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University of Mississippi School of Law
Czarnetzky, John M.

Bankruptcy – Spring 2007
Professor Czarnetsky
Consumer Bankruptcy
1)      Consumer Bankruptcy
a)      Two fundamental types of proceedings
i)        Liquidations: Chapter 7, debtor gives up all non-exempt assets, Trustee in Bankruptcy sells assets, and proceeds are distributed pro rata to creditors; debtor is discharged of all debts and begins fresh
ii)       Payout plans: Chapter 11 (businesses), Chapter 13 (consumers): debtor can propose to keep all assets in exchange for promising to pay off debts over a period of time out of future income; can mean much higher returns for creditors
iii)     Filing a Petition: In a voluntary bankruptcy petition, the debtor is required to file various forms called “schedules” all of which are set forth in Officials Forms part of Bankruptcy Rules. Schedules include details list of debts assets, income and expenses
(1)    Policing Debtor Applications:
(a)    Before they file, debtors must produce certification that they have attended a debt counseling session, that they have been given information about the other chapters of the code and about credit counseling, and that they have been warned that false information in files can lead to penalties and jail time. §109(h), 521(b)
(b)    Debtor’s schedules must be complete, since failures to list a debt may make the debt nondischargeable § 523(a)(3)
(c)    Debtor’s schedules must be accurate, since false statements in the petition or schedules may result in a complete denial of discharge under §727(a)(4) (and may open the debtor to perjury prosecution).
(d)    Debtors sign their petitions under penalty of perjury, must file copies of pay stubs for 2 months before they filed, a statement of monthly income and an explanation of how that was calculated, and a statement disclosing any anticipated increase income in next 12 months §521(a)(1)(iv)-(vi)
(e)    Debtors must be able to produce copy of previous year’s tax return on request of court/creditor 521(i)
(2)    Policing Debtors via Debtors’ own Counsel
(a)    Attorney must sign the petition, and by signing, represents that the attorney has performed a “reasonable investigation” and has no knowledge that the info in the schedules is incorrect (§707(b)(4)(C))
(b)    Consumer bankruptcy lawyers have been renamed “debt relief agencies” and are specifically prohibited from making any statement in any document filed that is “untrue or misleading, or that upon exercise of reasonable care, should have been known to an agency to be untrue or misleading.” §101(12A); 526(a)(2).
(c)    Fail

41(b)(6), if the debtor set aside in certain kinds of tax-sheltered accounts to pay for the education of children in the family, then such accounts are not property of the estate, even though the debtor may be named the owner of the account, manage the account and have right of withdrawal
(d)    Per §541(b)(7), employee contributions to any ERISA-qualified retirement plans, deferred compensation plans, tax-deferred annuities and health insurance plans are not part of the estate. NOTE: Supreme Court expanded protection of retirement funds in Rousey v. Jackoway, holding that IRAs are part of the estate, but they are exempt property under 522(d) (despite not being specifically mentioned in the laundry list of exempt retirement plans), and therefore the debtors are entitled to keep it.
(e)    Per §541(d), secured property becomes property of the estate only to the extent of the debtor’s legal title, but not to the extent of any equitable interest in such property that the debtor does not hold, such as a mortgage secured by real property.