Bankruptcy

Question 1

What can a creditor do is the debtor transfers property for the purpose of delaying or defeating the collection effort?

What is this called?

Answer 1

They can usually reverse the conveyance and levy against the property.

This is called fraudulent conveyance

Question 2

What are the four protections offered to debtor’s?

Answer 2

1- Homestead election: most states allow homeowners to protect up to a certain amount of equity in their homes from unsecured creditors. (doesn’t work with mortgages)

2- State exempt property statutes (story about P. Lewis trying to take a watch and wallet from debtor which cant strip someone to have nothing - jewelry, $500, etc)

3- Consumer protection statutes

4- Federal Bankruptcy law

Question 3

What does the homestead election do? Does it work with mortgages?

Answer 3

most states allow homeowners to protect up to a certain amount of equity in their homes from unsecured creditors.

No it doesn’t work with mortgages

Question 4

What are the three main goals of bankruptcy?

Answer 4

1- protect and rehabilitate debtor.

2- Treat all creditors “fairly” though not necessarily equally

3- Require consumer-debtors to pay as much of their debts as they can

Question 5

What is the focus of chapter 7 bankruptcy?

What is the focus of chapter 13 bankruptcy?

Answer 5

• Chapter 7: Liquidation

- Chapter 13: payments over an extended period of time

Question 6

What chapters of bankruptcy are voluntary? Which involuntary?

Answer 6

Voluntary: all

Involuntary: 7& 11 both can be (debtor forced against their will if needed)

Question 7

What are the first seven sworn debtor schedules, and when must they be filed by?

Answer 7

1- List of secured & unsecured creditors, amounts due them, and their addresses

2- A statement of the financial affairs of the debtor

3- A list of all property both exempt and non-exempt

4- A listing of current income and expenses

5- A certificate of credit counseling

6- Proof of wages/ salaries received within the 60 days prior to filing

7- A statement of monthly income

These must be filed within 45 days after the petition for bankruptcy is filed unless the court extends the deadline (up to 45 days)

Question 8

What is the 8th sworn debtor schedule, and when must it be filed?

Answer 8

8- The debtor’s most recent federal tax return

This must be filed at least 7 days prior to the 1st meeting of creditors (3 - 23 days after bankruptcy filing)

Question 9

What happens if you don’t get the 8 sworn debtor schedule items in on time?

Answer 9

The case will be dismissed.

Question 10

What will a failure to pay post petition domestic support obligation do?

Answer 10

dismiss the case

Question 11

Does the debtor need to be insolvent to file for bankruptcy?

Answer 11

no

Question 12

What must be provided for several years by the debtor upon the creditors request. What chapters of bankruptcy does this fall under?

Answer 12

federal tax returns

Chapters 11, 12, 13

Question 13

What has been done to stop impetuous (acting or done quickly and without thought or care) filings?

Answer 13

Within 180 days before filing the debtor must have worked with a credit counselor and come up with a plan to take care of his debts.

Question 14

What is the purpose of credit counseling?

Answer 14

1- to avoid having to take out bankruptcy at all

2- to minimize the chances for future bankruptcy filings

Question 15

What does it mean when an attorney signs a chapter 7 petition?

Answer 15

He is certifying that the debtor is not abusing that chapter and the petition and schedules have been reasonably verified.

Question 16

What happens if a petition is dismissed because of abuse and the attorney has signed it?

Answer 16

The debtor and/or the attorney can be forced to pay the costs and fees associated with that dismissal

Question 17

What are the rebuttable presumptions (abuse) that can be found under “means testing”?

Answer 17

This is if the debtors income is greater than his states median income

Question 18

What are the three ways a debtors income can be found to be more than his states median income, and would show abuse.

Answer 18

a- Monthly income minus living expenses >$100 but 25% of his non priority unsecured debt then a chapter 7 filing is abusive

b- If monthly income minus living expenses and other expenses is >$166.66 then chapter 7 is abusive

Question 19

How are normal monthly living expenses determined for the “means testing”? What is included under “other expenses”?

Answer 19

• IRS pronouncements based on location
• health and disability insurance premiums, health savings account expenses, support payments for elderly, chronically ill/ disabled family members, up to $1,500 per dependent child per year for education, monthly secured debt payments,arrearages needed to be paid in order to maintain the debtor’s primary residence, motor vehicle, and other property necessary to the support of the debtor; and the bankruptcy trustee fees if the debtor qualifies for Chapter 13

Question 20

What is an automatic stay in bankruptcy? When does it happen?

Answer 20

It stops most collections from creditors and forces them to go through bankruptcy court.

It comes automatically when the bankruptcy petition is signed.

Question 21

Are there exceptions to the “automatic stay” when a bankruptcy petition is filed?

Answer 21

yes: support obligations, medical obligations, tax refund interceptions by government authorities, loan repayment to pension plans, and landlord actions including evictions.

Question 22

Can anything be done about a “automatic stay”? How?

