Business Law Unit 8

What is the purpose of Bankruptcy Laws?

• Bankruptcy laws govern the rights of creditors and insolvent debtors who cannot pay their debts

• Seizing the debtor’s assets

• Distributing it to various creditors

What are the different conceptual approaches to bankruptcy over time?

Early approach:

• Wicked, imprisonment

Creditor-oriented approach:

• Seizure and distribution of the debtor’s assets to creditors

Modern approach:

• Fresh start and minimizing disputes among creditors

How did the bankruptcy system develop in the US?

• No state can directly provide a means for discharging a debtor unless the debt has been entirely paid

• Congress has the power to enact a uniform bankruptcy law

• Each federal judicial district has a US Bankruptcy Court

Name the different bankruptcy provisions!

Liquidation
Reorganization
Adjustment of debts

• Municipality

• Family Farmer

• Individual

• Cross-Border Business

Name all the chapter bankruptcy provisions!

Chapter 3 - Case Administration

Chapter 5 - Proof of claims by creditors & Priority of creditor claims

Chapter 7 - Liquidation

Chapter 11 - Reorganization

Chapter 9 - Adjustment of debt (Municipality)

Chapter 12 - Adjustment of debts (Family Farmer)

Chapter 13 - Adjustment of debts (Individual)

Chapter 15 - Adjustment of debts (Cross-Border Insolvencies)

What is the purpose of Chapter 3 Bankruptcy?

Case administration

• Specifies the power of officials involved in bankruptcy proceedings

How is the bankruptcy process carried out (Chapter 3)?

1. Debtor files a petition for bankruptcy in court

2. The court protects the debtor’s property

3. The court issues an order of relief

4. Creditor and debtor meeting

5. The debtor must explain their financial situation

6. A trustee may be appointed to manage the debtor’s property while protecting secured
   creditors.

What is the purpose of Chapter 5 Bankruptcy?

Proof of claims by creditors

Priority of creditor claims

What is a Claim?

Right to payment

What is a Creditor?

Anyone with a claim before the court issues the order for relief

What is the order of priority with claims?

1. Secured creditors

2. Claimants

3. Unsecured creditors

What is a secured creditor?

Creditors who get paid first because they have a security interest in specific property

What are the debtor’s duties and exemptions in bankruptcy law?

Duties

• File a list of creditors, assets, liabilities, income, and a statement of financial affairs

• Must cooperate with the trustee

• Counseling is required

Exemptions

• Some residences to avoid the debtor from becoming impoverished

• Necessities

What is dischargeable and non-dischargeable debt?

Dischargeable: debt that the debtor no longer owes once discharged

Non-dischargeable debt: debt still owed by the debtor once discharged

What are the trustee’s duties under Chapter 7 bankruptcy?

• Selling the property for money

• Examining proofs of claims

• Opposing the discharge of the debtor

• Filing tax reports

When is the debtor discharged?

Once the estate is distributed

When would discharge be revoked?

If the debtor committed fraud during the proceedings

Explain the features of Chapter 7 bankruptcy!

Liquidation

Liquidation is a bankruptcy proceeding which entails:

• selling the debtor‘s non-exempt assets for cash

• distributing the cash to the creditors

• thereby discharging the insolvent person from any further liability for the debt.

Explain the features of Chapter 11 bankruptcy!

Reorganization

• Provides a means by which corporations, partnerships, and other businesses can rehabilitate themselves and continue to operate free from the burden of debts

The court must appoint a committee of unsecured creditors

• Investigate the debtor’s financial affairs

• Determine whether to seek appointment of a trustee or let the business continue

• Consult with the debtor or trustee throughout the case.
  

Filing the Reorganization Plan by the debtor

• Acceptance

• Confirmation

• Discharge

Explain the features of Chapter 13 bankruptcy!

• Adjustment of debts of an individual with regular income

• Applies to anyone with a steady income having difficulties paying off accumulated debts.