II-3 Debtor-Creditor Relationships 2

Question 1

Creditors’ remedy before bankruptcy: What is composition?

Answer 1

Discharge debts if debtor preforms as to all creditors who agreed - binding contract.

Question 2

Creditors’ remedy before bankruptcy:What is assignment?

Answer 2

Debtor steps up and offer to assign any pmt to creditors directly - no binding contract. Creditors can petition debtor into bankruptcy.

Question 3

What is the last remedy for creditors before bankruptcy besides composition and assignment?

Answer 3

Judgment / Judgment lien.

Question 4

When judgment/judgment lien is selected, what can creditors take. Exceptions?

Answer 4

Attachment and garnishment (wage).

• Social security is exempt.
• can’t garnish more than 25% of take-home-pay.
• can’t be fired because of the garnishment order against them.
• Homestead exemption - Protection for equity in home but still subject to mortgage and IRS.

Question 5

What is Chapter 7 bankruptcy? Voluntary or involuntary? Exception? Who is eligible? Who is not eligible?

Answer 5

Liquidation.
Can be either.
No involuntary for farmers and nonprofits.

E: Individuals, partnerships, corporations.
Not: S and Ls (savings and loans), credit unions, SBA(small business administrations), RRs (rail roads), municipalities, insurers.

Question 6

What is a characteristic of Chapter 7?

Answer 6

Trustee.

Question 7

What is Chapter 11 bankruptcy? Voluntary or involuntary? Exception? Who is eligible? Who is not eligible?

Answer 7

Reorganization.
Can be either.
No involuntary for farmers and nonprofits.

E: Individuals, partnerships, corporations.
Not: S and Ls (savings and loans), credit unions, SBA(small business administrations), municipalities, insurers, stockbrokers.

Question 8

What is 3 characteristics of Chapter 11?

Answer 8

Automatic stay (EVERYHTING stops) - no one can sue etc.
Trustee not required.
Approval of reorganization plan: 1/2 creditors with 2/3 claims.

Question 9

What is Chapter 12? Voluntary or involuntary? 2 characteristics?

Answer 9

• Family farmer chapter.
• Only voluntary petitions.
• 50/50 requirement: 50% of income from farm and 50% of debts due to farm.
• Total maximum debt: $4,031,575.

Question 10

What is Chapter 13? Voluntary or involuntary? Eligibility? Characteristic?

Answer 10

Consumer Debt Adjustment Plan.
Voluntary.

E: Only for individuals.
Income

Question 11

What are requirements for voluntary petition? Result?

Answer 11

Petitioner has debts.

Automatic relief.

Question 12

What are requirements for involuntary petition? Result?

Answer 12

Liability for wrongful filing if any.
<12 creditors = 1 creditor must be owed unsecured $15,775.
>12 creditors = 3 creditors together are owed unsecured $15,775

Entry of stay (for debtor to dispute).

Question 13

What are damages for wrongful involuntary filing?

Answer 13

Court costs, attorney fees, compensatory damages, punitive damages.

Question 14

Chapter 13: what is the process? When would court discharge after the plan is place?

Answer 14

Hearing for approval of plan.

After 3 or 5 year period, if debt plan met, discharge is granted with exceptions.

Question 15

What chapter is required before going in for Chapter 7?

Answer 15

Chapter 13 is requirement for Chapter 7.

Question 16

What is test for dismissal?

Answer 16

The court uses Means Test to determine whether bankruptcy can proceed or whether the debtor is using it for substantial abuse.

Question 17

How is Means Test calculated?

Answer 17

Calculate debtor’s monthly income averaged over the last 6 months less allowed expenses.

Monthly income x 12: if this exceeds state’s median income by more than $6,325, then substantial abuse is presumed.

Question 18

What can debtor do if the court presumes abuse?

Answer 18

He can rebut by showing “special circumstances” or adjustments” with no alternatives.

Question 19

What are duties of debtor?

Answer 19

File (under oath):

1. Schedule of all assets.
2. List of all creditors.
3. Schedule of current income and expenses.
4. Certificate from approved credit counseling agency
5. Copy of most recent federal income tax return.

Question 20

What happens after the debtor file all the requirements? Any exceptions?

Answer 20

Everything stops: Lien, enforcement actions, judgment.

Yes, trustee can’t avoid certain liens.

