Fraudulent Transfers
-UFTA
-fraudulent transfers can be avoided under 548 of the Bankruptcy Code
-548a: within one year of filing the petition
-In re Bay Plastics: fraudulent when
-intentional (with intent to defeat, hinder or delay creditors)
-constructively fraudulent because of debtor is in financial distress
-transfer while debtor is insolvent / renders debtor insolvent
-leaves debtor undercapitalized or nearly insolvent (can’t carry on biz)
-debtor intends to incur debts beyond ability to pay
-under UFTA 5
-debtor made transfer or incurred obligation
-without receiving reasonably equivalent value in exchange
-which rendered debtor insolvent (or debtor was already insolvent)
-and which is attacked by a pre-transaction creditor
-good faith defense UFTA 8
-not available for constructive fraudulent transfers (Bay Plastics)
-”in good faith and for a reasonably equivalent value”
-8(d): good faith transferee entitled, to the extent of value given
to the debtor
-lien on or right to retain any interest in the transferred asset
-enforcement of any obligation incurred
-reduction in the amount of the liability on the judgment
Commencement of the Case
-voluntary proceedings
-means test
-707(b)(2)(B(i) “special circumstances” Can adjust current monthly income
-current monthly income: average of last six months of income
-compare this figure to census bureau figure
-if D’s income is equal to or lower than this figure, debtor can file
chapter 7 under 707(b)(7)
-if D’s income is higher, debtor must use means test
-reduce monthly income by 707(b)(2)(A)(ii) expenses
-deduct payments to secured and priority creditors over
a 5 year period
-multiply this number by 60
-if this number is more than the lesser of
-$6,000 or 25% of priority unsecured debt
-OR $10,000
-fails means test; must file chapter 13, not chapter 7
-involuntary proceedings
-303(b): commenced by creditors of debtor
-at least 3 creditors unless debtor has less than 12
-unsecured claim of petitioning creditors must be greater than $10,000
-claims must be at least $11,625 more than value of liens on property
-creditors holding contingent claims don’t count
-chapters 7 and 11 only
-not against farmer or non-commercial corporation
-grounds for involuntary relief (order for relief)
-303(h)
-debtor does not respond to petition in 20 days
-if he does respond, relief if ordered if
-he is not paying his debts as they come due
-303(h)(1): unless the subject of a “bona fide dispute”
-In re Lough: is there a genuine issue of material
fact at issue?
-receiver has been appointed in previous 120 days
-impact of involuntary proceedings on debtor’s business
-303(f): business may continue to operate after the filing of the petition
-549(c): postpetition transfers protected from avoidance by trustee
-penalizing petitioning creditors
-303(i): if the case is dismissed other than with the debtor’s consent, creditors
may be liable for attorney’s fees and (if acting in bad faith) damages including punitive.
-debtor’s eligibility for relief
-factors listed in 109
-chapter 9: insolvent municipalities
-chapter 12: family farmer and family fishermen
-at least 50% of wealth from farming
-chapter 13: individuals, if less than $307k in secured debt and $922k in
unsecured debt 109(e), and have a regular income
-chapters 7 and 11: everybody else (who can pass means test for ch. 7)
-not railroads, insurance companies, banks
-small business debtors with debts less than $2m
-special rules: single asset real estate debtor (101(51B))
health care businesses (101(27A))
-limitations on repeat filings
-109(g): ineligible for 180 days if case was dismissed by the court for
-willful failure of the debtor to follow court orders or properly prosecute case
-OR debtor requested and obtained dismissal of the prior proceeding after
creditor had moved for relief from the automatic stay
The Bankruptcy Estate
541(a)(1): “all legal and equitable interests of the debtor in property as of the commencement of the case” is property of the estate.
