Bankruptcy
Davis Fall 2015
Consumer Bankruptcies
Filing petition-att’y, by signing petition, certifies the completion of a reasonable investigation into the accuracy and absence of knowledge that the info in the schedules is incorrect (707b4C)
-debtors must attend meeting of creditors (341 meeting)
I. Property of the estate (541)
a. At filing petition-all prop owned by debtor becomes prop of estate.
i. all legal & equitable interests of Dtr
ii. joint property
iii. any interest trustee recovers
iv. within 180 days by devise; property settlement; life insurance
v. proceeds from property of estate except such as are earnings from services performed by an individual debtor after the commencement of the case.
vi. any interest the estate acquires after filing
b. NOT included
i. beneficial interests
ii. any interest as lessee under lease of nonres property
iii. Higher Education Act
iv. Educational account not later than 365 days before filing for child, stepchild, grandchild or stepgrandchild
v. ERISA, annuity, health insurance, etc IRAs included (case)
Prochnow-debtor earned wages pre-petition and so they were included in the bankruptcy estate. The background rule to which courts refer defines the bankruptcy estate includes prop that is sufficiently rooted in the pre-bankruptcy past and so little entangled with the bankrupt’s ability to make an unencumbered fresh start.
-mere expectancies or hopes are not property.
c. (c)Restrictions generally not enforceable; exception for spendthrift trusts
i. Monies not available to creditors because it is settlor’s property. If state law respects this provision then so does Bankruptcy law. That is, until he receives the money
d. Expectancies in property: “rooted in pre-bankruptcy events”
e. License disputes: bought & sold?
f. In re Orkin
i. Easily terminable?
ii. How much control did Dtr retain?
II. The Automatic Stay (§ 362) In re Green-ECU attempted to collect outstanding pre-petition debt while the auto stay was in place. 362(k) any individual injured by willful violation of auto stay shall recover actual Ds and may recover punitive Ds
Nissan Motors v. Baker-auto stay prohibits any act to obtain possession of prop of the estate or to exercise control over prop of the estate. Creditor’s continued retention of estate prop after notice of bankruptcy filing constitutes an exercise of control over property of the estate in violation of auto stay.
a. What’s stayed
b. Exceptions
i. Criminal action
ii. Civil action – paternity, domestic support, child custody, marriage, domestic violence
iii. Domestic support
iv. Licensing
c. Continues until no longer property of estate or case dismissed
d. Relief from stay
i. Normally only secured
ii. For cause inc lack of adequate protection
iii. Or
1. Debtor does not have equity in property
2. Not necessary to effective reorg
iv. 362d3 SARE unless 90 days after order for relief debtor has filed a plan of reorg that has a reasonable possibility of being confirmed within a reasonable time OR debtor has commenced monthly payments equal to interest at then applicable K rate
v. Willful violation damages inc attys fees. Good faith actual damages only
III. Adequate Protection 361
a. May be provided by
i. Cash payments
ii. Additional or replacement lien
iii. Other relief that is indubitable equivalent
IV. 366 Utility Service
a. Can’t discontinue because filing
b. May refuse within 20 days if no adequate assurance
Chapter 7, Liquidation Bankruptcy-policy of exemption laws often directed towards making sure that every debtor retains enough property to have a chance to get out of a hole and make a fresh start. Still another policy reason is that some property has little value to creditors, but can be crucial to the debtor.
-Exempt property under state law means exempt from seizure by writ through the formal collections laws. When debtor waives that exemption, by granting a voluntary security interest w/ a home mortgage or car lien, the exemption protection fails. Unsecured lenders are victims to exemptions.
In re Reed-B.C. provides that a debtor may be denied discharge if he has transferred property w/ intent to hinder delay or defraud or has failed to explain satisfactorily any loss of assets.(727)
-exemption planning reform-10yr reachback period-if Ct finds intent to hinder delay or defraud. Created absolute cap to H.S. exemption for people who were convicted of securities law violations, fraud in fid. Capacity and a number of other bad acts (522(9))
-For a time after relocation, a debtor’s exemptions are determined by the earlier place f residence. 522(b)(3)-the applicable exemptions are those of the state where the debtor resided for 730 days before the bankruptcy filing. If debtor did not have just one home during the two year period before bankruptcy, go back and look at where the debtor resided during the 180 days that preceded the 730 days to see where the debtor resided the majority of the time.
522(p)(1)-A debtor may not exempt any amount of interests that was acquired by the debtor during the 1215 day period preceding the date of filing.
-Mansion Rule-when move across state lines, may only exempt up to 155,675 w/in 1215 days preceding bankruptcy.
I. Priorities 507
a. (a) have priority
i. (1) unsecured domestic support
ii. (2) administrative expenses under 503b
1. actual necessary costs & expenses of preserving estate
2. trustee has priority over domestic support claims to extent administers assets for such claims; otherwise 2nd priority
3. Hierarchy
a. Ch 7 trustee admin exp
iv. May include actual expenses for dependents not to exceed $1,775 to attend private school
v. May allow actual housing & utilities
c. Deduct secured debts
d. Deduct priority debt payments under 507(a)
e. Special circumstances
5. This will provide a figure for the debtor’s net monthly income (that is, his disposable income)*
6. This disposable income is then multiplied by 60 to provide a 5 year total figure for the debtor’s net disposable income
7. This 60-month disposable income figure is then compared to the prescribed standards. Abuse is presumed if the figure is not lower than whichever of the following is less:
a. The greater of 25% of the debtor’s nonpriority unsecured claims in the case, or $7,475, whichever is greater; or
b. $12,475*
*This means surplus must be between $124 & $208
*For debtor that flunks means test try to get disposable income down or show special circumstances, such as serious medical condition or a call or order to active duty in the Armed Forces that justify additional expenses or adjustments of CMI
Ex. private school – less than 18 years of age, $1,775/year if provide documentation and explanation of why reasonable + necessary
Ch 13: project that they will go to private school or enroll now + claim will be more credible that expense is reasonably necessary
b. Policing the new standards
i. §707(b)(6) permits only judge or trustee to bring an action on general abuse for below median debtor
ii. An above median debtor is subject to a charge of abuse by judge, UST, or any creditor for failed means test or general abuse §707(b)(1)
iii. If a couple files jointly both incomes are included for all purposes. If only one files + general abuse obj only the income of the filer is used to determine who can raise the objection. §707(b)(6). But if only one files + means test obj the non-filing spouse’s income is nonetheless included for purposes of determining whether the debtor is above or below the median income for purposes of continuing the inquiry under the means test. §707(b)(7). But if the debtor fails the test because the debtor & spouse have income above median only the debtor’s income and not that of the debtor’s spouse is used for working through the budgets and means test. §§101(10A); 707(b)(2)(A)(i).