Question 21

How is the trustee appointed?

Answer 21

Appointed by government.

Question 22

What are trustee’s duties?

Answer 22

1. Collect debtor’s assets.
2. Investigate debtors financial affairs.
3. Furnish reports to interested parties.
4. Review debtor’s materials.
5. Be the representative for the debtor’s estate.

Question 23

Is intangible property included in debtor’s estate?

Answer 23

Yes.

Question 24

Are all tangible and intangible property at the date of bankruptcy only ones that go into the debtor’s estate? Examples?

Answer 24

No, all property acquired within 180 days following bankruptcy will go in.
Property by inheritance or gift, property by divorce, separation, property settlement, beneficiary proceeds from a life ins.

Question 25

What are exceptions to the debtor's estate?

Answer 25

Child support, social security pmts, wages.

Question 26

How is it decided to take either state law or federal law for exemptions? What are their characteristics?

Answer 26

Debtor's choice. State: can limit choice to state. Federal: control on homestead exemptions.

Question 27

What is homestead exemption?

Answer 27

If homestead is acquired within 3.5 yrs of bankruptcy filing, homestead equity exempted is limited to $160,475. Also, must have lived in the state for 2 years.

Question 28

What are federal exemptions and dollar amount?

Answer 28

* Motor vehicle: $3,775. * Household furnishing: $12,625. * Other property (wildcard): $1,250 and up to $11,850 of unused homestead exemption. * Tools for profession: $2,375. * Life insurance: $12,625. * Jewelry: $1,600. * IRA and ROTHs: $1,283,025. * Personal injury claim up to $23,675.

Question 29

What are total exemptions?

Answer 29

* Personal and retirement savings * Wrongful death recovery for person upon whom you were dependent. * Alimony and child support * Disability and unemployment income.

Question 30

What kind of transfer of assets can trustee set aside for debtor's estate? What are they called? What kind is ok?

Answer 30

* Fraudulently transferred assets to hide assets. * Unfair transfer within 1 year presumed insolvent (Liabilities > Assets) * Transfer to insiders within 1 year * Transfer that is not ordinary course of business within 90 days. Voidable preferential transfers. Security for antecedent debt is ok. Consumer debt up to $6,425 ok. Pmt for perfected secured party - their rights do not change.

Question 31

What are distribution priorities?

Answer 31

1. Secured creditors (to the extend of repossession - if a creditor has $10,000 owed and repossessed land is $5,000 value, his remaining $5,000 will be unsecured claim). 2. Claims for child support and alimony. 3. Administration costs (attorneys, accountants, trustees, appraisers). 4. Claims arising in ordinary course of business after bankruptcy petition is filed but before order of relief (involuntary) - company is till fighting, but business still goes on. 5. Employee wages (not officers): $12,475 maximum per employee. 6 months preceding petition (180 days). 6. Contribution to Benefits Plans - $12,475 maximum (reduced by wages received) 180 days preceding bankruptcy. 7. Claims on raising or storage of grain $6,325. 8. Consumer deposit: $2,850 maximum. 9. Taxes (federal, state, local) - won't get discharged. 10. Unsecured creditors (pro rata - those filed first before those not filed).

Question 32

What are non dischargeable debts?

Answer 32

1. Taxes within 3 yrs of filing bankruptcy petition. 2. Liability for obtaining money or property by false pretenses. 3. Willful and malicious injuries. 4. Debts incurred by driving DWI 5. Alimony, maintenance or child support. 6. Unscheduled debts (didn't disclose). 7. Debts resulting from fraud as a fiduciary (embezzlement). 8. Government fines or penalties imposed within 3 yrs prior. 9. Educational loans due within 5 prior yrs (unless hardship). 10. Prior bankruptcy debts in which debtor waived discharge. 11. Mortgage issues. 12. Sarbanes-Oxley - bonuses, fraud. 13. Consumer debt incurred within 90 days of filing: $650 permitted (luxury goods), cash withdrawals on credit cards within 70 days ($950). 14. Reaffirmation agreements if its' (1) in writing, (2) filed with court, (3) not rescinded prior to discharge. 15. Home owner association fees.

Question 33

Is general discharge under Chapter 7 applicable to individuals, partnership, and corporations?

Answer 33

No, just individuals.

Question 34

How frequently can debtor obtain Chapter 7?

Answer 34

Eight years.