Bankrupcy Flashcards
General Info
Debtor Rehabilitation
Voluntary or Involuntary
Chap 7 (need trustee) vs Chap 11 (trustee is optional)
- Chap 11 is reorg vs liquidation
Insolvent v Equitably Insolvent (not paying debts as they become due)
Secured Creditor v Unsecured Creditor
Dischargeable debt v Non dischargeable debt
Secured v Unsecured
Secured creditors have financing on debtor’s assets
- financing statement filed
- get paid first, will foreclose and get money
Unsecured creditors are the ones that matter in bankruptcy
Order of distribution:
Secured
1. Recorded Mortgage on Real Estate
2. Perfected Security Interest in Goods - file financial statement
– these only collect on collateral. Whatever is still owed, moves to unsecured
Unsecured
1. Child Support and Alimony
2. Admin Cost - Trustee, CPA, Lawyer
3. Gap Creditor - would have been secured but not for timing (could not file financing statement because of stay period)
4. Employees and benefits (up to max $15,150 within 180 days for each pay or benefits)
5. Deposits from consumer customers ($3,350)
6. Taxes - fed, state, local
7. DWI Claims - torts willful and malicious like DUI
8. General Creditors - prorate (what is owed to creditor/ total amount owed to creditors * amount left)
Debts that Cannot be Discharged
WATTSUPP
Writing a false Financial (to obtain a loan)
Alimony
Torts - willful and malicious
Taxes - within 3 years of filing
Student Loans
Unlisted debts (not included on the schedule)
Prior Bankruptcy - debt survived
Penalties and fines
Good Faith
Discharge is often a reward for good behavior
- after 7 years a debtor may return to bankruptcy court seeking relief
Bad Faith
- debtor fails to preserve records from which financial condition can be determined
- debtor fails to explain whereabouts of assets
- any other behavior deemed disrespectful to court
Ch 7 v Ch 11 v Ch 13
Chap 7
Liquidation: non cash assets are sold by trustee to pay debts, remaining debts are discharged
- voluntary or involuntary
- trustee needed
Chap 11
Reorganization: Debt Relief by approved plan to pay creditors without sale of all assets
- extension time rather than asset sale
- keep struggling business in business
- voluntary or involuntary
- trustee optional
Chap 13
Consumer Debt Adjustment Plan - Individuals with regular income who have undergone credit counseling
- approved by court
- creditors may object to plan and heard by court
- voluntary only
- trustee required
Involuntary Bankruptcy
Creditors force debtor into bankruptcy
- requires 1 unsecured creditor if less then 12, 3 if 12 or more exist
- must be owed more than $18,600
- if petition is not contested, bankruptcy begins
- Creditors must prove grounds: equitable insolvency proof
- creditors must file in good faith
– if creditors file in bad faith and successfully contests petition, debtor can collect damages from creditors - can collect court costs and attorney fees, compensatory and punitive damages
Voluntary Bankruptcy
- no min amount of debt or creditors required
- case may be dismissed if debtor has means to pay back creditor
- debtor lists names and addresses of each creditor and amount owed to each
- notice is given to creditors
- each creditor is required to confirm amount owed is correct
Automatic Stay: stops creditor actions
1. stops creditors/debtors from doing anything without court approval
2. give trustee time to gather assets
3. allow for orderly/fair payment of claims (applies to voluntary and involuntary)
Property Included in Bankruptcy Estate
- Property owned as of date of filing (present)
- 180 day rule after filing date (future)
- Exempt property - varies by state
180 Day:
- Life Insurance Policy
- Inheritance
- Divorce Settlements
- Gifts
What can be included
- real property
- personal property
- expensive consumer goods
- stocks and bonds, income from these too
- property previously owned by debtor and reacquired
(Preferential Transfer & Fraudulent Conveyances)
*Fraudulent Conveyances - 2 years to look back
– intent o hinder or delay creditors-hiding assets
– was sold for less than FMV to conceal asset from court
– act of bad faith
What can you keep
- wages
- unemployment
- alimony
- child support
- primary home (unless recorded mortgage or lien)
Preferential Transfer
- to or for the benefit of a creditor (favors one over the others)
- for or on account of antecedent(old) debt
- debtor insolvent at time of transfer
- transfer was made within 90 days of preceding bankruptcy (insiders/related parties, 1 year)
- creditors position improved
– Charitable Contributions are OK even within 90 days prior to filing
– Transfer of goods/services received is not preferential (contemporaneous - current bill)
Chapter 11 Reorg
Purpose: hold off creditors to reorg
reorg committee
- 7 largest creditors willing to serve
- new payment plan is drawn up
- any creditor not mentioned in plan gets nothing
trustee is optional
- debtor remains in possession of business
- debtor comes up with own plan for repayment
- more than 1 reorg plan will be filed in court
- court will approve one and that will be honored by everyone
- timing is key, all must be submitted by certain date
Meeting of creditors
Section 341 - creditors meeting
- between 20-40 days after filing
- all interested parties, creditors, debtor must be given notice including final dates for filing claims
- creditors given change to examine for ch 7 or ch 11
- debtor must attend
