BANKRUPTCY OUTLINE
Collecting Consumer Debts
W/o Courts:
Creditor wants leverage w/ debtor to inc chance of repayment (threat damage credit score)
Creditor defense: you applied for credit w/ no probability of being able to repay
Who is a debt collector?
Attnys can be included as debt collectors, even when collctn act is litig. – Heintz
FDCPA §803(6): DC = any person using IC/mail to collect debts, or reg attempts/collect debt
à basically its 3rd party collectors
Doesn’t includeà debt which was originated by such person (F)(ii)
Ex: Payday lender originates, tries to collect loan, not a debt collector
Policy: Reputational constraint if you lend, 3rd party collectors don’t care
What is a creditor? 803(4) Says creditor is anyone to whom a debt is owed
What if I am a debt collector?
Per 809, validate debt; disclose debt amnt; who is owed; any info given will be used to collct
Remember, the FDCPA doesn’t apply to corps, you can abuse corps all you want
Fraudulent Conveyance Law
Problem: Debtor trying to transfer assets to avoid seizure
Solution: Trustee can void any transfer illegal under state FC law. §544(b)
Source of Law: §548 à sets out standards for FC, transfer must be made w/in 2 yrsof filing
§5 UFTA – just need 1 creditor to have standing, can set aside whole trans
Rule: Transfers of value can be voided if:
Actual fraud (intent) — §4(a)(1) of UFTA
i. Creditor must prove debtor made transfer w/ intent to defraud/hinder/delay creditors
1. Hard to prove actual intent
ii. 4(a)(2) Badges of fraud (facts raise presumption that transaction fraudulent)
1. Inadequate or no consideration received for transfer
2. Transferee is a relative or close friend of the debtor
3. Debtor continues to enjoy use of prop for personal benefit
4. Conveyance occurs during/following debtor’s incurrence of financial problems
5. Debtor transfers his assets to a corp that he completely controls
iii. BOP is on creditor
Constructive Fraud — §5 of UFTA & §548(a)(1)(B) – No intent req’d – But need
i. Transfer w/o REV &
1. UFTA doesn’t use mech formula, up to cts; look to mkt conditions, motive
ii. Debtor is insolvent
1. Balance sheet insolvnt; or cash flow insolvnt; or undercapitalized after transfr
a. If no data to show insolv, then creditr can show D not paying debts, burden shifts to debtor
b. Insolv measured at time of conveyance
iii. Must be a present creditor to use §5
Creditor’s Remedies for FC:
UFTA §7 and 8 gives creditor choice of 2 remedies:
i. Recovery of the prop from transforee so it can be levied and sold; or
ii. Money judgment against transferee for lesser of value of prop or amnt of debtors debt
Transferee defense
Has good faith defense, 3rd party is protected if:
i. No knowledge of the fraud; &
ii. Gave REV
1. If good faith but not REV, then transferee can offset the value they paid for it
Leveraged Buy-Outs & FC
· LBO = when purch of shares in corp if financed by assets of the corp
o Basically, corp provides funding to buyer of its shares, expect reimb from future prof
o If it fails, then SHs look to FC law
o Usually arg constructive fraud: arg that grant of SI in corp assets inc its debt over assets, rendering it insolvent; not relevant that owner received REV, since corp (debtor) did not
Equitable Subordination — §510(c)
Postpones (subordinates) payment of particular creditor’s claim until some/all other creditors are paid
Usually done when there is wrongdoing by an insider
Subordinated creditor is sent to the back of the line of creditors and paid last
Requirements for equitable subordination:
Subordinated creditor must have engaged in some type of inequitable conduct
Conduct must’ve resulted in injury to other br creditors/conferred unfair adv on sub cred
Equitable subordination must not be inconsistent w/ provisions of br act
State Collective Remedies
· Characteristics: 1st in time; race of diligent; creditor w/ leverage, sophisticated, aggressive wins
o Problems: Not just (child support could come last); not sold in orderly adv liquid sale
o Benefits: Faster and cheaper
Assignment for the Benefit of Creditors (ABCs)
Way for D to ‘get everyone off my back’; debtor assigns all
st price
¨ Turnover of Prop to Trustee:
o Prop that can be used/sold/leased by trustee under §363, or prop that can be exempted by debtor under §522 must be delivered to trustee
o SC who repod collateral before filing of ch 11 and hasn’t sold collateral must turn it over
§ Exceptions to turnover:
· Property of inconsequential value, then not required to turnover
· Transfer w/o actual notice/knowledge of the br
Automatic Stay — §362(a)
¨ Once petition filed, AS stops creditors from seizing collateral
o Stops post-petition setoff of a pre-petition debt against creditor’s claim
§ If you repod the car before AS but haven’t sold it, then must give it back
o Also stops any act to create, perfect, enforce any lien
o Thus, creditor must obtain relief from the stay before a setoff can be exercised
o Ex: Violated AS when withheld transcript for not paying student loan
o For paperwork req’d for homeàsee §521(b); if don’t file paprwk; ct dismiss after 45 days
o Effect of violating the stay: §362(h)
§ Liable for actual damages from violation + attny fees, costs +punitive (maybe)
¨ Exceptions to AS: §362(b) Stay Doesn’t Apply to:
o Criminal proceedings against debtor: §362(b)(1)
o Government police, regulatory powers: (b)(4)
o Fwd ks or securities ks: §362(b)(6) (think holding comps)
o Perfection of PMSI w/in relation back time; filings necessary to continue perfection of prev perf SI. (b)(3)
o Eviction: §362(b)(22) says if landlord has just filed eviction then it stops under AS,
§ but if LL already gotten a judgment of eviction, then AS doesn’t apply
o Utilities disconnect: §366 says utilities won’t be cut off; must provide svics to deadbeats;
§ 366(b) says you get 20 days of protection, after that debtor has to give deposit
o Alimony/Child Support:
§ §362(b)(2)(c) covers pre and post-petition if you have a DSO/garnishment in lace for support, it would keep going; tricky if try and start a new one