Section 21: Bankruptcy Flashcards
Chapter 7
Liquidation - assets of the debtor are turned over to a trustee, who sells them and tries to satisfy the creditor claims, with remaining claims discharged
Chapter 11
Business Reorganization - debtor continues to operate the business while the creditors meet to restructure the debts.
No trustee is involved
Chapter 13
Debt Adjustment Plan - debtor and trustee work put a plan to restructure the debts w/o involvement from creditors.
Only available to individuals and small businesses
Voluntary Only
Voluntary Bankruptcy
- 7, 11, 13
- Debtor files for relief
- “Order of Relief” issued to stop individual collection efforts by creditors imediately
- Need not to be insolvent
- Spouses may file jointly
- Insurance companies, saving and loans, banks, credit unions, and railroads cannot voluntarily file
Involuntary Bankruptcy
- 7, 11
- Creditors force debtor into bankruptcy
- Farmers and NFPs cannot be forced into bankruptcy
Involuntary Creditors: # of Creditors
- 12 or more Creditors
- 3 signatures and unsecured claims of $15,325 or more in the aggregate
- Fewer than 12 creditors
- 1 signature and unsecured claims of $15,325 or more inthe aggregate
Creditors whose petitions are dismissed
- Are liabile to the debtor for:
- Court costs
- Compensatory damages
- Punitive damages
Outstanding Contracts
- Trustee can do one of three options
- Assume the contract and perform the duties on behalf of the bankrupt
- Assume the contract and assign the benefits to a 3rd party and pay them
- Reject (breach) contract
- If not assumes within 60 days of order of relief, it is automatically rejected
Avoiding Powers of Trustee (FLAP)
- Fraudulent transfers by the debtor w/in 2 years of filing of the petition
- Leins by statute (not leins that were effective before the bankruptcy petition was filed)
- After filing the petition, a transfer was made by the debtor
-
Preferential transfer of property (I-WAIT)
- Debtor was Insolvent when the transfer was made
- W/in 90 days of the filing of the petition
- For an Antecedent debt (pre-existing debt), new value is ok
- Improves the creditors position (creditor gets more monet than would have gotten in bankruptcy)
- Time is increased from 90 days to 1 year for an insider (officer or close relative of Debtor)
Preferential transfer of property (I-WAIT)
- Debtor was Insolvent when the transfer was made
- W/in 90 days of the filing of the petition
- For an Antecedent debt (pre-existing debt), new value is ok
- Improves the creditors position (creditor gets more monet than would have gotten in bankruptcy)
- Time is increased from 90 days to 1 year for an insider (officer or close relative of Debtor)
Not Preferential Transfers (C-CONAC)
- Charity
- Consumer debt <$650
- Ordinary course of business (current utlity bill, lease payment)
- New value
- Alimony and child support
- Continuation of installment payments
Distribution of Assets Among Creditors
Amounts get paid out 1 level at a time.
If run out of money, give that one level a proportionate share of the cash available
Order of Distribtuion of Assets Among Creditors
-
Secured Creditors
- Fully secured - the collateral is worth the amount of the debt or more. Any excess is returned to the trustee
- Partially secured - the collateral is worth less than the debt. The creditor gets the collateral, but is general/unsecured creditor for the remainder
-
Priority claims (STOP-IT Drunk Driver)
- Support and alimony payments
- Trustee, attorney, accountant, and admin expenses
- Owed after petition date in involuntary gap between filing and approval date
- Payroll (90 days) and Employee benefit plans (180 days) up to $12,475 ($11,715) per employee
- Individual consumer deposits up to $2,775 ($2,600) each
- Tax claims arising w/in 3 years of the petition
- Drunk Driver injury claims
-
General/Unsecured Creditors
- this includes all remaing non-priority timely filed claims exceeding amounts above
Execptions to General Discharges
(Dr doesn’t owe anyone EXCEPT these people)
- Alimony and child support
- Credit Card purchases for luxary goods of >=$640 w/i 90 days of filing. Cash advances of >=$925 w/i 70 days of filing. Auto loans w/in 3 yrs of filing
- Student loans - during the period that payments are not yet owed
- Loans obtained by fraud or false representations
- Unscheduled/unlisted debt - Dr. failed to list on sch of debts they submitted to court
- Tax claims w/i 3 yrs of the petition
- Other items (STD)
- Any debts from securities law violation under SOX
- Debts incurred to pay Taxes
- Drunk Driver injuries or death judgments
- Other items (STD)
Denial of General Discharge
Dr is denied and owes EVERYONE
- Cases where discharges are denied
- Inadequate books and records
- Refusing to explain a loss of assets
- Brankruptcy offense
- withholding records
- refusing to obey a court order
- Being discharged w/in the last 8 yrs
- Fraudulent transfer of property w/i 1 yr of filing
- Debtor must be an individual
