Section 7: Bankruptcy
Chapter 12 topic
Family Farmers
Plan of Payment (13)
Plan of payment must be submitted by the debtor within 15 days after filing the petition. The plan must: Be feasible Not extend beyond 3 years in most cases and no more than 5 years in any case and Show that the debtor is acting in good faith with a reasonable effort to pay obligations If the plan does not pay the debts in full, it must allocate all of the debtors disposable income for the next five years to the creditors
Bankruptcy
federal jurisdiction, constitution, Article 1, bankruptcy code. Always filed in bankruptcy court, adjunct to district court. Bankruptcy judges are only appointed for 8 years) the laws are created by the federal government (States can set exemptions)
Reorganization: participation in formulation of plan
both creditors and debtor
Chapter 13 topic
consumer reorganization: Creditors usually receive a portion of current assets and future earnings
Reorganization: creditor approval of plan
creditors but court can approve without their approval
consumer reorganization:creditor approval of plan
creditors have no say
liquidation: creditor of approval of plan
creditors have no say
liquidation: selection of trustee
creditors normally
reorganization: administrate of estate
debtor in possession
Reorganization: impact on debtor's post-petition income
debtor must contribute to pre-petition debts under plan
consumer reorganization: impact on debtor's post petition income
debtor normally contributes towards payment of pre-petition debts
consumer reorganization: participation in formulation of plan
debtor only
Reaffirmation
debtor promises to pay even after discharge
Discharge under chapter 7
once a bankruptcy estate is distributed, the debts are discharged, meaning that creditors cannot make claims on the debtor for money owed before filing
Telephone Consumer Protection Act of 1991 & King vs Time Warner
prohibits excessive calling and harassing by debt collectors and ro-bo callers
Chapters 9 and 12 of the Bankruptcy Code
specialized types of debtors and are not covered in this textbook
Who does the FDCPA apply to?
the act applies only to the collection of debt incurred by a consumer primarily for personal, family, or household purposes. It does not apply to the collection of corporate debt or debt owed for business or agricultural purposes
Exempt Property (Reforms)
under the BAPCPA (2005), debtors can only take advantage of state exemptions if they have lived in that state for two years prior to the bankruptcy. And they can only exempt $125,000 of any house that was acquired during 40 months before the bankruptcy (made the process harder)
Confirmation of the Plan (11)
A confirmation hearing is held by the Court to determine whether is should accept the plan The court will approve a plan if a majority of each class of creditors votes in favor of it
Discharge under chapter 11
A confirmed plan is binding on the debtor, creditors and shareholders A typical plan of reorganization gives some current assets to the creditors and promises to pay them a portion of future earnings The debtor now owns the assets in the bankrupt estate, free of all obligations except those listed in the plan
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Changed procedure, rules, and requirements Within 180 days before filing, a debtor must undergo credit counseling with an approved agency Debtors may file under Chapter 7 if they earn less than the median income in their state or they cannot afford to pay back at least $6000 over 5 years
When debtors are unable to develop a feasible plan for rehabilitation
Chapter 7 (bankruptcy code) allows for liquidation (also known as straight bankruptcy)
Final Advice
Check before you sign any document Read No blank spaces Compare total charges with final price Don't rely on sales talk Don't sign- ask questions if you don't understand Take your time
Chapter 13
Consumer Reorganization The purpose is to rehabilitate an individual debtor Available only to debtors with less than $307,675 in unsecured debt or $922,975 in secured debt Creditors cannot use an involuntary petition to force a debtor into chapter 13 A trustee is appointed to supervise the debtor, who remains in possession of all assets
Priority Claim Subcategories
Employee benefit plans consumer deposits taxes drunken injuries
Priority Claims
(1) alimony and child support (2) administrative expenses--fees to the trustee, lawyers, and accountants (3) if you have or are a business-- Gap (incurred in ordinary course of business between the file and grant of bankruptcy) & Payments to employees (back wages for work performed 180 days within filing petition, but limited to 10,000 per employee)
Small Business Bankruptcy (11)
A small business with less than 2 million in debt may qualify for different rules for Chapter 11 bankruptcy proceedings For the first 180 days after the order for relief, the debtor has the exclusive right to file a plan The court must confirm or reject the plan within 45 days If these deadlines are not met, the case can be converted to a chapter 7 (liquidation) case, or it may be dismissed
Fraudulent transfers
