Statutes

Question 1

§725-726

Answer 1

Order of priority: FIRST liquidate to those with a secured interest in the property and then to the estate (starting with admin. Priorities, taxes etc. re. §507), and finally to the “debtor”—which in a chap. 11 would be equity holders.

Question 2

§707

Answer 2

Allows for dismissal and conversion to Chap. 11 or 13 (if the debtor doesn’t do what they are supposed to do)
• Unreasonable delay
• Don’t pay court fees

Question 3

§721

Answer 3

Does allow the trustee to continue to operate the business:

• Must get approval and must operate lawfully.

Question 4

§704

Answer 4

Duties of Trustee (Trustee “shall”—mandatory language)
• Can only distribute money, not stock.
• Be accountant—
• Investigate the debtor’s financial position:
o If no assets just file a “no asset report” including no causes of actiondischarged.
• If advisable—oppose the discharge of the debtor they need to make sure you are entitled to the discharge
o Ie. For reasons of fraud

Question 5

• §1129(a)(7)

Answer 5

Must get more than they would get from liquidationApplies to consenting AND dissenting classes.

Question 6

§1129(b)(2)(B)(ii)

Answer 6

bars junior interest holder’s receipt of new property on account of his prior interest.

Question 7

1129(2)(i)

Answer 7

If paying in less than full, must abide by “absolute priority” rule!!

Question 8

§1111

Answer 8

• Election: (b): Non-recourse lender gets treated as a resources lender IFF the debtor keeps the property:
• (b)(2): Further election to protect creditor from judicial undervaluation of the secured portion of the claim. Hybrid where, plan must pay out the full amount of the undersecured claim (ignoring §506(a)), but the present value need only equal the smaller secured portion of the claim. The lien though and the secured claim is larger so it protects in case of immediate sale.
o Waives right to a deficiency claim

Question 9

363(k)

Answer 9

right to “credit bid” (in auction, can bid with credit that is owed, forcing competitors to outbid by a lot more).

Question 10

§1129(b)(2)(a)

Answer 10

o (I) ASC (allowed secured claim)—can put a lien on the property, to make sure you get paid, regardless of whether the property is sold to someone else.
o Must pay at time of plan proposal the ASC portion of the bifurcated claim pay over time but pay interest rate so that the present value of that future payment equals the ASC.
 How to calculate this rate (Till SC case)(BUT note that Till was chap 13 case, so would not necessarily apply to chap. 11)
• Formula rate (Till) prime rate plus adjustment for risk, up to 3%.
o This is the easiest to determine
• Coerced loan rate if bank were to invest the money in another party with same risks, what would they charge?
• Contract rate revert to the contract rate, subject to small adjustments
• Cost of funds look to market rates what would it cost now?
o (II) If debtor sells Maintain 363(k) right right to “credit bid” (in auction, can bid with credit that is owed, forcing competitors to outbid by a lot more).
o (III) Another option“indubitable equivalent” of the claim (*Note though: this creditor would still be considered “impaired” for purposes of voting)
 Basically allow them to take the property (ie. stock would not be enough)
 Also identical property, even if technically different.
 Rad-lax: If it’s a sale roman numeral II applies. So can’t give 1 million secured portion of the 1.3 million claim, and keep the extra .3.

Question 11

§1124

Answer 11

• Any change to legal, equitable, and contractual rights of a party in interest
o Change in interest rate, coupled with extension OR reduction in term impaired that is even an enhancement of rights would still be impaired.
o Equity for debt instruments impaired
 NOTE: that this kind of proposal would also leave equity common stockholders impaired as well.
• Any default must be cured in addition to damages for “reasonable reliance” by effective date of the plan:

Question 12

(§1129(a)(10)

Answer 12

• Criteria for cramdown: at least one impaired consenting class of non-insiders

Question 13

§1125

Answer 13

“adequate disclosure” for “typical” class member judge must approve the disclosure
• Can give different disclosures to different classes
• Maybe some question of who is the “typical” member in large class
• (b)—neither acceptance nor rejections of a plan can be solicited until the court has approved the disclosure statement (by debtor OR by creditors…)
• **What info is necessary?
o Possible claims against creditors
o Most courts—require a valuation if the company were liquidated in chap. 7 to assist with the evaluation in case of cramdown!

