Bankruptcy Law

Liquidated Claim

A creditor's claim for a fixed amount of money.

In Rem action

A lawsuit against an item of property.

Discharge

A permanent order that releases the debtor from personal liability for certain specified types of debts, thereby releasing the debtor from any legal obligation to pay any discharged debts.

Automatic Stay

An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed. 362

Voidable

Creditor has a duty to take action.

Lien

The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.

Bases for relief from stay

1.For cause, including lack of the adequate protection of an interest in property; and 2.With respect to particular property, when the debtor lacks equity in it and the property is not necessary for a successful reorganization. §362(d)(1), (2).

What type of transfers are a Bankruptcy trustee empowered to avoid?

1.Preferential 2.Fraudulent

Repossession

A creditor's taking of property that has been pledged as collateral for a loan.

Adversary Proceeding

A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001

Redemption

Bankruptcy redemption is an option in a Chapter 7 bankruptcy case that may allow you to keep a vehicle or other asset that is acting as collateral for secured debt. However, redemption may not be an option for all Chapter 7 debtors because it requires you to come up with cash up front.

Conversion

Conversion as used in Bankruptcy laws refer to cases under bankruptcy code which may be converted from one chapter to another chapter. For example, a case filed under chapter 7 may be converted to a case under Chapter 13 if the debtor is eligible for Chapter 13.

Cross Collateralization

Cross- collateralization is a term used when the collateral for one loan is also used as collateral for another loan. If a person has borrowed from the same bank a home loan secured by the house, a car loan secured by the car, and so on, these assets can be used as cross-collaterals for all the loans.

Secured Claim

Debt backed by a mortgage pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.

Schedules

Detailed lists filed by the debtor along with (or shortly after filing) the petition showing the debtor's assets, liabilities, and other financial information. (There are official forms a debtor must use.)

Preferential Transfer

For a preferential transfer you need: The transfer of the debtor's property To and for the benefit of the creditor. on an antecedent debt while the creditor is insolvent. Within 90 days of the filing (90-day period before a debtor files bankruptcy or within one year if the creditor was an insider).

Executory Contract

Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.)

What is a going concern?

Is an accounting term for a company that has the resources needed to continue to operate indefinitely until a company provides evidence to the contrary, and this term also refers to a company's ability to make enough money to stay afloat or avoid bankruptcy.

How are payments made in a Chapter 13?

Payments are actually made periodically to a trustee, who applies them first to administrative expenses then distributes the remainder to creditors pursuant to a court-approved plan.

Strip Down

Strip down is on a primary mortgage and you are stripping it down to the actual value of the property.

Foreclosure-value Standard

Usually asserted by a debtor who claims that the valuation of property should be the net amount a creditor would receive upon foreclosure and sale of the collateral.

Post petition

all debt that you incur after your bankruptcy case is filed. These debts will not be a part of your bankruptcy case and cannot be discharged. You are still liable on this debt and must pay for it. The bankruptcy cannot help you with post-petition debt.

Avoidance Actions

are brought in a bankruptcy proceeding against corporations and individuals who have received payment from a bankrupt debtor. There are primarily two types of Avoidance Actions: Preference Actions and Fraudulent Transfer Actions.

Core Proceeding

bankruptcy judges may "hear and determine" the matter -that is they may conduct the entire proceeding and may enter a final judgement, subject only to timely appeal.

Administrative Claim

debt incurred by the debtor, with court approval, after the bankruptcy filing including: necessary costs of preserving the estate, wages, salaries, court costs, lawyers' fees, accountants' fees, trustees' expenses, etc.

Feasibility

feasibility is whether the plan is financially viable. Most often, the term refers to whether the debtor has sufficient income to make the proposed payments. Sometimes, the term is used in reference to whether the plan payment is large enough to pay out the claims provided for in the plan.

How does a debtor claim a property as exempt?

to claim property as exempt: 1. the debtor needs to list it as exempt in the debtor's schedules, which the debtor must file with the petition or shortly thereafter. 2. The trustee or a creditor may object to a claimed exemption but must generally do so within 30 days of the conclusion of the §341 meeting of creditors, which in a Chapter 7 case must be held not less than 21, no more than 40 days after the petition is filed. The objecting party has the burden of proving that the claimed exemption is improper.

Single Asset Real Estate

"single asset real estate" as "a single property or project, other than residential real property with fewer than four residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental." 11 U.S.C. § 101(51B).

