B law chapter 31

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Bankruptcy law in the United States has two main goals:

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

The estate in bankruptcy includes all of the following:

1.Community property (property jointly owned by married persons in certain states) 2.Property transferred in a transaction voidable by the trustee 3.Proceeds and profits from the property of the estate

Requirements •For an involuntary action to be filed, the following requirements must be met:

1.If the debtor has twelve or more creditors, three or more of these creditors having unsecured claims totaling at least $16,750 must join in the petition. 2.If a debtor has fewer than twelve creditors, one or more creditors having a claim totaling $16,750 or more may file.

Order for Relief •If the debtor challenges the involuntary petition, a hearing will be held, and the bankruptcy court will enter an order for relief if it finds either of the following:

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

Order for relief

A court's grant of assistance to a complainant.

Adequate protection doctrine

A doctrine that protects secured creditors from losing their security as a result of an automatic stay.

Investigations by a securities regulatory agency Example:

An investigation into insider trading

Substantial Abuse—Means Test •A bankruptcy court can dismiss a Chapter 7 petition if the use of

Chapter 7 constitutes a "substantial abuse" of bankruptcy law.

Four chapters set forth the types of relief that debtors can seek:

Chapter 7 provides for liquidation proceedings. •Liquidation - The sale of the nonexempt assets of a debtor and the distribution of the funds received to creditors. 2.Chapter 11 governs reorganizations. 3.Chapters 12 (for family farmers and family fisherman) and 13 (for individuals) provide for the adjustment of debts by persons with regular incomes.

Automatic stay

In bankruptcy proceedings, the suspension of almost all litigation and other action by creditors against the debtor or the debtor's property.

Consumer-debtor

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

The following cannot be debtors in a liquidation bankruptcy (other chapters or statutes apply to them):

Railroads •Insurance companies •Banks •Savings and loans associations •Investment companies licensed by the Small Business Administration •Credit unions

Petition in bankruptcy

The document that is filed with a bankruptcy court to initiate bankruptcy proceedings.

Goals of Bankruptcy Law

The law attempts to balance the rights of the debtor and of the creditors.

Liquidation under Chapter 7 of the Bankruptcy Code:

The most familiar type, and is often referred to as ordinary, or straight, bankruptcy

The Bankruptcy Code is contained in

Title 11 of the United States Code.

if the petition was filed in bad faith then...

damages can be awarded for injury to the debtor's reputation.

Any "person"—defined as including individuals, partnerships, and corporations—may be a

debtor in a liquidation proceeding.

The Code provides penalties for the filing of frivolous petitions against

debtors

Bankruptcy proceedings are held where?

in federal bankruptcy courts, which are under the authority of U.S. district courts

In certain circumstances, the bankruptcy court may provide adequate protection by...

requiring the debtor or trustee to pay the creditor or provide additional guaranties to protect the creditor against the losses suffered by the creditor as a result of the stay.

To enable the trustee to implement this power, the Code provides that the trustee has

rights equivalent to those of a lien creditor ("strong-arm power" ).

The estate consists of all the debtor's interests in property currently held...

wherever located

Once future disposable income has been estimated, that amount is used to determine

whether the debtor will have income that could be applied to unsecured debts. If they can pay the debts, then Chapter 7 petition can be dismissed for substantial abuse.

If the debtor owes a domestic-support obligation, the trustee must provide

written notice of the bankruptcy to the claim holder (usually former spouse).

An involuntary case cannot be filed against:

•A charitable institution •A farmer (an individual or business that receives more than 50 percent of gross income from farming operations)

Domestic-support obligations, including any debt owed to or recoverable by:

•A spouse or a former spouse •A child of the debtor or that child's parent or guardian •A governmental unit

Bankruptcy relief characteristics

•Although state laws may play a role in bankruptcy proceedings, particularly state property laws, the governing law is based on federal legislation. •Article I, Section 8, of the U.S. Constitution gave Congress the power to establish "uniform laws on the subject of bankruptcies throughout the United States." •Federal bankruptcy laws are called the Bankruptcy Code or, more simply, the Code.

