The Bankruptcy Code and Proceedings

How does the Bankruptcy Code define an insolvent debtor?

A debtor who is unable to pay debts as they become due.

What is the constitutional authority for federal bankruptcy legislation in the United States?

Article I, Section 8 of the U.S. Constitution empowers Congress to establish uniform bankruptcy laws.

What are the two primary competing purposes of federal bankruptcy law?

1. Ensuring fair distribution of the debtor's non-exempt assets among creditors.

2. Giving the honest debtor a fresh financial start free from unmanageable debt

Which federal legislative reform enacted the most substantial revisions to bankruptcy law since the 1978 Bankruptcy Code?

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005.

How does a voluntary bankruptcy petition differ from an involuntary bankruptcy petition?

A voluntary petition is filed by the debtor seeking relief, whereas an involuntary petition is filed by creditors seeking to declare the debtor bankrupt.

Which types of corporations are prohibited from filing a voluntary Chapter 7 straight bankruptcy petition?

Municipal, railroad, insurance, and banking corporations, as well as savings or building and loan associations.

If a debtor has 12 or more creditors, what is the minimum requirement for filing an involuntary bankruptcy petition against them?

At least three creditors holding valid unsecured claims exceeding any security by an aggregate minimum of 16,750 USD.

If a debtor has fewer than 12 creditors, how many creditors are required to file an involuntary bankruptcy petition?

A single creditor with unsecured claims exceeding collateral value by at least 16,750 USD.

Which debtors are statutorily exempt from being forced into involuntary straight bankruptcy?

Farmers, ranchers, non-profit organizations, municipal/railroad/insurance/banking corporations, credit unions, and savings associations.

What prerequisite financial conditions must exist to force an eligible debtor into involuntary bankruptcy?

The debtor must generally not be paying debts as they become due, OR a custodian must have been appointed over their property within the previous 120 days.

What mandatory pre-filing requirement was introduced in 2005 for individual bankruptcy debtors?

Receiving individual or group credit counseling from an approved nonprofit budget/credit counseling agency within 180 days prior to filing.

What does an attorney's signature on a bankruptcy petition legally certify under BAPCPA?

That after inquiry, the attorney has no knowledge that filed info is incorrect and that the pleading is well-grounded in fact and warranted by law.

What is the automatic stay in federal bankruptcy proceedings?

An immediate statutory injunction upon petition filing that halts all collection activities, litigation, lien enforcement, and set-offs against the debtor.

Which family law actions are exempt from the bankruptcy automatic stay?

Actions to establish paternity, modify domestic support obligations, or collect domestic support from property outside the bankruptcy estate.

Under what landlord-tenant circumstances is an eviction proceeding exempt from the automatic stay?

1. When the landlord obtained a judgment of possession prior to filing.

2. When eviction stems from illegal substance use or property endangerment occurring within 30 days prior to filing."

What constitutes the bankruptcy estate under Chapter 7?

All legal and equitable interests of the debtor in property at filing, plus proceeds/profits generated by that property during proceedings.

Which post-petition assets acquired within 180 days after filing become part of the bankruptcy estate?

Property acquired by bequest/inheritance, divorce property settlement/decree, or proceeds of a life insurance policy.

What is the primary role of a bankruptcy trustee?

To take possession of non-exempt property, represent creditors, liquidate non-exempt assets, examine claims, and manage estate distributions.

How does BAPCPA restrict a trustee's sale of personally identifiable consumer information?

The trustee cannot sell non-affiliated third parties sensitive data collected under a debtor's prior promise of confidentiality.

What special duties is a trustee assigned when a healthcare business enters bankruptcy?

Use reasonable best efforts to transfer patients to comparable nearby facilities and follow statutory notice/disposal rules for patient records.

What is the procedural consequence if an individual debtor fails to submit required financial schedules within 45 days of filing?

The bankruptcy case is automatically dismissed (unless the court grants an extension of up to an additional 45 days).

