Bankruptcy Flashcards
Ch. 7
Straight bankruptcy. The individual debtor usually gets a “fresh start” by receiving a discharge of debts. Nonexempt assets are liquidated and for an individual debut their debts discharged
Trustee always appointed
Ch. 11
Business Georg and individuals over $400 unsecured / $1.2M secured debt
Confirmation of the plan binds the debtor and creditors to its terms and discharges all debts dischargeable under the Code.
In Ch. 11, generally debtor may continue to operate the business in bankruptcy for a “debtor in possession” without having to appoint a separate trustee.
Ch. 13
the individual debtor is eligible for discharge after all payments have been made under the plan.
Trustee always appointed
Instituted by an individual to repay creditors over the (typically 3—5 years)
Only individuals w/regulat income and non contingent, liquidated debate unsecured debts of less than $400K and non contingent, secured debt of less than $1.2M (3xs amount of unsecured). If exceed then must file Ch. 11.
Discharge
(i) relieves a debtor of personal liability and (ii) serves as a permanent injunction against creditors, prohibiting them from taking any action to recover a discharged debt from the debtor
Fraudulent Transfers
The Bankruptcy Code makes fraudulent transfers voidable by the trustee if made within two years (4 years in TX) before the date of the filing of the petition
Transfers made in exchange for “less than a reasonably equivalent value,” regardless of whether the debtor had an intent to hinder, delay, or defraud, are fraudulent transfers if any of the following also occurred:
(i) the debtor was insolvent or became insolvent as a result of the transfer;
(ii) the debtor was engaged in business or was about to engage in business with an unreasonably small amount of capital;
(iii) the debtor intended to incur debts that would be beyond the debtor’s ability to pay as the debts matured; or
(iv) the debtor made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business
After Acquired Property Inclusion when:
property acquired by the debtor after the petition is filed does not become part of the bankruptcy estate. However, there are five exceptions to this rule
The following property does become a part of the bankruptcy estate:
(i) property interests and earnings acquired by an individual debtor after filing a Chapter 13 or Chapter 11 petition but before the case is closed, dismissed or converted to another chapter;
(ii) proceeds of property of the estate, even if they come into the estate after the petition is filed;
(iii) any property that the debtor becomes entitled to by bequest, devise, or inheritance within 180 days after the petition is filed,
(iv) the proceeds of a life insurance policy or death plan of which the debtor is a beneficiary, provided the debtor becomes entitled to such proceeds within 180 days after the petition is filed, and
(v) property the debtor is entitled to as a result of a property settlement with a spouse or a divorce decree within 180 days after the bankruptcy petition is filed.
Ch.7 Non-Dischargeable Debts
One such debt is the purchase of luxury goods or services if the debts aggregate over $675 to a single creditor, and this aggregate amount of debt is incurred within 90 days of the order for relief.
Automatic Stay (and exceptions)
When a debtor files a bankruptcy claim, an automatic stay arises and prevents creditors from pursuing remedies against the debtor or his assets.
Willful violations can result in damages, atty fees, and even punitive damages
However, the automatic stay does not apply to certain actions. One such action is an eviction proceeding based on endangerment or illegal use of controlled substances on the property, or the continuance of an eviction proceeding in which a landlord obtained a judgment of possession before the filing of the bankruptcy petition.
Purpose of the Automatic Stay
Protect the debtor from the harassment and financial pressures that drove the debtor into bankruptcy in the first place. The policy behind the automatic stay is that all actions against the debtor should be halted pending the determination of creditors’ rights and the orderly administration of the estate’s assets free from creditors’ interference. It is important to note that the automatic stay does not alter the substantive rights of creditors. Instead, it only interrupts collection activities while the bankruptcy is pending
Prereq for Individual Filing
Individual ineligible to be debtor unless, within 180 days of the bankruptcy filing, the individual received an individual or group briefing from an approved nonprofit budget and credit counseling agency
At min. briefing must file with the court a certificate of completion from the agency describing the services provided to the debtor. Additionally, if debt repayment plan created, debtor must file that plan
Debt Relief Agency
Must comply with certain restrictions and disclosure requirements and may be liable for damages, costs, loss of fees, and/or subject to fines for failing to comply
Includes attorney providing bankruptcy assistance
Dismissal of Ch. 7 for “Abuse” (forces to Ch. 13)
Established by an individual debtor w/primarily consumer debts upon finding that Ch 7 would constitute an abuse. 2 ways of establishing:
(1) Abuse can be established by showing the debtor filed in bad faith or not in good under totality ofcircum or
(2) Means Test: If income is greater than median income. If over median, then means test: can they pay creditors b.w $8k and $13K over 5 years then should be forced into Ch. 13.
Bad Acts Limitation
Debtor’s homestead is limited to $160K. (1) If convicted of a felony demonstrating that filing of case was an abuse of Bankruptcy Code OR (2) if debtor owes a debt arising from violating fed/st sec laws; fraud; RICO; any criminal act to reckless misconduct causing serious physical injury or death within 5 year period before filing
Trustee as Hypo Lien Creditor
May avoid any property interest or claim held by a creditor that could be trumped by a judicial lien creditor who eat its lien on date of bankruptcy filing
Under UCC, secured creditor prevails over lien creditor if secured is perfected by time lien creditor eat its lien OR if secured creditor obtained its Security Agreement and filed a Financing Statement by the time the lien is established
Trustee given rights of a BFP of debtor’s real property as of date of filing
Trustee Power to Avoid Preferential Transfer
5 conditions MUST be present to have voidable preference:
(1) Transfer to or for the benefit of a creditor (nil transfer of a security interest)
(2) Transfer must be when debtor is insolvent (presumption that debtor is insolvent during 90 day period prior to bankruptcy filing)
(3) Transfer must be of an antecedent debt (if creditor perfected security interest within 30 days then transfer at the time of attachment / if perfection after then transfer made at time of perfection)
(4) Transfer must be made within 90 days of filing a petition in bankruptcy (1 year if the transfer is to an insider such as a family member or a SH of a corp if the corp is in bankruptcy)
(5) The preference must enable the creditor to receive more than it would have received by way of its “dividend” in bankruptcy liquidation
