supposed to do what your lient says. This is a harder question to answer. You can be sued for malpractice if you KNOW they won't be able to make the payments. But there is a v fuzzy situation. 3. K3j1, part 6: the plan is effective upon filing if the lawyer approves it. 4. Say the creditor is a credit union, then what's different? Go back to m. judge doesn't have to certify, lawyer doesn't have to give a certification that it doesn't cause undo hardship. Credit unions can get reaffirmations that other creditors can't, as a result. 5. In this problem, this is a bad deal, DO shouldn't do it.

A. 9.5 1. Blackboard notes a. Secured claim 506 b. Car worth 6000, debt is 7899. c. Secured 6k, secured is 1899. Bifurcation! 2. Can we get the car back if we want to, via 521d? ipso facto clause. If there's no default, .... 3. Can they get the car back? 521a6. Probably no, bc automatic stay doesn't go away unless they don't perform their obligations under the statement of interest. And here, there's no default. 4. If he keeps the car, what portion of amount owed will be repayed? Have to recalculate the allowed secured claim against the non-allowed claim. 506 tells us how to do this. Car is worth 6k, debt is 7,899. What's the amount of the secured claim: 6k. the unsecured claim is the difference, 1899. If they foreclose on the car, the creditor will, maximum, get 6k. 5. What's your overall advice: it's personal property, have to file statement of intent and perform under the statement. If they reaffirm, have to pay. If they don't pay or do what they say under 521, 362h says stay is lifted, creditor can foreclose and get 6k. which here is less than their debt. The advice is keep taking the payments if the guy is current with the payments, to the creditor. B. 9.6 1. Not getting a job solely bc you filed for bk. How do you litigate that? How do you prove, as DO, you didn't get a job solely bc you filed bk? Not a lot of litigation on this. SCOTUS says that if one of the causes is filing for bk, then that claim still stands, if it is a proximate cause. Don't know what that really means.

A. In-class intro 1. Next step from liquidation is to move on to ch 13 bk. 2. Ch 13 bk is the method by which the DO keeps their property and makes payments 1-5 years, and after they do that, according to their plan, they own their property outright, liens go away, all debts are discharged. What happens if you don't live up to your plan: you're now fully liable again under all debts. 3. If DO is going through ch 13, choice is to make all your payments according to the plan and then you own all your property free of liens, AND all your other debts are discharged. NOTE: Chs 3 and 5 are system chs. They're not about the discharge. We still have to worry about chs 3 and 5 when we look at ch 13. 4. The huge advantage is that you get to keep your property. That's why ch 13 is advantageous over ch 7 - in ch 7, you only get to keep the exempt property.

A. Assignment 10 1. 10.1 a. Blackboard notes 1) Relief stay - 362(d) a) (d)(2)(A) - debtor has equity. Can't use 362(d) b) (d)(1) - probably/highly likely has adequate protection b. Creditor wants to know if they can ask for relief from stay in ch 13 bk. Under what circumstances can a secured creditor get a relief from stay? 362d. start with d2. There are two conditions to get relief here: DO has no equity in property (Here, creditor is over secured, bc there is equity in the property, which means we can't use d2); property isn't necessary to an effective reorganization. Oversecured creditors, remember, can continue to earn interest - section 506. c. 362d1 - for cause, including lack of adequate protection. The problem with this collateral is that computer hardware's value will go down fast. On the face of things, creditor is ok bc they're oversecured. This is within the discretion of the ct whether they get other security. But it's unlikely. So via d1 - probably/highly likely there's already adequate protection. Only way they could get there is to say that the value will go down faster than they could be protected. 2. 10.2 a. Blackboard notes 1) 506(d) - value of secured claim = value of proy(?) = 41,000. Unsecured as to remaining balance 2) RE is NOT primary residence. Therefore per 1322(b)(2), court has power to modify lien (right under mortgage) including (Cramdown) ie lien stripping 3) Also: hanging paragraph at the end of 1325(a) doesn't apply in this situation. b. Here, value of the secured claim is 40k. principle balance is 39, they've just jacked it up. What's the amount of the secured claim? Note that this isn't a primary residence - this is just vacation house. No special rules kick in here bc of that. Lookit 1322b2. Yes, ct can modify this agreement. c. Go to 1325a. there are limits on cramdown. Creditor can be forced to accept the plan, even if they don't like it. Value of liens could be stripped out from under them. HOWEVER, you can't do that under certain circumstances. Can't do it for primary residences. Also can't do it for two other kinds of collateral: if there's a PMSI for a propery acquired within 910 days before date of petition, AND collateral that is a motor vehicle. Aka if you've got a car loan within more than 2.5 years of bk, ct cannot cramdown the loan - DO has to pay in full. Neither of these limits apply here. That means the ct can cramdown. d. Ct has the power to cramdown a secured creditor. 3. 1325a, hanging paragraph

1. 21.7 a. Utility was owed 32k, unsecured, got them to pay within 90 days. not substantially contemporaneous. Is this made in the ordinary course of business? Utility payments made on the normal monthly order WOULD be OCB. But this feels like more than usual. And they aren't paying monthly, are paying their amount overdue. b. Could argue this was OCB if they only pay quarterly, OR they only ever pay until they get a phone call. We have to look at the relationship between these two parties. c. But we don't have evidence of that here. d. Part 2: mortgage payments e. Mortgage is under-secured: Important bc payments made in excess of the amount of collateral = preference. f. Is paying mortgage late every month with a late fee in the OCB? Maybe. Do a lot of people pay these fees in their OCB? Probably. The threat in part 1 feels unusual, but here the penalty doesn't really feel that bad. Note: if utility co routinely sends out horrible notices, then maybe OCB.

A. Assignment 22 - Preference Continued 1. State law a. The Uniform Voidable Transactions Act (UVTA) 1) Trustee/DIP gets to use UVTAAAA state law powers in bk, including its voidable preference provision 2) UVTA provides that a transfer is avoidable whenever it is made: a) In payment of an antecedent debt b) By an insolvent DO c) To an insider d) Who had reasonable cause to know of the insolvency 3) We call these "fraudulent transfers" 4) UVTA's approach is noteworthy in two respects: a) Treats insiders with much more suspicion than arm's length CRs. b) Injects culpability into the insider-repayment rule A) Voidable preference recipients have no mens rea defenses under 547. But under UVTA, insider repayment is only attackable if the insider knew or had reason to know of the insolvency

1. 27.3 a. Question: can you create a special class of unsecured CRs that are the farmers. Why is this a gerrymandering case? how did the rels of the farmers to the plan change from before to after - what did they do, why did they do it. b. Two lawyers. One represents DO, one represents CR. c. First thing have to ask: who is responsible for selecting the class of CRs. DO proposes in the plan who the Dos are in each class. In most cases where there is secured debts, there will be at least two classes: secured and unsecured. If you're not impaired, you can't vote. If you're secured, when are you impaired: when you're a partially secured/undersecured. d. Why do we want a special class for the farmers? Farmers went from being unimpaired to impaired. Now they have a vote. What have the farmers indicated? e. Plan has to be approved by the unsecured CRs, which include farmers. They'll vote all for it. you just need at least one class to approve the plan. they've already said they've voted for the plan. f. Lawyer for DO is saying we have a group of CRs that are impaired, have already said they're going to approve a plan. g. What is it called when you take a group of people who say they'll vote together and put them into one group: gerrymandering. h. Why is this particular CR mad, why are they against the plan? they just want to get out. Did DO's attorney do enough to est that the farmers deserve to be in their own class? What is the reason given as to why they are diff from the other unsecured CRs? Is it appropriate for the judge to approve this class of CRs? Yes - goes to the issue of feasibility. This DO won't survive if the local farmers won't think it'll survive. Reason no - feels like the DO is gaming the system. Basis for deciding class made sense: Ct agree with Do attorney that the farmers had a diff economic rel to the DO, that justifies them being in their own class.

A. Assignment 28 - confirming the plan 1. In this section, we talk about two issues: feasibility and best interests a. 1129a7 - best interest section b. 1129a11 - feasibility section. c. Plan must be both in the best interests of the CRs and feasible d. Who decides if the plan is feasible: the ct. feasibility is not a defined term. e. 1129a7: if you've accepted the plan, we don't worry about your best interests. we assume it's in the best interests of the class. Most plans are accepted, remember, bc they're negotiated. They're negotiated with this in mind. What do you at LEAST have to get out of the plan if you don't approve it? Before the plan gets approved, Do needs to prove a plan that allows that the CR who's upset would get paid at LEASt what they would get in a ch 7. That's the minimum, that's the standard. What determines what you'd get in ch 7: valuation. To be protected, would you want a high or low valuation? The CR would ask for higher valuations. Would say more money is here than the DO is saying. 2. In general, acceptance of the plan by most CRs is at the center of ch 11 process. However, 1129(a) has several other eqs that apply regardless of whether the CR consents are achieved. a. The most important non-voting reqs for confirmation derive from 1129(a)(7) and (11). These are "best interest" and "feasibility" reqs.

A. Liens on RE - ridethroughs 1. Property at issue is RE, and you're not in default. 2. These liens survive bk. Must be current on first ahd second home mortgages. 3. But when you do this, you have to start paying. You're not liable on the debt, but the lien still exists. 4. If you can't make that work, you surrender the property/give it back. (Ch 7 surrender). B. What if you want to keep your car/property? You can reaffirm 1. Must tell ct what your intent is in regards to secured property. Three options are abandon, reaffirm, and redeem. 2. 722 is redemption - you can buy the car out if you have enough money. If you redeem, you must pay the mkt/replacement value. NOT the amount of the loan. 3. Problem with reaffirmation: it can't cause undo hardship. Lawyer has to sign the doc that says you conclude this wouldn't be undue hardship. If there is no lawyer, then the ct decides. But you can't reaffirm without considering undo hardship. C. Ch 7 discharge - only lasts about three months D. Ch 7 property 1. Estate is created as of the date of filing. 2. The trustee owns the property of the estate, the DO doesn't. but anything that happens after filing of bk is the DO's via ch 7. 3. Often tax refunds are an issue. Timing is important. If it's owed as of the filing date, it goes to the trustee.

A. Ch 13 general terms 1. Difference: there is a plan, through the plan DO gets to keep all their property. 2. Ch 13, the DO controls the property (contrast: in ch 7 trustee controls property) 3. Two lengths of the plan: 325a. Three years if it's a below median income Do. Five years if it's a above median income DO. 4. Debts not cancelled in ch 13 5. Priority debts must get paid in full according to the value of the loans. 6. But if there's anything left over, it's discharged. Aka: the priority debts must get paid in full. Secured creditors get paid up to the value of the property. 7. Better of in ch 13 if you have a lot of secured debt. Only have to pay off what you can in 3/5 years, rest of debt goes away. BUT there's an exception: hanging paragraph. B. Hanging paragraph: 1. If you have a car loan that you use to buy the car within 2.5 years of the filing of bk, then you have to pay the loan off in full. If you have a PMSI for other property incurred within a year of filing bk, have to pay loan in full. 2. Ch 13 allows DO to modify the loan for secured creditors, EXCEPT for this exception. If it's a RE investment and you have mortgage, not principle residence, can cram down. Can't cram down mortgages on principle residence, car loans made within 2.5 years, one year rule for other debts. C. Issues in Ch 7 1. Issues of priority vs. nondischargeability. a. Section 507 est the priority payments out of the bk, the order in which they have to go. 1) have to pay support agreements... go down the list. Those are payments being made out of the ch 7, they get paid first. b. In ch 13, remember, you can't approve a plan if all the priority payments won't get paid over the period of bk. c. Ch 7: We calculate what the priority payments are. if we run out of money, we stop, divide up the money per category. Second half of this: those claims are non dischargeable (in the case of taxes). lookit 523. Keep in mind: tax claims are both priority claims AND nondischargeable. IRS will get paid up front what they are owed, and thereafter the discharge. Payment in full for people who are behind on their taxes. d. Priority vs. nondischargeability - 507 vs 523a

