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Bankruptcy
Wayne State University Law School
Bartell, Laura B.

Bankruptcy and Creditors Rights Summary

I. Creditors’ Rights Outside of Bankruptcy
A. Debtors and Creditors
i. Ways of becoming a debtor [Sec. 101(13)] or a creditor [Sec. 101(10)] 1. E.g.: U.S. Trustee [28 USC Sec. 581], TIB [Sec. 701-704, Sec. 1104], DIP [Sec. 1101(1)], Examiner [Sec. 1104], Professional persons [Sec. 327, Sec. 1103] ii. Default
B. Limitations on creditors’ collection leverage
i. Common law remedies
ii. Fair debt collection practices act
1. definition of “Debt Collector” Sec. 803(6)
A. Requirements
i. Person
ii. Uses instrumentality of interstate commerce or mails
iii. In business the principal purpose of which is collection of debts, or who regularly collects debts
iv. Debts are owed or due to another
B. Exclusions
i. Officer or employee of creditor
ii. Person under common ownership or affiliated by control with creditor
iii. Officer or employee of U.S.
iv. Person serving legal process
v. Non-profit organization providing credit counseling
vi. Fiduciary or escrow, creditor’s own debt, non-defaulted debt, secured creditor’s debt obtained from creditor
2. Prohibited Practices
A. Sec. 804: communications to find debtor’s residence, telephone No., or employment
B. Sec. 805(a) & (c): communications with debtor
C. Sec. 805(b): communications with third parties
D. Sec. 806: Harassment, oppression or abuse
E. Sec. 807: False, deceptive or misleading representations
F. Sec. 808: Unfair or unconscionable means
G. Sec. 809: Failure to send written notice of debt or verify debt if disputed
C. State collection mechanisms
i. Execution on judgment – MCLA Sec. 600.6001 et seq.
1. Non-exempt property
2. Relation-back doctrine
3. Execution
A. To whom issued: sheriff or other proper officer
B. When issued: Note less than 21 days after judgment entered
C. When returnable: Not less than 20 nor more than 90 days after received
D. Against what property : Real property only after execution against personal property
E. Priority: Writ first delivered for execution has priority
F. Exempt property: Itemized in sec. 600.6023 Tenancy by entirety property for debt of one spouse
G. Execution lien: Property bound from time of levy
H. Proceeds of sale: Used to pay costs of levy and sale, execution judgment and excess to judgment debtor
ii. Judgment lien by recordation – MCLA Sec. 600.2801 et seq.
1. When obtained: Notice of judgment lien recorded in real estate records
2. Property covered: All real estate interests, whether then owned or after-acquired
3. Certification: By clerk of court that entered judgment
4. Exempt property: Property owned as tenant by the entirety unless joint judgment
5. Priority: Over lien recorded after notice of judgment lien is recorded, except purchase money mortgage debt and others specified
6. Right to proceeds: If property is sold or refinanced, judgment lien creditor entitled to proceeds up to debtor’s equity in property
7. Duration: 5 years after recorded unless re-recorded. Maybe re-recorded only once
8. Foreclosure: No right to foreclose judgment lien
iii. Garnishment of property held by another – MCR 3.101
1. Garnishment MCR 3.101
A. When Writ issued: Not less than 21 days after judgment entered upon verified statement by plaintiff
B. Service on garnishee by plaintiff: within 91 days after issuance
C. Service on debtor by garnishee: Within 7 days after service of writ on garnishee
D. Garnishee disclosure statement: Within 14 days after service of writ on garnishee
E. Garnishment Lien: All property in possession of garnishee at time of service of writ
F. Payment of funds: After 28 days after service of writ if no objections
G. Priority: Order in which writ served on garnishee, except tax liens and support
H. Duration of writ: 91 days after issued
2. Consumer Credit Protection Act 15 USC Sec. 1674
3. Protection from discharge from employment – MCLA Sec. 600.4015
iv. Foreclosure on collateral by secured creditor
D. State alternatives to bankruptcy
i. Prejudgment attachment of assets – MCR 3.103
1. When available:
A. Action is commenced
B. Defendant is subject to jurisdiction of court or suit is on foreign judgment
2. Affidavit:
A. Defendant is indebted to plaintiff in stated amount under contract or in tort or on foreign judgment
B. Defendant is subject to jurisdiction (Except for foreign judgment)
C. Plaintiff cannot serve defendant
D. Person knows that named person has control of defendant’s property or is indebted to defendant
3. Writ:
A. Directs garnishee to:
i. File verified disclosure within 14 days
ii. Deliver no property to defendant
iii. Pay no obligation to defendant
iv. Promptly provide defendant with copy of writ and verified
4. Objections:
A. Defendant is given 14 days to object, or property is delivered or payment of obligation is made to court
5. Dissolution:
A. Defendant submits to jurisdiction of court, or
B. Defendant prevails in action, or
C. Suit dismissed, or
D. Court orders
6. Satisfaction of judgment:
A. If plaintiff prevails, property applied to satisfy judgment as for garnishment
ii. Prejudgment garnishment of assets – MCR 3.102
1. When available:
A. Action is commenced
B. Defendant is subject to jurisdiction of court or suit is on foreign judgment
2. Affidavit:
A. Defendant is indebted to plaintiff in stated amount under contract or on foreign judgment
B. Defendant is subject to jurisdiction (Except for foreign judgment)
C. Plaintiff cannot serve defendant
3. Writ:
A. Directs sheriff or other officer to seize non-exempt property of defendant to satisfy plaintiff’s demand
4. Inventory:
A. Property is inventoried and appraised, and inventory and appraisal are filed and served
5. Dissolution:
A. Defendant submits to jurisdiction of court, or
B. Defendant prevails in action, or
C. Suit dismissed, or
D. Court orders
6. Satisfaction of judgment:
A. If plaintiff prevails, property applied to satisfy judgment as for execution
iii. Composition or extension agreement
iv. Assignment for benefit of creditors – MCLA Sec. 600.5201 et seq.
1. Assignment:
A. Debtor enters agreement assigning property to assignee and prepares list of creditors
2. Assignee:
A. Assignee files performance bond with clerk within 10 days after assignment
3. Inve

