BANKRUPTCY OUTLINE
Contents
GENERAL OVERVIEW… 4
Introductory Info. 4
Types of Debt. 4
Chapter 7 – Liquidation. 4
Means test. 5
Individual Debt Collection. 5
Collection without Courts. 5
Leveraging. 5
The Credit Information Process. 6
Restrictions on nonjudicial collection. 6
STATE LAW DEBT COLLECTION.. 6
Judgment Collection. 6
Post-judgment collection devices. 6
Post-judgment process in AL. 7
Voluntary/Consensual Liens. 7
Statutory liens and Trust Funds. 8
Collection in other Jurisdictions. 8
Priority Among Creditors. 8
“First in time, first in right”. 9
Determining priority. 9
Common scenarios. 9
Fraudulent Conveyances and Shielding Debtor Assets. 10
Origins of Fraudulent Conveyance Law- Twyne’s Case. 10
Leveraged Buyouts. 10
Part II: Consumer Bankruptcy. 10
INTRODUCTION TO BANKRUPTCY. 10
Development of the Current Statute. 10
Bankruptcy Court Organization. 11
Structure of the Bankruptcy Code. 11
COMMON ELEMENTS IN CONSUMER BANKRUPTCIES. 11
Getting Started. 12
The Estate. 13
Property of the Estate. 13
Creation of the Estate. 13
Trustee in Bankruptcy. 14
Duties of the TIB. 14
TIB and unsecured creditors. 14
The Automatic Stay. 14
Scope of the Stay. 15
Lifting the Stay. 15
Stay-lifting litigation. 16
Adequate protection litigation. 16
Chapter 7 LIQUIDATION BANKRUPTCY. 16
Introduction. 16
Eligibility. 17
A Change in Philosophy. 17
The Presumption of Abuse. 17
Policing the New Standards. 18
Property Exempt from Seizure. 18
Introduction. 18
A State/Federal System.. 18
Classification of Property. 18
Valuation of Exempt Property. 19
Partially exempt property –. 19
Objecting to Exemptions. 19
Homesteads, Trusts, and Exemption Planning. 20
Homestead Exemptions §522. 20
Exemption Planning. 20
BAPCPA re: Homestead. 21
Unlimited Exemptions and Asset Trusts. 21
Claims and Distributions. 21
The Claims Process. 21
Disputed Claims. 22
Unsecured Claims. 22
The Claim.. 22
Secured Claims. 22
The Claim.. 22
Interest. 23
Attorney’s fees. 23
Exemptions. 23
Post-petition Claims. 23
Exceptions to Discharge. 23
2 different challenge options:23
Objecting to discharge. 23
Total exception to discharge. 24
Student loans and discharge. 24
Post-Bankruptcy: Reaffirmation. 26
Reaffirmation/Redemption of Secured Debt. 26
3 incentives of reaffirmation used by creditors:26
Alternatives to avoid surrendering collateral:26
Reaffirmation of Unsecured Debt. 27
Reshaping the Estate. 27
Trustee Strong Arm Powers. 28
Real Property. 28
Personal property. 28
Preferences. 28
The General Rules. 29
Process. 30
Indirect preference. 30
Exceptions to Preferences. 31
Contemporaneous Exchange. 31
Ordinary Course Payments. 31
Enabling Loans (Purchase Money). 32
New Value. 32
Domestic Support Obligations. 32
Fraudulent Conveyances. 33
Defenses to fraudulent conveyances §550. 33
Involuntary bankruptcy. 34
GENERAL OVERVIEW
Introductory Info
· Course coverage
o General bankruptcy Chapters (1, 3, and 5)
o Liquidation under Chapter 7
· October 17, 2005 – large changes to bankruptcy code
· Two principles always at work being achieved simultaneously in bankruptcy
o (1) Giving the debtor a “fresh start” – rooted in American bankruptcy
o (2) Treat debtor’s creditors as fairly as possible
· Taking care of the debtor’s debt is the end result of Chpts. 7 and 13
· Interest rates stop once bankruptcy is filed
· Bankruptcy shows up on a credit rating for 10 years
Types of Debt
· Kind of debt you can have (3 types):
o (1) Secured debt – collateralized and can be repossessed
§ Cars, homes, furniture
o (2) Unsecured debt – everything else
§ Credit cards, medical bills
§ Can only make demand upon you to make payment – sue you
o (3) Priority debt – unsecured debt bu
creditor and pay them all back
· Timing – must pay all creditors back w/in 60 months (5 years)
· Must earn a wage
· More Chpt. 13’s filed around here than 7’s (rare)
· Creditors make claims to become a part of creditor pool
Means test
· Congress, lobbied by credit card companies, changed rules in 2005
· Rule – Look at a debtor’s gross income for the last six months and we multiply that by 2 (makes an annual income), then look at debtor’s family, then use tax tables that break down median income by state and county and avg. expenses of those families, if that income is less than what the IRS table says your median income is, you pass the Means test
o §707 B 7
o Look at definition of “current monthly income” under §101 (10)a – all monthly income no matter if it is taxable for the last six months- average
– Take the current monthly income multiplied by 12 for the annual income, compare with the state median income if = to or less than then you have passed the means test.
Individual Debt Collection
Collection without Courts- Nonjudicial Collection Methods
Leveraging
A. Creditors – Looking to enhance its leverage to increase chances they are repaid
(1) Very fluid relationship b/t debtor and creditors
Economics vs. Efficiency
B. Ex. Bank of America – Why banks take collateral
(1) Leverage – Securing an applicant’s things gives greater incentive to the borrower to make the payments
(2) Collateral control – prevents the application from obtaining an additional loan elsewhere
