Bankruptcy Flashcards
Bankruptcy gives creditors protection from their creditors and stops them from either permanently (Chapter 7) or temporarily (Chapter 11 or 13) collecting a debt. The filing halts collection activity; grants automatic stay (with certain exceptions), and stops creditors from suing debtor.
Bankruptcy & Debt
Student Loans Income taxes from previous 3 years Alimony & Child Support Debts/judgements resulting from drunk driving Pension obligations Debts relating to SOX violations Debts arising from illegal activities Debts not listed in the bankruptcy filing
Bankruptcy & Debt
It doesn’t; because the corporation is a separate legal entity.
Under bankruptcy; corporations are dissolved
Under bankruptcy; individuals are discharged
Bankruptcy & Debt
If a debtor fails to keep good records or falsifies documents; a discharge will be denied
Bankruptcy & Debt
Discharges all non-exempt debt
Can only be filed every 8 years from previous Chapter 7 filing
Voluntary or involuntary filing
Certain businesses are disallowed from Chapter 7 bankruptcies - Railroads; Banks; Insurance companies; Savings & loans (think: 7th inning RBIs)
Bankruptcy & Debt
Must pass means test
Your income must be below the median income for your state (Note - median; i.e. middle; not mean; i.e. average)
Credit card companies made it harder for people to declare Chapter 7 when they lobbied Congress in 2005
Bankruptcy & Debt
In some cases; your creditors can force you into Chapter 7 or Chapter 11 BK
Creditors must be able to prove that they are not being paid on time (i.e. debtor is insolvent) or that within the past 120 days the debtor assigned a custodian of the secured property
If 12+ unsecured creditors - at least 3 must file; claims must be in excess of $14;425
If less than 12 unsecured creditors - only 1 must file; claim(s) must be in excess of $14;425
Upon filing; a judge will declare an order for relief unless the debtor protests
Bankruptcy & Debt
Charities
Farms
Bankruptcy & Debt
If the debtor pays the court-assigned bond to keep a property in an involuntary BK; they can
reclaim possession of their property from the interim BK trustee
Bankruptcy & Debt
Allows a business a reprieve from creditors
Creates a payment plan for the debt
Business remains in operation
At least 2/3 of each debt class of creditors must consent to reorganization
Ch. 11 Involuntary petitions are allowed
Bankruptcy & Debt
Similar to Chapter 11; but for individuals
Gives individuals a reprieve from creditors
Creates a payment plan for the debt
Ch. 13 Involuntary petitions are not allowed
Bankruptcy & Debt
Represents the bankruptcy estate
Can sue or be sued
Oversees bankruptcy and watches for preferential creditor payments
Oversees priority transfer of assets to creditors
Bankruptcy & Debt
Optional - Creditors decide
Can be elected by creditors or can be appointed by the court
Bankruptcy & Debt
Trustee can void payments on antecedent (past) debts that occur within 90 days of a BK filing
A Trustee cannot void a payment made to a creditor that is an even swap (contemporaneous exchange) and for new value
A voidable preference must be on an old debt where the debtor is basically picking and choosing which creditors they send money to (AKA a voidable preference)
Bankruptcy & Debt
Made within One Year of BK to insider - Corporate officers/directors; Partners; Relatives
Made within 3 Months of BK non-insider
Creditor receives larger payment than BK liquidation would have granted
Bankruptcy & Debt
Superior to claims of other types of creditors
Can take either collateral or cash proceeds from the sale of an asset
If collateral doesn’t satisfy amount owed; Secured Creditors become a general creditor for the difference.
Bankruptcy & Debt
- BK Trustee and Attorney fees get paid before all other unsecured credit cards
- Salaries required to continue business once BK proceedings begin
- Any claims filed resulting from business operations that occur after involuntary BK is filed
- Wages owed to employees
- Retirement contributions within last 6 months
- Consumer deposits for undelivered goods
- Child Support & Alimony
- Taxes
- Other general unsecured claims
Bankruptcy & Debt
The bankruptcy trustee can act in the best interest of the creditors and assign the leases under contract to the creditors
The trustee has 60 days to assume leases on equipment after bankruptcy is granted or the leases will be rejected
Bankruptcy & Debt
The pool of assets available to creditors until liquidation
Bankruptcy & Debt
Social security
Disability payments
Unemployment; Child Support; Alimony; Wages; Pensions; Annuities to the extent that they provide reasonable support for debtor and dependents
Bankruptcy & Debt
Inheritance/Insurance payments received within 180 days of filing for a Chapter 7 bankruptcy become part of the BK Estate
Bankruptcy & Debt
Court allows a creditor to garnish or take a portion of the debtor’s paycheck
Bankruptcy & Debt
Lien on real property to secure payment for a repair/improvement done to the house
A contractor builds an addition to your house and you won’t pay. They can’t repo your house; so they get a Mechanics Lien that sticks until you sell your house and they get paid
Bankruptcy & Debt
Applies to personal property like a car
If the dealership does $500 in repairs to your car; you don’t get the car back until you pay
Bankruptcy & Debt
A third party agrees to be liable for a loan
Example: A parent co-signs on their child’s car loan
Bankruptcy & Debt
A surety is primarily liable
Surety can be released from liability if the creditor behaves in a way that increases the risk that they
initially agreed to
Surety can be released from liability if the debtor changes the loan agreement in a way that materially
increases the surety’s risk
Bankruptcy & Debt
Two sureties are guaranteeing the same debt
Proportionately liable - If one cosurety is released from their obligation; then the remaining cosureties
have their proportionate share reduced by the released party’s percentage
If one surety pays more than their proportionate share of the risk; then the other sureties must compensate them for the difference; which is called Right of Contribution
Bankruptcy & Debt
Similar to surety; but a guarantor is secondarily liable
Bankruptcy & Debt
Basically - your creditors have the right to collect from you; but not abuse you or embarrass you
The can’t contact you once you’re represented by an attorney
They can call other people to find out where you are; but they cannot identify themselves as collectors
They must stop calling you at work if you send them a certified letter that says my employer doesn’t allow me to take calls at work.
They must call you only at reasonable hours of the day - according to your time zone; not theirs
Bankruptcy & Debt
