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REG Ninja Flashcards > Bankruptcy > Flashcards

Bankruptcy Flashcards

1
Q

What are the basic actions that occur in a bankruptcy?

A

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.

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2
Q

For what debts does bankruptcy NOT stop collections?

A 
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
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3
Q

How does bankruptcy of a corporation affect the owner’s ability to file bankruptcy?

A

It doesn’t; because the corporation is a separate legal entity.

Under bankruptcy; corporations are dissolved

Under bankruptcy; individuals are discharged

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4
Q

What key action will cause a bankruptcy discharge to be denied?

A

If a debtor fails to keep good records or falsifies documents; a discharge will be denied

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5
Q

What are the basic characteristics of a Chapter 7 bankruptcy (liquidation)?

A

Trustee is appointed who liquidates the assets and uses the proceeds to pay off debts to the extent possible.

Individual/Married: debts of discharged with exceptions

Artificial Entity: dissolved

Can only be filed every 8 years from previous Chapter 7 filing

Voluntary or involuntary filing

Credit counseling required

Certain businesses are disallowed from Chapter 7 bankruptcies - Railroads; Insurance companies, Banks, Savings Institutions/Small businesses (RIBS)

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6
Q

What are the requirements for a voluntary bankruptcy filing under Chapter 7?

A

Review Ch. 7 abuse: look at past 6 months avg income and compare it to median income. If = means test applies

Means test: (Avg. monthly income - allowed expenses)x60

Less than $7,475 = Ch. 7 relief
Greater than $12,475 = presumption of abuse
In between = abuse if equal to 25% of the debtors unsecured claims no entitled to priority payment

Credit card companies made it harder for people to declare Chapter 7 when they lobbied Congress in 2005

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7
Q

What are the requirements for an involuntary bankruptcy filing under Chapter 7?

A

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 $15,325

If less than 12 unsecured creditors - only 1 must file; claim(s) must be in excess of $15,325

Upon filing; a judge will declare an order for relief unless the debtor protests

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8
Q

What entities are disallowed from involuntary Chapter 7 bankruptcy filings?

A

Charities

Farms

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9
Q

How can a debtor reclaim possession of their property from the interim bankruptcy under Chapter 7?

A

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

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10
Q

What are the basic characteristics of a Chapter 11 bankruptcy (business repayment) filing?

A

Trustee is not required but a court could appoint one if needed.

Mostly for businesses “with hope left” but applies to individuals too

Retains possession of assets and a plan of reorg; creditors paid to extent possible and business keeps going

At least 2/3 of each debt class of creditors must consent to reorganization

Ch. 11 Involuntary petitions are allowed

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11
Q

What are the basic characteristics of a Chapter 13 bankruptcy (personal repayment) filing?

A

Trustee oversees handling of proceeding.

For individuals only with regular income; debtor repays portion of his debts over a 3 year to max of 5 year period.

At end of Ch. 13, remaining debts are discharged

Gives individuals a reprieve from creditors

Creates a payment plan for the debt

Ch. 13 Involuntary petitions are not allowed

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12
Q

What are the duties and abilities of a bankruptcy trustee?

A

Represents the bankruptcy estate

Can sue or be sued

Oversees bankruptcy and watches for preferential creditor payments

Oversees priority transfer of assets to creditors

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13
Q

How and when is a bankruptcy trustee appointed?

A

Optional - Creditors decide

Can be elected by creditors or can be appointed by the court

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14
Q

What actions can a bankruptcy trustee take with respect to preferential creditor payments in a bankruptcy?

A

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)

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15
Q

When can preferential transfers be voided by a bankruptcy (BK) trustee?

A

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

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16
Q

What is the treatment of a secured creditor in a bankruptcy?

A

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.

17
Q

What is the order of priority given to unsecured creditors in a bankruptcy?

A
  1. BK Trustee and Attorney fees get paid before all other unsecured credit cards
  2. Salaries required to continue business once BK proceedings begin
  3. Any claims filed resulting from business operations that occur after involuntary BK is filed
  4. Wages owed to employees
  5. Retirement contributions within last 6 months
  6. Consumer deposits for undelivered goods
  7. Child Support & Alimony
  8. Taxes
  9. Other general unsecured claims
18
Q

What are key aspects of a bankruptcy involving a landlord or leases under Chapter 7?

A

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

19
Q

What is the bankruptcy estate?

A

The pool of assets available to creditors until liquidation

20
Q

What assets are exempt from creditors in a bankruptcy estate?

A

Social security

Disability payments

Unemployment; Child Support; Alimony; Wages; Pensions; Annuities to the extent that they provide reasonable support for debtor and dependents

21
Q

How long after a Chapter 7 bankruptcy filing can creditors claim inheritance or insurance payments for repayment?

A

Inheritance/Insurance payments received within 180 days of filing for a Chapter 7 bankruptcy become part of the BK Estate

22
Q

What is a garnishment with respect to a bankruptcy?

A

Court allows a creditor to garnish or take a portion of the debtor’s paycheck

23
Q

What is a mechanics lien?

A

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

24
Q

What is an artisan’s lien?

A

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

25
Q

What is a surety (co-signing)?

A

A third party agrees to be liable for a loan

Example: A parent co-signs on their child’s car loan

26
Q

How is a surety liable in a transaction?

A

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

27
Q

What is a cosurety; and how are they liable in a transaction?

A

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

28
Q

What is a guarantor?

A

Similar to surety; but a guarantor is secondarily liable

29
Q

What are the basic rights of a debtor under the Fair Debt Collection Practices Act?

A

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

30
Q

What are allowable deductions for the “Means Test”?

A
  1. Living expenses in amounts set by the IRS
  2. Health and disability insurance and HSAs
  3. Care of elderly, disabled, and chronically ill
  4. Expenses to keep safe of family violence
  5. Expenses to Administer a Ch. 13 plan (10% plan payments)
  6. Expenses for depends to attend elementary - high school
  7. 1/60th of payments due to secured creditors
  8. 1/60th of amount of priority claim payments
31
Q

What is a “Section 341” meeting?

A

Meeting of the creditors after the order for relief is awarded. Notice must be given of the meeting.

Debtor must attend. Provides the creditors an opportunity to examine the debtor.

REG Ninja Flashcards (22 decks)

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