What is the purpose of statutory property exemptions in liquidation proceedings?

To allow the debtor to retain basic necessities and tools needed to live and earn a livelihood, furthering the fresh start principle.

What domicile timeframe determines which state's exemption law applies to a debtor?

The state law where the debtor was domiciled for 730 days (2 years) continuously prior to filing.

If a debtor did not reside in one state for 730 days before filing, how is exemption governing law chosen?

The applicable law is that of the state where the debtor resided for the majority of the 180-day period preceding the 730-day window.

What rule governs married couples filing joint bankruptcy regarding federal versus state exemption schemes?

Both spouses must elect the same scheme; if they cannot agree, federal exemptions are deemed elected by default.

How does intentional delay or fraud affect a debtor's state homestead exemption limit?

Homestead value is reduced by any increase resulting from disposing of non-exempt property with intent to hinder, delay, or defraud creditors within 10 years.

What cap applies to homestead equity acquired within 1,215 days prior to a bankruptcy filing?

Any homestead equity value added during those 1,215 days exceeding 170,350 USD cannot be claimed under state exemptions (unless transferred from a prior homestead in the same state).

Which non-possessory, non-purchase money security interests can a debtor void on exempt household goods?

Liens on household furnishings, apparel, books, animals, crops, tools of the trade, and professionally prescribed health aids.

How does BAPCPA define the limit on electronic equipment eligible for lien avoidance on household goods?

It restricts electronic goods to one radio, one television, one VCR, and one computer with related equipment.

What is the procedure for a debtor to redeem exempt personal property from a secured creditor?

Paying the secured creditor the full replacement value (retail price) of the collateral at redemption; any remaining balance becomes an unsecured claim.

What is a preferential transfer (preference) in bankruptcy law?

A transfer or lien granted by an insolvent debtor for an antecedent debt within 90 days before filing that enables a creditor to receive more than they would under Chapter 7.

What lookback timeframe applies to trustee recovery of preferential transfers made to insider creditors?

One year prior to the petition filing date.

What is the minimum monetary threshold for a trustee to avoid consumer debt preferences?

The aggregate value of property transferred must be at least 725 USD.

What is the minimum aggregate value threshold for avoiding non-consumer or corporate debt preferences?

6,825 USD.

Why are transfers made in the ordinary course of business protected from trustee avoidance as preferences?

To leave normal, routine financial transactions intact and discourage abnormal debtor/creditor behavior leading up to bankruptcy.

Are payments for alimony or child support subject to avoidance by a trustee as preferential transfers?

No; bona fide payments of domestic support obligations to a spouse, former spouse, or child are statutory exceptions to preference avoidance.

What standard federal lookback period applies to trustee avoidance of fraudulent transfers?

Two years preceding the filing date (though state laws, such as New York's 6-year period, may allow longer).

What special lookback period applies to trustee avoidance of fraudulent transfers into self-settled asset protection trusts?

Ten years prior to the petition filing date.

Under what statutory conditions can executive retention bonuses avoid being voided as fraudulent transfers?

They must respond to a bona fide outside offer, be essential to business survival, and not exceed 10 times the mean of bonuses paid to non-management staff.

What deadline generally applies to unsecured creditors filing a proof of claim to participate in estate distributions?

Within 90 days after the first meeting of creditors.

How far back can vendors reclaim goods sold to an insolvent debtor in the ordinary course of business?

Vendors must demand reclamation in writing within 45 days of receipt, or within 20 days post-petition if the bankruptcy is filed during the 45 days.

What priority status is granted to goods received by a debtor in the ordinary course of business within 20 days prior to filing?

They are treated as administrative expense priority claims.

In estate distribution, how are payments allocated among different priority claim classes?

Each priority class must be paid in full before the next lower class receives anything; if funds are insufficient for a class, members receive pro-rata shares.

Are corporate or partnership debtors eligible for a Chapter 7 bankruptcy discharge?