A. What are some key bk concepts 1. Automatic stay a. Filing bk instantly creates an "automatic stay" b. Temporarily stops most all creditor actions to collect debts c. However, if consumer had other bk cases dismissed within previous year, may not be automatic stay, or may last only for 30 days d. But even then, ct can impose or extend the automatic stay if consumer's current case has been filed in good faith 2. Fresh start a. Goal of bk to provide help with existing debts and give consumer a second chance financially b. Two key elements to bk fresh start: 1) Discharge: elimination of the legal obligation to pay a debt 2) Exemptions: property which the law allows a bk "DO" to keep 3. Future creditor contact a. Discharge injunction precludes creditor contact or court action b. All discharged creditors can only report a "0" balance on your credit report c. No civil suits on discharged debts d. Right to sue any creditor who violates this law e. May also violate state and fed unfair debt collection laws 4. Meeting of creditors a. Mandatory appearance b. Normally 4-6 weeks after filing c. Must have official photo id d. Must have SSN e. Must have filed most recent tax returns f. Must provide 60 days of pay stubs g. Often must prove all post-filing domestic support obligations have been made

A. Ch 7 basics 1. Once every 8 years 2. Objective: to discharge or eliminate debts 3. Taxes, student loans, child support, alimony, separation agreement, criminal fines, ct costs generally not dischargeable 4. Debts based on fraud not dischargeable 5. Other exceptions to discharge also exist 6. Who's eligible to file ch 7 a. "Means test" 1) Bk judge can dismiss ch 7 case if filing is an abuse of bk system 2) Means test was added in 2005 to make it more difficult for wealthy consumers to file a ch 7 bk 3) Consumers with household income below state median family income are protected by a "safe harbor" and not subject to the means test 4) Consumers with income above median must fill out form that compares monthly income with actual and assumed expenses in a variety of categories 5) Some expenses are based on IRS collection guidelines 6) If form shows that consumer should have certain amount left over to pay unsecured creditors, bk ct may decide consumer can't file ch 7 case, unless there are special circumstances 7) Means test details: a) Primarily consumer debts b) Six months average income from all sources c) More than state median family income d) IRS guidelines for expenses e) Deduct all allowed secured debt 60 months f) More than 166.67 monthly left over, no ch 7 g) More than 100 montly left over and can pay 25% or more of unsecured debts in 60 months, no ch 7 7. Exempt property a. Property protected from CRs b. Right to keep property in ch 7 is based on: 1) Type of property you won 2) Equity in property 3) Value of property 4) Amount of value can exempt

1. Ch 13 dismissal a. Voluntary right to dismiss any time b. May convert to ch 7 c. Must do means test if convert to ch 7 d. Conversion effective as of date of ch 13 filing e. Ch 13 trustee may move to convert or dismiss for non-payment of plan payments 2. Ch 13 and your mortgage a. Include arrears in plan b. Must resume payments the first month after filing c. Keep records of date and method of payments d. Pay only by personal check bank draft, or US postal money order e. Keep record of all checks, etc. 3. Rules regarding ch 13 meeting a. First plan payment due within 30 days of filing b. CRs must file claims within 90 days of the meeting to be paid c. You must resume direct mortgage payments the first month after filing 4. Marriage and bk a. Only married couple file joint case b. Married couple not required to file a joint case c. Marriage doesn't automatically make one spouse liable for debts of the other d. Married couple can have joint or separate debts e. Separated spouses can file joint case but may create conflict for attorney Attorney must withdraw joint case if the DOs disagree or a conflict of interest arises

A. Does bk affect the consumer's credit 1. Bk can stay on consumer's credit report for ten years rather than normal seven years for other credit info 2. Bk usually doesn't make credit records any worse, if there have already been numerous reports of defaults 3. Some creditors lend to recent bk filers bc all or most of consumer's past debts have been discharged and consumers can't get a discharge in another ch 7 case for a period of eight years 4. Bk may be problem in getting approved for a conventional home mortgage 5. But most lenders will still provide mortgage if consumer has reestablished good credit for a period of two to four years after discharge 6. And shouldn't affect eligibility for reverse mortgage 7. Prior bk cases and discharge in bk a. Ch 7 - once every 8 years b. Ch 13 - no ch 7 last 4 years c. Ch 13 - no ch 13 last 2 years May still file ch 13 within 4 years of ch 7 or within 2 years of ch 13 but NO discharge

1. 23.2 a. First note if we have a present or future creditor. Here, we have a future CR. Not a CR until after the CR. That means we can't use section 5, bc 5 only applies to present CRs. So we have to est 4a1 or 4a2. b. How do we prove intent? 4a1 - actual intent. 4a1 does apply to future CRs. What does the CR have to show here under 4a1: fraud - here, the fraud is that she sold it for a small amount, with intent to get it back, with the intent to shield her assets from being foreclosed on bc she knew she was buying a lot of furniture on credit. c. Do we have evidence of intent? Lookit definitional section. She sold to her friend, who is not defined as an insider. So no presumption that the sale to the friend, itself, is evidence of intent. d. We're going to have trouble proving intent. e. 4a1 requires ACTUAL intent, nothing less. And we don't have facts that fit into b, bc the friend isn't an insider. How'd you prove actual intent here, what's the best evidence possible to prove intent? An email saying "I'm selling you this to defraud my creditors." If you don't have that, have to look to others factors. f. The factors listed in 5b are just factors to consider. Ct could agree that b10, by itself, is enough. g. 4b2: this looks more promising. She couldn't pay off her piano, so she decides to buy 20k of furniture. NOTE: 4a1 is the only section where we can use factors in 5b. in 4a2, have to look at other facts. h. Person at risk here is not the DO, it's the transferee - she'll be the on who has to give the coins back. i. Does it seem like DO is trying to cheat American express? Sure looks like it. what if she waits a month to buy the furniture, though? j. What to understand: there is a way the bk trustee, using either UVTA Or bk law, to undo a transfer for the benefit of a CR that was engaged in, under 4a, with a way to defraud their loans, or under 5, was not for reasonably equivalent value 2. 23.3 a. Look at definition of "asset." Does subsection 1-2, definition of "asset," for purposes of calculating insolvency, answer this question? House is worth 200k. do we include it in the value of calculating the value of his total assets? It's a homestead, so it's not part of the assets. So as a result, is he insolvent? Look at what insolvency is, in section 2. "insolvency = if sum of debts is greater than value of assets." Assets do not include homestead.

A. Executory Contracts 1. Assignment 25 a. In-class notes 1) Section 365. Executory k is not a concept that the code provides us an answer for, so we have to look to state law. 2) To help DO get out of bk in ch 11, sometimes you have to walk away from a k. DO cannot perform the k. also, the DIP/trustee has the right to assume ks and cont to perform them on behalf of the estate (365a). 3) 365b: what to do if the k you want to take on is in default. 4) If k is fully performed before the date of filing bk, then it's done, not executory, and we have no rights to it to not perform or assume it. there have to be obligations to perform later that have not been fulfilled. 5) Book says this is basically an economic decision: do you want to keep the k bc there's a benefit to the estate, or get rid of it bc it's not a benefit to the estate? 6) If you reject a k, the other party's remedy: damages. How are damages paid in bk: they're unsecured, so the value of damages for the counter party is paid in "bk dollars." This is hugely beneficial to the DO. If you can shed ks that aren't beneficial to you, you should.

I. Choosing to File Ch 7 or 13 A. Means test, section 109e are statutory bars to eligibility that operate "on the front end." There are also back end constraints on relif that a DO must consider. 1. There are also extra-legal concerns such as attorneys' fees, client counseling practices, local legal culture B. Back end Statutory bars 1. Discretionary dismissal from Chapter 7: bad faith and totality of the circumstances 2. Discretionary dismissal in chapter 13: good faith 3. Refiling Restrictions a. No discharge in ch 13 for any DO who has received a discharge in a ch 7, 12, or 11 case in the preceding four years. b. No discharge for any DO who received a discharge in a ch 13 bk in the preceding two years. c. Wait between filing two different ch 7 cases: Eight years. 4. Scope of discharge a. Historically, ch 13 offered more discharges. But now, the differences are small. b. Additional debts that can only be eliminated in ch 13 is limited to various gov fines and penalties, amounts from divorce or separation that are in the nature of property settlements. 5. Coda: Chapter 11 for individuals

A. Extra-statutory considerations 1. Attorneys fees a. Ch 7 attorneys often demand fees in cash before filing. b. Routine in ch 13 cases to include payment of DO's attorneys fees as part of the monthly payments in payment plan. 2. Outcomes in consumer bk a. Ch 7 outcomes 1) Wide range of outcomes. b. Ch 13 outcomes 1) Only 33% of cases end in plan completion, which means those people didn't get to discharge their unsecured debts. 3. Today we're finishing up individual bks. Start business bks next week. 4. Review a. Note: Ch 7's means test gets transported into ch 13's means test b. Ch 7, 13 there are limitations to get a discharged based upon back end factors c. Means test review: 1) Means test is for when there is primarily consumer debts, NOT business debts. If DO mainly has business debts, don't look at means test.

1. Student loans - not dischargeable via 523a8. a. But this isn't a complete bar on discharge. No discharge unless: two tests: 1) Brunner test. Three part test that req DO to show undue hardship. That's v hard to prove. Brunner req the person to do absolutely everything they can to maximize their disposable income. 2) totality of circumstances test. 2. Post discharge injunction - 524a2 (Chapter 7) a. Doesn't apply to reaffirmed debts. b. With ch 7 discharge, the personal liability in respect to any dischargeable loan is GONE. No personal liability unless the DO reaffirms the DO, which reestablishes the debt, there's a new k, fully enforceable against DO after bk. In this case, injunction won't work to keep the debt from being collected. c. Also: if there's collateral subject to a loan that's been discharged, the deal in ch 7 is that you give up all your non exempt property, eep exempt property, you're not personally liable anymore. Secured creditors foreclose. After the discharge, they'll just foreclose against the collateral. d. If possible for a CR to challenge a discharge. 523a2 - if you've lied in writing. e. 523 only prevents discharge of the single debt that DO has with that CR. It is not a general exception to discharge (That's 727 - in this case, no debts are discharged). 523 is just ONE debt that doesn't go away. f. Exception to discharge: 523a vs. 727a5. One debt vs. all debts. g. Remember: 523a2c - purchase of ?? goods within 90 days of filing. Note: Do can still come back and say yes I spent money but those purchase were necessary.

A. Issues in Ch 13 1. Relief from stay: 362d - broken up into two categories, d1 and d2. Matters in ch 13, bc the plan will go for multiple years. So the CR is sitting there getting monthly payments, and they're worried about the collateral. Will they ask for a relief from stay (right to go to ct and foreclose). They have two basis on which they can make a claim: 1) there isn't adequate protection/for cause (Ex: collateral is car; to protect car, you need insurance. Guy drops his insurance, CR can make claim for relief from stay). 2) there's no equity, and it's not necessary for the planning. 2. Certain creditors get paid in full according to the k - not all creditors get their debt crammed down. 1325, a ct has the ability to cram down a secured debt down to the amount of the secured claim. After discharge, the lien goes away. So they only get paid the amount of the secured claim. This amount includes the tax debt. 3. There are three types of loans that can't be crammed down in ch 13: 1) home mortgages. 1322b2. Can normally cram down secured creditors, except mortgages for principle residences. Cannot be reduced below their amount. 2) hanging paragraph - two kinds included here. 4. Secured creditors in 13: adequate payment = with interest, bc they have to be paid the present value. 1325a5bii. 5. Liens that can't be crammed down: a. Mortgage on home - 1322b2. b. Debts covered by 1325a - hanging paragraph. Car loans made within 910 days of filing bk. PMSI made within one year. both of these have to be paid in full.

I. Assignment 15 - Introduction to Business Bks A. Competition among creditors: priorities 1. In general, the rule in state collection law is first in time, first in right. B. Collective remedies 1. Business bks 2. He essence of ch 15: there are many diff kinds of ways CRs can collect against businesses under state law. 3. Writs of attachments, writs of execution. Most important idea that comes out of this initial reading: idea about how do you take a judgment for unsecured debt against a DO and get paid. If you're a secured party, there's a lwa that governs how you get paid. That law is: article 9. As long as they've perfected, they can foreclose. 4. What does unsecured CR do against a business: go to ct. do you automatically get paid when you have a judgment against someone: nope. First thing you have to do to get paid when you have a judgment? Individual CRs have no authority to just take people's stuff if they're not perfected secured. First thing to do: figure out the process in your j to get paid. For us: the first thing we have to do is get a writ of execution. 5. Judgment leads to writ of execution. That leads to you sending it to sheriff. Next thing that has to happen: sheriff has a piece of paper now called a levy. The sheriff then levies. That creates a judicial lien. It's only at that point the unsecured CR has any hope of getting paid of the DO has not voluntarily paid after the judgment. 6. Problem 15.1 a. Who's the creditor that has the writ of execution: Cratchet. Got deputy to seize the equipment. He gets paid. Nobody else gets paid. The DO gets the money that is left over. No levy, no lien.