A transfer is fraudulent if it is made within a year before a petition is filed and its purpose is to hinder, delay, or defraud creditors However, a trustee cannot void pre-petition payments made in the ordinary course of business
When a debt collector calls you, they must provide:
Amount of debt Name of creditor Notice of 30 days to dispute the debt If disputed will send verification The name of the original creditor if requested
BAPCPA
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Chapter 7, Liquidation
Filing a petition—any individual, partnership, corporation, or other business organization that lives, conducts business, or owns property in the United States can file for protection under the Bankruptcy Code
Debts that CANNOT be discharged
Income taxes and property taxes Money obtained fraudulently or illegally Some loans for luxury goods Recent cash advances on credit cards (like when paying your attorney) Alimony and child support debt Fines and penalties Some student loans—mainly those that you get from the federal government
Increase in bankruptcy
Increase credit card use Huge cost of medical care
Chapters 1, 3, and 5 of the Bankruptcy Code
administrative rules that apply to all types of bankruptcy proceedings
Chapter 7 (topic)
Liquidation: assets are sold to pay creditors. business terminates, but creditors do not have rights to future earnings
Voluntary Petition
May be filed by any debtor Not necessary to be insolvent or for liabilities to exceed assets Filed by providing a petition, list of creditors, schedule of assets and liabilities, claim of exemptions, schedule of income and expenditures, and a statement of financial affairs
Debt Collector and sueing
May sue you only where you incurred the debt or where you reside. Most debt collectors cannot sue you unless they have the ability to practice law or hire a lawyer.
The bankrupt or the debtor
Mean the same—the person or business or governmental body seeking protection under the Bankruptcy Code. Sometimes Called "the consumer"
Chapter 9 (topic)
Municipal Bankruptcies: deals with cities (not covered in this book)
To be a valid reaffirmation, it must
Not violate laws for fraud, duress or unconscionably Be filed in court Include the detailed disclosure statement Clearly state that the debtor has the right to rescind within 60 days Not impose undue hardship on the debtor
Discharge (13)
Once confirmed, the plan is binding on all creditors The debtor is washed clean of all pre-petition debts except those provided for in the plan, but (unlike under chapter 7) the debts are not permanently discharged until the debtor fully complies with the plan If the debtor's circumstances change during the plan payment period, the debtor, creditors or trustee may petition the court to change the payment plan
Chapter 11 (Bankruptcy)
Reorganization for any type of business operation
Chapter 11 (topic)
Reorganization: Businesses and wealthy individuals. Business continues and creditors may receive current assets and future earnings
Trustees
Responsible for gathering the bankrupt's assets and diving among creditors Creditors have the right to elect their own trustee but often just allow the US Trustee to select one The U.S. Trustee calls a meeting of the creditors after the order for relief (can ask questions) After this meeting, unsecured creditors must submit proofs of their claims
Unsecured Claims (MUST BE PAID TOGETHER)
Secured claims that exceed the value of the available collateral Priority claims that exceed the priority limits All other unsecured claims (credit cards)
Chapters 7, 9, 11, 12, and 13 of the Bankruptcy Code
Substantive rules that apply to specific types of bankruptcies. These substantive chapters all have either rehabilitation or liquidation as their goal.
Exempt Property
The Code permits individual debtors (but not organizations) to keep some property for themselves—only place where the fed gvt has permitted the state to have a role in the bankruptcy process The Code allows each state to designate the property and value of assets that can be exempt, and most states have done so
Debtor's/Creditor's Rights
The Fair Debt Collection Act (FDCPA)
Who may a debt collector contact?
The consumer The consumer's attorney A consumer reporting agency (if permitted by local law) The creditor The creditor's attorney The debt collector's attorney
Plan of Reorganization (11)
The debtor has 120 days to come up with a plan that is acceptable to the creditors The creditors will usually only accept a reorganization plan that they believe will be better for them than liquidation If they reject the debtor's proposal, the creditors or shareholders may submit alternative plans—rare because they have to hire an attorney
Involuntary Petition (must meet ALL of the following requirements)
The debtor must owe at least $12,300 in unsecured claims to the creditors who files If he debtor has at least 12 creditors, three or more creditors must sign the petition. If fewer than 12 creditors, any one of them can file
Rehabilitation or liquidation
The objective of chapters 11 and 13 of the Bankruptcy Code is rehabilitation of the debtor.
