Chapter 31 Flashcards
Goals of bankruptcy
- To protect a debtor by giving him or her a fresh start without creditors claims
- To ensure equitable treatment of creditors who are competing for a debtors assets
Bankruptcy proceedings are held in
Federal courts
Bankruptcy court judges are appointed for
14 years
Bankruptcy code is in which code
Title 11
Liquidation
The sale of all of the nonexempt assets of a debtor and the distribution of the proceeds to the debtors creditors
- chapter 7
- ordinary or straight bankruptcy
Chapter 11
Governs regulations
Chapter 12/13
Provides adjustments of debts by persons with regular incomes
Does a debtor need to be insolvent?
No (except for a municipality)
Consumer-debtor
An individual whose debts are primarily consumer debts (debts for purchases made primarily for personal or household use)
- clerk must give written notice
Bankruptcy trustee
A person who is either appointed by the US Department of justice or by creditors in bankruptcy cases.
Petition in bankruptcy
The document that is filed with a bankruptcy court to initiate bankruptcy proceedings. The official forms required for a petition in bankruptcy must be completed accurately, sworn to under oath, and signed by the debtor
- if debtor files petition: voluntary
- if 1+ creditors file to force the debtor into bankruptcy its involuntary
Voluntary bankruptcy law
Before debtors can file a petition, they must receive credit counseling from an approved nonprofit agency within the 180 day period preceding the date of filing
Voluntary petition scheduled
- A list of secured/unsecured creditors, addresses, 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
- Proof of payments received from employers within 60 days prior to filing
- A statement of the amount of monthly income
- A copy of the debtors federal income tax return for the most recent year
Automatic dismissal of the petition
With the exception of tax returns, failure to file the required schedules within 45 days after filing the petition (unless an extension is granted)
How long do they have to provide a copy of most recent tax returns
Up to 7 days before the date of the first creditors meeting
US trustee
A gov official who performs certain administrative tasks that a bankruptcy judge would otherwise have to perform
Tax returns during bankruptcy
A debtor may be required to file a tax return at the end of each tax year while the case is pending and provide a copy to the court
How does the court determine eligibility for chapter 7
A means test
- to prevent rich people from taking advantage
- forces more people to file for chapter 13
- avg monthly income in recent months is compared with the median income in that area, if it’s below they can file with chapter 7
- if it’s above, further calculations have to be made to see if they will have sufficient income in the future to repay some of the debts
Disposable income
Calculated by subtracting living expenses and secured debt payments from monthly income
Other cases why a court might dismiss chapter 7
- Debtor has been convinced of a violent crime or drug trafficking offense
- If the debtor fails to pay domestic support obligations
Order for relief
A courts grant of assistance to a complaint. In bankruptcy proceedings, the order relieves the debtor of the immediate obligation to pay the debts listed in the bankruptcy petition
Involuntary bankruptcy law
- can’t be filed against a charity or farmer
- not to be used as everyday debt collection device
Requirements for involuntary bankruptcy
- If the debtor has 12 or more creditors, 3 or more of these creditors totaling at least 15,325 must join the petition
- If the debtor has fewer than 12 creditors one or more creditor having claim of 15325 or more may file
Automatic stay
The suspension of virtually all litigation and other action by creditors against the debtor or the debtors property; the stay is effective the moment the debtor files a petition in bankruptcy
- creditors cannot contact the debtor
- if a creditor knowingly violates the debtor can receive damages
Adequate protection doctrine
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.
- debtor can be required to make cash payments or to provide additional collateral
Exceptions to automatic stay
- Collection efforts can continue for domestic support obligations
- Proceedings against the debtor related to divorce, child custody, domestic violence are not stayed
- Investigations by a securities regulatory agency can continue
- Certain statuatory liens for property taxes are not stayed
If requests for relief from the automatic stay are granted
The stay will terminate 60 days after the request
The automatic stay on secured property terminates
45 days after the creditors meeting
If the debtor has two or more bankruptcy petitions dismissed during the prior year
Court assumes bad faith and automatic stay does not go into effect until good faith is proved
Estate in bankruptcy
All of the debtors interests in property currently held
- Community property (jointly owned by husband/wife)
- Property transferred in a transaction voidable by the trustee
- Proceeds and profits from the property of the estate
Gifts, inheritance, settlements from divorce, life insurance proceeds the debtor receives within 180 days of filing
Becomes part of the estate
- other than that the debtor can keep
Preference
Property transfers or payments made by the debtor that favor one creditor over others.
- debtor can’t have preference
- if there is, the trustee can recover those payments
Preferred creditor
One who has received a preferential transfer from a debtor
- can generally be held accountable for value of the property
Insider
A corporate director of officer with access to confidential info and a duty not to disclose that info in violation of insider trading laws and has a close relationship with a debtor
To be a preference the transfer must be
Made for something other than current consideration
- payments for services within 15 days is NOT a preference
Fraudulent transfers
- Were made within two years prior to the filing of the petition
- Were made with actual intent to hinder, delay, or defraud a creditor
Property exempt from bankruptcy code
- Up to 22975 in equity in the debtors residence and burial plot
- Interest in car up to 3675
- Interest up to 550 of a household good and furnishing item
- Interest in jewelry up to 1550
- Interest in tools for trade up to 2300
- Life insurance owned by debtor
- Prescribed health aids
- Right to receive social security
- Right to receive personal injury awards
Homestead exemption is only available if
The debtor has lived in the state for 2 years before filing the bankruptcy petition
Creditors meeting
After the order of relief has been granted trustee calls a meeting. Judge does not attend. Debtor is required to attend and submit to examination.
Things that cannot be discharged (forgiven)
- Taxes
- Fraud
- Domestic support obligations
- Government fines
- Student loans (unless undue hardship)
- A lot more
Reaffirmation agreement
An agreement between a debtor and a creditor in which the debtor reaffirms or promises to pay a debt dischargable in bankruptcy. To be enforceable, the agreement must be made prior to the discharge of the debt by the court
Reorganizations
Creditors and debtor formulate a plan under which the debtor pays a portion of the debts and is discharged of the remainder
workouts
Private negotiated adjustments of creditor-debtor relations
- sometimes to avoid bankruptcy proceedings creditors may prefer this
Debtor in possession (DIP)
In chapter 11 bankruptcy proceedings, a debtor who is allowed to continue in possession of the estate in property (the business) and to continue business operations
- similar to a trustee
Cram-down provision
A provision of the bankruptcy code that allows a court to confirm the debtors ch 11 reorganization plan even though only one class of creditors has accepted it. To exercise this the court must demonstrate that the plan does not discriminate unfairly against any creditors and is fair and equitable
Chapter 12 and 13
12- family farmer and family fishermen debt adjustments
13- individual repayment plans
Ch 13 repayment plan
- Turning over to the trustee of future earnings of income
- Full payment through deferred cash payments of claims entitled to priority such as taxes
- Indentical treatment of all claims within a particular class
- can be 3-5 years