A. Liquidating businesses in ch 7 bk 1. Review a. Ch 15 starts out with concept of state law collection rules in respect to businesses. 1) The rule that we take away from that: no levy, then there's no lien. For an unsecured CR to get paid, had to go to ct, get writ of judgment, take it to sheriff, sheriff takes it to the business and seizes things. At that point, the lien has attached to the property, CR has become a lien CR. This doesn't apply to secured creditors. 2. Businesses can file ch 7, just like individuals. a. Under ch 5, individuals get discharges. Corps don't. so if business files ch 7, there's no discharge for businesses. What does that mean for collections of unsecured CRs after bk in ch 7? Secured CRs are paid in full up to value of debt. What about unsecured, since there's no discharge? What happens when corp files ch 7, what does it mean to be a liquidated corp? there is essentially no more corp. who gets paid out of the liquidation of a corp under corp law? There's a whole list of people who get paid, and shareholders get paid last. Has debts that are essentially uncollectible. If most cos are filing ch7, they are choosing to do so essentially for the purposes of an orderly wind up of the business. But their intent is to kill the business. Business is done, it's going away. If you want to keep operating your business, hat means ch 7 doesn't really work for you. b. Ch 7, there's nothing really left. c. Can file ch 7 involuntarily. CRs of a DO can force the DO into bk. It's not common under US law. It's more of a threat than something that's fully realized. But it is there d. In ch 7, who takes over the property: Trustee. If we're in ch 7, there's a third party trustee that's appointed to take over the operations, which means management is out. e. Bk may maximize the price in liquidation, but it does end things. f. Ch 7 does'nt really improve things for the business, therefore 3. 15.3 a. What do you do with this one substantial bank. Question: What's our advice b. If they can find two other CRs, can force them into involuntary bk. c. Are there assets they could get? If there are no assets, and there's a lot of CRs, there's no hope for this business. d. No means test: no personal loans 4. 15.4 a. If you file and it's not in good faith, there's a chance of penalties. b. 303i risk. That's the risk of filing involuntary bks. Attorneys fees also under 303h if case is dismissed. Don't do it unless you think you have a v good case. this means involuntary bks are very unusual. c. Won't see involuntary bk except asa threat - it forces the DO to negotiate with the CRs.

A. Problem 2.2 1. Background to bk a. DO prioritizes payment b. Creditor has to decide on leverage c. Informal vs formal (formal occurs within legal system) d. CR - owed money; DO owes money. e. Informal system - collection activities: 1) Dunning the debtor 2) CR collecting its own debt 3) Collections agent collecting for third party a) FDCPA applies to collections agents, NOT a CR collecting its OWN debt. 2. Santander purchased the loan. CR = Santander. 3. McCullough - is a lawyer subject to FDCPA? Yes. 4. Credit reporting 5. Formal system a. Attitude (?) and repossession - foreclosure and sale. No breach of the peace can happen when repo is happening. 1) Replevin b. Lawsuit - writing (?) of expectation, sheriff levy and sell c. Garnishment 6. 2.2 a. CR - landlord b. DO - former tenant that's a law student c. Debt - damage in excess of security deposit d. Debt collector - lawyer?does FDCPA apply? 1) Send letter about security deposit and tenancy e. how much is owed? 2k? Legal action threatened. Is there a possible 1692e violation? f. Lawyer is liable under FDCPA

A. Problem 3.1 1. Tota - property 2. 2017 car - nonequity - property 3. Photos - property 4. Tickets - maybe no 5. Furniture - property 6. Stock - yes 7. Preserve - TIC - property 8. Cards - property 9. Glove - yes, subject to defense 10. Trustee: a. Legal owner - defends corpus b. Beneficial interest 11. Pre-petition salary - property 12. Retirement account - probably no 13. Trust - just past income B. Problem 3.3 C. Problem 3.4

A. Problem 4.2 1. Blackboard notes a. What can a DO exempt: 1m. b. 26-15-129: Proceeds of life insurance are exempt c. What about in Texas? Yes, exempt. 522(d)(11)c - to the extent reasonably necessary. 2. Lookit Wyoming law. They cover a LOT less than TX. Page 78-81. 3. Insurance policy is worth 1m. can we exempt any or part of this under WY law? Section 26-15-129. Is there a dollar limit on this? No. if you're trying to defraud creditors, though, you can't take this. So the whole million is exempted in WY law. (What if we were in TX? TX also excludes it. What about the feds? Fed exemption is 522d11. There's no cap specifically, just "to the extent necessary."

A. Problem 4.3 1. Blackboard notes a. 2k unsecured loan b. Car 1) BBV - 5k 2) Sale - 1k c. 1,500 exemption d. Lien = a judicial lien e. 1k - Lynn gets a4 f. 2k - Lynn gets 1500. Jingle - 500 g. 5k: 1) Lynn - 1500 2) Jingle - 2k 3) Lynn 2,500 2. A: a 2k unsecured loan, and a truck worth 5k but that's sold for 1k (property value is actually somewhere in between). If he gets a default j, what can hope to salvage, since her state gives a 1,500 exemption? Exemption is a judicial lien - it's not a security interest. How does the exemption work here? Lynn gets the 1k. if it sells for 2k, Lynn gets 1,500, and creditor gets 500. If it sells for 5k, the Lynn gets 1500, Jingle gets 2000. Lyn essentially gets therefore 3000, bc she gets the remaining 1500. 3. If sells for 1k, Lynn gets all. If sells for 2k, Lynn gets 1500, Jingle gets 500.

IV. Claims A. Section 502(a) and (b) 1. A claim is deemed to be allowed unless there is a challenge, unless DO challenges the amount filed by creditor. 2. That doesn't mean CR should file - are required to file docs that're accurate. 3. If there's an objection, there's a hearing. They then have to determine the amount of the claim. They'll allow the claim except to the extent that the claim is for an unsecured interest (aka, only get the interest that has accrued up to the date of bk), or if the claim is for services of an insider or attorney of the DO (and the claim exceeds the reasonable value of the services). a. Will look at the value of the claim ON THE DATE of filing bk. B. Section 506 1. Blackboard notes a. (a)(1) bifurcates under secured claims b. (b) - continue to earn interest. 2. If creditor makes a claim, how much is allowed? 3. First thing you have to do to determine how much of a claim is secured is to determine what the allowed claim is. Then, there's a calculation. You're secured to the extent of the value of the creditor's interest in the property. It's unsecured to the extent that the value of the interest is less than the amount of such allowed claim. 4. SO: bifurcates unsecured claims. 5. If you're oversecured, you can continue to earn interest on your claim.

A. Problem 6.1 1. Blackboard notes a. Claim is unsecured. 502(a)(b) - allowed claim b. Principle - 3k - yes c. Pre petition interest - 200 - yes d. Post petition interest - 100 - no - 502(b)(2) e. Total allowed is 3,200. No post petition interest on unsecured claims. 2. First, ask what kind of claim we have here. Nothing here says it's secured. So: the claim is unsecured. That means we only have to worry about sections 502a and b. this is used to determine the allowed claim. What is allowed? First, calculate the principle owed, the amount of the debt. Here, that's 3k. now, the k between DO and CR allowed for interest to accrue on that debt, and we have some interest that accrued pre-petition. That amount was 200. Now there's also some post-petition interest in the amount of 100. 3. In terms of the pre-petition: what we're talking about the interest that's accured prior to date of filing bk up through the date of filing. So how much money is collected by the CR out of the Do's bk? Can we collect principle - yes. Pre-petition interest: yes. But we can't collect the post-petition interest bc of 502b2. Can't add any unmatured interest that accrued-post-claim. Total allowed claim is 3200. NO post petition interest for unsecured claims. (!!)

A. Problem 6.2 1. Blackboard notes a. Type of claim secured: 506. Start with the allowed claim per 502. b. Principle: 8k c. Prepetition interest: 500. The total of principle and prepetition interest is 8.5k. the CR is fully secured, bc secured up to 10k. d. Post petition interest: 400. That brings total to 8,900. Yes, allowed per 506(5). e. Attorneys fees are 1k. that brings total to 9.5k. 1) Allowed claim: 9,500. 2) 400 + 9,500 = 9,900. 400 and 1k is the post petition. 8500 is the petition. 2. At time of filing, had two non-exempt assets: a car, on which she owned 8k, and stocks. Was a secured claim on the car. 3. Type of claim is a secured claim. Now have to worry about 506. 506 says you start with the allowed claim, via 502. Look at what is the principle, aka amount of debt that was owed, which here was 8k. what is the free petition interest: 500. The total is 8500, which is the allowe claim. 4. Since the collateral is worth 10k, we can see the creditor is fully secured. 5. What about the post-petition interest? This amount is 400. Is this allowed? Yes, per 506b. the creditor is over-secured. 6. So the total amount allowed will be 8900. 7. What about the attorneys fees? They can accrue pre, post petition. Let's just say what happens if it's pre-petition. If it's pre, you take the 8500, aka the amount of the pre-petition claim, and add 100. You get a pre-petition claim of 9,500. Then add the 400 in interest, giving you a total of 9900. We're still over-secured, so the whole amount of this claim can be paid 8. What if it's post? 8500 is the amount of the allowed claim. Then, instead of adding 1k as part of the allowed claim, you're adding in the 400 in interest, plus the 1k, which gives a total of 9900. So you get the same numbers, but the 400 and 1000 are post-petition. Here, the allowed claim includes the attorneys fees. So essentially: you have an allowed claim of 8500. You have post petition interest of 400 that's allowed bc it's oversecured. If you add the attorneys fees, it gets paid out of the total value of the asset, which is 10k, and the creditor is getting fully paid.

A. Problem 6.3 1. Principal - 8k. 2. Prepetition interest: 500. Brings total to 8500. 3. 502(a) - cap on secured value of property is 5k 4. Pre petition attorneys fees: 1k. 5. Allowed claim is 9,500 6. 5k is secured, 4,500 is unsecured. 7. If attorney's fees were incurred post-petition, 8500 is the allowed claim. Attorneys fees are not collectible if incurred post petition and secured creditor is undersecured. 8. This is an application of 506a bifurcation. Take the value of the asset. Is secured up to the value of the creditor's interest. It's unsecured to the extent of what's left over. Take the debt, subtract the value, that's the cap. 9. Under 502, the allowed claim is principle of 8k, pre-petition interest of 500. That gives an allowed claim of 8500. 10. Let's assume attorneys fees were accrued pre-petition. That means that we get a new total allowed claim of 9500. 11. Under 502a, we now have to bifurcate. The cap for the secured claim is the value of the property. Here, the value is 5k. so total allowed claim is 9500. 9500 minus the cap of 5k is 4500. The 4500 is the amount of unsecured debt. 12. If the attorneys fees were incurred post petition: under 502, you're not allowed to claim anything that exists post petition as the allowed claim. And under 506a, you cannot have as secured anything that's accured post petition. Allowed claim becomes 8500. 13. Attorneys fees not deductible IF incurred post petition and secured creditor is under-secured.

a. 26.4 1) Here, dealing with the distinction between the DO and the estate. 2) First issue: is a noncompete agreement an executory k? you don't have to do much except not the thing you're supposed to do. Under some defs, doesn't sound like an executory k. 3) What's the primary remedy for a k that deals with noncompete clauses that the business wants? The employee wants to be able to file bk and be able to work freely. What the co wants: to enforce the noncompete via specific performance. Does specific performance work in bk? Nope. 4) Problem with noncompete k: the remedy that most people want is sp. Can't get that. The remedy bk gives you is ds. So the person subject to the non-compete clause files bk. Former employer isn't happy, doesn't want DO to not work for their competitor. 5) 1) is that an executory k? 2) if so, is this the type of k that creates a claim under bk? 6) If not executory, 365 doesn't apply, so the person CANNOT reject the k. 7) What kind of claim does the former employer have? state law. Does state law let you substitute ds for specific performance? If the only claim you have is for ds, you can calculate ds equivalent to the value of the specific performance you would otherwise get. Argument would be that in some cases it's impossible to figure out what the dollar number is. But you still could come up with something 8) This is probable not a k that can be rejected. But the remedy normally given is sp, so have to ask if it is possible to get an equitable remedy in bk. The problem: claims are against the bankrupt party, NOT the estate. So if state law says there is no equivalent to sp for this specific performance, then you're outta luck. Sounds like a good deal for the DO, esp if the other party will only be getting cents on the dollar.

