Bankruptcy Outline

 
University of Oklahoma College of Law
 
Bankruptcy Outline (Stephen Knippenberg- Fall 2017 Semester)
 
Introduction:
 
Abuse Prevention and Consumer Act of 2005 (BAPCPA), caused the number of bankruptcy filings to initially plummet
BAPCPA adopted the means test to bar supposed “can-pay” debtors from chapter 7 bankruptcy.
In addition to the means test, it also modified many other aspects of the Bankruptcy code which favored creditors
Taking the longer view, bankruptcy Filings have increased dramatically in the three decades since the enactment of the current Bankruptcy Code in 1979
Business filings have fairly remained constant while non-business filings have increased
Why have bankruptcy?
Bankruptcy provides a collective remedy that tries to deal fairly with a multiplicity of creditors.
(i.e. If a person commits an act of bankruptcy, then the debtor's assets would be seized, appraised, and sold, and the proceeds are distributed on a pro rata basis to creditors)
Insolvency Law:
Expressly aimed at debtor relief limited only to freeing an imprisoned debtor (but not discharging the debtor's personal liability to creditors)
The first United States bankruptcy law, the Bankruptcy Act of 1800, was almost identical to the English law in that only creditors file bankruptcy against the debtors and only merchant debtors were eligible for bankruptcy.
The first law the allowed a debtor to file bankruptcy voluntarily (rather than just the debtor's creditors) was the Bankruptcy Act of 1800.  Also, eligibility for bankruptcy relief was not limited to merchants. Instead, eligibility was extended to “all persons whatsoever owing debt.”
Composition agreement was introduced into the bankruptcy law in 1874
Composition (predecessor to modern reorganization provisions) allowed the debtor to give payments of a percentage of his debts over time in full discharge of those debts while also keeping his property.
The current bankruptcy law is the “Bankruptcy code” enacted by the Bankruptcy Reform Act of 1978.
In 1994 Congress created a second National Bankruptcy Review Commission, which filed its comprehensive report in October 1997.
 
 
 
 
 
Nature and Purposes of Bankruptcy:
Bankruptcy law seeks to protect the creditors (1) from one another and  (2)from their debtors (3) the protection of the honest debtor form his creditors by means of discharge
 
The Law of Bankruptcy (Charles Jordan Tab)
Legally, “bankruptcy” is a type of court proceeding designed to settle the financial affairs of a “bankrupt” debtor.
There are two goals of a bankruptcy case:
(1) Resolving the competing claims of multiple creditors
(2) Freeing the debtor from its financial past
Bankruptcy law has evolved considerably since the first federal law wasp passed in 1800.
Back then, a bankruptcy case could only be brought by creditors against the merchant debtor
An “insolvency” law was conceived as a debtor relief law and could be commenced by the suffering individual debtor
Now bankruptcy means both a remedy for creditors and of debtor relief.
 
Liquidation Bankruptcy case:
 
The most common type of bankruptcy case is a liquidation bankruptcy case:
Liquidation bankruptcy is governed by chapter 7 of the Code
In a chapter 7 liquidation case, the debtor's existing assets are sold or “liquidated” and the net proceeds are distributed to creditors.
For individual debtors, any “exempt” property is returned to them rather than being sold for the benefit of creditors
An independent party, the bankruptcy trustee, supervises the process of collecting the debtor's assets and the creditor doesn't do it by himself.
If (as is usually the case), the debtor does not have enough property to pay all of it creditors in full, then each creditor takes the same proportionate share of those assets.
Exception to this equivalent treatment of creditors:
(1) secured creditors are paid the value of their collateral before unsecured creditors are paid
(2) What's leftover from paying the secured creditors, some unsecured creditors have been awarded priority by Congress, and must be paid before non-priority unsecured creditors.
Discharge of debts:
Where an individual debtor may keep his future earnings free from the claims of his pre-bankruptcy creditors.
The discharge of debts frees up a debtor's future earnings
Liquidation bankruptcy cases serve two independent purposes:
(1) Relief of debtors
(2) Equitable treatment of creditors
The core function of bankruptcy is as a collective creditors' remedy that furthers the goals of efficiency and of distributive justice.
State law provides individual creditors with remedies to collect their debts from debtors such as execution, garnishment, and so forth.
Relative rights of creditors versus each other is governed by the rule “first in time is first in right”
This means that the creditor who acts first to have the sheriff seize the debtor's asset will be paid first—>Thus state collection law is sometimes referred to as “the race of diligence” or “grab law.” 
Collective remedy is another solution beside grab law where all creditors cannot be paid in full and they share the debtor's property on a pro rata basis. Thus, each creditor shares part of the loss from the debtor's collective default.
To prevent a creditor in a creditor group from trying to go by himself and get the money, the bankruptcy statutory injunction blocks individual credit collections forts.
If an individual creditor tries to ignore the automatic stay and recoveries assets for itself, it will not work, the creditor will have to give the money back.
The bankruptcy trustee acts as the representative of the creditors in collecting the debtor's assets, liquidating them, and distributing the net proceeds to the creditors, on a pro rata basis.
 
Secured Transactions, Article 9
 
Secured v. Unsecured Transaction
 
Unsecured creditor looks like this:
 
Secured v. Unsecured Transaction:
        
Suing and winning a judgment just establishes that the Bank/Creditor has a right to be paid: the judgment confers