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ix. Non-bankruptcy basis for federal jurisdiction
x. Presence of non-debtor parties
2. Mandatory Abstention Sec. 1334(c)(2)
A. Based on state law clam
B. No federal jurisdictional basis other than bankruptcy
C. Proceeding is commenced in state forum
D. State forum capable of timely adjudication
E. Non-core
v. Withdrawal of reference – discretionary and mandatory 28 USC Sec. 157(d)
1. Discretionary
A. Standard:
i. For cause shown
B. Factors:
i. Efficiency
ii. Delay
iii. Cost
iv. Jury trial
v. Forum-shopping
vi. Uniformity of administration
2. Mandatory
A. Standard:
i. Resolution of proceeding requires consideration of both title 11 and other laws of the U.S.
B. Meaning:
i. Substantial and material consideration, or
ii. Non-bankruptcy federal law
vi. Appeals 28 USC Sec. 158
1. Appeal from Bankruptcy Judge
A. District court has jurisdiction over appeals
B. Bankruptcy appellate panel (BAP) has jurisdiction over appeals with consent of all parties if majority of district judges in district have agreed
C. Court of appeals has jurisdiction over appeals if it authorizes direct appeal AND:
i. Certification:
1. Bankruptcy court, district court, or BAP, or
ii. Criteria:
1. Question of law as to which there is no controlling decision or involves matter of public importance
2. Question of law requiring resolution of conflicting decisions, or
3. Immediate appeal may materially advance progress of case
2. Appeal from district court or BAP
A. Court of appeals has jurisdiction over appeals from district court or BAP judgments, orders or decrees
3. Appeal to district court
A. Deferential review as to core matters [Add more] B. De novo review as to non-core matters [Add more] 4. Bankruptcy Appellate Panels (BAP)
5. Direct appeal to court of appeals Sec. 158(d)(2)
F. Venue
i. Original Venue – 28 USC Sec. 1408: Where Venue is Proper
1. Debtor’s domicile
2. Debtor’s residence
3. Debtor’s principal place of business in US
4. Location of debtor’s principal assets in US
5. 180-day rule
6. District in which is pending bankruptcy case concerning affiliate of corporation Sec. 101(2)
ii. Change of venue – 28 USC Sec. 1412 & BR 1014(a)
1. Transfer to another district in the interest of justice or for the convenience of the parties
iii. Improper venue – BR 1014(a)(2) & 28 USC Sec. 1406(a)

III. Chapter 7 Bankruptcy [Not railroad, insurance company, bank] A. Initiating a Bankruptcy Case
i. Who can be a debtor Sec. 109