Select Page

Bankruptcy
St. Thomas University, Minneapolis School of Law
Kressel, Robert

Kressel_Bankruptcy_Fall_2010.doc
I. Bankruptcy Definitions
A. Bankruptcy law: device for the resolution of the collective interests of creditors and for the relief of overburdened debtors.
B. Discharge: creditors are forever barred from collecting any debts remaining unpaid at the end of the bk proceeding
C. Assignments/Compositions: state law remedies; do not permit discharge
D. Debtor (from §101 (13)) person or municipality concerning which a case under this title has been commenced
1. Who may be a debtor? (from § 109):
a. Ch 7: Only a person that resides or has a domicile, a place of business, or property in the U.S., or a municipality, cannot be railroad, bank, insurance co, savings and loan (other laws apply to banks that are insolvent)
b. Ch 9: Must be a municipality
c. Ch 11: For railroads
d. Ch 12: Must be family farmer
e. Ch 13: Individual, must have certain level of debt and be individual with regular income (not stock broker or commodity broker); income does not necessarily have to be taxable job, just means money coming in
2. Entity>Person>Individual
a. Entity (from § 101(15)): most inclusive; includes person, estate, trust, governmental unit, and United States Trustee
b. Person (from § 101(41)): includes individual, partnership, corporation, but usually does not include governmental units (exceptions)
c. Individual: not specifically defined in the bk Code, but by process of elimination means human beings; § 101(30) says individual with regular income, but not individual
E. Rules of Construction: defined in § 102
F. Voluntary cases (from § 301) (a) a voluntary case under a chapter of this title is commenced byt the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter (b) The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter.
G. Involuntary cases (from § 303(a)): An involuntary case may be commenced only under chapter 7 or 11 of this title, and only against a person, except a farmer, family farmer, or a corp that is not a moneyed, business, or commercial corp, that may be a debtor under the chapter under which such case is commenced
H. Joint cases (from § 302) (a) A joint case under a chapter of this title is commenced by the filing with the bk court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual’s spouse. The commencement of a joint case under a chapter of this title constitutes an order for relief under such chapter (b) After the commencement of a joint case, the court shall determine the extent, if any, to which the debtors’ estates shall be consolidated.
I. United States Trustee (from § 307) The U.S. tt may raise and may appear and be heard on any issue in any case or proceeding under this title but may not file a plan pursuant to section 1121(c) of this title
1. Role and capacity of trustee (from § 323) (a) The tt in a case under this title is the representative of the state (b) The tt in a case under this title has capacity to sue and be sued.
2. Interim tt (from § 701) disinterested person appointed from a panel of private tts who serves until tt elected
3. Duties of tt (from § 704) pg. 127-28 of mini code book
a. Collect and reduce to money property of estate expeditiously
b. Be accountable for all property received
c. Ensure debtor shall perform intention
d. Investigate financial affairs of debtor
e. Examine proofs of claims and object to improper allowances
f. If proper, oppose discharge of debtor
g. Unless ct orders otherwise, furnish info on estate to parties in interest
h. If business continues, make sure taxes collected
i. Make final report and file final account of the administration of the estate with the ct and tt
j. Pay mind to domestic support obligations
k. If debtor served as administrator of employee benefit plan, continue
l. Use all reasonable and best efforts to transfer patients into appropriate health care business if in the process of being closed
J. Family farmer with regular annual income (from § 101(19)): family farmer whose annual income is sufficiently stable and regular to enable such family farmer to make payments under a plan under ch 12
K. Dismissal of a case or conversion to a case under ch 11 or 13 (from § 707):
1. Court may dismiss a case only after notice and hearing and only for cause:
a. Unreasonable delay by debtor that is prejudicial to creditors
b. Nonpayment of any fees or charges required
c. Failure of debtor in voluntary case to file within 15 days or additional time as the court allows after the filing of the petition commencing the case
2. Court may dismiss case sua sponte after notice and hearing or by motion of tt or any part of interest if debts are primarily consumer debts; or convert to 11 or 13 if granting relief would be abuse of chapter (formula)
L. Prohibition on disclosure on names of minor children (from § 112): debtor may be required to produce information on minor, but not name; any names would be in non-disclosed documents
M. Determination of Secured Status (from § 506(a)): Secured by lien or judgment, deficiency judgment considered unsecured claim, so if bank has $600,000 mortgage on a property worth $500,000, only have a secured claim of $500,000; Soderlund v. Cohen says you can file if unsecured debts less than $250,000
N. Estate: (from § 541(a)) created by the filing of the petition that comprises “all legal or equitable interests of the debtor in property
1. State law defines what is property (Board of Trade of the City pf Chicago v. Johnson, pg. 83) so broadly defined that almost anything you own at commencement of the case and also maybe after (see (b) and (c)(2) for exceptions); what is property determined by federal bk law, but nature of property rights governed by state law
2. Estate attains only encumbered interest in property, not full ownership, other interests must be satisfied first
3. Butner v. United States: state law right will be respected in bk unless bk policy mandates a different rule; state law determines right to rents/profits
4. Under MN law, a commission is earned when a purchase agreement is signed, important to know for whether it’s property of the estate
5. No state law regarding lawyer fees, so different situation than real estate brokers; quantum meruit: if lawyer has done work on the case, even if gets fired entitled to some compensation; lawyer’s compensation not based on when contract signed but how much work he did when Jess v. Carey
6. Spendthrift provisions (from § 541(c)(2)): i.e. ERISA plans if there is “a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicabl

lder is to receive a payment from the bk estate; deemed claim if it is filed and no objection is raised; claim from a bank loan is not just missed payments, it’s the whole amount owed; very few things are not claims: injunctions such as protection/restraining orders b/c no right to payment; Two questions to ask: 1. Is it a claim? 2. When did it arise?
1. Defined in § 101(5)): Claim means (a) right to payment, whether or not reduced to judgment, ligquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (b) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
2. Reasons to Disallow a claim (from § 502(b)):
a. Unenforceable against debtor or debtor’s property; debtor doesn’t owe money under any other applicable law
b. Unmatured interest
c. Tax against the property exceeding the value of debtor’s interest
d. Claim is for services i.e. atty or insider and claim exceeds value or services
e. Claim for debt that is unmatured on date of filing and is for child support under 523(a)(5)
f. Lessor damages resulting from termination of lease, can’t claim more than 1 year worth of rent or 15% of what’s left on the lease, whichever is greater plus any unpaid rent without acceleration
g. Employee damages from termination of employment K
h. Claim results from reduction, due to late payment, in amount of an otherwise applicable credit available to debtor in connection with employment tax on wages, salaries, or commissions earned by debtor
i. Proof of claim not timely filed
3. Priority Claims (from § 507): Each level of claims is paid in full before any payment is made to the next lower priority level, as long as funds are sufficient; if not sufficient, claims are pro rata and lower claims get nothing
a. 1st Priority: Domestic Support Obligations (but compromise says 503(b) shall be paid to the extent tt procures the assets that pay these obligations)
b. 2d Priority: Administrative Expenses: i.e. expenses of the bk itself necessary to preserve the estate (defined in § 503(b))
c. 3d Priority: Gap creditors, costs of running business between filing and discharge; claims that arise from involuntary claims (502(f))
d. 4th Priority: Wages and salaries of employees; wage claimants for 180 days before case filed
e. 5th Priority: Employee Benefit Plans
f. 6th: Fishers and Farmers
g. 7th Priority: Claims in connection with purchase of family home
h. 8th Priority: Government/tax
i. 9th Priority: Federal Depository Institutions