Answer 22

Yes, the secured creditors can petition for a release of the stay.

Question 23

When is the first meeting of creditors? Do creditors have to come to receive proceeds?

Answer 23

10-30 days

no they don’t have to show up to get their money

Question 24

Generally what property is included by the debtor at the time of filing? What are the exceptions?

Answer 24

• property owned by the debtor at the time of the filing
• exceptions: gifts, inheritances, property settlements in a divorce, and life insurance death proceeds received within 180 days after the fling, and preferential transfers before the filing date become part of the estate.

Question 25

What must a creditor file, and within what time period to get their claim? Which claims are allowed?

Answer 25

A proof of claim must be filed within 90 days after the first meeting of creditors. All these claims are automatically allowed unless contested.

Question 26

To use the homestead exemption under state laws rather than federal set under bankruptcy laws, how many days must someone have lived in the state?

Answer 26

730 days prior to filing

Question 27

What are the four trustee powers?

What does this give the incentive to do?

Answer 27

1- beat out unperfected article 9 secured parties

2- can avoid executory contracts (contracts not fully performed by the bankrupt)

3- can reverse preferential transfers

4- can reverse fraudulent transfers

This gives incentive to find issues with the above items, because the trustee gets a percent of the value of the properties administered for the benefit of unsecured creditors.

Question 28

What is a preferential transfer?

Answer 28

a transfer by the debtor prior to bankruptcy petition which favor certain creditors (like family and friends) over others.

Question 29

What 3 things make a transfer a preferential transfer?

How much money can be transferred with it automatically not being qualified as a preferential transfer?

Answer 29

1- made within 90 days prior to bankruptcy filing

2- regarding pre-existing debt (even tithing might count) AND

3- made while the debtor was insolvent (laib.>assets) or which cause him to become insolvent (insolvency presumed within the 90 days before filing.)

They can transfer $5,475 to an unsecured creditor without it being counted

Question 30

Can someone go from a unsecured to a secured position within the 90 days proceeding filing?

Answer 30

No, unless they are a PMSI (purchase money security interest). A PMSI gets 30 days to perfect.

Question 31

What is an insider preference?

What is the reversal period?

Answer 31

The same thing as a preferential transfer, except it is to a family member or closely held business

The period is one year prior to filing the bankruptcy petition if insolvency can be proved

Question 32

What are the priority classes for unsecured creditors? What happens at the last level money is able to pay for?

Answer 32

1- Domestic Support obligations

2- Administrative expenses

3- Business expenses in involuntary cases

4- Unpaid wages/ salaries for prior 180 days up to $10,950 per employee of bankrupt employer

5- Unpaid pension contributions for prior 180 days

6- Farmers’ and fishers’ claims against a bankrupt storage facility up to 5,400 per claimant

7- Consumer deposits with a bankrupt seller up to 2,425 per customer

8- Taxes and penalties

9- Drunk driving claims and other intoxication - caused injuries

10- All other general unsecured creditors

The last class at whichever level above divides the remaining funds proportionally.

Question 33

A discharge can be revoked (bankruptcy filing revoked) in what conditions?

Answer 33

If within year of discharge, and if it can be proven that the debtor was dishonest or fraudulent during the hearings.

Question 34

What is the major difference between chapter 7 bankruptcy versus chapter 11-13?

Answer 34

11-13 are payments and don’t have liquidation like chapter 7

Question 35

Who uses chapter 11 bankruptcy?

12? 13?

Answer 35

11 - businesses

12- farmers and ranchers

13- people with a steady source of income

Question 36

What is the main reason companies usually go into bankruptcy filing under chapter 11?

How often do bankruptcy’s succeed for businesses?

Answer 36

• The main reason is to avoid union contracts

- Very unsuccessful. Only 7% survive bankruptcy

Question 37

What happens to a company that cant maintain its payments under a bankruptcy payment plan?

Answer 37

The creditors get it

Question 38

Why did chapter 12 come about?

Answer 38

because they don’t fit chapter 13’s requirement for steady source of income

Question 39

To file a chapter 13 bankruptcy petition it must be how many years since a prior Chapter 13 discharge? From a Chapter 7, 11, or 12 discharge?

Answer 39

Prior 13 - at least 2 years

Prior 7, 11, 12 - at least 4 years

Question 40

What chapters can a debtor not involuntarily forced into?

Answer 40

12 & 13

Question 41

To qualify for chapter 13 bankruptcy you must…(3)

Answer 41

1- have a steady source of income

2- have unsecured debts less than $336,900 AND

3- have secured debts less than $1,010,650

Question 42

What is needed for a chapter 13 plan to be approved?

Answer 42

1- propose to pay off 100 % of debt

OR

2- proposes to pay into the plan all of the debtor’s disposbale income over the life of the plan

Question 43

How long do chapter 13 plans usually last?

What causes the different times?

Answer 43

3-5 years

3 is if income below median
5 is if above medial income