A. RANDOM REVIEW - Indp. Bk review on blackboard 1. Priority vs. non-dischargeability: 508 and 523(a) 2. Student loans - 523(a)98), page 160 3. Post discharge injunction - 524(a)(2) a. Doesn't apply to reaffirmed debts b. Can still proceed against the collateral 4. Exception to discharge - 523(a) vs. 727(a)(5) a. One debt vs all debts: no discharge for all debts 5. Remember 523(a)(2)(C) - purchase of ___ goods within 90 days of filing 6. Chapter 13 a. Relief from stay 1) 362(d), (d)(1), (d)(2) b. Second CRs in chapter 13 1) Adequate payment = w/ interest. 1325(a)(5)(B)(ii) c. Liens that can't be crammed down (pay in full!) 1) Mortgage on home - 1322(b)(2) 2) Debts covered by 1325(a) - hanging paragraph 3) Car loans within 910 days of filing 4) PMSI within one year of filing d. Make up arrearages - 1325(b)(5) e. Disposable income calculation: 1) Below median - 1325(b)(2) Above median

A. Reg. 1.166-1 1. Text a. (c) Bona Fide Debt Required. — Only a bona fide debt qualifies for purposes of section 166. A bona fide debt is a debt which arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money. A debt arising out of the receivables of an accrual method taxpayer is deemed to be an enforceable obligation for purposes of the preceding sentence to the extent that the income such debt represents have been included in the return of income for the year for which the deduction as a bad debt is claimed or for a prior taxable year. b. (e) Prior Inclusion In Income Required. — Worthless debts arising from unpaid wages, salaries, fees, rents, and similar items of taxable income shall not be allowed as a deduction under section 166 unless the income such items represent has been included in the return of income for the year for which the deduction as a bad debt is claimed or for a prior taxable year. c. (f) Recovery Of Bad Debts. — Any amount attributable to the recovery during the taxable year of a bad debt, or of a part of a bad debt, which was allowed as a deduction from gross income in a prior taxable year shall be included in gross income for the taxable year of recovery, except to the extent that the recovery is excluded from gross income under the provisions of § 1.111-1, relating to the recovery of certain items previously deducted or credited. . . . 2. Notes a. There can be no bad debt deduction unless there is first a bona fide debt. b. C: income associated with accounts receivable must be associated with a bad debt before there is a deduction. c. E: if the salary hasn't been paid, it isn't reported, and this isn't allowed as a deduction. Wasn't paid, so no deduction. You deduction is basically the fact that you never reported the income in the first place. d. F: section 111 essentially limits the amount of the gross income included by reason of reimbursement to the amount of the tax benefit actually received. Just bc you recover a bad debt deduction doesn't mean you received any tax benefit the prior tax year. 1) Section 111 a) (a) Deductions — Gross income does not include income attributable to the recovery during the taxable year of any amount deducted in any prior taxable year to the extent such amount did not reduce the amount of tax imposed by this chapter.

A. Regulation 1.166-2 1. Text a. (a) General Rule. — In determining whether a debt is worthless in whole or in part the district director will consider all pertinent evidence, including the value of the collateral, if any, securing the debt and the financial condition of the debtor. b. (b) Legal Action Not Required. — Where the surrounding circumstances indicate that a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in the satisfaction of execution on a judgment, a showing of these facts will be sufficient evidence of the worthlessness of the debt for purposes of the deduction under section 166. c. (c)(1) General Rule. — Bankruptcy is generally an indication of the worthlessness of at least a part of an unsecured and unpreferred debt. 2. Notes a. Loan is risky determined by interest rates. B. Section 6511 1. Text a. (d)(1) Seven-Year Period Of Limitation With Respect To Bad Debts And Worthless Securities — If the claim for credit or refund relates to an overpayment of tax imposed by subtitle A on account of— 1) The deductibility by the taxpayer, under section 166 or section 832(c), of a debt as a debt which became worthless, or, under section 165(g), of a loss from worthlessness of a security, or 2) The effect that the deductibility of a debt or loss described in subparagraph (A) has on the application to the taxpayer of a carryover, in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be 7 years from the date prescribed by law for filing the return for the year with respect to which the claim is made. 2. Notes Before you can actually determine something is worthless, this may take a number of years. So the statute of limitations is extended for purposes of making a claim for a creditor refund in relation to the refund of bad debt or a worthless security. Here, we have a seven year SOL.

I. Casualty Losses A. Section 165 1. Text a. (a) General Rule — There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise. b. (c) Limitation On Losses Of Individuals — In the case of an individual, the deduction under subsection (a) shall be limited to— 1) (c)(1) losses incurred in a trade or business; 2) (c)(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and 3) (c)(3) except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft. 2. Notes a. A - any loss is sustained as a deduction. Very broad statement. b. C: immediately there are limitations on deductions for losses where individuals are concerned. Diff rules for diff purposes for which the property was held. c. C3: casualty losses d. No deduction for personal living expenses e. C3: there is a deduction for personal property, though, that is lost due to a casualty or theft. B. Pulvers v. Commissioner 1. The specific losses named are fire, storm, shipwreck, and theft. Each of those surely involves physical damage or loss of the physical property. Thus, we read "or other casualty," in para materia, meaning "something like those specifically mentioned." The first things that one thinks of as "other casualty losses" are earthquakes and automobile collision losses, both involving physical damage losses. 2. What does it mean "the other casualty." This had to do for a landslide in CA. the landslide didn't interfere with T's use of the property; it was property that was in the area that was actually damaged. There was a substantial decline, though, in the value of T's property. T wanted to take a deduction under the "other casualty" heading for the decline in value, though there was no physical damage to the property. 3. IRS and tax ct said that there was no physical loss. T suffered a mere fluctuation in value, no real loss 4. Ct goes on to say that if there is no physical damage to physical property, then there will not be an "other" casualty.

A. Rev. ruling 63-232 1. Text a. Termite damage is "the result of gradual deterioration through a steadily operating cause and is not the result of an identifiable event of a sudden, unusual, or unexpected nature. 2. Notes a. Can termite damage be an "other" casualty? b. Result of a gradual deterioration through steadily operating cause isn't going to rise to the level of a casualty loss. c. Remember: bop is on a taxpayer. If you get audited, you'll have to show that, for ex, lost property was actually stolen B. 165b - how much do you get for a deduction in a casualty loss 1. Text a. (b) Amount Of Deduction — For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property. 2. Notes a. Starting point is basis. b. Lesser of: 1) the decline in fmv before and after the casualty; or 2) the amount of the adjusted basis. Will be the lesser of the two.

A. Problem 9.3 1. Can DO redeem the house? 2. Worth 5k, 10k mortgage. Can they redeem for 5k? section 722. We cannot redeem the house bc you can ONLY redeem personal property. You CANNOT redeem real estate. Mortgages are NOT included in the redemption right. 3. What if they won't agree to the terms when trying to reaffirm? 362h1 a. Issue is "personal property" again. This is not personal property in 9.3. B. What's the fourth option in bk: Ridethrough 1. The ridethrough works for real estate. It does NOT work for personal property. 2. You file your statement, bc statement applies to ALL property. 521a2A. and then you perform the statement. The discharge gets confirmed, you ride through bk with the same terms you had pre-bk. The loan is the same, you're not in default, you keep the property. That's a ride through for RE. 3. This is NOT legal in all js. Not all bk courts approve of ridethroughs.

A. Review 1. Question 3: under section 722, redemption exists only for personal property. 2. Via 522a2A, you have a requirement to file a statement for ALL property, not just personal property. This includes real property. This is the filing requirement. You have to file within 30 days your statement of intent. THEN, within 30 days of the meeting of creditors under 341, you have to perform. 3. Can't do ridethrough if you're not current. If you're in default, you'll lose the property. 4. If you don't file or have your meeting, automatic stay is lifted. This is in h1. In short: If the statement refers to personal property, the stay is lifted under 362 if you don't file or have the meeting. 5. Section 521 - duty of the debtor. What does d say: the filing of bk cannot be the reason for default under a k, generally. BUT d says if you filed to do what you're required to do in 522, then that default provision comes back into effect. Says it applies to 362h, which applies ONLY applies to personal property. 6. What law governs the foreclosure when the automatic stay is lifted: state law. State law, though, has estoppel. So it may be that they can't foreclose, but that would be an issue via state law, not bk.

A. Question 6.4 1. Blackboard notes a. 5k - secured - paid to clar loan. 506(5) b. How much for the remaining unsecured claims? 1) Balance of car loan - 4,500 * .5415 = 2437 2) Plumber - 3200 * .5415 = 1733 3) Remaining creditors - 20,000*.5415 = 10,830 4) Total assets: 27,700 5) Total debt: 27,700. 6) Total assets divided by total debt = .5415, or 54.15%. 54.15 cents on the dollar. 2. First, figure out what to do with the 5k for the car. 5k is secured. That money goes straight to the secured claim. 3. Total of unsecured claims that are left over: the balance of the car loan, which is 4500. There's also the plumber, who was owed 3200. Remaining creditors are owed 20k. what's this total: 27,700. How much is each creditor getting paid? 4. Take the total assets divided by the total debt. Here, that means you take 15k and divide it by 27,700. That gives us .5415, or 54.15%. that means each creditor is getting 54.15% of its debt paid back (or, 54.15 cents on the dollar). 5. To figure out the actual numbers, multiply each balance by .5415 6. Balance of car loan that'll be paid back: 2436.75 7. Balance of plumber that'll be paid back: 1733 8. Balance of remaining creditors that'll be paid back: 10830. B. Problem 6.5 1. Think through negotiations that might occur when the DO has some leverage with the bank just bank is not likely to get paid in full. That's bc mortgage is above the value of the property. Question: should the bank renegotiate with the DO to get paid? Or just cut their losses and foreclose on the DO? In practicality, if you think DO is capable of making payments on renegotiated loan, you're better off renegotiating. BUT: Lars says that banks really don't do that anymore. Most mortgages now are owned by investment trusts.

A. Rundown 1. What happens on day you file bk: automatic stay and creation of the estate (541). 2. That's what happens first. NOW: what goes into the estate? Non exempt property. What is exempt property: property that the DO gets to keep in a bk that's not part of the estate in a ch 7 bk. 3. How do we know what debts to pay off? First place is the DO files a petition. The petition has schedules. The schedule lists the assets and the liabilities. First place is to look at DO's attempt to list out what they owe. But the DO may have the number wrong. 4. The claim is the CR's process of est the full amount that's owed as of the date of filing bk. 5. Which claims are allowed, which are not? ex of non allowed claims: unsecured debt that arises after the date of filing the petition. There's a type of creditor that is entitled to post-bankruptcy payments: the secured creditor. But not all creditors. What kind of secured creditors have the right to add to the balance of the secured claim: over-secured creditors. 6. Each of the creditors who are nonsecured get paid a pro rata share of the remaining assets after the secured creditors are paid off. Secured creditors get paid off first. 7. But: even with people with unsecured debts get paid in different orders.

A. Section 1211 1. Text a. (a) Corporations — In the case of a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of gains from such sales or exchanges. (b) Other Taxpayers — In the case of a taxpayer other than a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges, plus (if such losses exceed such gains) the lower of 1) • $3,000 ($1,500 in the case of a married individual filing a separate return), or 2) the excess of such losses over such gains. 2. Notes a. Review of capital loss limitation rules. b. A: for corps, deductions for capital losses are limited to the amount of capital gains. If any year they have capital loss but no capital gain, none of the capital loss will be deductible - will have to be carried forward or back c. B: taxpayers other than corps. Can only deduct capital losses to the extent of our capital gains, PLUS the lower of 3k, or the excess of our losses over gains. d. 10: net capital loss - amount of capital gain plus the 3k or your losses. If your losses exceed that, that's a net capital loss. 1) Section 1222 a) (10) Net Capital Loss — The term "net capital loss" means the excess of the losses from sales or exchanges of capital assets over the sum allowed under section 1211. In the case of a corporation, for the purpose of determining losses under this paragraph, amounts which are short-term capital losses under section 1212(a)(1) shall be excluded.

A. Section 1212 1. Text a. (b)(1) In General — If a taxpayer other than a corporation has a net capital loss for any taxable year— 1) the excess of the net short-term capital loss over the net long-term capital gain for such year shall be a short-term capital loss in the succeeding taxable year, and 2) the excess of the net long-term capital loss over the net short-term capital gain for such year shall be a long-term capital loss in the succeeding taxable year. b. (b)(2)(A) In General — For purposes of determining the excess referred to in subparagraph (A) or (B) of paragraph (1), there shall be treated as a short-term capital gain in the taxable year an amount equal to the lesser of— 1) the amount allowed for the taxable year under paragraph (1) or (2) of section 1211(b), or 2) the adjusted taxable income for such taxable year. 2. Notes Net capital loss is going to be long term if the long term capital loss exceeds your short term capital gain.

