RUTGERS SCHOOL OF LAW – CAMDEN
BANKRUPTCY
Fall 2013
Professor Richard A. Barkasy
Factors in deciding whether to settle or go to trial:
Chances of success
Cost of litigation
What are the chances I will recover- assets, insurance policy
I. State Law Debt Collection
Someone owes money- file lawsuit- get a judgment- adjudication to a right to payment, makes available collection tools that are available in State Law. Very state specific and different among states. Broad Generalizations in this class. Bankruptcy law is very uniform.
Collection-
1. Apply for writ of execution- entered by court where judgment was entered, directs sheriff to levy on any property of defendant at plaintiffs request. Have to get separate one in each county where defendant has property.
2. Send this to the sheriff with instructions and pay fees- he goes where you told him the property was and he puts a levy on it.
3. Your interest is created in this Levy
4. This interest is called a judgment or judicial lien.
5. Sheriff sets a sheriffs sale and advertises it
2 kinds of levy’s:
Actual- sheriff takes stuff and impounds it somewhere- can be expensive for judgment settler.
Constructive- what usually happens- sheriff gives a piece of paper that says don’t sell this
Real Property is levied upon not by physical seizure but by filing the writ in the real estate records. Other intangible rights are levied upon by serving notice on the obligor through the process of garnishment.
It is quite usual for the writ to simply indicate the amount of the debtor’s claim and to call upon the sheriff to find and levy upon sufficient property of the debtor to satisfy it. The levy identifies and binds particular property of the debtor to the creditor’s claim. The levy is the act that gives rise to a judicial lien in the property, thereby affording the creditor some protection against subsequent third parties.
Levy: The law’s act of asserting control over the debtor’s property on the creditor’s behalf. Until the levy occurs, the debtor’s property has not been subjected to the power of the law and the creditor acquires no rights in it by the judicial process.
From the minute the levy is served the judgment holder has a lien on the property
Judgment Lien- *For our purposes we are going to use the easier rule that the judgment lien becomes a lien only when the levy is served. The judgment lien is created when the levy is served. Arise out of the court proceedings initiated by the creditor for recovery
of the debt. The levy of execution on property following judgment gives rise to an execution lien on the property. Subject to any pre-existing third-party interest recorded in the property such as prior recorded mortgages and liens. A judgment lien does not take precedence over any exemption to which the debtor is entitled. Partially exempt property is lienable only to the extent of the debtor’s nonexempt equity.
Consensual liens- I consensually give you a lien on my property- you do not need a judgment against me. Is created by contract between the debtor and creditor.
– mortgage / deeds of trust on real property
– article 9 security interest in personal property- UCC-1 Form
– collateral
Statutory Lien- Many consensual and judicial lies are governed by statute. A mechanics or construction lien are most common- if they fix your car and you don’t pay then depending on the state they can hold your car until you pay. Other common are landlord liens (confined to commercial premises- personal property of tenant brought onto premises), the repairer’s lien (artisan’s lien), and construction lien (mechanic’s or materialmans lien).
Execution- the enforcement of a judgment by the seizure and sale of nonexempt property of the debtor or upon defendant’s property. The sheriff is directed by a writ to find property of the debtor, seize it, and sell it to realize proceeds with which to pay the judgment debt.
What if defendant does not own the property, but a third person is in control? Can do a
Garnishment served on the employer. There is a limit on the amount of wages that can be garnished. If own a business the owed money to the business can be garnished. Money paid to sheriff who takes out his fees and pays to the judgment holder.
Liens are enforced by a process called foreclosure.
** If more than one lien on property- general rule is that first in time will take priority based on date of recording.
States have exemption laws- certain types of properties are not subject to levy’s to satisfy a judgment. Funds in IRS qualified pension or retirement plan. In some states your entire homestead is exempt.
Some simply allow the debtor to select property up to a particular value; some identify classes or items of property that are protected; some prescribe both.
When the worth of the exemptible asset exceeds a value limitation, the asset is only partially exempt: It is subject to execution, but the debtor is entitled to be paid the amount of the exemption out of the proceeds. The surplus is then applied to the debt.
Generally, exemptions are intended to protect some of the debtor’s property so that seizure by creditors does not leave the debtor destitute.
How do you know what the defendant has? Google, title searches, public record searches
Post judgment discovery deposition- look for what the person has- best place to look are bankruptcy schedules. What has the defendant done with the plaintiff’s property?
When you have to sue someone there usually is no defense. A lot of the time the defendant does not have the money.
II. Introduction to Bankruptcy:
Why we have a bankruptcy law:
Allow a debtor a release, a discharge from indebtedness. A Fresh Start- this is a good thing because it gives entrepreneurs an incentive to take risks; allows consumers to still have something left and removes the need from the state to have to take care of them, where the creditor took the risk giving money the risk shifts to them instead of the debtor; moral component- people make mistakes and we are not going to hold it against them forever.
Leveling the Playing Field Among Creditors- There is chaos by creditor’s right before filing bankruptcy. Instead of the creditor with the most resources winning, all of the creditors with the same priority or same classifications are treated the same. Provides an orderly way for creditors to bring forth their claims.
Also allows preservation of the estate and efficient administration
Article I section 8 of the constitution makes bankruptcy law federal. Rights in bankruptcy are fre
tees formed of unsecured creditors to have a fiduciary duty to other creditors, if debtor acts bad the court can appoint a trustee
Federal Rules of Bankruptcy Procedure- adopted by Supreme Court- 28 USC section 157 and 1334 that deal with jurisdiction and venue. The rules may not alter substantive rights under the code and in the case of conflict the Code prevails.
Bankruptcy cases are initiated by the debtor filed in the courthouse called a petition. Considered in bankruptcy when filed. Files other papers that are supposed to include an identification of all of the assets owned by the debtor, all of the creditors owed, and schedules. The process is very transparent. Everyone can see everything. Can redact social security number. Transparent so all of the creditors are playing on the same field.
The person who files the bankruptcy is called the debtor.
Debtor in a chapter 11 case is called a Debtor-In-Possession. (DIP)
The people who the money is owed to are called creditors. Secured Creditors- have some collateral or claim they do and Unsecured Creditors- do not have collateral.
The trustee- manages the estate, has extensive powers to investigate the debtor’s affairs, to enforce the rights of the estate, and to participate in litigation involving the estate’s interests.
III. Elements Common to Consumer Bankruptcy
First file petition- constitutes the order of relief and automatically places the debtor in bankruptcy.
Supporting documents required by 521 are filed with or shortly after the petition. They include a list or schedule of liabilities, with the identity of creditors so that the clerk can notify them of the filing; a schedule of property; a schedule of claims, properly categorized into secured and unsecured classes, and identified as to whether they are contingent, liquidated or disputed; a claim of exemptions; a schedule of income and expenses; a schedule of executory contracts; a summary of the debtor’s financial history and current financial position; and a statement of intent with regard to property. BAPCPA significantly increased debtor’s duty to disclose information.
An estate is created when bankruptcy- 541(a) states that an estate is created by the commencement of the bankruptcy case. The bankruptcy estate is a new legal entity, separate from the debtor. The debtor’s property, as at the date of the petition, passes to the estate. In due course, all this property, unless abandoned by the trustee under 554, is liquidated and its proceeds distributed to creditors. 541 applies to Ch 7, 11, 12, and 13. Ch 11 and 13 enable the debtor to reacquire prepetition property from the estate by committing postpetition earnings.
