Chapter 22: "Bankruptcy Law"

Question 1

A portion of the United States Code that contains the bankruptcy code is :

Answer 1

Title 11

Question 2

Types of Bankruptcy Relief
The Bankruptcy Code is contained in Title 11 of the United States Code and has eight chapters. Chapters 1, 3, and 5 of the Code contain general definitional provisions, as well as provisions governing case administration, creditors, the debtor, and the estate. These three chapters normally apply to all kinds of bankruptcies.

Four chapters of the Code set forth the most important types of relief that debtors can seek:

Answer 2

Chapter 7 provides for liquidation proceedings (the selling of all nonexempt assets and the distribution of the proceeds to the debtor’s creditors).

Chapter 11 governs reorganizations.

Chapter 12 (for family farmers and family fishermen) and 13 (for individuals) provide for the adjustment of debts by persons with regular incomes.

Question 3

Normal debtors cannot file for bankruptcy relief unless their liabilities exceed their assets.

• hint
  What about cash flow problems?
  a. True
  b. False

Answer 3

b. False

Question 4

Chapter 7 Schedules

The voluntary petition must contain the following 8 schedules:

Answer 4

A list of both secured and unsecured creditors, their addresses, and the amount of debt owed to each.

A statement of the financial affairs of the debtor.

A list of all property owned by the debtor, including property that the debtor claims is exempt.

A list of current income and expenses.

A certificate of credit counseling (as discussed previously).

Proof of payments received from employers within sixty days prior to the filing of the petition.

A statement of the amount of monthly income, itemized to show how the amount is calculated.

A copy of the debtor’s federal income tax return for the most recent year ending immediately before the filing of the petition.

Question 5

If the debtor files a Chapter 7 petition, but his or her median income is higher than his or her state’s median income under the means testing calculations, the debtor is presumed to have substantially abused the law. Therefore, a bankruptcy court can:

a. assign the debtor's property to the U.S. Trustee.	
b. dismiss the Chapter 7 petition and convert it to a Chapter 13 repayment plan.	
c. settle all claims against the debtor without a hearing.

Answer 5

b. dismiss the Chapter 7 petition and convert it to a Chapter 13 repayment plan.

Using the “means” test, the debtor’s average income over the prior six months, minus certain expenses, is multiplied to obtain an average annual income. If that amount exceeds the median income in the state by more than $6,000, substantial abuse is presumed. If a court finds substantial abuse, it can dismiss the bankruptcy outright, but it will most likely convert it to a Chapter 13 repayment plan.

Question 6

Additional Grounds for Dismissal
As already noted, a court can dismiss a debtor’s voluntary petition for Chapter 7 relief for substantial abuse or for failing to provide the necessary documents within the specified time.

In addition, a court might dismiss a Chapter 7 in two other situations:

Answer 6

First, if the debtor has been convicted of a violent crime or a drug-trafficking offense, the victim can file a motion to dismiss the voluntary petition.

Second, if the debtor fails to pay postpetition domestic-support obligations (which include child and spousal support), the court may dismiss the debtor’s petition.

Question 7

Exceptions to the Automatic Stay

The Code provides the following 4 exceptions to the automatic stay:

Answer 7

Collection efforts can continue for domestic-support obligations, which include any debt owed to or recoverable by a spouse, a former spouse, a child of the debtor, that child’s parent or guardian, or a governmental unit.

Proceedings against the debtor related to divorce, child custody or visitation, domestic violence, and support enforcement are not stayed.

Investigations by a securities regulatory agency (see Chapter 7) can continue.

Certain statutory liens for property taxes are not stayed.

Question 8

consumer-debtor

Answer 8

Definition:
An individual whose debts are primarily consumer debts (debts for purchases made primarily for personal or household use).

Question 9

order for relief

Answer 9

Definition:
A court’s grant of assistance to a complainant. In bankruptcy proceedings, the order relieves the debtor of the immediate obligation to pay the debts listed in the bankruptcy petition.

Question 10

preference

Answer 10

Definition:
In bankruptcy proceedings, property transfers or payments made by the debtor that favor (give preference to) one creditor over others. The bankruptcy trustee is allowed to recover payments made both voluntarily and involuntarily to one creditor in preference over another.

Question 11

automatic stay

Answer 11

Definition:
In bankruptcy proceedings, the suspension of virtually all litigation and other action by creditors against the debtor or the debtor’s property; the stay is effective the moment the debtor files a petition in bankruptcy.