A. F12A - overkill treatment of qualified vehicles 1. Text a. (f)(12)(A)In General — In the case of a contribution of a qualified vehicle the claimed value of which exceeds $500— 1) paragraph (8) shall not apply and no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B) and includes the acknowledgement with the taxpayer's return of tax which includes the deduction, and 2) if the organization sells the vehicle without any significant intervening use or material improvement of such vehicle by the organization, the amount of the deduction allowed under subsection (a) shall not exceed the gross proceeds received from such sale. b. (f)(12)(E) Qualified Vehicle — For purposes of this paragraph, the term "qualified vehicle" means any— 1) motor vehicle manufactured primarily for use on public streets, roads, and highways, 2) boat, or 3) airplane. Such term shall not include any property which is described in section 1221(a)(1). 2. Notes a. No deduction allowed for the donation of a qualified vehicle, the value of which exceed 500, unless - 1) contribution has to be substantiated by the org that received the vehicle. Taxpayer has to include that doc when they file their tax returns. b. If the org sells the vehicle, then the amount of the donation isn't the blue book/trade in value. It's the amount that the charity actually sold the vehicle for. c. What is a vehicle? Basically everything except a train.

A. Section 170, part j 1. Text a. (j) Denial Of Deduction For Certain Travel Expenses — No deduction shall be allowed under this section for traveling expenses (including amounts expended for meals and lodging) while away from home, whether paid directly or by reimbursement, unless there is no significant element of personal pleasure, recreation, or vacation in such travel. 2. Notes a. No deduction allowed for traveling expenses to go on mission trip, go do something that involves travel away from home IF there's a significant element of personal pleasure, recreation, or vacation. B. Problems page 818 1. These problems involve cash contributions. 2. Problem 2: involves transfers of property to Suntan U and a private foundation by private taxpayer. a. This is appreciated property - the value exceeds the basis.

A. 11.2 1. Blackboard notes a. 2k - monthly income b. If less than median 1325(b)(2)(A)(i) - disposable income c. Length of plan - 1325(b)(4)(i) 2. 2k is monthly income. He needs to file ch 7 bk. He's in a no asset situation. In ch 13, you keep assets, but here he has nothing to lose. Just file ch 7, creditors will essentially get nothing and he walks away from all his debt. If it's a ch 13, he has to (section 1325b4i) make a plan for 3-5 years and pay off what he can on unsecured deb using all disposable income. Least amount he can pay unsecured creditor sunder ch 13? What they'd get in ch 7, which here is zero. 3. Monthly income: 2k. is that above or below the median? Probably. How do we determine what the median is? The ct looks at the census bureau's calculation of the state's median income. If less than median, we go to 1325b2Ai. For above median debtors, judge cannot adjust - it is statutory what disposable income is. Page 263 - means test chart 4. How long does plan have to last: 1325b4i. it's either 3 years, or not less than five. We can do a three year plan. 5. Under b2, the disposable income test is administered by the ct bc you're below median income, so you can do less than five years. 6. What if he takes a new job? He earns more money. If he earns more money, maybe he'll THEN go after the median. If he goes over the median, the timing can ONLY be five years. Why this shift? The purpose of this is that the longer the plan, the higher percentage of the unsecured debt gets paid. Ct wanted above median DOs to not be able to take a shorter plan. 7. Practically speaking, he shouldn't want to get a new job. Is he required to do that, though? With means test, there is a good faith req that might affect his ability to file. If you're gaming the system, there's a risk. Means test prevents you from filing ch 7 bk. 8. Just understand: in ch13 plan, there are two ways to calculate disposable income. First way is that the judge decides - for below median income earners. Second way - statute decides for above median income earners.

A. Special rules for above-median-income debtors 1. There are two important additional reqs for ch13 plans regarding disposable income test for certain higher income Dos. a. Higher income - being above the pertinent state median income. 2. First req: These Dos must have a minimum applicable commitment period of five years for their ch 13 plans 3. Second req: pre-determined what their "reasonable and necessary expenses" are when calculating disposable income; not up to the judge to decide. B. Modification of ch 13 plans 1. "Disposable income" can change. If so, DO or trustee or creditor can move to have the plan modified. 2. Modifications can reduce payments to unsecured creditors, but it doesn't change the statutory minimums owed to secured and priority creditors. 3. When a plan is modified, it must still meet all the ch 13 reqs, including the five year limit. C. Limits on who can file ch 13 1. Section 109e limits who can file chapter 13 2. Filer must be: a. An individual (no entities) b. Have regular income c. Secured and unsecured caps on noncontingent, liquidated debt - this is designed to keep "the rich" from chapter 13 1) Noncontingent: debt that isn't dependent on future debts. 2) Liquidated: debt for which we know what the actual amount is.

1. Problem 8.4 a. They bought a house. Their cards now represent 6k in unsecured debt. 523a2. There is an exception for the discharge of debt done maliciously. See also c1. There are exceptions if owed to a single creditor and more than 800 for luxury goods within 90 days. there is in this case a presumption of non-discharge ability. b. Here, what are the three debts being challenged: 450 for wallpaper, plane tickets, 400 in clothes from mens store. c. See 523a2C2. Does wallpaper count as luxury? Remember, if it is for luxury, it is just PRESUMED to be non-dischargeable; judge could say yes it's a luxury but I think it's appropriate here for fixing up this particular house. This is probably fact-specific. It might be that the house would be damaged if the wallpaper came down and wasn't replaced. You can argue bc of the neighborhood, house it wasn't a luxury. d. 1200 in plane tickets: depends. We'll need to know why they bought the tickets. If it was for a surgery, not a luxury. If it was for six people, probably wasn't a luxury. Judge would wanna know why you're travelling, how much was an individual ticket. e. What about the men's suit: it says it was from a "nice" men's store. BUT: for a lawyer, you need nice clothes. And nice clothes last longer than cheap clothes. And 400 isn't that much for a suit. But what if this isn't a suit, what if it's for polos? That's much more crazy. f. What is one of the other requirements: owed to a single creditor. Do the credit card cos get to come together and say together this is too much? No. only one company can have all of these charges. But: it IS an aggregate of luxury goods. If you bought three things from the same store, that'll do it. g. Part 3: 523a6 - don't

A. Student loans 1. Policy question - should student loans be dischargeable in bk? Here, it says no discharge except if paying it would cause undue hardship. How do we determine if it's undue hardship? 2. Brunner test says a. DO cannot maintain a minimum standard of living (just do a calculation - are your expenses higher than your minimum standard of living. What is a minimum standard of living though? This seems more subjective. But cts have been v strict on this) b. Additional circumstances exist saying that the state of affairs is going to maintain for a significant period of time (LOOK THIS TEST UP. What type of additional circumstances would we expect to see here, what is the extra circumstance? Maybe if the DO was sick, had a disease like lupus. Is a bad job market additional circumstances? Probably no. ct will require you to get A job, doesn't have to be a job in your chosen field) c. DO has made good faith efforts to pay off the loan (you've sent something in). 3. Is there an alternative test we might use? Yesperson test (See if I spelled this right). a. If Brunner is harsh, how does this test compare? Looks at totality of the circumstances. One factor is whether you can't find a job in your chosen field. Will look at whether the person has tried to pay, has tried to renegotiate, has tried to minimize their expenses 4. There is research that suggests where people challenge a student loan debt is based on undo hardship, cts do give a discharge based on undo hardship. 5. You get a discharge except: 523 list.

I. Review A. What is bk 1. Bk is a process designed to help individuals and businesses get protection from their creditors 2. Right to file for bk is provided by fed law 3. All bk cases are handled in fed court 4. For individual bks, we should focus on are assignments 3-13 (so far). 5. Just know collection rules for states come back into play if you're kicked out of bk or discharge isn't allowed. B. What's the purpose of bk? 1. Has a dual purpose. There's a balance between DO's fresh start and fair treatment for creditors. 2. Fair treatment = in bk, creditors get to go into bk and treated according to the class they're in. in general when you're going into bk as a creditor, you aren't going to be at a disadvantage. Will get same percentage of the assets of the DO. Nobody is disadvantaged as the creditor. C. What can bk do? 1. Bk may make it possible (via automatic stay) to: a. Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt b. Restore or prevent termination of utility service c. Lower the monthly payments on some debts d. Allow consumer to challenge claims of creditors who have committed fraud or are trying to collect more than is really owed.

A. What can bk NOT do? 1. Bk doesn't cure every financial problem nor is it the right step for every individual in financial trouble. Aka, bk can't help the fact you aren't making enough money. 2. In bk, it's usually NOT possible to: a. Eliminate certain types of secured creditors... b. Rest ON SLIDE B. Starting a voluntary case 1. File a petition (defined term) a. Voluntary petition is filed by the DO b. Section 301. c. Once you file under 301, you have a duty to provide information via section 521. File a petition along with the schedules. d. Two big things you have to list: liabilities and assets. e. Couple of other docs you have to include. Bk courts have all organized this so that people filing don't have to guess. 2. What does the petition have to include? a. ON SLIDE C. What are the diff types of bk cases? 1. There are four types of bk cases individuals can file: a. Ch 7: known as straight bk or liquidation b. Requires individuals to give up property which isn't exempt, so property can be sold to pay creditors. c. But most consumers who file ch 7 keep all of their property except property which is very valuable, or property subject to a lien which they can't avoid or afford to pay. 2. Ch 13 a. Ch 13 is a type of reorganization used by individuals b. Consumer submits plan to pay all or portion of debts over a period of years using current income. c. Homeowner with mortgage default given time to get caught up, generally over a longer period (often up to four years) than under workout agreement d. Unsecured debts such as credit cards may be paid either rin full or a percentage of amount owed, over a three to five year period. e. With ch 13, you can cure a default. In ch 7, can't do that. That means you pay what youre supposed to pay, then you pay the arrearage - two separate payments. 3. Ch 11 a. For individuals: there are circumstances in which individuals are excluded form ch 7 via means test, are excluded from 13 bc either ct thinks it's an abuse or bc you have too much debt. Then you get pushed into ch 11.

A. What are the firs tsteps in filing a bk 1. File your petition, file your forms. 2. Can bk judge deny your discharge if you lie: yes, in both 7 and 11, good faith is required. 3. The first backstop against the debtor lying: the lawyer - 707(b)(4)(c). you have to certify you've looked at the DO's filings. B. What does it cost to file bk 1. There's a filing fee in addition to whatever your attorney's fees are. there's also a fee for credit counseling, which you have to do. 2. Fees can be waived, but it's based on poverty line. C. Automatic stay 1. There's a limit on automatic stay if you've filed previously. Automatic stay, v broadly, applies to first time filing; can have limits for later filings. 2. Fresh start: you get discharge and exemptions. 3. Discharge, under ch 7, is the wiping out of any claims left over. Doesn't wipe out secured claims. In fact the lien pops back up to the full amount of the loan. D. Future creditor contact 1. After the discharge, there's the discharging injunction which prevents the creditors from following up after bk. 2. 362k has remedies if the creditor violates the automatic stay. DO can get damages. E. Chapter 7 basics 1. What don't get discharged: axes, student loans, child support, alimony, separation agreement, criminal fines, ct costs.

A. Who is eligible to file ch 7 1. Means test: idea here is that rich DO shouldn't be able to go into ch 7. There are two parts to this test. 2. First part: is your gross income above or below median. If below median via gross income, then we're done, ch 7 is ok. If you're above median, we have to do the net income test. 3. Net income test: if you fail, you're forced into ch 13. 4. Weird part: some of the expenses aren't real expenses - they're set by the IRS. 5. One way to avoid means test is if your debt is not primarily consumer debt. Note: taxes generally aren't considered consumer debts. HOWEVER: taxes aren't dischargeable in ch 7. Only way to cram down a tax bill is in ch 13. B. Exemptions 1. There's two options: federal or state, or fed or state ONLY. State decides not to allow you to be able to use the fed exemptions. If you're in a state that's opted out of fed exemptions, only get state exemptions. 2. If you're in a state that hasn't opted out, then you can choose either the state or fed exemptions. You pick the most generous for you after doing your calculations. 3. Exemptions cover the EQUITY you have in the property. So you subtract out the debt/lien on the property to determine what the equity is. If you owe more than the property is worth, you're stuck. Have to give the property back. You can have a secured loan on your property that is greater than the value of the property. If you get to that point, the secured lien still ahs to be paid, though it can be crammed down to the value of the property. 4. What if you have equity: if there is sufficient equity that is up to, less than, or equal to the value, then they get paid second. They're entitled to the equity. Problem 4.3. 5. You can't strip liens for PMSIs. There is an exccemption to this: lien stripping for two kinds of liens: judicial liens, non possessory non purchase money liens. In this instance, secured parties do get affected! 6. The secured rule is secured creditor is paid in ch 7 unless DO can est they have an exemption that covers that property and the lien is either a judicial lien or was a non possessory, non purchase money lien.

