Bankruptcy Outline

Radwan, Fall 2010
 
Introduction
a.       Players
·         Debtor
·         Creditor
o    Secured (over, fully, under)
o    Unsecured
§ Priority
§ General unsecured
§ Subordinated unsecured (equity)
·         Trustee or Debtor-in-Possession
o    Compare U.S. Trustee
·         Judge
b.       Types of Bankruptcies
·         Chapters 1, 3, 5, and 15
o    § 101
·         Liquidation
o    Chapter 7
·         Reorganization and repayment
o    Chapter 11 (business)
o    Chapter 13 (person)
·         Miscellaneous
o    Chapter 12 (family farms)
o    Chapter 9 (municipal)
c.        Basic Process
o    Filing of petition and schedules
§ Order for relief
o    341 Meeting
o    Proof of claim forms
o    Collection of property of the estate
o    Distribution of property of the estate
o    Discharge of indebtedness
d.       Court System
 
e.       The Bankruptcy Abuse and Consumer Protection Act of 2005
·         Signed into law on April 20, 2005
·         Effective date (usually) of October 17, 2005
·         Major changes
o    Means testing
o    Credit counseling
o    Responsibilities of Debtor’s attorneys
o    Homestead exemption
o    Chapter 15 – Ancillary, Cross-Border Cases
 