Question 12

adequate protection doctrine

Answer 12

Definition:
In bankruptcy law, a doctrine that protects secured creditors from losing their security as a result of an automatic stay on legal proceedings by creditors against the debtor once the debtor petitions for bankruptcy relief. In certain circumstances, the bankruptcy court may provide adequate protection by requiring the debtor or trustee to pay the creditor or provide additional guaranties to protect the creditor against the losses suffered by the creditor as a result of the stay.

Question 13

reaffirmation agreement

Answer 13

Definition:
An agreement between a debtor and a creditor in which the debtor reaffirms, or promises to pay, a debt dischargeable in bankruptcy. To be enforceable, the agreement must be made prior to the discharge of the debt by the bankruptcy court.

Question 14

The automatic stay on secured property terminates ____ days after the creditors’ meeting.

Answer 14

45 days

Question 15

Estate in Bankruptcy

On the commencement of a liquidation proceeding under Chapter 7, an estate in bankruptcy (sometimes called an estate in property) is created. The estate consists of all the debtor’s interests in property currently held, wherever located. The estate in bankruptcy includes all of the following:

Answer 15

Community property (property jointly owned by a husband and wife in certain states—see Chapter 29).

Property transferred in a transaction voidable by the trustee.

Proceeds and profits from the property of the estate.

Certain after-acquired property—such as gifts, inheritances, property settlements (from divorce), and life insurance death proceeds—to which the debtor becomes entitled within 180 days after filing may also become part of the estate.

Generally, though, the filing of a bankruptcy petition fixes a dividing line. Property acquired prior to the filing of the petition becomes property of the estate, and property acquired after the filing of the petition, except as just noted, remains the debtor’s.

Question 16

The estate in bankruptcy does NOT include one of the following:

a. Proceeds and profits from the property of the estate.	
b. Property that was sold three years ago by the debtor.	
c. Community property.	
d. Property transferred in a transaction voidable by the trustee.

Answer 16

b. Property that was sold three years ago by the debtor.

Question 17

preferred creditor

Answer 17

Definition:

One who has received a preferential transfer from a debtor.

Question 18

To have a recoverable preferential payment, an insolvent debtor must have transferred property or a preexisting debt with ____ days before the filing of the bankruptcy petition.

Answer 18

90 days

Question 19

A trustee may avoid fraudulent transfers if:

they were made within six months prior to the filing of the petition or were made with actual intent to hinder or defraud a creditor.

they were made within one year prior to the filing of the petition or were made with actual intent to hinder or defraud a creditor.

they were made within two years prior to the filing of the petition or were made with actual intent to hinder or defraud a creditor.

they were made within three years prior to the filing of the petition or were made with actual intent to hinder or defraud a creditor.

Answer 19

c) they were made within two years prior to the filing of the petition or were made with actual intent to hinder or defraud a creditor.

Question 20

The Homestead Exemption

Answer 20

The Bankruptcy Code limits the amount of equity that can be claimed under the homestead exemption. In general, if the debtor acquired the homestead within three and a half years preceding the date of filing, the maximum equity exempted is $155,675, even if state law would permit a higher amount.

In addition, the state homestead exemption is available only if the debtor has lived in a state for two years before filing the bankruptcy petition. Furthermore, a debtor who has violated securities laws, been convicted of a felony, or engaged in certain other intentional misconduct may not be permitted to claim the homestead exemption.

Question 21

Distribution to Unsecured Creditors

Answer 21

1. Claims for domestic-support obligations, such as child support and alimony.
2. Administrative expenses, including court costs, trustee fees, and attorneys’ fees.
3. In an involuntary bankruptcy, expenses incurred by the debtor in the ordinary course of business.
4. Unpaid wages, salaries, and commissions earned within ninety days of the filing of the petition. The amount is capped for each claimant.
5. Unsecured claims for contributions to be made to employee benefit plans. The amount is capped for each claimant.
6. Consumer deposits given to the debtor before the petition was filed. The amount is capped for each claimant.
7. Certain taxes and penalties due to government units, such as income and property taxes.
8. Claims for death or personal injury resulting from the unlawful operation of a motor vehicle.
9. Claims of general creditors.

Question 22

Exceptions to Discharge

Claims that are not dischargeable in bankruptcy include the following:

多分全部覚える必要ない

Answer 22

Claims for back taxes accruing within two years prior to bankruptcy.

Claims for amounts borrowed by the debtor to pay federal taxes or any nondischargeable taxes.Footnote

Claims against property or funds obtained by the debtor under false pretenses or by false representations.

Claims by creditors who were not notified of the bankruptcy. These claims did not appear on the schedules the debtor was required to file.

Claims based on fraudFootnote or misuse of funds by the debtor while acting in a fiduciary capacity or claims involving the debtor’s embezzlement or larceny.

