Bankruptcy: Prof. Lewis; Fall 2013
I. Introduction
a. Reason for Bankruptcy
i. Procedural mechanism for getting out of debts which someone fails to pay and still pay them partially
ii. Important because it guarantees that everyone gets something rather than some creditors being favored
b. Secured credits and priority
i. Creditors
1. Secured
a. Party has agreed to a loan and taken a certain piece of collateral
b. i.e. mortgage on a house
c. Types
i. Over secured (collateral>loan)
ii. Undersecured (collateral
iii. Wholly secured (collateral= loan
2. Unsecured
a. No priority whoever gets judgment for collateral gets it
i. Cannot get property which has an existing security on it
ii. Requires finding unsecured property
b. All lumped together in Bankruptcy and paid pro rata
ii. Priority
1. Determined by when interest is perfected
a. Gives constructive notice
b. No advantage once there is a default
c. Liens
i. Taking an interest in a piece of property to protect a creditors loan
ii. Types
1. Consensual
a. Real property governed by state law; personal property governed by title 9
b. Agreement
2. Judicial
a. Created in the litigation by an unsecured creditor
b. Guarantees payment to the creditor
3. Operation of law
a. Not consensual and doesn’t’ depend on judgment of law
b. i.e. tax liens
d. Bankruptcy
i. One line in the constitution governing (art 1 cls 8)
ii. Sources of law
1. Bankruptcy code (original 1898, one used currently 1878 (amended in 2005)
2. Title 18 Bankruptcy law
3. Title 28
4. Title 11
a. Split into chapters (1,3,5,7,9,11,12,13,15
i. 1,3,5à all of bankruptcy
ii. 7,9,11,12,13,15à deal with specific types of bankruptcy
iii. Code review
1. Ch 1
a. 101à definition
b. 105à broadest grant of equitable digression (court can basically do anything)
c. 109à who can be a debtor
2. Ch 3
a. 301-307 (how cases are started)
b. 362à automatic stay
c. 363à use, sale, lease
d. 364à borrow money in bankruptcy
3. Ch 5
a. 541à property of the estate
b. 547à preferences
c. 548à fraudulent conveyances
d. 544à strong arm power
iv. Types
1. 7
a. Liquidation
b. Applies to corpotations and individuals
2. 9à municipal bankruptcies
3. 11
a. Corporate reorganization
b. Replaces old debts with no debt
4. 12à family farm bankruptcies
5. 13
a. Personal bankruptcy
b. Don’t have to sell everything have a repayment plan
6. 15à transnational bankruptcy
v. Process
1. Debtor meets all requirements
2. Eligibility
a. Almost anyone
b. Don’t have to be insolvent
3. Trustee
a. Administer the cases
b. 341 meeting
4. Discharge
a. Possible to be denied
b. Prepetition debts are discharged
5. Federal judges
a. Term of 14 years
b. Based on merit
vi. Buchner Doctrine
1. Bankruptcy is an alternative method of debt collection for certain circumstances
2.
. Right of the secured creditor for their secured claim
2. Concept that ensures the secured creditor’s position does not erode during the case
3. Necessary
a. Creditor Undersecured
b. Collateral is declining in value
4. What happens
a. Requires the trustee to make cash payments or a periodic cash payment to the effect that the stay results in the decrease in the property value
b. Provide to such entity an additional or replacement lien for the value of the decline
c. Any other relief that results in the realization of the indubitable equivalent of such entities interest in such property
iv. 362d2
1. If debtor has no equity in the property
2. If property is not needed for effective reorganization
3. Protection: convince the court that you need the property for effective reorganization
v. Other lifts
1. Suits to determine liability
a. Courts let them proceed b/c otherwise the court would have to place a number on it
b. Only allowed b/c it didn’t harm the debtor( insurance was paying for the lawyer)
c. Not actually suing the person*
2. Randoms
a. Cases with no ties to bankruptcy
b. Where they are the fiduciary
c. Cases which don’t implicate the reasons for the stay
d. Purely for liability of insurer