Question 14

• §1122

Answer 14

•	“substantially similar claims” should be classified together share common(a) priority and (b) rights against the debtor’s estate.
•	Reasons for classification must be independent of debtor’s motivation to secure the vote of an impaired, assenting class of claims. (Phoenix Mutual)—NOTE: not all courts agree.
•	Claims and interests cannot be classified together
•	Priority claims and general unsecured claims cannot be classified together
•	Secured creditors separately classified—
o	To be in same class for secured creditors- property must be BOTH of (a) equal priority and (b) in the same property (need not arise out of same transactions).

Question 15

• §506(a)

Answer 15

when estimating secured claims bifurcate the secured debt from the undersecured debt which becomes an unsecured remainder.

Question 16

§1121

Answer 16

• First 120 days—only debtor can file a plan, 180 days (total not additional) to gain acceptance of plan.
o Thereafter debtor can continue to propose plans as can any creditor or party in interest can propose a plan.
 el comandante- “party in interest”= anyone with financial or legal stake in the outcome of the case, including a post-petition transfer.
o *if trustee appointed—exclusivity period automatically ends. §1121(c)(1)
• Upon finding of cause (9 factors—Express One)—court can shorten or lengthen the exclusivity period:

Question 17

501

Answer 17

Proof of claim/interest necessary but may be filed by either a creditor or the debtor

Question 18

502

Answer 18

a- claim or interest is deemed allowed unless challenged
-b-2: no umatured interest
-b-4: claim by insider for payment that exceeds the value of services
b-9: No claim if not timely filed

Question 19

523

Answer 19

kinds of debt should not be subject to this discharge (21 categories but generally):
o Incurred through fraud
o Secured debt?
o Child support, student debt, DUI accidents— important to society
o Taxes get priority

Question 20

524

Answer 20

Effect of Discharge

Question 21

721

Answer 21

Limited authorization to trustee to operate business in chap 7 type case

Question 22

541(a)(1),

Answer 22

Broad definition of property of the estate as any “legal or equitable interest”, or one acquired within 180 days of the filing.

Question 23

541(b)(1) - (7)

Answer 23

Property that is NOT property of the estate (exercised solely for the benefit of non-debtor or investments on behalf of close family member or retirement accounts so long as a yr before the filing)

Question 24

541(c)(2)

Answer 24

restriction on the transfer of a beneficial trust that is enforceable under non-bk law, is also enforceable under bk law.

Question 25

522(b)(1)

Answer 25

Exemptions must be exercised to take something out of the “property of the estate”

Question 26

1108

Answer 26

“unless the court orders otherwise, the trustee may operate the debtor’s business”
• BJR rule applies, so we don’t second guess decisions of the trustee (Curlew Valley) where in good faith, upon a reasonable basis, within the scope of his authority under th code= “arbitrary and capricious” standard.
o “unless the court orders otherwise” means if the court determines that it is proper to dismiss/ change to liquidation where proper—not that the trustee’s management can be conditioned or second guessed rebuttable presumption of continued operation.
o Code sections allow judicial oversight of the DIP, but those provisions are missing from §1108, suggesting the same limitations don’t apply to an appointed trustee

Question 27

362(a), (b) & (d)

Answer 27

Automatic Stay:
Protects the debtor–broader than “property of the estate”–“against the debtor OR against their property”
Super broad: “property of the estate” + “property from the estate” + “exercise control over property of the estate”

-Must petition for relief from the stay in order to continue collection.

Question 28

701

Answer 28

Interim trustee becomes permanent trustee in most cases, unless option for election of trustee is exercised

Question 29

727

Answer 29

3 general reasons to refuse discharge:

(a) -debtor is not an individual
- fraud or other improper behavior
- recently got a discharge

Question 30

§507(a)(2)

Answer 30

if there is a failure of the adequate protection that is given to the creditor (assuming they asked for it) it becomes a super admin. Claim!

