Bankruptcy Outline

Bankruptcy Outline
Professor Steve Knippenberg

Outline

I. Satisfaction of Claims Outside of Bankruptcy (State Law Remedies)

A. General
B. State Law Remedies

II. Bankruptcy Code – Layout

A. General
B. Non Substantive Chapters – Chapters 1-5
C. Liquidation – Chapter 7
D. Plan Chapters – Chapters 11, 12, & 13

III. Commencement of the Case

A. Eligibility
B. How a Bankruptcy Case is Commenced
C. Dismissal
D. Conversion

IV. Consequences of Commencement

A. Estate Created
B. Automatic Stay

V. Discharge

A. General
B. Which Debtors Receive a Discharge
C. Which Debts/Claims are Discharged
D. Objections to Discharge
E. Exceptions to Discharge
F. Effects of Discharge

VI. How Claims are Satisfied in Bankruptcy

A. Claims
B. Unsecured Claims & Secured Claims
C. Allowance
D. Distribution

VII. Trustee’s Avoiding Powers – Limits on Transfers of property Before/After Commencement

A. General
B. Consequences of Avoiding a Transfer
C. Transfers Which May Be Avoided

Fraudulent Transfers
Preferential Transfers
Right of Setoff
Unrecorded Transfers and Untimely Recorded Transfers

VIII. Executory Contracts and Unexpired Leases

A. General
B. Choices with Regard to Executory Contracts and Unexpired Leases

EXAM – Multiple Choice (around 25 Q’s); Maybe an Essay (it will be focused and detailed, not broad)

I. Satisfaction of Claims Outside of Bankruptcy(State Law Remedies)

A. General

3 Options When Incurring Obligations:

1. Perform
2. Breach (and be liable for damages), OR
3. Get the debt discharged in bankruptcy

Terms for seizing property:

Garnishment – Intangible property

C’s = “garnishers”
Entity paying D (probably employer) = “garnishee”
Debtor = “principle debtor”

Judgment Lien – Real Property

What happens – C gets judgment, then “dockets” the judgment, which means taking it to the county clerk who then enters the info by the D’s name.

Result – C’s get lien on all of D’s real estate in the county in which the judgment was entered, including after-acquired real estate

Levy – Personal Property

B. State Law Remedies

1. Unsecured Creditors’ Remedies Under State Law

Progression if D defaults on obligation:

1. Debtor defaults on obligation
2. Creditor initiates informal collection efforts

(1) Send notice
(2) Send a “not so nice” notice
(3) Maybe hire collection agency
(4) Accelerate Debt
Note: If unsecured, and you know D has an asset that would satisfy your claim, it’s conversion for you to go take it b/c you have no ownership interest in the property

3. Lawsuit

Parties Present:

Creditor’s lawyer
Probably no Debtor

Result:

If D shows up – C must only prove the obligation is owed
If D does not show up – Default judgment against D. C becomes a Judgment Creditor.

Note: This is not a conveyance to C. C must somehow obtain an ownership interest

4. C seeks a writ of execution pursuant to judgment

Tells sheriff to “levy on” D’s personal property, bring it back, and sell it

5. Sheriff seeks to levy on non-exempt, tangible personal property of D and/or garnish intangible items (i.e, bank accounts).

Note: Exemptions are usually limited (ex. If you have a $200K Ferrari, sheriff can still seize it and just pay D the $6K exemption)

6. C becomes a lien creditor with respect to any personalty successfully levied upon by sheriff.
7. Sheriff conducts sale / auction of property that is subject to lien
8. After deducting any costs associated with the execution process, sheriff distributes the balance from the sale to the lien creditor
9. Excess funds (if any) are returned to D (absent presence of junior lien C’s); D is liable for the deficiency.

If there’s not enough property to satisfy the lien creditor, considered a deficiency. Sheriff may start the whole process over again, though they probably got all there was to get in the 1st place.
Note: The entire process is costly and largely ineffective.

2. Secured Creditors’ Remedies Under State Law

What’s Happening – Creditor seeks collateral to secure their position

If for realty – mortgage or deed of trust
If for personal property – Article 9 security interest

Progression if D defaults on obligation:

Secured creditor has immediate right to seize without judge’s permission as long as they don’t breach the peace
Note: It doesn’t matter if (ex) car is exempt

II. Bankruptcy Code – Layout

A. General

Bankruptcy law is federal
History

1898 Bankruptcy Act – lasted until 1978
Bankruptcy Code – Begun in 1978, last amended 2005

Equality of Distribution

Underlying notion that there should be an equal distribution amongst creditors
Doesn’t appear in Bankruptcy Code or Bankruptcy Act

Government or Employer Discrimination

§ 525 – Gives D’s protection against discriminatory treatment by the government or employers solely because D has filed for bankruptcy

B. Non-Substantive Chapters – Chapters 1-5

Non-substantive (they don’t tell you how to apply bankruptcy law). Rather, they contain provisions that apply to all substantive chapters.
Sometimes these provisions will be replaced

ex. Ch. 5 definition may be trumped by a Chp. 13 definition

Chapters

Chapter 1 – Definitions that apply throughout the code
Chapter 3 – How to commence a case
Chapter 5 – Property of the estate and other issues

C. Liquidation – Chapter 7

What Happens

1. Debtor files for Chp. 7 bankruptcy
2. All of D’s non-exempt pre-petition property and puts it in the bankruptcy estate

Why – D gives up prepetition property, and in exchange wants to get prepetition debts discharged
Exempt property is out of the reach of levying unsecured C’s (under bankruptcy law and state law)

Note: If C1 couldn’t get exempt property under state law, he similarly can’t get it under bankruptcy law

3. Trustee appointed. Trustee’ job is to maximize the return to the estate and divvy it up to the creditors pro rata.

Trustee is not the trustee for the debtor, but rather for the creditors.
Pro Rata Distribution

Debtor’s non-exempt estate is distributed to each creditor in accordance with the weight of that particular C’s claim in relation to the claims of all other C’s.

4. Prepetition debt is discharged (C’s can no longer pursue the claim against D).

Any post-discharge property cannot be pursued by C’s.

Miscellaneous