M1 - Bankruptcy: Part 1

Chapter 7 Bankruptcy

Liquidation

Available to IPC

Trustee Required

Chapter 13 Bankruptcy

Adjustment of debts of individuals with regular income

Debtor repays all/portion of debt over a 3-5 year period

Trustee required

Individuals Only

Chapter 11 Bankruptcy

No liquidation

Reorganization

Trustee typically not required

Creditors paid to the extent possible

Typically used by business, allowed for individuals too

Chapter 15 Bankruptcy

Ancillary and Cross-Border Cases

Multi-national operations

What are the two steps in a dismissal or conversion of a chapter 7 case

1. Determine whether income is lower than the state median

2. Means test

What happens if step 1 is passed?

Chapter 11 is allowed

What happens if step 1 is failed?

Presume abuse and do the means test

Means test formula

(Avg monthly income - allowed expenses) x 60

What is the means test used for?

To determine if creditors would be better off under a Chapter 13 reorganization

What is the means test low threshold?

9,075

What is the means test high threshold?

15,150

What happens if income is above the high threshold of the means test?

Presume abuse and convert the case to chapter 13

Who may be a debtor?

Only a person who resides or does business in the US

Who may not file for chapter 7

NO RIBS

RIBS

Railroads

Insurance/Investment companies

Banks

Savings institutions

Who may not file chapter 11

NO BIBS

BIBS

Brokers

Insurance/Investment businesses

Banks

Savings institutions

When does an automatic stay happen?

When a bankruptcy petiton is filed (either voluntary or involuntary)

What does an automatic stay do?

Stops almost all collection efforts

When does an automatic stay not apply?

Criminal prosecutions, paternity suits, spousal/child support cases

What must a debtor file after a petition is filed?

List of creditors & Addresses

Schedule of Assets and Liabilities

Schedule of current income and expenditures

Statement of debtor’s financial affairs

Copies of pay stubs received 60 days before filing

Copies of federal tax returns from the past tax year

How many days does a debtor have to file the required documents after filing bankruptcy?

45 days

Who can push a debtor into involuntary bankruptcy?

Unsecured creditors, under chapters 7 and 11

For an involuntary petition, what must the creditor show?

That the debtor is not paying debts

Who can not be petitioned into involuntary bankruptcy?

Farmers and nonprofit charitable organizations

Fewer than 12 creditors:

Any one or more creditors owed at least 18,600 in unsecured debt can file

More than 12 creditors:

At least three creditors that are owed at least 18,600 in the aggregate in unsecured debt must join in the involuntary petition

What is the formal name of the creditor’s meeting

Section 341

Property Included in the Bankruptcy estate

DIII. Generally includes all the debtor’s real and personal property at the time of filing

DIII

Divorce

Income

Inheritance

Insurance

DIII property acquired is part of the bankruptcy estate how long after filing

180 days

What property is excluded from the estate?

Basic household items needed to live, and money earned after a petition is filed

How is a trustee treated once bankruptcy petition is filed?

As having a lien on all the debtor’s property

Trustee has priority over…

all creditors except creditors with a perfected security interest

Trustee’s power around fraudulent transfers

Trustee can set aside fraudulent transfers made within two years of the filing date

Fraudulent transfer

Transfer made with the intent to hinder, delay, or defraud creditors or any transfer in which the debtor received less than equivalent value while the debtor was insolvent

“setting aside” a preference

payment taken back from creditor and becomes part of the bankruptcy estate

Preferential payment

• transfer made to or for the benefit of the creditor

• on account of antecedent debt

• made within 90 days prior to the filing of the petition

• made while the debtor was insolvent

• results in the creditor receiving more than they would have under the bankruptcy code

Transfer includes…

they payment of money, the giving of property, and the giving of the security interest

When is the debtor presumed to be insolvent?

90 days immediately preceding the date the bankruptcy petition is filed

Is a payment to a fully secured creditor a preference?

No

Transfers that cannot be set aside by the trustee

transfer made to repay a debt incurred in the ordinary course of business