Domestic Proceedings against the debtor related to:

•Divorce •Child custody or visitation •Domestic violence •Support enforcement

This may be done at the request of either:

•The court •The U.S. trustee •U.S. trustee - A government official who performs certain administrative tasks that a bankruptcy judge would otherwise have to perform. •Any party in interest •A party in interest is a party who has a valid interest in the outcome of the proceedings. •Example: A creditor

In addition, the trustee has specific powers of avoidance that enable the trustee to set aside (avoid) a sale or other transfer of the debtor's property and take the property back for the debtor's estate. •These powers apply to:

•Voidable rights available to the debtor •Preferences •Fraudulent transfers by the debtor

The Bankruptcy Code requires that the clerk of the court provide consumer-debtors with:

•Written notice of the general-purpose, benefits, and costs of each chapter under which they might proceed •Information on the types of services available from credit counseling agencies

Put simply, a liquidation proceeding works as follows:

1.A debtor turns all assets over to a bankruptcy trustee. •Bankruptcy trustee - A person appointed by the court to manage the debtor's funds in a bankruptcy proceeding. 2.The trustee sells the nonexempt assets and distributes the proceeds to creditors. 3.With certain exceptions, the debtor is granted a discharge of the remaining debts. •Discharge - The termination of a bankruptcy debtor's obligation to pay debts.

Chapter 7 Schedules •The voluntary petition must contain the following schedules:

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

Exceptions to the Automatic Stay

1.Domestic-support obligations 2.Domestic Proceeding 3.Investigations by a securities regulatory agency 4.Certain statutory liens for property taxes

Additional Grounds for Dismissal •In addition to dismissing a debtor's voluntary petition for Chapter 7 relief for substantial abuse (fail means test) or for failure to provide the necessary documents within the specified time, a court might dismiss if the debtor:

1.Has been convicted of a violent crime or a drug-trafficking offense 2.Fails to pay post petition domestic-support obligations (which include child and spousal support)

Debtors filing a Chapter 7 petition must include what?

a certificate proving that they have received individual or group counseling from an approved agency within the last 180 days.

The debtor has up to seven days before the date of the first creditors' meeting to provide what?

a copy of the most recent tax returns to the trustee.

To conceal assets or knowingly supply false information on these schedules is

a crime under the bankruptcy laws.

Generally, the filing of a bankruptcy petition fixes...

a dividing line

What can the bankruptcy court conduct?

a jury trial if the appropriate district court has authorized it and the parties to the bankruptcy consent.

In addition, the trustee has specific powers of avoidance that enable the trustee to set aside (avoid)...

a sale or other transfer of the debtor's property and take the property back for the debtor's estate.

A husband and wife may file jointly for bankruptcy under

a single petition

Within ten days after the first meeting of the creditors, the trustee must file

a statement indicating whether the case is presumed to be an abuse under the means test and provide a copy to the creditors.

Promptly after the order for relief in the liquidation proceeding has been entered...

a trustee is appointed.

The Adequate Protection Doctrine •Underlying the Code's automatic-stay provision for a secured creditor is a concept known as?

adequate protection.

With the exception of tax returns, failure to file the required schedules within forty-five days after the filing of the petition will result in

an automatic dismissal of the petition. •An extension may be granted, however.

What happens if a creditor knowingly violates the automatic stay (a willful violation)?

any injured party, including the debtor, is entitled to recover actual damages, costs, and attorneys' fees. •Punitive damages may be awarded as well.

Anyone obligated to a creditor can declare

bankruptcy

On the commencement of a liquidation proceeding under Chapter 7, an estate in what is created?

bankruptcy (sometimes called an estate in property) is created.

A debtor (except for a municipality) need not be insolvent to file for

bankruptcy relief under the Bankruptcy Code.

Punitive damages may also

be awarded

Exception

certain after-acquired property to which the debtor becomes entitled within 180 days after filing may become part of the estate

To enable the trustee to accomplish this duty, the Code gives the trustee

certain powers, stated in both general and specific terms. •These powers must be exercised within two years of the order for relief.

Bankruptcy relief is provided under

federal law

To bring a voluntary petition in bankruptcy, the debtor files what?

files official forms designated for that purpose in the bankruptcy court.

The trustee is held accountable for

for administering the debtor's estate.

Bankruptcy court judges are appointed for terms of

fourteen years.

The automatic stay prohibits creditors from taking...

from taking any act to collect, assess, or recover a claim against the debtor that arose before the filing of the petition.

To have a recoverable preferential payment, an insolvent debtor must

have transferred property, for a preexisting debt, within ninety days before the filing of the bankruptcy petition.

If the debtor's income is above the median income, then further calculations must be made to determine

he debtor's future disposable income.

If the debtor's income is below the median income, the debtor usually

is allowed to file for Chapter 7 bankruptcy.

The debtor cannot keep the secured property, even if they continue to...

make payments on it, without reinstating the rights of the secured party to collect on the debt.

Preferences •A debtor is not permitted to transfer property or to make a payment that favors—or gives a preference to

one creditor over others.

