Bankruptcy Flashcards
What actions occur in a bankruptcy?
Bankruptcy gives debtors protection from their creditors and stops them from either permanently (Chapter 7) or temporarily (Chapter 11 or 13) collecting a debt.
The filing halts collection activity, grants an automatic stay (with certain exceptions), and stops creditors from suing a debtor.
For what debts does bankruptcy NOT stop collections?
Bankruptcy does not stop collections for:
Student Loans Income taxes from previous 3 years Alimony & Child Support Debts/judgments resulting from drunk driving Pension obligations Debts relating to SOX violations Debts arising from illegal activities Debts not listed in the bankruptcy filing
How does bankruptcy of a corporation affect the owner’s ability to file bankruptcy?
It doesn’t because the corporation is a separate legal entity.
Under bankruptcy, corporations are dissolved.
Under bankruptcy, individuals are discharged.
What key action will cause a bankruptcy discharge to be denied?
If a debtor fails to keep good records or falsifies documents, a discharge will be denied.
What are the basic characteristics of a Chapter 7 bankruptcy (liquidation)?
Characteristics of a Chapter 7 bankruptcy:
Discharges all non-exempt debt.
Can only be filed every eight (8) years from previous Chapter 7 filing
Voluntary or involuntary filing
Certain businesses are disallowed from Chapter 7 bankruptcies (Think: 7th inning RBIs) Railroads Banks Insurance companies Savings & loans
What are the requirements for a voluntary bankruptcy filing under Chapter 7?
To file for a voluntary bankruptcy filing under Chapter 7, one must:
Pass means test.
Income must be below the median income for the state.
Note - median, i.e. middle; not mean, i.e. average)
Credit card companies made it harder for people to declare Chapter 7 when they lobbied Congress in 2005.
What are the requirements for an involuntary bankruptcy filing under Chapter 7?
In some cases, your creditors can force you into Chapter 7 or Chapter 11 bankruptcy.
Creditors must be able to prove that they are not being paid on time (i.e. debtor is insolvent) or that within the past 120 days the debtor assigned a custodian of the secured property.
If there are more than 12 unsecured creditors, at least three (3) must file; claims must be in excess of $16,750.
If less than 12 unsecured creditors, only one (1) must file; claim(s) must be in excess of $15,775.
See REG NINJA Book (Debtor & Creditor Relationships) for a breakdown of the new Bankruptcy thresholds (updated through April 2022)
What entities are disallowed from involuntary Chapter 7 bankruptcy filings?
Involuntary Chapter 7 bankruptcy filings are disallowed for:
Charities
Farms
How can a debtor reclaim possession of their property from the interim bankruptcy under Chapter 7?
If the debtor pays the court-assigned bond to keep a property in an involuntary BK, they can reclaim possession of their property from the interim BK trustee.
What are the basic characteristics of a Chapter 11 bankruptcy (business repayment) filing?
Characteristics of a Chapter 11 bankruptcy filing:
Allows a business a reprieve from creditors.
Creates a payment plan for the debt.
Business remains in operation.
At least 2/3 of each debt class of creditors must consent to reorganization.
Ch. 11 Involuntary petitions are allowed.
What are the basic characteristics of a Chapter 13 bankruptcy (personal repayment) filing?
Chapter 13 bankruptcy filing is similar to Chapter 11 but for individuals. It:
Gives individuals a reprieve from creditors
Creates a payment plan for the debt.
Ch. 13 Involuntary petitions are not allowed.
What are the duties and abilities of a bankruptcy trustee?
A bankruptcy trustee represents the bankruptcy estate. It:
can sue or be sued.
oversees bankruptcy and watches for preferential creditor payments.
oversees priority transfer of assets to creditors.
How and when is a bankruptcy trustee appointed?
Optional - Creditors decide.
It can be elected by creditors or can be appointed by the court.
What actions can a bankruptcy trustee take with respect to preferential creditor payments in a bankruptcy?
Trustee can void payments on antecedent (past) debts that occur within 90 days of a BK filing.
A Trustee cannot void a payment made to a creditor that is an even swap (contemporaneous exchange) and for new value.
A voidable preference must be on an old debt where the debtor is basically picking and choosing which creditors they send money to (AKA a voidable preference).
When can preferential transfers be voided by a bankruptcy (BK) trustee?
Preferential transfers can be voided by a BK trustee if:
Made within One Year of BK to insider: Corporate officers/directors, Partners, Relatives
Made within three (3) months of BK non-insider
Creditor receives larger payment than BK liquidation would have granted.
See REG NINJA Book (Debtor & Creditor Relationships) for a breakdown of the new Bankruptcy thresholds (updated through April 2022) on Preferential Transfers.