Domestic-support obligations and property settlements as provided for in a separation agreement or divorce decree.

Claims for amounts due on a retirement account loan.

Claims based on willful or malicious conduct by the debtor toward another or the property of another.

Certain government fines and penalties.

Student loans, unless payment of the loans imposes an undue hardship on the debtor and the debtor’s dependents. (For an example of what constitutes undue hardship, see Case in Point 22.5.)

Consumer debts of more than $650 for luxury goods or services owed to a single creditor incurred within ninety days of the order for relief.

Cash advances totaling more than $925 that are extensions of open-end consumer credit obtained by the debtor within seventy days of the order for relief.

Judgments against a debtor as a result of the debtor’s operation of a motor vehicle while intoxicated.

Fees or assessments arising from property in a homeowners’ association, as long as the debtor retained an interest in the property.

Taxes with respect to which the debtor failed to provide required or requested tax documents.

Question 23

Objections to Discharge
In addition to the exceptions to discharge previously discussed, a bankruptcy court may also deny the discharge based on the debtor’s conduct. Grounds for denial of discharge of the debtor include the following:

5

Answer 23

The debtor’s concealment or destruction of property with the intent to hinder, delay, or defraud a creditor.

The debtor’s fraudulent concealment or destruction of financial records.

The grant of a discharge to the debtor within eight years before the petition was filed.

The debtor’s failure to complete the required consumer education course.

Proceedings in which the debtor could be found guilty of a felony (basically, a court may not discharge any debt until the completion of felony proceedings against the debtor).

Question 24

workouts

Answer 24

In bankruptcy proceedings, a formal contract between a debtor and his or her creditors in which the parties agree to negotiate a payment plan for the amount due on the loan instead of proceeding to foreclosure.

Question 25

To be enforceable, reaffirmation agreements must be made after the creditor is granted a discharge.

All reaffirmation agreements must be signed and filed with the court.

Answer 25

False

True

Question 26

The type of bankruptcy proceeding most commonly used by corporate debtors is Chapter ___ .

Answer 26

Chapter 11 reorganization

Question 27

cram-down provision

Answer 27

Definition:
A provision of the Bankruptcy Code that allows a court to confirm a debtor’s Chapter 11 reorganization plan even though only one class of creditors has accepted it. To exercise the court’s right under this provision, the court must demonstrate that the plan does not discriminate unfairly against any creditors and is fair and equitable.

Question 28

The Reorganization Plan
A reorganization plan to rehabilitate the debtor is a plan to conserve and administer the debtor’s assets in the hope of an eventual return to successful operation and solvency. The plan must be fair and equitable and must do the following:

4

Answer 28

Designate classes of claims and interests.

Specify the treatment to be afforded to the classes of creditors. (The plan must provide the same treatment for all claims in a particular class.)

Provide an adequate means for the plan’s execution. (Individual debtors are required to utilize postpetition assets as necessary to execute the plan.)

Provide for payment of tax claims over a five-year period.

Question 29

Only the debtor may file a plan within the first ___ days after the date of order for relief.

Answer 29

120 days

Question 30

Any reorganization plan can be modified at the request of all EXCEPT one of the following:

a. The debtor.	
b. The trustee.	
c. The U.S. Trustee.	
d. The debtor in possession.	
e. A shareholder in the debtor's company.

Answer 30

e. A shareholder in the debtor’s company.

Question 31

The Repayment Plan

A plan of rehabilitation by repayment must provide for the following:

Answer 31

The turning over to the trustee of such future earnings or income of the debtor as is necessary for execution of the plan.

Full payment through deferred cash payments of all claims entitled to priority, such as taxes.

Identical treatment of all claims within a particular class. (The Code permits the debtor to list co-debtors, such as guarantors or sureties, as a separate class.)

Question 32

The debtor must begin making payments under the proposed Chapter 13 plan within ____ days after the plan has been filed.
The length of a Chapter 13 payment plan may be ____ .

Answer 32

30 days

3 or 5 years

Question 33

Discharge
After the debtor has completed all payments, the court grants a discharge of all debts provided for by the repayment plan. Generally, all debts are dischargeable except the following:

Answer 33

1. Allowed claims not provided for by the plan.
2. Certain long-term debts provided for by the plan.
3. Certain tax claims and payments on retirement accounts.
4. Claims for domestic-support obligations.
5. Debts related to injury or property damage caused while driving under the influence of alcohol or drugs.

Question 34

A farmer or fisherman who has already filed a reorganization or repayment plan may convert it to a Chapter 12 plan.

a. True
b. False

Answer 34

a. True