A. B1H 1. Text a. (b)(1)(H) Contribution Base Defined — For purposes of this section, the term "contribution base" means adjusted gross income (computed without regard to any net operating loss carryback to the taxable year under section 172). 2. Notes a. Contribution base = adjusted gross income. B. E1 - what is the amount of the charitable contribution of property 1. Text a. (e)(1) General Rule — The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of— 1) (A)— the amount of gain which would not have been long-term capital gain (determined without regard to section 1221(b)(3)) if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution), and 2) (e)(1)(B) the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution). 3) (B)(i) in the case of a charitable contribution of tangible personal property— a) if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c)), or b) (B)(ii) to or for the use of a private foundation (as defined in section 509(a)), other than a private foundation described in subsection (b)(1)(F), ( c) B)(iii) of any patent, copyright (other than a copyright described in section 1221(a)(3) or 1231(b)(1)(C)), trademark, trade name, trade secret, know-how, software (other than software described in section 197(e)(3)(A)(i)), or similar property, or applications or registrations of such property; b. For purposes of applying this paragraph [(e)(1)(B)] (other than in the case of gain to which section 617(d)(1), 1245(a), 1250(a), 1252(a), or 1254(a) applies), property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset

H. E1A 1. Notes a. Amount of contribution shall be reduced by the sum of the amount of gain which wouldn't have been long term capital gain if the property contributed had been sold by the taxpayer at its fmv; (if there was a sale at fmv and the gain wouldn't be LTCG, then we'll reduce by that amount of gain; aka, take from fmv to adjusted basis) AND in the case of tangible personal property, if the use of tangible personal property is unrelated to the purposes or function constitutiong the basis for its exemption, OR .... b. If you're disposing of an asset, you have to reduce the amount of your deduction will be reduced by the amount of unrecaptured depreciation deductions you took. I. E5 - special treatment of marketable securities 1. Text a. (e)(5)(A) In General — Subparagraph (B)(ii) of paragraph (1) shall not apply to any contribution of qualified appreciated stock. b. (e)(5)(B) Qualified Appreciated Stock — Except as provided in subparagraph (C), for purposes of this paragraph, the term "qualified appreciated stock" means any stock of a corporation— 1) for which (as of the date of the contribution) market quotations are readily available on an established securities market, and 2) which is capital gain property (as defined in subsection (b)(1)(C)(iv)). c. (e)(5)(C)(i) In General — In the case of any donor, the term "qualified appreciated stock" shall not include any stock of a corporation contributed by the donor in a contribution to which paragraph (1)(B)(ii) applies (determined without regard to this paragraph) to the extent that the amount of the stock so contributed (when increased by the aggregate amount of all prior such contributions by the donor of stock in such corporation) exceeds 10 percent (in value) of all of the outstanding stock of such corporation. d. (e)(5)(C)(ii) Special Rule — For purposes of clause (i), an individual shall be treated as making all contributions made by any member of his family (as defined in section 267(c)( 2. Notes a. This isn't for brokers and dealers - is for individuals who hold stock as a capital asset. b. Contribution of publicly traded stock can be made. Fmv deduction will be allowed, even if you haven't paid income tax on the gain that's accumulated. c. Rules limit this benefit to contributions that represent less than 10% of the corp's outstanding stock. d. We will treat spouses as owning each other's stock. family attribution. If family all gives stock to the same charities, they'll have to apply this test to their contributions, not go over limit.

A. 11.3 1. Blackboard notes: is less than 2,750,000 2. This is a math problem. Lookit 109e in pre-2022 edition. There are two numbers. But NOW: in order to be eligible to file under the bk law, what's the max amount of debt you can have? First you have to have regular income. Here, this attorney doesn't have wages - she doesn't have a salary, is getting money from contingency fees. But this IS still regular income. So we're fine there. What's the total amount of debt? 2m, 750k. if you have an old version of the code, we care about whether it is unsecured or secured. Now, we don't care. 3. Answer: she's less than. She has less than 2m, 750k, she's entitled to file. B. 11.4 1. Blackboard notes a. Yes - 1325(b)(2)(A). less than 15% of annual income (is 11%) 2. He has disposable income that could pay the unsecured creditors, but he comes up with a plan to start making donations to a church, that'll destroy disposable income. Is he allowed to do that? He is allowed to donate, but there's a cap. 1325b2A - cap is 15% of the gross income of the debtor for the year they want to donate. Here, he can do this, bc he's giving less than 15%. 3. Yes, 1325b2A. less than 15% of annual income. He actually wants to just give 11%, so he's ok. C. 11.5 1. Blackboard notes a. 1329 - unsecured Creditor can request modification 2. Question: under 1329, who can ask for a modification? If she's making more money, does she have an obligation to modify? Well, it says "may" modify, not "shall" modify at the DO's request. But who's probably going to complain: the unsecured creditors. They'll bring a lawsuit against her in bk court. 3. How would they discover she made more money? Look at her tax returns. 4. 1329, unsecured creditor can request modification.

I. Assignment 12 - the Means Test A. Blackboard notes 1. Links to forms and tables are in assignment 12 notes 2. Purpose of means test: a. Push consumer debtors with "excess" disposable income into ch 13 instead of ch 17 - 707(b)(1) b. How? By deeming certain filings to be presumptively abusive - 707(b)(1) c. Test is the means test - 707(b)(2)(A)(i). 3. Chart illustrating the means test a. Individual with primarily consumer debts? (707(b)(1) 1) No, aka there are primarily business debts: no means test 2) Yes - then we do means test in 707(b)(2)(a)(i). 1) Is their income above their state median? 707b2A a) No: no presumption of abuse b) Yes: is disposable income * 60 greater than 8,175? A) No: no presumption of abuse B) Yes: is their disposable income * 60 greater than 13,650? I) Yes - presumption of abuse. 707(b)(2)(A)(i)(II) II) No: is disposable income * 60 greater than or equal to their unsecured nonpriority debt * .25? No: no presumption of abuse Yes: then there's presumption of abuse via 707(b)(2)(A)(i)(I)

A. Problem 2, page 781 1. We weren't give how much depreciation was taken. But we can figure it out. Non-residential RE is depreciated on a straightline basis over 39 years. We know that from section 168. So if we were to depreciation 780k, which is the cost basis of the building, over 17 years on straight line basis, we'd get 20k per year. hat's how we get the 340k in depreciation. 2. There is no 1250 recapture bc we depreciated the property on a straight line basis. Up to the straight line about is not subject to recapture - recapture only applies when you take a deduction about the straight line amount. 3. Section 168 a. (b)(3) Property To Which Straight Line Method Applies — The applicable depreciation method shall be the straight line method in the case of the following property: 1) Nonresidential real property. 2) Residential rental property. b. (c) Applicable Recovery Period For purposes of this section, the applicable recovery period shall be determined in accordance with the following table: 1) Residential rental property 27.5 years 2) Nonresidential real property 39 years 4. Section 1 a. (h)(1)(E)— 25 percent of the excess (if any) of— 1) the unrecaptured section 1250 gain (or, if less, the net capital gain (determined without regard to paragraph (11))), over 2) the excess (if any) of— a) the sum of the amount on which tax is determined under subparagraph (A) plus the net capital gain, over b) taxable income; and b. (h)(6)(A) In General — The term "unrecaptured section 1250 gain" means the excess (if any) of— 1) the amount of long-term capital gain (not otherwise treated as ordinary income) which would be treated as ordinary income if section 1250(b)(1) included all depreciation and the applicable percentage under section 1250(a) were 100 percent, over 2) [net capital loss from collectibles]

I. Deductions for Bad Debt and Worthless Securities A. Talking about loss deductions for worthless securities and bad debt. The characterization of those items is in play. What the gov is trying to do is to prevent people from taking deductions against ordinary income when they may have reporting the corresponding income as capital gain. B. Section 165 1. Text a. (g)(1) General Rule — If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset. b. (g)(2) Security Defined — For purposes of this subsection, the term "security" means— 1) a share of stock in a corporation; 2) a right to subscribe for, or to receive, a share of stock in a corporation; or 3) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form. 2. Notes a. G1: securities in the hands of an individual taxpayer that isn't a broker. Qhen securities that are capital assets become worthless, this provision provides that it will be treated as a sale or exchange, so that we can free a Capital loss deduction in respect to that security. Preserving the character of the asset. Also supplies a timing rule - will be deemed to occur on the last day of the tax year. this is a FICTIONAL sale or exchange. G2: security = stock, debt, rights to subscribe for ...= options, stock warrants, investment rights.

A. 9.2 1. DO has got discharge. Store owner is mad. DO promises in writing to pay the debt. Then he asks his lawyer if this is ok. In order for a debt to be reaffirmed, has to happen before discharge, and it has to be approved by the ct. has to include a statement by a lawyer that the reaffirmation won't cause undo hardship to the DO. a. So what happens if you think this is bad for your client but you agree to the reaffirmation agreement? You're certifying to the ct - you can't certify to them that it is good for client if you really don't think so. a. In this situation, DO can't get a reaffirmation unless their lawyer thinks so, goes to ct. and if lawyer won't say yes, the judge gets to decide. In a situation where the lawyer hasn't signed it, judge steps in. 2. Here, DO probably doesn't have an issue bc it wasn't properly reaffirmed according to the procedures for reaffirmation set out in 524c.

I. What happens if DO has property that they don't want to lose in bk A. There are essentially three options: reaffirmation, redemption, and surrender B. Still in assignment 9 1. Say there's a debtor who owes 96k/year. has a car loan, car is worth 8k. has a tort judgment for 200k. two major debts, only one asset. 2. 96/12 = 8k. has 8k payment per month. Say his take home pay is 6k per month. Say the car loan is Ford Motor Credit. Can they repo? No. hasn't filed yet. No automatic stay. 3. And say DO wants to keep the car. What are his options that the code allows for? 1) possibility of reaffirmation, 524(c). 2) surrender. 3) redemption/pay off the loan. These are the three statutory rights in respect to property of the estate that is subject to a loan. As a result, the options presented to him are reaffirm, redeem, surrender. 4. Redemption: 722. Collateral itself, the car, is worth 8k. 5k is what's owed. If he can come up with 5k right away, pay off loan, he gets to keep the car. But here, he doesn't have 5k cash. He lives paycheck to paycheck. So his options are surrender and reaffirmation. 5. What is surrender? He gives up the car, hands it back. 6. Could bank repo without reaffirming? Right after you file your bankruptcy, turn in a schedule of your assets and liabilities is required. 524a2 also requires you file a doc that says what you're going to do with the property. What happens if you don't file that doc? 362h. have to do this within 30 days - says whether you're going to reaffirm, surrender, etc. if you don't do that, the property can be repo, the stay is lifted. 7. Let's say he files that statement. What's the next thing he has to do under 521A2? Section 341, meeting of the creditors. Trustee will convene a meeting of the creditors. 8. Next thing you have to do: performance requirements a. 521a2A is the filing req. B is the performance requirement. Within thirty days of the first date of the meeting of the creditors, you have to perform your intentions regarding the property. 9. NOTE: if this is redemption, you JUST pay the creditor off. That's all that happens in redemption. If you redeem, then there's no debt. 10. Redemption is therefore a viable option in this case. 11. Reaffirmation a. What does reaffirmation require: 524c. b. Effects of a reaffirmation is to reestablish the loan with the creditor, making you personally liable on the loan again. c. 524a provides a post-discharge in d. 362h1B: Creditor can essentially deny a reaffirmation. Creditor is not required to reaffirm the loan, or reaffirm on its current terms. e. If you fail to pay according to your plan, then automatic stay is lifted. 12. Your obligations as an attorney a. Say DO wants to keep the car. If stay is lifted, he loses the car. Car goes away if he doesn't have a statement or didn't perform on the statement. b. How to do reaffirmation: reqs listed in 524c1, 2, 3, 4, 5, 6. c. Part 6A: if DO is pro se, it's ct approved instead of lawyer approved. d. 524m: refers to reaffirmation agreement. Says that the agreement is presumed to be a hardship if the DO's monthly income is less than their monthly expenses. BUT: this is ONLY a presumption. e. What happens when the lawyer doesn't want to sign off on this agreement? Can you argue their case but not sign? That isn't a clear area of law. In cts that don't let you argue on behalf of DO but not sign agreement: You have to sit on your hands and not say anything. So your client is unrepresented regarding this agreement. Lars says this is crazy how it's set up. f. Income exceed expenses? Will bank take this deal of reaffirmation? Will ct approve it? These are all things you need to consider. g. 362h1B: if plan is to reaffirm, DO doesn't agree, automatic stay is still in place. h. What if via the loan, filing bk is automatically default? Can the bank take the car? No. cts don't allow that.

