Chapter 31: Bankruptcy

Question 1

Types of bankruptcy relief

Answer 1

Chapter 7: liquidation proceedings
Chapter 11: reorganization
Chapter 12: adjustment of debts of family farmers and fishermen with regular incomes
Chapter 13: adjustment of debts of individuals with regular incomes

Question 2

Special requirement for consumer debtors

Answer 2

If debtor’s debt is primarily from personal goods, the clerk of the court must give written notice of general purpose and benefits of each chapter before they proceed with filing

Question 3

Liquidation proceedings

Answer 3

1)Debtor turns all assets over to bankruptcy trustee
2) trustee sells nonexempt property and distributes proceeds to creditors
3) with exceptions, remaining debts are discharged

Question 4

Voluntary petition of bankruptcy

Answer 4

debtor files for bankruptcy

Question 5

Involuntary petition of bankruptcy

Answer 5

Creditors file to put debtor into bankruptcy

Question 6

Schedules of voluntary bankruptcy petition

Answer 6

1) list property
2) list of financial affairs
3) list of debts
4) current income/expenses
5) proof of income
6) last tax return
Must be filed within 45 days of petition

Question 7

Duties of voluntary petition

Answer 7

1) submit schedules within 45 days of petition
2) debtor must certify that he has received credit counseling within 180 days of filing
3) debtor must say he understands all chapter options and will proceed with chapter 7
4) Consumer-debtor must confirm accuracy of petition and attorney must file affidavit informing debtor of other chapters

Question 8

substantial abuse means test

Answer 8

Test used to determine debtor eligibility for chapter 7.
Family income mustn’t exceed the median state income by $6000.

Question 9

Order of relief

Answer 9

Courts grant of assistance to a petitioner. Voluntary petition is an order of relief.

Question 10

Involuntary bankruptcy requirements

Answer 10

1) if debtor has 12 or more creditors, 3 or more with unsecured claims totaling $15,775 must join petition
2) if debtor has fewer than 12 creditors, one or more owed $15,775 may file.

Question 11

Court can deny debtor involuntary bankruptcy challenge if:

Answer 11

1) debtor isn’t paying debts as they’re due
2) debtor was in receivership for last 120 days before filing

Question 12

Automatic stay

Answer 12

The moment a petition is filed, an automatic stay is granted, protecting the debtor from all creditors.
1) prevents creditors from taking any action to collect, or recover claims
2) the stay continues until bankruptcy proceeding is closed.
3) creditors that knowingly violate the stay can be required to cover damages and costs to debtor.

Question 13

Exceptions to automatic stay

Answer 13

1) collection of domestic support obligation
2) proceedings for divorce or child support
3) investigations by securities regulatory agency
4) creation of perfection of statutory liens for property taxes

Question 14

Estate in bankruptcy

Answer 14

consists of all of debtors property including;
1) community property (joint)
2) property transferred in transaction voidable by trustee, improperly transferring non-exempt property before filing
3) proceeds and profits from property of estate
4) gifts, insurance or inheritance within 180 days after filing.

Question 15

Preferences

Answer 15

debtor cannot transfer property or make payment that favors one creditor over another. Debtor must transfer within 90 days before filing, and transfer must have given creditor more than it would have received in bankruptcy proceedings.

Question 16

Federal exemptions from the estate

Answer 16

1) portion of equity in debtors’ home
2) motor vehicles, up to a certain value
3) necessary clothes, goods, furnishings, appliances
4) jewelry, up to a certain value
5) tools of trade or profession, up to a certain value
6) portion of unpaid wages
7) welfare and social security
8) damages awarded for personal injury

Question 17

Texas exemptions from the estate

Answer 17

Homestead exemption: unlimited value on residences of 10 acres in the city or 100 in the country

Question 18

Limitations on homestead exemption

Answer 18

1) If debtor acquired homestead within 40 months of filing, max exemption is $189,050.
2) only available if debtor has lived in that state 2 years before filing.

Question 19

Creditors Meeting

Answer 19

Within 40 days after the order for relief has been granted, the trustee must call a meeting with the creditors to question the debtor

Question 20

To receive a portion of the debtor’s estate, creditors must file a written claim with bankruptcy court within:

Answer 20

90 days

Question 21

Who has priority to the proceeds from the sale of the debtor’s collateral?

Answer 21

Secured parties

Question 22

Highest priority class to be paid to unsecured creditors

Answer 22

Domestic support obligations (child support/alimony)

Question 23

Debts that cannot be discharged in bankruptcy

Answer 23

1) Back taxes accruing within 2 years before bankruptcy
2) Student loans
3) Debts to creditors who were not told of the bankruptcy filing
4) Claims against property/funds obtained by the debtor under false pretenses
5) Bankruptcy court may also deny discharge based on the debtor’s conduct

Question 24

When can discharge by revoked?

Answer 24

Within 1 year of discharge if debtor acted fraudulently during bankruptcy proceedings

Question 25

Reaffirmation agreement and requirements

Answer 25

Definition: Agreement by debtor to pay a debt that has previously been discharged.
Requirements: Signed and filed before debtor is discharged.

Question 26

Chapter 11 bankruptcy is used to:

Answer 26

Reorganize, mainly used by corporations

Question 27

What is a workout?

Answer 27

Private, negotiated adjustments regarding debts

Question 28

Debtor in Possession (DIP)

Answer 28

Debtor continues to operate the business as a DIP on entry of the order for relief

Question 29

Who can file the reorganization plan?

Answer 29

1) Only the debtor can file plan within the first 120 days after the date of the order for relief. 120 days can be extended to 18 months.
2) Creditors can propose a plan after 120 days.

Question 30

Requirements of reorganization plan

Answer 30

1) Fair to all parties
2) Designate classes of claims
3) Specify what is to be given to each class
4) Provide an adequate means for the plan’s execution
5) Provide payment of tax claims over a 5 year period

Question 31

Rules of acceptance of reorganization plan

Answer 31

1) Each class must accept the plan to be adopted
2) A class has accepted the plan when 2/3 of the classes claim are in agreement
3) The court can deny the plan even if all classes accept

Question 32

Cram down provision

Answer 32

If at least one class has accepted the plan, the court may still confirm the plan

Question 33

Discharge of debt in Chapter 11 for individuals vs corporations

Answer 33

Individuals: Plan must be completed before discharge is granted
Corporations: Discharged upon acceptance of the plan