When can stacking of an exemption be allowed?

"stacking" of exemptions is common but whether it is available depends on two, independent things: 1.Whether the property involved qualifies for each exemption under the applicable law; and 2.Whether the applicable permits two (or more) exemptions to be applied to the same piece of property. Many states do not permit exemptions to be stacked.

What are the defenses to a preference action?

1. De Minimis Transfers 2. Spousal and Child Support Payments 3. The Net Result Rule (New Value Rule) 4. Payments in the Ordinary Course of business 5. Purchase Money Interest 6. Floating Liens 7. Statutory Liens 8. Perfection 9. Preference Exemption

Absolute Priority Rule

1329(b)(2)(B)(ii) provides that a dissenting class of unsecured creditors must be provided for in full before any junior class can receive or retain any property under the plan. ("Cramdown").

In Personam action

A lawsuit in which the case is against a specific individual.

Means Test

A method for determining whether someone qualifies for a financial-assistance program. A common means test is the one used to determine eligibility for Chapter 7 bankruptcy.

Reaffirmation

A reaffirmation agreement is used to pay any specific debt(s) that otherwise would be discharged in the bankruptcy. After filing the bankruptcy petition, a petitioner may sign a reaffirmation agreement to repay a particular debt, such as an automobile to drive to a place of employment, or may be asked by a creditor to pay a debt.It is a legally enforceable document promising to pay all or a portion of the debt which is filed with the court. A reaffirmation agreement is made voluntarily and is enforceable when entered with legal advice or court approval and filed with the court.

What is a statement of intention?

A statement of intention with respect to the retention or surrender of such property, requires the debtor to perform the stated intention (retain or surrender) within 30 days of the date first set for the meeting of creditors

Fraudulent Transfer

A transfer of an asset is fraudulent if it is done with the intent to hinder, delay, or defraud a creditor. § 548.

Nondischargeability

A type of debt that cannot be eliminated through bankruptcy proceeding. Such debts include, but are not limited to, student loans, most federal, state and local taxes, money borrowed on a credit card to pay those taxes, and child support and alimony.

Prepackaged Chapter 11

A variant of the prearranged bankruptcy is the "prepackaged" bankruptcy, in which, before filing for bankruptcy, the debtor has negotiated, documented, and disclosed to creditors a plan of reorganization, and those creditors have voted in favor of the plan.

Priority Claim

An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. priority refers to the order in which these secured claims are to be paid.

Turnover

If the trustee determines that you have nonexempt assets, he or she can file a motion for turnover of that property so that it can be sold to pay your creditors. Unless you have grounds to oppose the motion, you must turn over all nonexempt property to the trustee. The trustee will then sell the property at an auction, pay off all sale costs and administrative fees, and distribute the remaining proceeds among your creditors.

Dimsissal

If you don't follow all of the bankruptcy rules, the court might dismiss your bankruptcy case. The court might also dismiss your case if it believes you've engaged in bankruptcy fraud. But sometimes you might want to dismiss your bankruptcy case yourself -- perhaps your circumstances have changed.

Debtor in Possession

In United States bankruptcy law is a person or corporation who has filed a bankruptcy petition, but remains in possession of property upon which a creditor has a lien or similar security interest.

Cramdown

In a Chapter 13 bankruptcy allows you to reduce the principal balance of a debt to the value of the property it is secured by. By taking advantage of a Chapter 13 cramdown, you may be able to save your car, investment real estate, or certain other properties. Basically this allows the creditor to keep the collateral over the objection of the creditor.

Void

It is void on its face, and the court will claw it back automatically. i.e. fraudulent transfer that cannot be done. (Court will take action)

Strip-Off

Lien stripping refers to the splitting a mortgagee's secured claim into secured and unsecured components and reducing the claim to the market value of the debtor's residence, thereby allowing the debtor to modify the terms of the mortgage and reduce the amount of the debt. This allows a person who owns a home with more than one mortgage, to completely remove or avoid the second and subsequent junior mortgages from home and county records, thus leaving only the first original mortgage. This generally requires objective evidence that the home is appraised for less than the value of the initial mortgage.

Liquidation

Liquidation bankruptcy refers to a bankruptcy proceeding filed under chapter 7, title 11 of the Bankruptcy Code. Bankruptcy filed under Chapter 7 is the most common type of bankruptcy proceeding. In a Chapter 7 case, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay the creditors in accordance with the provisions of the Bankruptcy Code. This is also termed as Straight Bankruptcy.