A. Assignment 21 - preferences 1. A commonly invoked power to reshape the estate is one that allows the trustee/DIP to avoid a preference by undoing certain transactions that took place shortly before bk filing. 2. The exceptions a. Contemporaneous exchange 1) Idea behind contemporaneous exchange: a seller or lender should be able to deal with a buyer or borrower without worrying about whether the sequence in which the parties execute the transaction can inadvertently create a voidable preference. So even in a cash transaction, for ex, if the sller hands over the goods first and the buyer hands over cash second, in the intervening seconds the seller is a general unsecured CR. The buyer's payment would be on account of an antecedent debt. This exception tries to protect such transactions. b. Ordinary course of business 1) 547c2 balances two competing concerns: a) The need to discourage preferences in favor of certain pre-bk creditors and the need to encourage pre-bk transactions that are essential to keeping the business alive. 2) Code provides exception to permit some ordinary course transactions to stand, notwithstanding that they permktted some unsecured CRs to be paid in full.

a. "and the rest" - 547c6 1) Alimony and cs payments though made to an unsecured CR won't be recoverable as voidable preferences 2) CRs keep preferential transfers if less than 600 in consumer cases and less than 6825 in business cases 3) Statutory liens that violate the voidable preference provisions can surv ive if they're otherwise unavoidable a) Means hat statutory liens are dealt within 545, notwithstanding that they technically meet the preference criteria.

I. Installment Method of Accounting A. Section 453 1. Text a. (a) General Rule — Except as otherwise provided in this section, income from an installment sale shall be taken into account for purposes of this title under the installment method. b. (b)(1) In General — The term "installment sale" means a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs. c. (b)(2)Exceptions — The term "installment sale" does not include— 1) Any dealer disposition (as defined in subsection (l)). 2) A disposition of personal property of a kind which is required to be included in the inventory of the taxpayer if on hand at the close of the taxable year. d. (b)(3)(i) In General. — 1) Payment may be received in cash or other property, including foreign currency, marketable securities, and evidences or indebtedness which are payable on demand or readily tradable. 2) Payments include amounts actually or constructively received in the taxable year under an installment obligation. e. (c) Installment Method Defined — For purposes of this section, the term "installment method" means a method under which the income recognized for any taxable year from a disposition is that proportion of the payments received in that year which the gross profit (realized or to be realized when payment is completed) bears to the total contract price. f. (d)(1) In General — Subsection (a) shall not apply to any disposition if the taxpayer elects to have subsection (a) not apply to such disposition.

a. (e)(1) In General — If— 1) any person disposes of property to a related person (hereinafter in this subsection referred to as the "first disposition"), and 2) before the person making the first disposition receives all payments with respect to such disposition, the related person disposes of the property (hereinafter in this subsection referred to as the "second disposition"), 3) then, for purposes of this section, the amount realized with respect to such second disposition shall be treated as received at the time of the second disposition by the person making the first disposition. b. (e)(2)(A) In General — Except in the case of marketable securities, paragraph (1) shall apply only if the date of the second disposition is not more than 2 years after the date of the first disposition c. (e)(3) Limitation On Amount Treated As Received — The amount treated for any taxable year as received by the person making the first disposition by reason of paragraph (1) shall not exceed the excess of— 1) the lesser of— a) the total amount realized with respect to any second disposition of the property occurring before the close of the taxable year, or b) the total contract price for the first disposition, over the sum of— A) the aggregate amount of payments received with respect to the first disposition before the close of such year, plus B) the aggregate amount treated as received with respect to the first disposition for prior taxable years by reason of this subsection. d. (e)(5) Later Payments Treated As Receipt Of Tax Paid Amounts — If paragraph (1) applies for any taxable year, payments received in subsequent taxable years by the person making the first disposition shall not be treated as the receipt of payments with respect to the first disposition to the extent that the aggregate of such payments does not exceed the amount treated as received by reason of paragraph (1).

a. (e)(6)(C) Dispositions After Death — Any transfer after the earlier of— 1) the death of the person making the first disposition, or 2) the death of the person acquiring the property in the first disposition, and 3) any transfer thereafter shall not be treated as a second disposition. b. (e)(7) Exception Where Tax Avoidance Not A Principal Purpose — This subsection shall not apply to a second disposition (and any transfer thereafter) if it is established to the satisfaction of the Secretary that neither the first disposition nor the second disposition had as one of its principal purposes the avoidance of Federal income tax. c. (f)(1) Related Person — Except for purposes of subsections (g) and (h), the term "related person" means— 1) a person whose stock would be attributed under section 318(a) (other than paragraph (4) thereof) to the person first disposing of the property, or 2) a person who bears a relationship described in section 267(b) to the person first disposing of the property d. (f)(3) Payment — Except as provided in paragraph (4), the term "payment" does not include the receipt of evidences of indebtedness of the person acquiring the property (whether or not payment of such indebtedness is guaranteed by another person). e. (f)(3) Payments To Be Received Defined — The term "payments to be received" includes— 1) the aggregate amount of all payments which are not contingent as to amount, and 2) the fair market value of any payments which are contingent as to amount

a. (f)(6) Like-Kind Exchanges — In the case of any exchange described in section 1031(b)— 1) the term "payment", when used in any provision of this section other than subsection (b)(1), shall not include any property permitted to be received in such exchange without recognition of gain. b. (g)(1) In General — In the case of an installment sale of depreciable property between related persons— 1) (A) subsection (a) shall not apply, 2) (B) for purposes of this title— a) (i) except as provided in clause (ii), all payments to be received shall be treated as received in the year of the disposition, and b) (ii) in the case of any payments which are contingent as to the amount but with respect to which the fair market value may not be reasonably ascertained, the basis shall be recovered ratably, and 3) (C) the purchaser may not increase the basis of any property acquired in such sale by any amount before the time such amount is includible in the gross income of the seller. (g)(3) Related Persons — For purposes of this subsection, the term "related persons" has the meaning given to such term by section 1239(b), except that such term shall include 2 or more partnerships having a relationship to each other described in section 707(b)(1)(B).

a. 25.1 1) K price for the oil is 30/barrel. Current price of oil though is 50/barrel. Is that good or bad for the DO? Bad - if they breach this k and get into a new k, they can sell for 50/barrel. If they honor it, they can only sell for 30/barrel. This is called efficient breach. Makes economic sense to breach the k, then just pay ds. The difference here is that we are in bk. 2) K is for the sale of 100,000 barrels. If sold at 30/barrel: 3m. If they sold at 50/barrel: 5m. 3) DIP/trustee decides to reject, what are the ds that come out of a breach of k? they still need 100,000 barrels, they will have to pay 5m to get them. Present value of oil - price they would pay for that oil = the amount of ds. Here, their k ds under state law (expectation ds) are 2m. 4) How much is their claim worth in bk though? 30% of 2m = 600,000. Is that calculation good for the DO, are they better off? Net benefit to the estate: 2m - the ds they have to pay for the unsecured claim (which this is) = 1.4m. so YES, they should reject this k. This is clearly beneficial, should reject under 365a. 5) Who benefits in ch 7: the unsecured CRs. Trustee should reject so that there is more money for the unsecured CRs. Can use that 1.4m to pay off all the other CRs. Transferring one creditor to the k counter-party to all the other unsecured CRs. 6) Who benefits in ch 11: the unsecured CRs (but really the DIP). There's a limit in ch 11 - you can't pay an unsecured CR less than what they would get in ch 7. So all the unsecured CRs get paid at least 30%.

a. 25.2 1) How does 365d add to the DIP, if at all? 2) What's the timing of this rejection system, how soon does the DIP have to make a decision? 365d. at any time before ethe confirmation of a plan under ch 11. But: Note that CR can ask for an earlier decision. 3) When we find out about the crop, si that a good price or a bad price? This is a k to BUY oranges, not sell. When would the price be a good price: if it's below market value - this would happen if the crop is huge. That'll drop the price of oranges. Do you think a bk judge will feel sympathetic to a CR in this situation? No, won't get a hearing really quickly. wait until the crop info is released. They have until the approval of the plan anyway. If crop is good we reject, if it's bad, we accept the k. 4) Timing: 365d2 bc it's ch 11. Can wait until time of approval of plan UNLESS CR asks for hearing. 5) 365d timing - if not accepted or rejected within 60 days, it's deemed to be rejected.

a. 25.4 1) Clause 1, is that enforceable? Lookit 365e. what does the first clause prohibit: assignment for the benefit of CRs (receivership). "the filing of bk terminates this k." the code says that this is 100% unenforceable. Filing of bk CANNOT be the cause of terminating the k. then why is that clause in there? Scare you. Filing bk cANNOT be a reason why you can't assume the k 2) Clause 2, is this enforceable? 365f deals with assumption, preventing assumption. Not enforceable bc of f1 3) Clause 3: financial requirement. B1 seems to assume can't assume this k if you're in default. How do you make yourself worth more in a way that is prompt? Lookit 365b2. No right to cure if there's a financial condition. But compare to e(1)(A) - this says invalid if causes IMMEDIATE termination. Was this k allegedly immediately terminated? The way he reads this: bc it's not automatic, bc it's a ten day limit where they have to give notice: ten days get stopped bc of automatic stay, can't exercise termination immediately. Read b2 and e1 together, say that this is ok bc of the ten day limit. Only time we can avoid this clause: when the notice period runs into the bk period. 4) Clause 3: 365(b)(2)(A) AND 365(e)(1)(A) = not enforceable IF file bk before end of ten day notice period.

a. 25.5 1) A: what is the enforcement of ks that allow for assignment but require the lease to be modified? 365(f)(3) - a clause in a k that prevents assignment without modification of the k is not enforceable. This is the James Way case. read 365(f)(1) and 365(f)(3), modification req essentially makes the k non-assignable, so don't have to enforce it. can assign without paying that requirement money. 2) B: 541(c)(1) - this k is probably property of the estate, it has value. Can you sever the license of the patent from the lease, or is it an all or nothing proposition? Lease says the patent is part of the lease. 3) Remember: a) Executory ks = Ks of which elements still have to be performed after bk. Question 365a - does DO keep the k or walk away from it? b) If the DO doesn't want to make the k enforce it, but the k itself has value, maybe someone is willing to pay more to take on the k. ex: you're renting space and don't need it anymore. If the market value of the space is higher than what you're paying, then you should accept the k and assign it so that the estate gets paid the difference. That's why you might assume and assign. 4) A: 365(f)(1). James way case - you can't enforce a clause to modify 5) B: a poison pill provision. Question of he patented forklift machine. Look at 541(c)(1) - question is under this section can you take the patent k. b. 25.6 1) What is a financial accommodation. She wants to keep a k that has beneficial financial terms to her. Can she keep the franchise k in ch 11. The k is property for the eastate, and the k is property of the estate, so she should be able to keep it. so 541 tells us we should be able to keep it, notwithstanding any clauses that tell us otherwise. 2) If a k is executory, then we have 365 that governs whether we can keep the k or reject it. if we assume it, we may be able to assign it. if it is executory, we can assign it with some limitations. 365c.

a. 26.2 1) B: question is what do you do with a k that is a k to purchase a gravel. Is an option k. think they can sell for 80/ton. The k is worth a lot of money. Can buy for cheap, resell much higher. How does it fit into 365 executory k considerations. 365a - trustee can accept or reject an executory k. is this an executory k? Countryman test - a k is executory if there are material obligations to perform remaining for both parties. 2) From the point of the estate, how do we view this k? We want it to be executory. What would make it executory, if we aren't happy with the material breach standard? There's another test besides the countryman test. The problem with option ks is the lack of substantial performance obligation. Nevertheless, this k has great value to the estate. 3) Let's assume for a sec it's not executory. What does that do to 365? It only applies to executory ks. If not executory, we can't negate/refuse the clause that says if you file bk you've breached. 4) So first: can we make it executory by using a different def: other cases say if you have substantial obligations you have to fulfill, even if that wouldn't normally rise to "material" performance, that can make it executory. 5) If it's not executory, how do we get around the ipso facto clause? Maybe we can argue that that type of clause is against bk policy. 6) The point of this problem is that if we use a bad definition of executoriness, a v valuable k gets to be rejected by the counter party, and we're worse off. So from a bk policy perspective, terrible outcome bc we lost a valuable asset. 7) Is this k property of the estate? Yeah. 8) There is no code answer directly for this problem. We have to use common law. But there are cts that have same option ks are executory.

