ch 31- bankrupcy law

Here are expanded notes on Bankruptcy Law:

Liquidation Proceedings

Chapter 7

• Definition: A chapter of the Bankruptcy Code that provides for liquidation, allowing debtors to eliminate most unsecured debts.

• Trustee: A court-appointed trustee is responsible for managing the bankruptcy estate.

Voluntary Bankruptcy

• Declaration: Debtors file a voluntary petition for bankruptcy.

• Turn Over Assets: Debtors must turn over their non-exempt assets to the trustee for liquidation.

• Debt Eliminated: Most unsecured debts are discharged at the end of the process.

Involuntary Bankruptcy

• Creditors Force Bankruptcy: Creditors can file an involuntary petition to force a debtor into bankruptcy.

• Requirements:

  • 12 or More Creditors: If the debtor has 12 or more creditors, at least 3 must file the petition with a minimum of $15,000 in unsecured debt.

  • Court Grants Relief If: The debtor is not paying bills or is in receivership.

Automatic Stay

• Protects Debtors: Automatically stops most creditors from pursuing collection activities against the debtor or the debtor's property.

• Damages for Failure to Follow: Creditors who violate the automatic stay can be liable for damages.

Exceptions to Automatic Stay

• Domestic Support: Child support and alimony obligations are not stayed.

• SEC Investigation: Governmental units can continue investigations.

• Tax Liens: Governmental tax liens are not affected by the automatic stay.

• Can Petition Court: Creditors can petition the court to lift the stay in certain circumstances.

Bankruptcy Estate

• All Property: Includes all legal or equitable interests of the debtor in property as of the commencement of the case.

• 1-Year Lookback: The trustee can recover assets transferred within one year before filing if they were not exempt.

• Newly Acquired Property: Assets acquired post-filing can become part of the estate.

Bankruptcy Trustee

• Court Appointed: Appointed by the court to oversee the bankruptcy case.

• Principle Duty: To marshal and liquidate the debtor's non-exempt assets.

• Fees: Receives a flat fee plus an additional fee for the sale of assets.

341 Hearing

• Objective: To approve or deny the bankruptcy filing.

• Means Test: Assesses the debtor's income to determine if there's an abuse of Chapter 7.

• Dismiss or Convert: If abuse is found, the case may be dismissed or converted to Chapter 13.

Trustee's Powers

• Possess Debtor's Property: The trustee can take control of the debtor's assets.

• Avoidance Powers: Ability to avoid certain transfers of property made before the bankruptcy filing.

• Voidable Rights: Certain pre-bankruptcy transactions can be voided to recover assets for the estate.

Preferences

• Transfer Within a Year: Payments or transfers made within one year of filing can be considered preferential if they favor one creditor over others.

• Debtor Insolvent: The debtor must have been insolvent at the time of transfer.

• Ordinary Course of Business: Transfers in the ordinary course of business are typically not considered preferential.

Fraudulent Transfers

• Delay, Hinder, or Defraud Creditors: Transfers made to defraud creditors can be undone by the trustee.

• Less Than Market Value: Transfers for less than reasonably equivalent value.

• Look Back 2 Years: The trustee can look back two years to recover such transfers.

Exemptions

• Home: Homestead exemption allows debtors to keep their primary residence up to a certain value.

• Vehicle: Typically one vehicle up to a certain value.

• Public Benefits: Social Security, unemployment, and other public benefits.

• Jewelry: Limited amount of jewelry.

• Pension (401k): Retirement accounts are often exempt.

• Etc.: Other exemptions vary by state.

Creditors Meeting (341 Hearing)

• Trustee Meeting: The trustee conducts this meeting where the debtor is examined under oath.

• Creditors Claims: Creditors can file claims against the bankruptcy estate.

Distribution of Property

• Secured Creditors: Paid first from the sale of collateral.

• Unsecured Creditors: Paid after secured creditors, often receive a pro-rata share.

• Support: Domestic support obligations are prioritized.

• Administrative Expenses: Costs associated with the bankruptcy case.

• Unpaid Wages: Up to a certain limit for employees.

• Etc.: Other priorities as defined by the Bankruptcy Code.

Discharge

• Set Aside: The discharge of debts can be set aside in cases of fraud or other misconduct.

Reaffirmation of Debt

• Revoke: Debtors can choose to reaffirm certain debts, agreeing to repay them despite the discharge.

• Before Discharge: Reaffirmation agreements must be filed before the discharge is granted.

• Court Deny: The court can deny reaffirmation if it's not in the debtor's best interest.

• Rescind Within 60 Days: Debtors have 60 days to rescind a reaffirmation agreement.

Reorganizations

Repayment Plans

Chapter 11

• Creditors & Debtors Plan: Allows businesses to reorganize their debts and continue operations.

• Voluntary or Involuntary: Can be filed voluntarily by the debtor or involuntarily by creditors.

• Focus: On providing a plan for creditors to receive payments.

• Debtors Operate Business: Debtors typically remain in possession and continue to operate the business.

• Plan Confirmation: Once confirmed, debtors must complete the plan within 3-5 years.

Chapter 13 – Individuals, Not Corporations

• Only Debtor Initiate: Only the debtor can file for Chapter 13.

• Debt Limits: Unsecured debt must be less than $383,175, and secured debt less than $1,149,525.

• Convert: Can be converted from Chapter 7 or 11 to Chapter 13.

• Automatic Stay: Protects debtors from collection efforts during the reorganization process.

Filing the Plan

• Confirmation: The court must confirm the debtor's repayment plan.

• 341 Hearing: Debtors must attend this meeting where creditors can object to the plan.

• Secured Creditors Accept: Secured creditors must accept the plan or be paid in full.

• Turn Over Assets: Debtors must commit all disposable income to the plan.

• Discharge: Upon completion, remaining dischargeable debts are discharged. Can be revoked within a year if fraud or misrepresentation is found.