Debtor-Creditor: Bankruptcy

Question 1

What forms of bankruptcy are available to corporations?

Answer 1

1. Corporations are permitted to liquidate under the provisions of Chapter 7 or reorganize under Chapter 11.
2. Chapter 13 is limited to individuals with regular income.

Question 2

Chapter 7

Answer 2

1. Liquidation
2. A debtor may file more than one Chapter 7 petition within an eight year period, but is eligible for only one discharge every eight years.

Question 3

Chapter 11

Answer 3

1. Reorganization

2. Typically used by bus., but also available to inds..

Question 4

Chapter 12

Answer 4

reserved for family farmers and family fishermen

Question 5

Chapter 13

Answer 5

1. Rehabilitation

2. Only available to ind. debtors, including married couples.

Question 6

entities that may not be a debtor under any bankruptcy chapter

Answer 6

domestic insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association or credit union.

Question 7

entities ineligible for Chapter 7 but not Chapter 11

Answer 7

railroads

Question 8

entities ineligible for Chapter 11 but not Chapter 7

Answer 8

stock brokers and commodity brokers

Question 9

An involuntary petition against an individual would typically be filed under which chapter?

Answer 9

Usu. Chapter 7, but can be filed under Chapter 11.

Question 10

preferential transfer

Answer 10

1. voluntary or involuntary transfer of money or property, or of a lien on property, that improves the transferee’s position.
2. Only occurs when a creditor collects on a debt for which there is no collateral (no payment guaranteed in the event of bankruptcy).

Question 11

Under Chapter 11 reorganization, is the classification of claims is permissible?

Answer 11

1. In a Chapter 11 case, claims are classified for both the purpose of payment and of voting, but classification must be fair and appropriate. 2. A plan of reorganization, as long as it has been approved by at least one class of claims, can be approved by the court, but only if the court determines the plan to be “fair and equitable.”
2. A Chapter 11 plan may provide for the partial discharge of debts if appropriate to do so.

Question 12

Can a Chapter 13 plan pay unsecured creditors less than does a Chapter 7 plan?

Answer 12

No.

Question 13

Can a Chapter 13 plan provide for payments to secured creditors which alter the terms of the parties’ agreement?

Answer 13

Yes. As long as the secured portion of the creditor’s claim is paid in full.

Question 14

Chapter 13 plan and mortgages

Answer 14

Holders of a mortgage on the debtor’s principal residence are given special treatment such that, not only must the secured portion be paid back, but arrearages must be paid in full, even if partially unsecured (e.g., the value of the house has fallen below the balance due on the mortgage).

Question 15

In terms of general unsecured claims, which of these claims is given priority?

Answer 15

Consumer deposit claims.

Question 16

How is eligibility for Chapter 7 bankruptcy determined?

Answer 16

It will primarily depend on whether their income exceeds the average median income for families in their state, particularly if that income is sufficient to pay all or a portion of the debts.

Question 17

How is the discharge of debts handled under Chapter 11?

Answer 17

The company will be discharged of all debts excepts as otherwise provided in the plan and by applicable law.

Question 18

How is the payment of debts handled under Chapter 13?

Answer 18

1. A Chapter 13 plan must pay unsecured claims at least as much as they would have been paid if the case had been a Chapter 7 liquidation.
2. Secured creditors must be paid in full or retain their secured status.

Question 19

How long can it take to complete a Chapter 13 plan?

Answer 19

Most plans are completed within three years, but plans up to five years are permissible.

Question 20

To defeat a trustee’s preferential transfer claim, a creditor must prove the following:

Answer 20

1. The debt was one which typically exists between the creditor and the debtor.
2. The transfer was made in a time and manner that is consistent with previous payments made by the debtor to the creditor.
3. The payment (transfer) was standard for the industry.

Question 21

Transfers undone as preferential:

Answer 21

1. Generally seek to undo transfers occurring w/in 90 days prior but will not succeed if the transfer was for new value (refinancing), or in the ordinary course of business.
2. In that case, transfers made w/in 12 mos. of bankruptcy of payment to an insider can be undone.
3. Seizures, even by govt. agencies, can be considered preferential.

Question 22

requirement to file an involuntary petition for bankruptcy

Answer 22

1. To file an involuntary petition requires three of more creditors whose unsecured claims total $14,425 or more. (This dollar figure changes, but will be in effect until March 31, 2013.)
2. An involuntary petition may be filed by a single creditor (who also meets this statutory dollar amount) if the debtor has 11 or fewer creditors.

Question 23

debts dischargeable in bankruptcy

Answer 23

Debts which are the result of negligent acts by the debtor are generally dischargeable in bankruptcy, even if reduced to judgment, as long as they involve negligent and not fraudulent acts.

Question 24

exceptions to debts dischargeable in bankruptcy

Answer 24

1. Taxes

Question 25

If a secured creditor is struggling to receive payments, to find relief from the stay of bankruptcy, what legal basis should s/he assert?

Answer 25

That s/he is entitled to adequate protection and can prove lack of adequate protection (value of collateral is depreciating).

Question 26

Are encumbered assets (assets w/valid lien) sold in a Chapter 7 bankruptcy?

Answer 26

Yes.

Question 27

Are certain assets exempt from liquidation in Chapter 7?

Answer 27

No, only in Chapter 13.

Question 28

If there are 12 or more unsecured creditors for a bankruptcy proceeding, then…

Answer 28

at least three creditors must sign the petition and the total debt must be at least a specified amount.

Question 29

At any time before the confirmation of a Chapter 11 plan…

Answer 29

On request of the United States Trustee, and after notice and a hearing, the court may order the appointment of a trustee due to gross mismanagement of the affairs of the debtor by current management.

Question 30

list of priority claims in bankruptcy

Answer 30

1. Admin. expenses.
2. Wages
3. Contributions to employee benefit plans.
4. Consumer deposits.
5. Taxes.
6. Other unsecured claims.

Question 31

Truth-in-Lending Act- required disclosures

Answer 31

Under the Truth-in-Lending Act, creditors must disclosure annual percentage rates (APRs) of consumer debt as well as finance charges.

Question 32

Under the Truth-in-Lending Act, how many days to consumers have to refuse credit?

Answer 32

3 days.

Question 33

Bankruptcy Abuse Prevention & Consumer Protection Act of 2005

Answer 33

1. Provides additional disclosure requirements, specifically encompassing internet credit card offers, introductory interest rates, and minimum payment information.
2. The 2005 Act also provides for additional tax-related disclosures for home equity loans and consumer protections related to certain loans sold by bankruptcy trustees.

Question 34

Fair Credit Billing Act

Answer 34

covers billing disputes with creditors, not fee and interest rate disclosures.