REG 7 BK Flashcards
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If holder of a negotiable instrument is not an HDC, what defenses can be asserted by an obligor?
Any defense that can be asserted in a simple contract action (failure of consideration, fraud, nonperformance of conditions, etc.).
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If the holder of a negotiable instrument has the rights of an HDC, what defenses can the obligor assert?
Only “real defenses,” which is anything in the “FAIDS” mnemonic— Forgery, Fraud in the execution, Alteration, Adjudicated Insanity, Infancy, Illegality, Duress, Discharge in bankruptcy, Suretyship if status known, Statute of limitations.
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Is failure of consideration a defense against an HDC?
No. This is a “personal defense” that can only be asserted against a non-HDC.
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Is giving a party an instrument with the amount left blank a defense against an HDC?
No. A material alteration of the amount is a defense against an HDC, but leaving the amount blank is only a personal defense. Even though it is blank, the idea is that a later holder would fill in an amount. An HDC is allowed to do this. It’s his note, and he can have someone else fill in an amount if he wants.
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Who is secondarily liable on a check?
The drawer.
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How can a drawee become primarily liable on a check?
By signing it or by certifying it. Certification of a check by a bank discharges all prior parties.
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When can a trustee be appointed in a Chp. 11 case?
On a showing of fraud, dishonesty, etc.
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What is the order of priority of priority claimants for bankruptcy?
SAGWEGCTI— Support obligations, admin expenses for bk, gap creditors, wage expenses up to $12,000 per employee if earned within 180 days of filing, employee benefit plan contributions up to $12,000 per employee if earned within 180 days of filing, grain farmers and fishermen claims up to $6,000, consumer deposits for goods paid for but not delivered up to $2,000, taxes, injuries claims caused by driving intoxicated.
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What is the order of distribution of the debtor’s estate (the 3 main claimants)?
- Secured creditors 2. Priority claimants 3. Unsecured creditors
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Debts that are exceptions to BK discharge?
“WAFTED”– willful and malicious injury, alimony, fraud, taxes, educational loans, debts undisclosed in BK petition
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In what Chapters of BK is a trustee appointed? Why only with these chapters?
Chapter 7 and Chapter 13. The reason is because these chapters of bk involve liquidation of a debtor’s assets. Also, in Chapter 11, normally suffering businesses file for this chapter. Thus, the debtor remains in possession of the assets because they are presumed to be in the best position to run the business.
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What is a “preference” that the trustee can set aside?
It is a transfer made to or for the benefit of a creditor, on account of an antecedent debt, made within 90 days prior to filing the petition, that results in the creditor receiving more than they would have under BK code.
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Why do preferential transfers occur in BK cases?
These tend to occur because the creditor may be a family member or a business partner, etc.
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What is a fraudulent transfer in a BK case?
Any transfer made with the intent to hinder, delay or defraud creditors or any transfer where the debtor received less than equivalent value while the debtor was insolvent.
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Why would a debtor sell an asset for a low amount while they are insolvent?
He would sell low and buy it back in an underhanded agreement to make it look like he has less property for the bk proceeding. That way he gets to keep the asset and it doesn’t get sold in the BK proceeding.
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What property that the debtor receives after filing the BK petition is included in his estate?
“DII”– property received from divorce, inheritance, or insurance within 180 days after filing the petition.
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To what do the creditor minimums and $15,325 rules regarding BK’s apply to?
Involuntary petitions only
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Describe Chapter 13 BK.
Debtor repays all or a portion of his debts over a 3-5 year period. Remaining debts are discharged.
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Describe Chapter 11 BK.
The debtor remains in possession of his assets and adopts a plan to pay off his debts at a different time and/or at a different amount.
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General rule for retention of collateral in satisfaction of debt? Exception?
GR: Yes, it’s fine. The exception is with consumer goods where the debtor has paid off at least 60% of the loan. In this case, the creditor must sell the collateral within 90 days after repossession.
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What is the reason behind the exception for the rule regarding retention of collateral in satisfaction of debt?
The debtor may have built up some equity in the property, and could be entitled to surplus that can only be paid to him if collateral is sold.
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With a sale of collateral, what right of redemption do the debtor and subordinate security holders have?
None.
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When does a PMSI in noninventory collateral have priority over other perfected security interests?
When they file within 20 days of the debtor receiving possession of the collateral.