Can a Chapter 13 debtor modify a claim on their place of residence?

No. §1322(b)(2) does not permit a debtor to modify a claim secured solely by the debtor's principal place of residence.

Define the Uniform Fraudulent Transfer Act (UFTA)

Provides uniform rules on what constitutes a fraudulent transaction. The UFTA allows an aggrieved creditor to sue the recipient of a fraudulent transfer to rescind the transaction.

What is needed for a discharge in a Chapter 7?

Section 727 provides that the court shall grant a debtor a discharge, unless - (1) the debtor is not an individual; (2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed -

What claims get priority treatment and are nondischargeable?

Taxes, Obligations incident to divorce, and claims for personal injury or death resulting to the debtor's operation of a vehicle or vessel while intoxicated.

Brunner Test

The Brunner court adopted the following three-part test for the "undue hardship" exception to section 523(a)(8). To establish hardship, the debtor MUST show: 1. That the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; 2. That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and 3. That the debtor has made good faith efforts to repay the loans.

Co-debtor Stay

The Co-Debtor stay extends the protections of automatic stay to co-debtors in certain circumstances, even if the co-debtor did not file bankruptcy. The Co-Debtor Stay prevents creditors from pursuing the Co-Debtor for the duration of the bankruptcy proceeding. The Co-Debtor Stay does not apply to Chapter 7 Bankruptcy. The Co-Debtor Stay is provided by 11 U.S.C. §1301 and is applicable when the Debtor files a Chapter 13 bankruptcy. As discussed below, the Co-Debtor Stay also applies in Chapter 12 Bankruptcy and, in some cases, in Chapter 11 Bankruptcy. The Co-Debtor Stay only applies to "Consumer Debts".The Co-Debtor Stay only protects co-debtors who are individuals, not business entities.The Co-Debtor's liability for the debt is not discharged

What happens when collateral is worth less than the combined total of debts it secures?

The trustee will probably abandon the property under §554(a) and can be compelled to abandon it under §554(b).

What happens when collateral is abandoned?

There are four things that can happen: 1. Reaffirmation 2. Retention 3. Repossession 4.Redemption

Surrender

When you surrender property in Chapter 7 bankruptcy, you essentially give it back to the creditor. This is the simplest method of dealing with secured debt and property in Chapter 7. When you surrender the property, the creditor's lien is removed. When you get the bankruptcy discharge, your personal liability for the secured loan is wiped out.

Replacement-value standard

Where a creditor in a Chapter 13 claims that the proper valuation of an item would be the price it would be to purchase for a like item (i.e. vehicle) Assocs. Consumer. Corp. v. Rash

Definition of the Net Result Rule

a creditor satisfies the new value defense by proving that the creditor gave unsecured new value to the debtor by selling goods and/or providing services on credit terms after an alleged preference.

Trustee

a person appointed by a bankruptcy court to supervise the affairs of person or business which is in bankruptcy, determine both assets and debts, marshal (gather) and manage the assets if necessary, and report to the court. Most trustees in bankruptcy are full-time professionals and are paid from the estates of the debtors. A person appointed by the court to oversee a bankruptcy case. In a Chapter 7 case, the trustee's role is to gather the debtor's nonexempt property, sell it, and distribute the proceeds to creditors. In a Chapter 13 case, the trustee's role is to receive the debtor's monthly payments and distribute them to creditors.

Good Faith

a state of mind consisting in (1) honesty in belief or purpose...(4) absence of intent to defraud or to seek unconscionable advantage.

Property of the Estate

all legal and equitable interests of the debtor and any property that is community property of the debtor and his spouse. 11 U.S.C. 541. Even the property that the debtor selects as exempt property is "property of the estate" until the exemption claims are final (generally 30 days after the 341 meeting)

Assignment for Benefit of the Creditor

an assignment for the benefit of creditors is simply a contract whereby the insolvent entity ("Assignor") transfers legal and equitable title, as well as custody and control of its property, to a third party ("Assignee") in trust, to apply the proceeds of sale to the assignor's creditors in accord with priorities established by law

Domestic Support Obligation

is a debt owed to a child, parent, spouse or former spouse, now or later. This debt can be for alimony, maintenance or support pursuant to a court order such as a divorce decree, or an agreement such as separation or property agreement. §101(14A).