a. 26.3 1) What is the k at issue in this problem? IP. Where do we look to know what we do with a patent license? 365(n). 2) 365n: this is license of a patent. License is granted from licensor to licensee. This section applies when the LICENSOR is going into bk. For ex, can you still use your pc if Microsoft goes into bk. 365n protects us as licensees of copyrighted tech, so that we don't have to give back the tech if bk occurs. It's NOT about the licensee; it's about the licensor's bk. Allows licensees to keep using the tech despite the rejection of the k. 3) Exclusive license: licensee is the only one that can use that IP from the licensor. 4) Here, bankruptor is the licensor, want to end the k and transfer license to someone else. The licensee can reject the rejection. DO is stuck with this k. 5) 365(n)2C: setoff. Says that you can only sue for ds - there's no right of setoff. This is the opposite from what the section on tenant-landlord ks says. In tenant case, reduces the amount you have to pay and you cannot get ds. Here, you have to pay, and you have to sue for ds. 6) Note: a license of trademarks is not IP, bc it would be unfair to the owner of the trademark to require them to work with someone else that they do not like. But with patent tech or copyright, the licensee can reject the rejection. 7) No right of setoff in terms of royalty payments in the case of IP

1. Veighlan case a. Huge mortgage, 1% dividend to unsecured creditors. Here, lookit interaction between 1325b3 (reasonably necessary expenses) v 797b3a2. Issue is does your mortgage payment have to be reasonably necessary, or can it just be deducted. b. In the calculation for deduction for you home in 1325, it does not say "reasonably necessary." So ct says if there's no reasonableness limit on the mortgage payment, how do you make the mortgage payment a problem via good faith? The factor here that showed bad faith: when they bought the house, they weren't paying their taxes. they made a choice to not pay taxes and instead buy a house/pay a mortgage. Ct says that was bad faith, bc they made a choice. Who was one of the significant unsecured creditors, also: the IRS. IRS is getting shafted. 2. 13.1 a. A: 1) nly 292 is left over to pay unsecured creditors. Between 7 and 13, what's better for DO: ch 7. Can she file ch 7 though? She has over 17k to pay to unsecured. Under ch 7 what's the amount that causes you a problem: 15,150. So she can't file ch 7. BUT NOTE: we are talking about business debts, since she's a realtor, we could argue that realtors need nice things. If we can recharacterize these as business debts, we don't have to do the means test. 2) Could this still be abusive? Yes. If you pass means test, still have to lookit 707b. 3) Is this an abusive bk? Yes. 4) Does she file ch 13 good faith via 1325? This is hard. She's living way beyond her means. What would we ask of her: sell her house, her hot tub. 5) First, she fails means test if debts are consumer debts. If we still are able to file ch 13, she has problem filing in good faith, bc she's lived extravagantly. Here's an argument the TOC test we used in 707b is used for the good faith test under 1325, and maybe under TOC we'd wanna see a plan that made more of an effort to pay unsecured debts.

a. B: ethics question. 1) Is it ok to represent two creditors in the same bk. You have a conflict of interest. Ethics rules don't go away! Still have to worry about COI. They have different interests here! One is secured, one is unsecured. 2) 13.2 3) Are we prevented discharge? Are these DOs looking like they're trying to cheat the system? He has disability, is below state median income, have modest personal possessions, small equity in house. 4) Looks like ch 7 would work well for them. 5) They pass the means test. Under TOC, is this the kind of bk that really shouldn't be ch 7? They have a lot of extra cash, live frugally, can pay off huge percentage of unsecured debt. These really aren't the types of debtors that TOC is trying to weed out. And yet they're still walking away from most of their unsecured debt. This will be a judgment call - can make an argument both ways. 6) 13.3 DO wants to file ch 13 but is clearly the right person for a ch 7. How do you direct client into right filing, when they insist on something different?

1. Assignment 26 a. "Executoriness" 1) The code does not define what an executory k is. Bc "executoriness" isn't defined, it functions as an extra-statutory constraint on the trustee's power to assume or reject ks for the estate. 2) Section 365 allows the DO to only assume or reject an executory k or an unexpired lease. This presumably means that if a lease isn't unexpired, there's nothing a DO can do under 365. The same general idea underlies the word executory. In terms of big picture, executoriness doctrine means that if a k is fully performed or terminated before bk, the trustee ges no special powers under 365. a) If a counterparty hates doing business with the DO or wants out of a bad deal, it may try to argue that the DO cannot assume that k in bk bc it's not executory - will try to come up with reasons why the k already came to an end before the DO's bk started. 3) If a k has any consequence for the bk case, ti'll have something about it that's unperformed. This is esp true if one is willing to count obligations to NOT do something. 4) Material breach test b. The role of state contract and property law 1) If a DO rejects a k, the code deeds that a breach. The remedies for k breach are generally governed by state law. So bk cts should look to state law to determine the proper remedy unless some fed bk policy trumps. 2) Some cts have ruled that one such fed bk policy is that specific performance is barred as a remedy - if allowed, it would mean the counterparty could "reject the rejection."

a. General notes on assignment 26 1) Says that the concept of executoriness is complicated. there are some ks that are easy to know are executory. 2) First test on whether its executory: whether non-performance would be a material breach. If wouldn't be a material breach, then it's not executory. The problem is with ks that don't seem to have any post-bk obligations. 3) Ridizio case: does the ability to buy stock in the future render the k executory? The LLC argued no - if it's not executory, it can't be rejected, 365 doesn't apply. You have to decide right away whether or not it's executory. Is an option k an executory k? The ct says yes - there is some performance required. You have to deliver shares, and the other side has to pay. There's no other performance in the classic sense. 4) Remedy under state law if person refuses to give you the shares under the option k: specific performance. Is specific performance possible here? Can you force specific performance? Depends on who you're talking about. When you file bk, there are two actors. What gets created immediately upon filing of bk: the estate. Can you force the estate to perform? No. specific performance doesn't make sense against the estate, bc in bk you're paying off the crs of the estate who have claims against the ESTATE. Important fact: the k wasn't worth it to the estate. Question: can the estate walk away from a k that isn't worth much. That's one you should jreject. Here, the k doesn't bring a lot of value to the estate, we should reject it. But it isn't executory in the trad sense. But the ct says we aren't limited to that "Countryman" trad meaning - if there is any obligation to do anything afterwards, it's executory. The k is executory bc there is something that has to happen afterwards. And since it is executory and not worth much, they want to reject it. specific performance makes no sense as a remedy against the estate, too. BUT: you might want a non-compete clause against the DEBTOR. NOTE: the debtor and the estate are SEPARATE.

A. Section 507(a)(1)(A) and (B) - Priority 1. This is the priority scheme for individual debtors. Figure out who gets priority out of the discharge payments under 726. 2. Problem page 143/144 a. What's the total amount of the assets of the DO? 400 - 360 = 40k. what other assets do they have: personal property. Total value of estate is 40k plus 25k, which gives us 65k as the total value of the estate. All of the debts of the estate that are not covered by a security interest (aka, all but the condo) are paid out of the 60k, according to the priority rules of 507. b. 507 est who gets paid first before the unsecured creditors get paid. c. Private duty nurse is owed 60k. is that a priority claim? Lookit section 4 (of 412?). Cap is 15,150 within 180 days. why is this a priority claim? Bc we want people to get paid if they've done work. why is it capped? Questions of fraud. Family could technically be the DO's employees. 1) What if the nurse is an independent contractor? 4C. If the independent k, she does not have a priority claim in bk. This is true with gig economy jobs. It's better to be an employee. d. social security: lookit 8. Government gets priority. Specifically, lookit 8C. 1) 8)C: cover the ss tax. Here, 1600 was owed. Is there a cap on this? Nope. e. City property taxes: total of 9k is owed, and 1500 in penalties. Look at a8B. the tax is limited in terms of its priority. Here, we have three years. It's 2018, 2019, 2017. 2017 is NOT covered. Payable without penalty. Is 2018? No. is 2019? Penalty was assessed on Dec. 31st. It's due on Jan. 1st, that's the first day it's penalty. Bk was filed April 7, 2020. Note that the tax here is a standard fee. Final answer: 3k is priority. 6k is no priority. 1500 penalty is paid last per 726. f. Down payment on a lawn mower. Protection for down payments of purchases of property? It's in a7. There's a cap of 3350. Deposits made with the DO by an individual to purchase property have a priority, but there's a cap. Here, we're under the cap, bc it's just 300. It's full priority. 1) What other kinds of deposits would be covered: deposits for rental property. If a ll files for bk, and you as a renter have made a rental deposit up to 3350, you have a priority claim. But you can't have taken possession of the property yet.

a. IRS income tax - 4k in state, 14k in federal. 8A covers taxes. this is unlimited in respect to money, but NOT in time. what's the first tax year that would be covered by this: bk was filed 4/7/2020. Your income taxes get assessed at the end of the taxable year. so 2019 would be the first year taxes are owed. 2020 is not fully owed yet. What's the date that we go back to? April 7th, 2017. That's three years. Before the filing of the petition, but within three years of the date of filing the petition. When is the return due: April 15th. April 15th is after April 7th. What taxes is a return due for on April 15th, 2017? 2016 taxes. Fed gov has priority, under these facts, for four years of income taxes. 1) So the answer is: as long as these taxes fall in 2016, 17, 18, and 19, they have priority. This is a8A1. b. Telephone, utility, and other regular bills. Do these get priority? Nope. Anything that happens post-petition isn't part of the bk. They don't get priority, AND they don't get paid at all. c. Attorneys fees: these are unsecured debts. Is the 500 for the will, which was earned prior to bk, a priority debt? No, it's just a general debt. What about the 1250 in attorneys fees for filing bk? Lookit a2. Are these fees helping DO file for bk? Tells us to go to 503b2. That directs us to 330(a). Lookit 330(a)(1)(A). the word "attorney" appears here. But 2 works against this. Does the lawyer get paid for the expenses accrued for filing bk? There's an inconsistency between these two sections. SCOTUS has said that they don't think lawyers should get paid for debts owed to them for preparing the bk filing for the DO. 1) So: 1250 has no priority - lookit 330(a)(1), where "attorney" isn't mentioned. 2) So how do lawyers get paid for bk cases? Yes. You need to get paid before you do the work for the Do, though. Get paid in advance, so there's no debt. d. Ex-wife is owed 25k. Three possibilities: alimony, property settlement, or it's just a loan. If it's just a loan, there's no priority. If it's a property settlement, a1A, domestic support obligations. Lookit definition for "Domestic support obligation" in definition section 14A. This is a long definition. Property settlements are not covered. So if it's a property settlement, it has no bk priority. So if you're a divorce lawyer, you should call this alimony. If it's alimony, the ex-spouse gets paid first, out of everybody.

a. How do you come up with a system that allows owners to keep their shares in technical violation of the fair and equitable rule? You attach to it this new value consideration. 1) If they put something back in, their status is diff. maybe they should keep their ownership pinterest bc they're adding to the business so it can succeed. Makes it fair and equitable they keep their shares. b. Under state law, if there isn't enough to pay unsecured CRs, shareholders get nothing.

a. Under bk law, you can structure it diff. might be able to allow existing shareholders, who shouldn't technically get to keep their shares, to keep their shares, but ONLY if they can come up with new value. 1) Huge problem in determining what new value is. 2) Bank of America national trust case: what from this do we understand how new value proposition works? They say in respect to new value, the right to keep the shares is a property interest - it's like an option to purchase shares. Ct says what they're taking in value here is the option to stay in business, get tax benefits. This is not zero value. some cts, note, have to do the full calculation. Can't be the case that shareholders stay in the business and put nothing into it. 3) Ex: what if shareholders say they'll pay a penny to stay in the business. Is that fair and equitable? Doesn't seem like it. SCOTUS says pay attention to the fact that staying in the business itself is valuable. But beyond that, don't have any hard and fast rules.