Bankruptcy

Question 2

When is credit counseling required?

Answer 2

An individual must have a briefing within 180 days of filing for bankruptcy with an approved nonprofit budget and credit counseling agency. This can be over the phone or internet.

Question 3

What is a debt relief agency?

Answer 3

any person who provides bankruptcy assistance in return for payment. They must comply with certain restrictions and disclosures, and since 2005 this includes attorneys.

Question 4

What are an attoney’s obligations regarding a Chapter 7 filing?

Answer 4

The attorney certifies that he has performed a reasonable investigation into the bankruptcy and the petition is well grounded in fact and law and is not an abuse.

Question 5

Under Bankruptcy law, what is a reorganization?

Answer 5

When the company keeps his assets/business, and renegotiates/organaizes his debt

Question 6

What is a liquidation?

Answer 6

When a bankrupt entity does not keep his assets

Question 7

Describe a Chapter 13 bankruptcy

Answer 7

Available to an individual to pay off creditors over time, usually in 3–5 years. It allows the debtor to retain assets that otherwise might be sold in a Chapter 7. The debts may be extended and reduced. The proposed plan is reviewed under the best interest of the creditors test, meaning that each creditor must receive in present value terms at least as much as he would under Chapter 7.

Question 8

What are the limitations of Chapter 13?

Answer 8

IT is only available to individualsThe debtor must have unsecured debt less than 383k and secured debt less than 1.149 MM. Exceeding these limits makes the debtor have to seek Chapter 11.

Question 9

Describe Chapter 11

Answer 9

It is used by businesses to extend, reduce, or modify the debtor’s obligations, and is allowed for businesses or individuals. It also has the Best interest of the creditors test, meaning each creditor must receive at least as much as he would under Chapter 7. It has an approval process by the creditors involving negotiations between the creditors and debtors. Then a judge confirms the plain. Generally the debtor continues to operate the business during Chapter 11 as a “debtor in possession” without having a trustee appointed, unlike Chapters 7 and 13, where a trustee is appointed.

Question 10

Describe Chapter 7

Answer 10

The debtor’s non-exempt assets are liquidated and the debtor’s debts are discharged.

Question 11

How can a Chapter 7 petition be dismissed?

Answer 11

For abuse, when the debtor filed in bad faith under the totality of the circumstances, ORMeans test: compares the debtor’s income in the 6 months before the bankruptcy, and if it is more than the state median then if the debtor can pay between 7,475$ and 12,475$ over five years to their creditors, then the debtors should file Chapter 13.

Question 12

Which Chapters are vailable for individuals, and which for entities?

Answer 12

Chapter 7 for individuals and entities, Chapter 13 for individuals onlyChapter 11 for individuals and entities

Question 13

Which Chapter(s) allow involuntary bankruptcy?

Answer 13

Chapters 7 and 11

Question 14

What is involuntary bankruptcy?

Answer 14

When hte creditors file a petition to obtain rights only available in bankruptcy (thereby “ending the race”)

Question 15

Who can file an involuntary bankruptcy?

Answer 15

If there are 12 or more unsecured or undersecured creditors, then at least 3 with an aggregate debt of 15,325$ must file. IF there are less than 12 creditors, then only 1 creditor with that much needs to file. Employees, insiders, and creditors who have received voidable transfers aren’t counted in the 12. The debtor must be eligible for Chapter 7 or 11 and not a farmer or nonprofit.

Question 16

What are adequate grounds for filing an involuntary bankruptcy?

Answer 16

The debtor is generally not paying debts as they come due, not including debts in bona fide disputes, ORIf a custodian is appointed to take possession or control over substantially all the debtor’s property

Question 17

What is an undersecured creditor?

Answer 17

When the debt is greater than the value of the collateral. The debtor only has a bankruptcy claim up to the value of the collateral.

Question 18

What is required in a bankruptcy petition?

Answer 18

A list of creditorsA list of assets and liabilitiesA schedule of income and expenditures. And 6 other things. If the Debtor doesn’t give this within 45 days, hte case may be dismissed.

Question 19

What is the automatic stay?

Answer 19

IMMEDIATELY upon the filing of a bankruptcy petition, the automatic stay prevents ALL collection activities. Willfull violations of the stay may result in damages, attorney’s fees, and even punitive damages. An unknowing violation will probably just be told to cease. It lasts for the duration of the bankrutcy

Question 20

What are common exceptions to the automatic stay?

