Bankruptcy

Question 1

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.

Answer 1

Bankruptcy & Debt

Question 2

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

Answer 2

Bankruptcy & Debt

Question 3

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

Under bankruptcy; corporations are dissolved

Under bankruptcy; individuals are discharged

Answer 3

Bankruptcy & Debt

Question 4

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

Answer 4

Bankruptcy & Debt

Question 5

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)

Answer 5

Bankruptcy & Debt

Question 6

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

Answer 6

Bankruptcy & Debt

Question 7

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 $15325

If less than 12 unsecured creditors - only 1 must file; claim(s) must be in excess of $15325
Upon filing; a judge will declare an order for relief unless the debtor protests

Answer 7

Bankruptcy & Debt

Question 8

Charities

Farms

Answer 8

Bankruptcy & Debt

Question 9

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

Answer 9

Bankruptcy & Debt

Question 10

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

Answer 10

Bankruptcy & Debt

Question 11

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

Answer 11

Bankruptcy & Debt

Question 12

Represents the bankruptcy estate

Can sue or be sued

Oversees bankruptcy and watches for preferential creditor payments

Oversees priority transfer of assets to creditors

Answer 12

Bankruptcy & Debt

Question 13

Optional - Creditors decide

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

Answer 13

Bankruptcy & Debt

Question 14

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)

Answer 14

Bankruptcy & Debt

Question 15

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

Answer 15

Bankruptcy & Debt

Question 16

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.

Answer 16

Bankruptcy & Debt

Question 17

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

Answer 17

Bankruptcy & Debt

Question 18

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

Answer 18

Bankruptcy & Debt

Question 19

The pool of assets available to creditors until liquidation

Answer 19

Bankruptcy & Debt

Question 20

Social security

Disability payments

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

Answer 20

Bankruptcy & Debt

Question 21

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

Answer 21

Bankruptcy & Debt

Question 22

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

Answer 22

Bankruptcy & Debt

Question 23

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

Answer 23

Bankruptcy & Debt

Question 24

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

Answer 24

Bankruptcy & Debt

Question 25

A third party agrees to be liable for a loan

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

Answer 25

Bankruptcy & Debt

Question 26

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

Answer 26

Bankruptcy & Debt

Question 27

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

Answer 27

Bankruptcy & Debt

Question 28

Similar to surety; but a guarantor is secondarily liable

Answer 28

Bankruptcy & Debt

Question 29

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

Answer 29

Bankruptcy & Debt