f.         UCC Article 9
                                                   i.      Attachment
o    Creditor gives value for the security interest in the collateral
o    Debtor has rights in the collateral
o    Debtor has signed an agreement granting rights in the collateral (usually)
                                                 ii.      Perfection
o    Filing
o    Pledge
o    Automatic perfection
o    Control
                                               iii.      Filing
o    UCC-1 Financing Statement is usually filed with Secretary of State
o    Indicates who debtor is, who creditor is, and what collateral is encumbered
o    Lasts for five (5) years, unless continued
                                                iv.      Proceeds
o    A valid security interest against collateral automatically attaches to the proceeds of that collateral, but perfection usually must be done within twenty (20) days of conversion
§ Ex: Creditor has a security interest in necklace of debtor. Debtor sells necklace for cash and uses the cash to purchase a new table. The table is proceeds of the cash, which is proceeds of the necklace. Creditor can claim a security interest in the table, but must perfect against the table to have priority.
g.       Priority
·         BIOCOB (Buyer in the ordinary course of business)
·         Government
·         Trustee, if preferential transfer (§ 547)
·         PMSI or control
o    Purchase Money Security Interest (PMSI) loan, where the creditor takes a security interest in the items purchased (i.e. vehicle, furniture, electronics); vs, a Non-Purchase Money Security Interest (NPMSI) loan, where the creditor takes a security interest in items that the debtor already owns.
·         Filing or Pledge (in order of perfection)
·         Trustee, if hypothetical lien creditor (§ 544)
·         General Unsecureds
I.                    Eligibility for Bankruptcy
a.       § 109 – Who may be a debtor
Chapter 7
Chapter 11
Chapter 13
§ 109(b)
Person
Not railroad
Not moneyed company
§ 109(d)
Person under Ch. 7
+ moneyed co.
+ railroad managers
Intended for businesses
§ 109 (e)
Individual
Regular income (see § 101(30))
Non-contingent, liquidated, Secured debt < $1,081,400 Non-contingent, liquidated, Unsecured debt < $360,475 ·         § 109(b) o    Defines “abuse” o    As long as you pass the means test you are presumed not be abusing § 707(b) ·         § 109(e) o    “Non-contingent” § ”Non-contingent” debt is debt that is not dependent upon some future event happening in order to exist. This future even may never happen, so the debt cannot be realistically calculated at the present time. o    “Liquidated” § “Liquidated” debt is debt that is of an agreed-upon and fixed amount. ·         § 109(g) (BAPCPA addition 2005) o    No individual/family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if § Case was dismissed by court for debtor’s failure to abide by court orders/appear; or § Debtor requested and obtained voluntary dismissal of the case following the filing of a request for relief from stay. ·         § 109(h) (BAPCPA addition 2005) o    To be eligible, within 180 days preceding petition, Debtor completed credit counseling     b.       Times Between Filings ·         From the date of the first FILING o    (vs. date of dismissal for serial filings vis-à-vis the Automatic Stay) ·         IF the previous case was dismissed b/c failure to pass means test – it doesn’t count!! Previous Case    (date of filing) New Chapter 7Must Wait (date of filing) New Chapter 13Must Wait (date of filing) Chapter 7     8 years 4 years Chapter 11 8 years 4 years Chapter 12 6 years* 4 years Chapter 13 6 years* 2 years * Unless debtor’s previous plan paid 100 percent or 70 percent with good faith and best effort requirements met; then no waiting period is required for eligibility for discharge.     c.        § 706 – Conversion ·         § 706(a) – Debtor has right to convert a Chapter 7 to an 11, 12, or 13 at any time, if the case has not been converted; right to convert cannot be waived ·         § 706(b)- Involuntary conversion – court may convert to a Chapter 11 on request of a party in interest after notice & hearing ·         § 706(c) – The court may not convert to a Chapter 12 or 13 unless requested by the debtor ·         § 706(d) – Debtor must qualify under the Chapter to which he is converting to d.       § 707(b) – Means Test ·         Doesn’t apply to disabled veterans (B)(i) ·         Step 1: Determine Current Mthly Income “CMI” (average of last 6 mos of income § 101(10)(A)) ·         Step 2: Compare CMI (monthly) to state average (§ 707(b)(7)) o    If CMI > state average à go to step 3
o    If CMI < state average à STOP; Passed Means Test ·         Step 3: [CMI*60]-[mthly expenses*60] o    Expenses § + § 707(b)(2)(A)(ii) [actual expenses] § + § 707(b)(2)(A)(iii)(iv) payments due on secured/priority debts [actual expenses] § + IRS Expenses [don’t need to be actual] ·         NOT included: Unsecured claims (these do not count as expenses in Step 3) ·         Step 4: o     Compare what is left over from Step 3 to the greater of (§ 707(b)(2)(A)(i)) § $11,725 or § $7,025 or 25% of unsecured claims o    If the difference is greater than either one = presumption of abuse § 707(b)(7) o    Unsecured creditors considered at this step – how will what is left over impact the unsecureds? ·         Purpose: Get creditors as much money as possible; try and put into an 11 or 13 ·         Fraud/Good Faith Requirement: § 707(b)(3)(A) – Debtor may pass Means Test but may still be ineligible for Chapter 7 ·         Rebut Presumption of Abuse: § 707(b)(2)(B) – “Special Circumstances” – will change how you calculate Step 3 b/c you would get to add in the “Special Exceptions” ·         Debtor Attny Requirements: sec 707(b)(4)(C) – “Reasonable investigation” e.       § 707 – Dismissal of a case or conversion to a case under chapter 11 or 13 ·         § 707(b)(1) – Abuse; provides for a dismissal when an individual with primarily consumer debts abuses in one of two ways: o    § 707(b)(1)+§ 707(b)(3) – when read together turns on bad faith filing or ‘totality of the circumstances of the debtor’s financial situation’ o    § 707(b)(1)+§ 707(b)(2) – when read together turns on the outcome of the Means Test f.         Toibb v. Radloff, 501 U.S. 157 (1991) ·         Plain language of Chapter 11 says that a Chapter 7Debtor may be a Chapter 11 Debtor ·         Therefore, an individual may file a Chapter 11 g.       Johnson v. Home State Bank, 501 U.S. 78 (1991) ·         Facts: Debtor defaulted on a mortgage loan to creditor, and filed a petition under Chapter 7 of the Bankruptcy Code, §  727, when creditor began to foreclose on debtor's property. After debtor's personal liability on the mortgage was discharged and the automatic stay lifted, creditor obtained an in rem judgment against debtor's property. Debtor then filed a petition under Chapter 13 of the Bankruptcy Code, and included creditor's judgment as a claim in his proposed plan under §  1322(b). Creditor appealed the confirmation of the plan, and the appellate court affirmed the district court's decision that since debtor's personal liability had been discharged, creditor had no claim against debtor, and thus its judgment could not be included in debtor's plan. ·         Held: that since creditor's claim against the property survived the Chapter 7 discharge, only one mode of enforcing its clai