No; only individual debtors are eligible for a discharge under Chapter 7.

What is the mandatory waiting period between Chapter 7 discharges for an individual debtor?

Eight years.

Name three categories of debts that are strictly non-dischargeable in bankruptcy.

1. Government tax debts and fines

2. Liabilities for money/property obtained by false pretenses or fraud.

3. Debts for luxury goods exceeding 725 USD incurred within 90 days before filing.

What key disclosures and timing rules are required for a valid reaffirmation agreement?

The agreement must be made prior to discharge and clearly disclose the APR, total fees, rescission rights (60 days), and that reaffirmation is not legally mandated.

What certification must an attorney provide when a debtor signs a reaffirmation agreement?

Certifying that the agreement is voluntary, imposes no undue hardship on the debtor or dependents, and that the debtor was fully advised of legal consequences.

What is the core function of the BAPCPA Means Test in Chapter 7 filings?

To screen consumer debtors earning above state median income to determine if they have sufficient disposable income to repay debts under Chapter 13.

Under the Means Test, what monthly disposable income triggers a presumption of abuse in Chapter 7?

Monthly net income above 166.66 USD, OR income yielding at least 100 USD/month (6,000 USD over 5 years) that pays at least 25% of unsecured debt.

Which debtors are statutorily exempt from the Means Test presumption of abuse?

Debtors whose total current monthly income falls below their applicable state's median family income, and certain disabled veterans.

What is the main objective of a Chapter 11 reorganization proceeding?

To restructure financial affairs and debt obligations under court supervision so the business can stay operational rather than liquidating.

What is the initial exclusivity period during which only the debtor may propose a Chapter 11 reorganization plan?

120 days from petition filing (which court extensions cannot stretch beyond 18 months).

What is a cramdown in Chapter 11 reorganization?

Court confirmation of a reorganization plan over the objection of dissenting impaired creditor classes, provided the plan is fair and equitable.

What voting threshold constitutes plan acceptance by a class of creditors under Chapter 11?

Approval by more than one-half of the voting creditors in that class representing at least two-thirds of the total allowed claim dollar amount.

What timeframe limits a Chapter 11 debtor's decision to assume or reject unexpired non-residential real property leases?

By the earlier of 120 days from filing or plan confirmation (extendable by 90 days for cause; further extensions require lessor written consent).

What multi-step process must a Chapter 11 debtor satisfy to reject a collective bargaining agreement?

Submit necessary modifications to employee reps, show employee reps refused without good cause, and prove the balance of equities clearly favors rejection.

What debt ceiling and income criteria define eligibility for Chapter 12 family farmer relief?

Aggregate debt under 10 million USD, at least 80% of non-contingent debt arising from farming, and at least 50% of gross income from farming operations.

What eligibility thresholds apply to commercial fishing operations under Chapter 12?

Aggregate debt not exceeding 2,044,275 USD, with at least 80% of non-contingent debt arising from commercial fishing operations.

What debt eligibility limits apply to individual debtors filing under Chapter 13?

Liquidated unsecured debts under 419,275 USD and secured debts under 1,257,850 USD.

Who may initiate a Chapter 13 Consumer Debt Adjustment proceeding?

Only the debtor through a voluntary petition; creditors cannot file an involuntary Chapter 13 petition.

How does median state income affect the maximum duration of a Chapter 13 repayment plan?

Plan length is capped at 3 years for debtors below state median income (up to 5 years for cause), and exactly 5 years for debtors above median income.

What mandatory timeframe separates a prior Chapter 7, 11, or 12 discharge from eligibility for a subsequent Chapter 13 discharge?

Four years prior to filing the Chapter 13 petition.

In chapter 11 (reorganization) who is in charge?

Debtor

Who is in control in Chapter 7 (liquidation) ?

Court and Trustee

what is the order of reorganization classes?

1. administrative

2. secured claims

3. general unsecured claims

4. shareholder interests