Answer 20

Prosecution of criminal actionestablishing or modifying domestic support obligationsenforcing government, police, or regulatory powersCivil actions for paternity, child custody/visitation, divorce, or domestic violenceTax assessments or auditsMaintaining security interests in property2 others

Question 21

How can a creditor get the stay removed?

Answer 21

1). Adequate protection, meaning the secured creditor is entitled to protection against a decline in the value of the collateral. Adequate protection can be from a lien, cash, or insurance.2). Lack of equity when the debtor had not equity in the property (value of the collateral exceeds the amount of the debt.)3). A scheme to defraud creditors when there are multiple bankruptcy filings affecting the property or a transfer of all or part of the property without the court’s/creditor’s consent

Question 22

When is the stay automatically terminated?

Answer 22

If the debtor files a bankruptcy within one year after having another bankruptcy dismissed unless a court says this filing was in good faith (2005 change)

Question 23

What property is included in the bankruptcy estate?

Answer 23

all property acquired before the bankruptcy including exempt property. In Chapter 7, all post-petition property remains the debtor’s except inherited property, life insurance, and property received in divorce.

Question 24

What choices of exemptions do debtors have?

Answer 24

The Bankruptcy code allows debtors to choose state or federal exemptions, but a state may only allow its citizens to choose state. Texas doesn’t do this, so we get to choose.

Question 25

Describe some Texas exemptions?

Answer 25

Up to 60,000$ of personal property if the debtor has a family, or 30,000$ if single. Secured creditors can still obtain property with a security interest on it. We also keep wages earned after bankruptcy, proscribed health aids, alimony, payments from insurance contracts. And the Homestead (but still subject to the security interest. SINCE 2005, the debtor must be a resident of a state for 2 years to claim its exemptions, otherwise, it gets the residence from 2–2.5 years.

Question 26

What can limit the Texas Homestead?

Answer 26

1). If the debtor is convicted of a felony showing that the filing of the bankruptcy was an abuse or the debt is from violating a law, fraud as a fiduciary, RICO, or any criminal act, willful tort, or reckless conduct resulting in physical injury limits the homestead to 155,675$.2). If the debtor hasn’t had the homestead more than 3.3 years, then it’s limited to 155,675$, but the previous homestead amount can still be rolled into the new homestead.3). If the debtor converts non-exempt assets into the homestead to defraud or hinder a creditor in the previous 10 years, that amount is not Homesteaded

Question 27

How is priority between a secured creditor and a lien creditor determined?

Answer 27

It’s determined on whether the secured creditor creates and perfects before the lien is created (or levied?)

Question 28

What are a bankruptcy trustee’s powers?

Answer 28

1). hypothetical lien creditor2). hypothetical bona fide purchaser of real estate3). Claiming rights over other creditors4). Power over fraudulent transfers.

Question 29

Describe the trustee as hypothetical lien creditor

Answer 29

The truste is treated as having a hypothetical judicial lien on the date of the bankruptcy filing. He can AVOID any property interest he has priority over, not just gets priority over them. So an unperfected secured creditor become unsecured at the time of bankruptcy.

Question 30

Bona fide purchaser of real estate?

Answer 30

The trustee is treated like a bona fide purchaser. Like if a mortgage is unrecorded at the time of bankruptcy, then the trustee’s rights will trump it.

Question 31

Trustee claiming rights of other creditors?

Answer 31

The trustee can avoid any transfer that would also be voidable under nonbankruptcy law by an actual secured creditor

Question 32

TRUSTEE’S POWER OVER FRAUDULENT TRANSFERS?

Answer 32

If a transfer is made with fraudulent intent under state law, then a trustee can avoid it. The trustee can use state fraudulent transfer law or bankruptcy code transfer law, but state s usually have longer SOL’s.

Question 33

What is a fraudulent transfer?

Answer 33

One made with actual intent to hinder, delay, or defraud an entity that the debtor was indebted to OR Now made for less than equivalent value ana). the debtor was or became insolvent as a resultb). the debtor was engaged or about to engage in business with a small amount of capitalc). the debtor intended to take on more debts than he could pay, or d). the debtor made the transfer for the benefit of an insider.

Question 34

Statutory liens in bankruptcy?