Who qualifies as a consumer?
The person owing the debt (the borrower) The borrowers spouse The borrower's parents The borrower's guardian The borrower's executor The borrower's administrator
The trustee can void a transfer that meets all of the following requirements:
The transfer was to a creditor of the bankrupt It was to pay an existing debt The creditor received more than she would have received during the bankruptcy process The debtor's liabilities exceeded assets at the time of the transfer The transfer took place in the 90-day period before the filing of the petition
3 Primary Goals of the Bankruptcy Code
To preserve as much of the debtor's property as possible To divide the debtor's assets fairly between the debtor and the creditors To divide the debtor's assets fairly among the creditors
Prohibited practices for debt collectors:
Use or threaten to use violence or other criminal means to harm Use obscene, profane or other language that abuses Publish a list of consumer who allegedly refuse to pay Advertise a debt for sale to coerce payment Annoy or harass Make calls without properly identifying themselves
2 Kinds of Petitions
Voluntary/ Involuntary
Automatic stay (failure to comply can result in jail time)
When a petition is filed for any type of bankruptcy the law automatically prohibits creditors from collecting debts incurred before the petition was filed Also prohibits bankrupt from paying any debts incurred before the petition was filed without permission of the court
Trustee
a person with special training and credentials (normally an attorney of CPA) who is appointed by the Court to oversee the bankruptcy case (appointed by the local court/us attorney general)
Voidable preferences
a transfer of money or property just before filing bankruptcy
The Assets
anything of value (money, goods, real estate, investments, stocks, obligations or debts owed to the bankrupt, property being held by others for the bankrupt,) which belongs to the bankrupt or which the bankrupt is entitle to obtain and have it his/her/its possession
consumer reorganization: selection of trustee
appointed by the U.S Trustee
Petition
documents filed with the Bankruptcy Court to start the process
Chapter 11 (bankruptcy)
does not require a trustee; the petitioner (called debtor in possession) serves as the trustee He or she: (1)Operates the business and (2)Develops a plan of reorganization A creditors committee watches over the interests of the creditors
Bankruptcy Estate
everything you own or owe makes up your "bankruptcy estate"
consumer Reorganization: who may use it
individual
Reorganization: who may use it
individual or organization
liquidation: who may use it?
individual or organization
Debt Collector
is any person who regularly collects, or attempts to collect, consumer debts for another person or institution or uses some name other than its own when collecting its own consumer debts Communication in debt collection is highly regulated.
Discharge Hearing
judge makes sure that the law has been followed and that the bankrupt understands that there are debts that cannot be discharged
liquidation: impact on debtor's post-petition income
no affected, debtor keeps all future earnings
liquidation: participation in formulation of plan
no plan
Reorganization: selection of trustee
no trustee
consumer reorganization: administrate of estate
trustee
liquidation: administrate of estate
trustee
The Creditor
the person or business organization or entity or government organization that is owed money by the bankrupt
Liquidation
the process of selling the bankrupt's assets to pay creditors
FDCPA
the purpose of the act is to eliminate abusive, deceptive, and unfair debt collection practices. It also protects reputable debt collectors from unfair competition and encourages consistent state action to protect consumers from abuses in debt collection
Purpose of automatic stay
the purpose of the automatic stay is to give the debtor time and space to make a rational plan for paying debts without pressure from creditors
Payment of Claims
the trustee is responsible to pay the bankruptcy estate to the various classes of claims in the the following order of rank: secured claims priority claims unsecured claims
consumer reorganization: type of petition
voluntary
Reorganization: type of petition
voluntary or involuntary
liquidation: type of petition
voluntary or involuntary
If you have a problem with a debt collector:
you may file a complaint with the Ohio attorney generals office or call the federal trace commission
What happens if you don't fill out the bankruptcy petition fully?
your case can be thrown out of court