Badges of Fraud to prove fraudulent transfers

1.Transfers to a relative, close friend, or other insider. 2.Suspicious timing, such as immediately after a large adverse judgment. 3.Transfers on paper unaccompanied by an actual change of possession. (change in title only) 4.Transfers that put the debtor's assets in a foreign jurisdiction, particularly a jurisdiction that will make seizure through domestic judicial process difficult. 5.Secrecy.

Debtor in Possession

"Debtor in possession" is a term in U.S. bankruptcy law that refers to an individual or entity that has filed Chapter 11 bankruptcy, but remains in possession and control of property against which a creditor has a lien. In the case of a business, this gives the business owner the power to continue operating the business until the details of the bankruptcy have been settled.

Non Core Proceeding

(which are "otherwise related" to cases under Title 11), bankruptcy judges may issue final orders on issues not related to the jurisdiction of the bankruptcy court with the parties consent.

Exceptions to the Stay

1.§362(b)(2), which allows for collection of postpetition spousal and child support against non-estate property. 2.§362(b)(3), which authorizes the filing of a U.C.C. Article 9 continuation statement to maintain perfection of a security interest in property of the estate and authorizes the filing of an initial financing statement to perfect such a security interest in limited circumstances; and 3.§362(b)(10) and (22), which authorizes a lessor of nonresidential property to obtain possession of the property of the lease expired before the bankruptcy petition or the lessor obtained a judgement for possession prepetition.

Unsecured Claim

A claim or debt for which a creditor holds no special assurance of payment, such as mortgage or lien; a debt for which credit was extended based solely upon the creditor's assessment of the debtor's future ability to pay.

Contingent Claim

A claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another person's loan and that person fails to pay.

Confirmation

Bankruptcy judge's approval of a plan of reorganization or liquidation in Chapter 11, or payment plan in Chapter 12 or 13.

Elements for an Avoidable Preference

Each of the six elements listed below must be met in order for the trustee to recover the preference: i.The transfer of the interest in the debtor's property -§547(b) ii.To or for the benefit of a creditor -§547(b)(1) iii.Made on account of an antecedent debt -§547(b)(2) iv.Made while the debtor was insolvent -§547(b)(3) iv.Made within the 90 days preceding the bankruptcy petition, or within one year if made to or the benefit of an insider -§547(b)(4). v.vi. That enables the creditor or receive more than of the transfer had not been made and the debtor's assets were liquidates under Chapter 7 -§547(b) (5).

Definition of the Earmarking Doctrine

Earmarking doctrine is a principle of bankruptcy law that when a new lender makes a loan to enable a debtor to pay off a specified creditor, the funds are specifically set aside for that creditor so that, if the debtor lacks control over the disposition of the funds, they do not become part of the debtor's estate and thus subject to a preference.

Exemption

Exemptions are the lists of the kinds and values of property that is legally beyond the reach of creditors or the bankruptcy trustee. The debtor in bankruptcy keeps the exempt property. What property may be exempted is determined by state and federal statutes, and varies from state to state.

First Day Orders (Motions)

First day motions are requests by the debtor-company in a Chapter 11 to pay certain creditors so that the company can continue to operate. Usually used for wages. Employees are usually paid from first day motions.

Who is eligible to file for a Chapter 13?

Individuals. Corporations and partnerships are NOT eligible.

Debt

Money that is owed or due.

What are the rationales for denying a discharge?

They prevent the habitual or professional bankrupt, person who makes it his or her business to run up debt and then take advantage of the Bankruptcy Code; and regardless of any specific fraudulent intent, seeking a fraudulent discharge is itself a form of misconduct.

Reorganization

This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.

Relief from Stay

To obtain relief, the creditor must file a motion to request relief, which is usually done soon after the debtor files for bankruptcy. If grounds are shown for why the creditor should be granted a relief from stay, then notice must be sent to the relevant parties. If any of the parties requests it, then a hearing must be conducted.

Constructive Fraudulent Transfers

Transfers for which an insolvent debtor received less than reasonably equivalent value.

True fraudulent transfer

Transfers with "actual intent to hinder, delay, or defraud" any creditor.

Disposable Income

income remaining after deduction of taxes and other mandatory charges, available to be spent or saved as one wishes.

Setoff

§553