M - 1 - Bankruptcy: Part 1

Question 1

What is a chapter 7, liquidation bankruptcy?

Answer 1

This is the “no hope” bankruptcy, and is available to individuals, partnerships, or corporations. This can be voluntary or involuntary.

Question 2

What is chapter 9 bankruptcy?

Answer 2

It is a municipal debt adjustment.

Question 3

What is chapter 11 bankruptcy?

Answer 3

This is available to individuals, partnerships, and corporations. This is the bankruptcy where there is hope the business can still go on. Voluntary or involuntary.

Question 4

What is chapter 12 bankruptcy?

Answer 4

Family farmers with regular income

Question 5

What is chapter 13 bankruptcy?

Answer 5

Only available to individuals, this is basically an adjustment of debt, which gives the debtor more time to pay off their loans. Only voluntary.

Question 6

What is chapter 15 bankruptcy?

Answer 6

This is for business’s that have business across multiple states or countries. Trying to figure out who gets the money and stuff like that.

Question 7

How does chapter 7 bankruptcy work, is their a trustee?

Answer 7

Yes, under chapter 7, the business or individual sets up a trustee and that trustee collects all the debtor’s assets, liquidates them, and then uses the proceeds to pay off creditors to the extent possible.

Individuals are discharged and entities are dissolved. Whatever is not paid off after liquidation, is discharged unless it is WAFTED.

Question 8

What are the certain exceptions where the debts will never go away for the individual? What is that acronym?

Answer 8

WAFTED

Question 9

How does chapter 13 bankruptcy work, is their a trustee?

Answer 9

Just like chapter 7, their is a trustee, but their is no liquidation. This bankruptcy is basically giving the individual more time to pay off their debt over a three to five year period. The trustee oversees the handling of a chapter 13 proceeding. After the three to five years, the remaining debts are then discharged. As long as they are not part of the WAFTED acronym.

Question 10

How does chapter 11 bankruptcy work, is their a trustee?

Answer 10

Trustee is not required, but if their is fraud or something like that, than maybe a trustee needs to be appointed.

The biggest thing with chapter 11 is that the business continues and the debtor gets to keep their assets. They will work on reorganizing and downsizing so they can pay off their creditors. Creditors are paid to the extent that the business keeps going and doing well.

Question 11

How does chapter 15 bankruptcy work, is their a trustee?

Answer 11

No trustee, US adopted the laws by the united nations so that cross boarder bankruptcy can be regulated.

Question 12

Can the courts tell someone who is filling for chapter 7 bankruptcy no, and say you can accept chapter 13 instead?

Answer 12

Yes, if the courts believe that you have the means to pay the loan they can tell you chapter 13 is the best they can do. The debtor has the choice to accept it or not since it is voluntary. The two scenario’s are:

Granting relief constitutes abuse - Basically saying that the debtor ran up the debt knowing they couldn’t pay, so the was reckless.

Debtor has the money to pay the debt.

Question 13

What are the steps the courts use to determine if there is a subject of abuse?

Answer 13

Determine weather income is lower than the state median - If it is, then you can do chapter 7. If it is not, then we got to step 2.

Means test - Take average monthly income - Allowed expenses (expenses that you need), then take that money times 60. If it is less than 9,075 then chapter 7 is okay. If it is more than 15,150 than it is chapter 13

This is to determine if people are constituting abuse when they took the loan. Simply to determine if this is chapter 7 or 13.

Question 14

What are the entities that cannot file for bankruptcy under chapter 7? What is the acronym?

Answer 14

R - Railroads

I - Insurance company or investment company

B - Bank

S - Savings institutions

Question 15

What are the entities that cannot file for bankruptcy under chapter 11? What is the acronym?

Answer 15

B - Broker

I - Insurance company or investment company

B - Banks

S - Savings institutions

Question 16

What is an automatic stay?

Answer 16

If someone files for bankruptcy, this stops collection efforts from most creditors. But this does not apply to:

Criminal prosecutors

Paternity suits

Spousal or child support

Question 17

Once the debtor files a petition for bankruptcy, what are the other things they will need to file?