Involuntary

one or more creditors file a petition to force the debtor into bankruptcy

The trustee is allowed to

recover payments made both voluntarily and involuntarily to one creditor in preference over another.

Disposable income is calculated by

subtracting living expenses and secured debt payments, such as mortgage payments, from monthly income.

If a creditor or other party requests relief from the stay, the stay will automatically

terminate sixty days after the request, unless the court grants an extension or the parties agree otherwise.

The law now requires what for voluntary bankruptcy?

that before debtors can file a petition, they must receive credit counseling from an approved nonprofit agency within the 180-day period preceding the date of filing.

Bad Faith •If the debtor had two or more bankruptcy petitions dismissed during the prior year then...

the Code presumes bad faith.

What do the Bankruptcy courts follow?

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

Requests for Relief from the Automatic Stay •A secured creditor or other party in interest can petition...

the bankruptcy court for relief from the automatic stay.

Tax Returns during Bankruptcy •A debtor may be required to file a tax return at the end of each tax year while

the case is pending and to provide a copy to the court.

If the debtor had two or more bankruptcy petitions dismissed during the prior year, the code presumes bad faith. In such a situation, the automatic stay does not go into effect until

the court determines that the petition was filed in good faith.

Secured Property •The automatic stay on secured property terminates forty-five days after...

the creditors' meeting unless the debtor redeems or reaffirms certain debts.

The stay is effective the moment...

the debtor files a petition in bankruptcy.

Voluntary

the debtor files the petition

In bankruptcy proceedings, the order relieves

the debtor of the immediate obligation to pay the debts listed in the bankruptcy petition.

Review for Substantial Abuse•The trustee is required to promptly review all materials filed by

the debtor to determine if there is substantial abuse.

If the court grants an order for relief then...

the debtor will be required to supply the same information in the bankruptcy schedules as in a voluntary bankruptcy.

An involuntary bankruptcy occurs when

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

Property acquired after the filing of the petition remains who's

the debtor's.

Property acquired prior to the filing of the petition becomes property of...

the estate.

A straight bankruptcy can be commenced by what?

the filing of either a voluntary or an involuntary petition in bankruptcy.

Order for Relief •If the voluntary petition for bankruptcy is found to be proper then...

the filing of the petition will itself constitute an order for relief.

With the means test, the debtor's average income in recent months is compared with

the median income in the geographic area in which the person lives.

If the court dismisses an involuntary petition then...

the petitioning creditors may be required to pay the costs and attorneys' fees incurred by the debtor in defending against the petition.

Once a consumer-debtor's voluntary petition has been filed then...

the trustee and creditors must be given notice of the order for relief by mail not more than twenty days after entry of the order.

Voidable Rights •Any reason that a debtor can use to obtain the return of their property can be used by

the trustee as well.

The basic duty of the trustee is to

to collect the debtor's available estate and reduce it to cash for distribution, preserving the interests of both the debtor and the unsecured creditors.

The Trustee's Powers •Trustee can require persons holding the debtor's property at the time the petition is filed to

to deliver the property to the trustee.

Rulings from bankruptcy courts can be appealed where to?

to the district courts

The stay normally continues until...

until the bankruptcy proceeding is closed or dismissed.

The official forms must be:

•Completed accurately •Sworn to under oath •Signed by the debtor

A consumer-debtor who is filing for liquidation bankruptcy must:

•Confirm the accuracy of the petition's contents •State in the petition, at the time of filing, that he or she understands the relief available under other chapters of the Code and has chosen to proceed under Chapter 7

When there is a presumption of abuse, the trustee must either:

•File a motion to dismiss the petition (or convert it to a Chapter 13 petition) •File a statement explaining why a motion would not be appropriate

Attorneys representing consumer-debtors must:

•File an affidavit stating that they have informed the debtors of the relief available under each chapter of the Bankruptcy Code •Reasonably attempt to verify the accuracy of the consumer-debtors' petitions and schedules •Failure to do so is considered perjury.

These grounds include:

•Fraud •Duress •Incapacity •Mutual mistake

Exception - certain after-acquired property to which the debtor becomes entitled within 180 days after filing may become part of the estate, such as:

•Gifts•Inheritances •Property settlements (from divorce) •Life insurance death proceeds

Means test used to determine a debtor's eligibility for Chapter 7:

•The purpose of the test is to keep upper-income people from abusing the bankruptcy process by filing for Chapter 7. •The test forces more people to file for Chapter 13 bankruptcy rather than have their debts discharged under Chapter 7 •A debtor wishing to file for bankruptcy must complete the means test to determine whether they qualify for Chapter 7.


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