-including property of the debtor seized by a creditor prior to filing of petition (Whiting Pools)
-even if a transfer is restricted by a condition, it’s propery of the estate (541(c)(1))
-interests of the debtor in property after commencement of the case:
-541(a)(6): earnings from services performed by individual debtor after commencement
-”general intangibles” under 9 UCC: not liquor licenses (In re Chris-Don)
-limits on the property of the estate (constructive trust)
-541(d): if the debtor only holds title and has no equitable interest, only the legal interest
becomes property of the estate
-constructive trust: imposed by court on wrongdoer who has been unjustly
enriched / removes from the estate property to pay those who have been wronged
in full
-to gain relief under a constructive trust claim, it must exist before the filing
of the petition (In re Omegas Group Inc)
-exclusions from the property of the estate
-541(b) and (c)
-powers the debtor may exercise only for the benefit of another entity
-any interest the debtor may have in a non-residential lease properly terminated
before the filing of the case
-spendthrift trust
-trust that keeps money out of the hands of beneficiary and creditors until
trust distributes the money
-541(c)(2)
-if a law prevents the alienation of an interest, it can’t be alienated in bankruptcy
either
-Patterson v. Shumate: debtor doesn’t have to include ERISA pension
plan in the bankruptcy estate
-exemptions and lien avoidance
-state and federal law have exempted some minimal amount of the debtor’s assets
from the estate (federal exemptions listed in 522(d)) -> also applies to dependents
-1: interest in real property that is a residence not to exceed $20,200
-2: interest up to $3,225 in 1 motor vehicle
-3: interest up to $525 in any particular item or $10,775 in value in
home furnishings, household goods, apparel, appliances, etc.
-4: debtor’s interest up to $1,350 in jewelry
-5: debtor’s interest in property up to $1,075 plus up to $10,125 of the amount
in (1) if not used there
-6: up to $2,025 in implements, professional books, tools of the trade
-7: unmatured life insurance
-8: $10,775 in accrued dividend or interest under an unmatured life insurance
policy
-9: medically prescribed health aids
-10: debtor’s right to receive
A: social security, unemployment, public assistance
B: veterans’ benefits
C: disability, illness, unemployment benefit
D: alimony, support if reasonably necessary for support of debtor
and dependents
E: stock bonus, pension, profitsharing, annuity on account of illness,
disability, death, age length of service to the extent reasonably necessary
for support of debtor and dependent unless
(i) established by insider that employed the debtor
(ii) account of age or length of service AND
(iii) does not qualify under various IRS codes
-11: right to receive
A: crime victim’s reparation award
B: wrongful death payment of parent to the exte
m, the claim is allowed
-502(b): potential objections or limitations on claims
1: all nonbankruptcy defenses to claims available in bankruptcy (statute of frauds, etc.)
2: no claims for unmatured interest (i.e. interest that doesn’t need to be paid yet)
3: when a tax claim, the claim can’t be for more than the value of the estate’s interest
in the property taxed
4: only reasonable value for services of an family member or attorney of debtor
5: no claims for unmatured debt except under 523(a)(5)
6: if claim is of landlord for damages from terminated lease
A: unpaid rent for the greater of 1 year or 15% of the remaining lease (but no
more than 3 years) following the earlier of
I: date of the filing of the petition
II: date on which the leased property was repossessed
B: any previously unpaid rent
7: damages from termination of employee contract
-502(e): claims against the debtor from entities that are liable with the debtor
-estimation of claims
-502(c): court should estimate contingent and unliquidated claims if it would take
too long to finally determine the value
-secured claims
-creditor holds a lien on property in which the state has an interest OR
-creditor has a right of setoff against the debtor
-involuntary: judicial or statutory lien
-voluntary: created by agreement (contract) between debtor and creditor
-secured to the extent of the lesser of:
-the amount of debt owed
-the value of the collateral
-506(a)(1): value determined in light of the purpose of the
valuation, i.e. proposed disposition or use of property (selling it?)
-506(c): trustee can subtract from value of secured claim the reasonable
necessary costs and expenses of preserving or disposing of the
property securing the claim to the extent of any benefits to the claim’s
holder
-if the collateral is worth more than the debt owed, the secured claimant can
also receive interest, reasonable fees, costs and charges under the agreement from
which the claim arose (506(b)) as interpreted by US v. Ron Pair Enterprises.
-secured claimant entitled to return of collateral or full payment of claim
-priority claims
-claims that have priority over other unsecured claims – 507(a)(1) through (10)
-value of claims is in descending order (i.e. must pay (1) first, then (2), etc.)
(1): domestic support obligations
(2): administrative expenses under 503(b)
(3): unsecured claims under 502(f) (claim arising in ordinary course of biz
after commencement of base but before trustee/order for relief)
(4): unpaid wages to $10,950 earned within 180 days before date of filing
(5): contributions to employee benefit plan: number of employees x $10,950
less the amount, per each employee, paid under (4)
(6): claims of people raising or processing grain
(7): $2,425 per person for money deposited for purchase, lease, rental
