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Bankruptcy
Rutgers University, Newark School of Law
Sharfman, Keith

SHARFMAN’S INTRODUCTION
 
·        Debt: To be a debtor means to have an obligation to pay a creditor            
·        Corporations
o       Liquidation   (Chp 7)              
o       Reorganization pursuant to court confirmation  (Chp 11)
§         The choice usually depends on whether the entity’s liquidation value exceeds or falls short of its value as a going concern; if the former then liquidation is appropriate
·        Individuals
o       Chp 7 – you get discharge and start fresh
o       Chp 13 – you don’t get discharged but you keep your possessions
·        Banks and Insurance companies aren’t covered by Title 11 Bankruptcy
·        Chp 15 is a new chapter, international aspects, fairly uncommon
·        Art. 9 UCC is the state law, it covers personal property
o       Creation
o       Attachment
o       Perfection – to file something with secretary of state where debtor is located
§         In state law there is a race to get paid first because if there is no money left to pay you then you’re screwed
§         Debt represents a race to a common asset in a common pool (oil field or fish example), so Congress comes in and creates a collective remedy for creditors. 
·        It was in everyone’s interest to slow down this race
·        Debt collection outside of bankruptcy
o       General Creditors
§         A supplier could refuse to ship additional items to a deadbeat debtor, discount its claim to a collection agency, report debtor to a credit bureau
·        Doesn’t always lead to payment and unsecured creditor can’t take back the product without debtors permission
§         Start a lawsuit and obtain a judgment which allows supplier to obtain its property and establish priority over other creditors
·        A Judgment Lien doesn’t give the right to immediate possession, it establishes the creditor’s space in line. Gives the creditor the right to go after the property and priority over those who acquire later liens
·        Writ of Execution directs sheriff to seize and sell property to pay the judgment entered. A levy on the property (padlock a warehouse)
·        Garnishment can force a bank or customer to pay the creditor instead of the retailer
·        State Supervised Sales – junior creditors are paid only if there property sells for more than is needed to satisfy the debt to senior creditors in full
o       Surplus is returned to debtor after junior is paid
·        Not all

o enforce its security interest against the debtor, the property can be seized in the event of default
Repossession hurts the debtor more than it helps the creditor because its more likely worth more to the debtor than the creditor
Induces debtor to find money elsewhere or send a signal to other debtors
If the amount realized form the sale of the collateral is less than what the creditor is owed, creditor can bring an action against debtor for the deficiency
When debtor has insufficient assets to pay all creditors in full, creditors race to establish their priority rights
Art. 9 allows creditors a security interest in after-acquired property, like inventory then existing and thereafter acquired
If a creditor can persuade the debtor to repay the loan voluntarily, it will ordinarily be able to keep the payments
This creates poor incentives, encourages individual creditors to take assets away from the debtor when the debtor’s survival needs the assets the most