Answer 34

they are usually valid against the trustee. (like mechanics, landlords, and garagemen)

Question 35

TRUSTEE’S POWER TO AVOID PREFERENTIAL TRANSFERS?

Answer 35

This is only available in bankruptcy. It is available when1). there is a transfer to or for the benefit of a creditor (like cash or a security interest)2). The debtor is insolvent (with a presumption that he is insolvent for the 90 days prior to the bankruptcy)3). There is an antecedent debt in existence befoer the transfer (unless the perfection of the security interest occurs within 30 days of the initial grant, then it is not an antecedent debt)4). Within 90 days of filing a bankruptcy petition, or 1 year if the transfer is to an insider5). The creditor receives more than he would be in bankruptcy. Tip: fully secured creditors will never have a preference, while undersecured creditors can.

Question 36

What exceptions are there to the voidable preference rules?

Answer 36

1). The transfer is intended as a contemporaneous exchange for new value2). PMSI in new value perfected within 30 days3). Statutory liens4). Domestic support obligations5). transfers by consumer debtors less than 600$, 6,225 for non-consumer debts6). transfers made as part of an alternative repayment schedule

Question 37

Trustee’s power in executory contracts?

Answer 37

The trustee has the power to assume, reject, or assign executory contracts upon approval of the bankruptcy courts despite contractual clauses prohibiting them. It may reject the contract when it is a hindrance to an effective reorganization plan It can assign when there is adequate asssurance that the assignee can give adequate assurance of future performance

Question 38

What is the order of bankruptcy claim payments?

Answer 38

First secured creditors, then some priority unsecured claims, then general unsecured claims

Question 39

What are some priority unsecured claims?

Answer 39

1). Domestic support obligation2). Administrative expenses3). Claims accuring after filing but before the order for relief4). Wage claims earned within 180 days of the petition and up to 12,475$5). Contributions to employee benefit plans within 180 days of filing and up to 12,475$6). Claims against operators of grain or fish storage up to 6,125$7). Consumer deposits to a seller of things for consumer use8). Tax claims9). Insured Federal depository Institutions for deficiencies in the amount of capital the debtor should maintain10) personal injuries or death caused by drugs or alcohol

Question 40

How are the tier 3 creditors paid?

Answer 40

On a pro rata share of all the remaining assets

Question 41

What is a global objection?

Answer 41

An offense by the debtor that will prevent the discharge of any of his obligations. They include:1) the debtor is not an individual (entities dissolve rather than receive a discharge)2). Fraudulent trnsfers or concealment of property within one year prior to the bankruptcy with the intent to hinder, defraud, or delay creditors3). Failure to keep books and records4). Bankruptcy crime (making a false oath or account, using a false claim, giving or receiving a bribe, or withholding documents)5). Failure to explain a loss of assets6) Refusal to obey or answer questions7). Improper conduct in an insider’s case.8). A prior discharge from Chapter 7 or 11 within the last 8 years9). A prior Chapter 13 discharge within the last 6 years unless he plans to do at least 70% of the prior case’s claims.10). Not completing personal financial management after filing11). Written waiver of relief12). Bad acts under the Homested exemption.

Question 42

What are exemptions to discharge?

Answer 42

These are specify debts that won’t be discharged:1). Tax claims entitiled to priority2). debts obtained by fraud (like lying on a loan app)3). luxury goods obtained with over 650$ total to a single debtor within 90 days of the filing4). Unscheduled (unlisted) debts5). Debts for embezzlement, larceny, and fiduciary’s fraud6). domestic support obligations7). Wilfull, malicious property/persons8). Liability for death or personal injury for drunken or drugged operation of a motor vehicle9). Fines to government10). Student loans11). Debts from third parties to pay taxes12). Property settlement from divorce or separation13). HOA fees14). Restitution for a federal crime15). Debts from violation of a state or federal securities law…

Question 43

How can a debtor still be liable for debts post-bankruptcy?

Answer 43

The debtor can choose to reaffirm the debts even though they would have been discharged. 1). The reaffirmation must be done before the granting of the discharge,2).The creditor must give prescribed disclosures including the ability to rescind for 60 days3). File the agreement with the court4). A reaffirmation hearing with the court where the court5). If a consumer debtor doesn’t have counsel, there is no undue hardship and it is in the debtor’s best interests.