Bankruptcy Flashcards
Describe chapter 7 bankruptcy
It’s a liquidation- turning assets into cash to pay debts
Applies to all debtors except: railroads, banking institutions, insurance companies.
Describe chapter 11 bankruptcy
It’s a reorganization.
Usually meant for business, but any chapter 7 debtor qualifies, railroads are covered, but not stockbrokers or commodity brokers.
What other chapters are there?
Chapter 13; reorganization for individual debtors only, with ceilings on the amount of debt owed.
Chapter 12: family farmer reorganization.
Chapter 9: municipality reorganization.
What is a stay and when does it occur?
A stay effectively stops credits from pursuing their claims against the debtor, except in bankruptcy court. It occurs as soon as a petition is filed for bankruptcy.
Ways to enter into bankruptcy?
Voluntarily or involuntarily forced by creditors.
For voluntary petitions, what number of creditors are required?
No specific number of creditors required.
For involuntary petitions, what number of creditors are required?
If 12 or more creditors: at least 3 creditors must file, and have a combined claim of $15,325 or more.
If less than 12 creditors: only 1 (but there can be more) creditor need to file. Claims must be $15,325 or more.
The $15,325 requirement must:
Must be undisputed claims
Unsecured, or in excess of any security being held
Adjusted every 3 years for inflation.
Who cannot be forced into bankruptcy?
Debtors owing less than $15,325
Farmers
Charitable Organizations.
If debtor contests to involuntary petition, it will be granted regardless if:
debtor not paying debts as they become due OR within 120 days prior to the filing of the petition, a custodian, or a receiver took possession of substantially all the debtor’s assets.
If debtor successfully dismisses petition, debtor may receive:
Attorney’s fees and court costs
Compensatory damages
Punitive damages, if petition was filed in bad faith.
What is the job of the trustee?
Investigates and presides over the financial affairs of the debtor.
Has debtor’s assets appraised.
Examines the validity of creditors’ claims.
May properly dispose of assets
May employ held as necessary.
What property is included in debtor’s estate?
All property interest at the time of the filing.
Certain property acquired within 180 days after the filing dater:
-inheritance
-life insurance proceeds
-from settlement agreement with spouse
Rents, royalties, or other proceeds from estate property
Property acquired by the trustee or estate.
What income sources are exempt form debtor’s estate?
Alimony, child support, and maintenance payments.
Public aid
Social security
Unemployment
What are the preferences in bankruptcy?
Where a debtor makes payment or give security interest
on pre-existing debt, which allows creditor to receive more than creditor would have received in Chapter 7.
Transfer occurs within 90 days prior to the filing.
What are the exceptions to preferences?
Contemporaneous exchange for value
Transfer made in ordinary course of business
Consumer debts less than $650
Business debts less than $6,225
Bona Fide “family” payments (child support, alimony)
What are the rules for insider preferences?
Insider- a person who has a close relationship with the debtor (brother, partner, best friend). Go back 12 months.
What are the rules for fraudulent conveyances?
Go back 1 year
Intent to defraud creditors
While insolvent, transferring property for less than fair value.
What is the priority when distributing the estate?
Secured creditors
Unsecured creditors
-domestic support obligations (alimony)
-administration expenses of the estate (attorneys, accountants)
-Wages up to $12,475 per employee earned within 180 days prior to the filing.
-Taxes
-Debts arising from motor vehicle accidents while intoxicated.
-All other creditors who timely filed
What type of debt is non dischargeable debt?
Most taxes
Alimony, maintenance, child support
Student loans
Intentional torts and DUI torts
Debts and credit obtained fraudulently
Debts owed to creditors not included on the list of creditors
consumer debts for certain luxury goods or services within 90 days prior to the order of relief
Excessive cash advances within 70 days prior to the order of relief (credit cards)
Debts owed to pension plans, profit sharing plans.
What type of debtors are not discharged?
Debtor is not an individual
Intent to defraud creditors.
8 year limit- filing dates.
What is reaffirmation?
When debtor promises, prior to discharge, to pay dischargeable debt.
- Must be filed with and approved by the court
- Rescindable for 60 days.
What is a final decree?
Debtor is discharged from debt except whose provided for in the plan, and those exempted by law.