Question 31

§503(b)(1)(A)

Answer 31

Allowance of Admin Expenses: In either case must also pass secondary test: “actual or necccesary expense of preserving the estate

Question 32

Rule 6003

Answer 32

can pay professionals for first 21 days, unless finding of “irreparable harm.” Makes these initial payments more difficult.

303 exception says that need to be appointed to get paid for prepetition work, but these disclosures etc take time… so how do we deal with that?
• Some courts— relate back the appointment to before that work was done, so it is considered as if they had already been appointed.
• Most though do an “interim appointment” before the final appointment (without violating the rule) and then they finalize it after 21 days have expired.

Question 33

327

Answer 33

• Appointments of professional persons:
o Can’t have position “adverse” to the debtor
o Should be disinterested—101.14—not a creditor, equity security holder, or insider. Also can’t have been employee/director within 2 yrs of the filing.

Question 34

*§305

Answer 34

Gives the court the discretion to (a) dismiss or (b) abstain (do nothing) if the case does not serve the purposes of bankruptcy.

Question 35

o 28 U.S.C. § 1408

Answer 35

 (1) in which the domicile, residence, principal place of business in the United States, OR principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, OR for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; OR
 (2) in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership

Question 36

o 28 U.S.C. § 1014(a)(2)

Answer 36

 If in improper district, the judge can: (1) move it, or (2) dismiss it
• But note, you can transfer to an improper district b/c the rule simply says you can transfer to any other district if in the interests of justice or for the convenience of the parties

Question 37

109

Answer 37

jurisdiction of the bankruptcy court:

• “person or municipality”
o PERSON defined by section 101 to include corporation that “resides” or is “domiciled” in the US.

Question 38

303h

Answer 38

debtor can only be forced into involuntary case, then the debtor must be “insolvent”—in that the debtor is illiquid—can’t pay bills as they come do OR assets are in the hands of a custodian

Question 39

101-5

Answer 39

Definition of claim–very broad

Question 40

362

Answer 40

Automatic Stay

Question 41

o §362a7

Answer 41

Automatic stay applies to right of set-off

Question 42

341

Answer 42

Mandatory meeting of creditors

Question 43

507

Answer 43

Priority of Claims: Secured creditors are paid before unsecured creditors.

    Secured Creditors: Secured creditors with claims on estate property are paid either with that property or its value. 

    Unsecured Creditors: Unsecured creditors are all treated equally unless provided otherwise by the Code or 𝕂. The Code provides several exceptions to equality listed in greatest priority to least.

        Domestic Support Obligations: Payments to be made to spouse, child or the payment assigned to a government agency. [§ 507(a)(1)].

        Administrative Expenses: Expenses that are (1) actual and necessary operating expenses of the estate (wages, rent) and (2) compensation and reimbursement of entities that enable the operation of the bankruptcy process (paying lawyers). [§ 507(a)(2); § 503(b)]

        Involuntary Bankruptcy Debts: Claims that arise in an involuntary bankruptcy between the time the petition is filed and bankruptcy relief is ordered. [§ 507(a)(3)]

        Employee Wages: Wages up to $12.85k each, for the 180 days prior to filing or cessation of business, whichever is earlier. [§ 507(a)(4)]

        Employee Benefit Plans: Unpaid contributions to employee benefit plans; computed in conjunction with wages. [§ 507(a)(5)]

        Consumer Layaway Deposits: Deposits of up to $2,850. [§ 507(a)(7)]

        Prepetition Taxes: While outside of bankruptcy unpaid taxes are given extra priority, the Code puts them at a lower spot in order to “spread the wealth”[§ 507(a)(8)]

        DUI: Claims for death or personal injury resulting from the 𝔻’s operation of a motor vehicle or vessel while intoxicated. [§ 507(a)(10)]