Answer 17

A list of creditors and their addresses

Schedule of assets and liabilities (either FMV or liquidation value)

Current income and expenditures

Statement of debtor’s financial affairs

Pay stubs in the past two months of filling

Federal tax returns

If you file for bankruptcy, and fail to provide any of the following within 45 days, your case is dismissed on the 46th day.

Question 18

For chapter 7 and 11 , do you have to a certain number of debt or certain creditors you owe for a voluntary case?

Answer 18

When it is a voluntary case, you just have to show the judge that you cannot pay your debts, does not matter how much debt or how many creditors, this is all you need to show.

Question 19

What is “an order for relief”?

Answer 19

With a voluntary petition, case may proceed unless a court orders otherwise.

Question 20

Which chapters for bankruptcy can be filled by creditors?

Answer 20

7 or 11, and it is involuntary

Answer 21

For involuntary petition, an UNSECURED creditor must show the courts that the debtor basically is not paying their loan or they can’t pay.

Farmers and charitable organizations may not qualify for involuntary bankruptcy.

Question 22

For a creditor to file involuntary bankruptcy under chapter 7 or 11, how large does the debt have to be for this to go through.

Answer 22

If there are less than 12 creditors, at least one creditor has to be owed at least 18,600.

If there are 12 or more creditors, then in aggregate three have to be owed at least 18,600.

Question 23

What is the section 341 creditors meeting?

Answer 23

20 to 40 days after the order of relief, the creditors come together, interested parties, trustee, come together to talk about the debtor and what they might want to do for bankruptcy.

Question 24

When bankruptcy is created, all personal property and real property are included at time of filling. Is any property included after the filling of bankruptcy?

Answer 24

Yes “DIII” assets are included within 180 days after filling.

I - Income generated from estate property, rent, dividends, interest income. This is all income generated from the property, not salary.

D - Property the debtor receives from a divorce settlement.

I - Inheritance

I - Insurance money

Question 25

For property that the debtor leases, what happens to that?

Answer 25

It is up to the trustee, they decide what to do with it.

Question 26

What property is excluded from the bankruptcy estate

Answer 26

Any salary you earned after the filing.

Basic items you need to live, medical devices.

Question 27

Once bankruptcy is filed, the trustee has a lien on that property. Who does the trustee not have priority over in terms of creditors?

Answer 27

Creditors with perfected securities or any creditors with prior statutory or judicial liens.

Question 28

What is “Power Over Fraudulent Transfer”?

Answer 28

This is when the debtor tries to defraud the court, and make a fraudulent transfer. Basically, the trustee can go back two years prior to filing and see if they made any transfer with intent to defraud creditors, or if they sold the asset for way less than its value is. Talked about in the prior lecture.

Question 29

What does it mean if a court “disaffirms preferences”?

Answer 29

When a debtor gives specific preference to a certain creditor and pays them, the courts can look back 90 days before the bankruptcy filling and see what creditors were paid. They can go back 1 year for insiders (family members, partners in your partnership ,etc). If the court determines that you were just giving money to one creditor and not others, they can demand that money back so it is more distributive among all the creditors.

Can only be a preference if the creditor is getting more than they would actually be getting from the debtor normally. Prepayment, taking on new debt is not an example of this.

Debtor also has to be insolvent.

Question 30

What is a contemporaneous exchange?

Answer 30

This is when the debtor buys inventory or some other goods so they can run the business. But the key is, they do this shortly before bankruptcy. So the question is, can the court get this money back and use it to pay the creditors? NO, if the value the paid is equal to the goods, then they cannot. This only applies if they paid more or prepaid creditors.

Question 31

What are examples of transfers that cannot be set aside by the trustee?

Answer 31

Any expenses to run the business

Anything with child payments, those are state court issues.

Question 32

What do you have to do to have a claim on someone’s bankruptcy? What does that mean?

Answer 32

Basically means that creditors want to get some of their money back so they have to have a claim on the estate. To have this claim:

Unsecured creditors must file a proof of claim. If you are unsecured and you do not make a timely claim, you may not take part. Unless the debtor does not list you as a creditor, then it will not get discharged. You don’t to file a claim if you are a perfected secured creditor.

Shareholders must file proof of interest in the court

Unless someone objects, claims or interest will automatically be allowed in court.