Bankruptcy Flashcards
Chapter 7 bankruptcy
debtor liquidates assets, except exempt assets, to pay creditors
Debtor must show they have debts and have income below the state’s median income
Not available to corporations or partnereships
Chapter 11 bankruptcy
debtor reorganizes debts to pay creditors - primarily used by businesses
Chapter 13 bankruptcy
debtor reorganizes debts to pay creditors - primarily used by individuals
debtor must show they have regular income
Creditors committee
group of unsecured creditors who essentially function as the bankruptcy trustee in Chapter 11 cases
Discharge
after debtor completes bankruptcy, debtor is relieved of all previous debt except debts that are nondischargeable.
Estate
debtor’s assets that are used to pay the creditors
Insider
party who has a close relationship with the debtor (insider transactions for 1 year prior to petition are examined by bankruptcy trustee
Involuntary petition
debtor is sued by creditors and forced in bankruptcy. measures insovlency in the equitiy sense (vs bankruptcy sense) where debtor is not paying debts as they become due.
- if less than 12 creditors, any creditor(s) owed more than $15,325 (in aggregate) may file
- if 12 or more creditors, at least 3 creditors (with over $15,325 owed in aggreate) must sign petition
damages (including punitive) may be assesed to creditors filing in bad faith (frivolous petitions)
Liquidation
process of turning assets into cash to pay creditors
Order for relief
granted to debtor upon filing bankruptcy petition - allows debtor to stop paying creditors until the bankruptcy can be finalized
Preferential transfer
when the debtor provides payment or security to a creditor, which would allow creditor to collect more than they would have under Chapter 7 bankruptcy (trustee may set aside if transfer took place 90 days prior to the petition)
Reaffirmation
when a debtor voluntarily chooses to repay a debt that otherwise would be fully discharged under the Bankruptcy Code
Reorganization (rehabilitation)
debtor retains assets (vs liquidating) and agrees to pay creditors out of future earnings under Chapters 11 or 13 of the Bankruptcy Code
Set aside
trustee may set aside transfers made within one year prior to filing bankruptcy petition if
(1) transfer was made with intent to hinder, delay, or defraud any creditor (debtor need not be insolvent at time of transfer)
(2) debtor reeived less than reasonably equivalent value in exchange for transfer and the debtor was inslovent at the time, or became insovlent as a result
(3) preferential transfer was made to an insider
trustee may set aside preferential transfers to non-insiders of nonexempt property made within ninety days prior to filing bankruptcy
trustee returns consideration and reclaims an asset improperly taken from the estate, returning the parties back to their original position before the transfer
transfers cannot be set aside if (1) debtor received new value (2) transfer made in ordinary course of business (3) secured interest given to aquire property if perfected w/in 10 days (4) consumer debts less than $650 (5) business debts less than $6,225
Stay
court order that prevents further collection actions by creditors. issued upon the filing of the bankruptcy petition (does not apply to family law issues)
