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Flashcards in BLaw - Bankruptcy Deck (29):

Bankruptcy gives creditors 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 automatic stay (with certain exceptions), and stops creditors from suing debtor.

Bankruptcy & Debt


Student Loans
Income taxes from previous 3 years
Alimony & Child Support
Debts/judgements resulting from drunk driving
Pension obligations
Debts relating to SOX violations
Debts arising from illegal activities
Debts not listed in the bankruptcy filing

Bankruptcy & Debt


It doesn't; because the corporation is a separate legal entity.

Under bankruptcy; corporations are dissolved

Under bankruptcy; individuals are discharged

Bankruptcy & Debt


If a debtor fails to keep good records or falsifies documents; a discharge will be denied

Bankruptcy & Debt


Discharges all non-exempt debt

Can only be filed every 8 years from previous Chapter 7 filing

Voluntary or involuntary filing

Certain businesses are disallowed from Chapter 7 bankruptcies - Railroads; Banks; Insurance companies; Savings & loans (think: 7th inning RBIs)

Bankruptcy & Debt


Must pass means test

Your income must be below the median income for your 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

Bankruptcy & Debt


In some cases; your creditors can force you into Chapter 7 or Chapter 11 BK

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 12+ unsecured creditors - at least 3 must file; claims must be in excess of $14;425

If less than 12 unsecured creditors - only 1 must file; claim(s) must be in excess of $14;425

Upon filing; a judge will declare an order for relief unless the debtor protests

Bankruptcy & Debt




Bankruptcy & Debt


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

Bankruptcy & Debt


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

Bankruptcy & Debt


Similar to Chapter 11; but for individuals

Gives individuals a reprieve from creditors

Creates a payment plan for the debt

Ch. 13 Involuntary petitions are not allowed

Bankruptcy & Debt


Represents the bankruptcy estate

Can sue or be sued

Oversees bankruptcy and watches for preferential creditor payments

Oversees priority transfer of assets to creditors

Bankruptcy & Debt


Optional - Creditors decide

Can be elected by creditors or can be appointed by the court

Prior association with the debtor is allowed

Bankruptcy & Debt


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)

Bankruptcy & Debt


Made within One Year of BK to insider - Corporate officers/directors; Partners; Relatives

Made within 3 Months of BK non-insider

Creditor receives larger payment than BK liquidation would have granted

Bankruptcy & Debt


Superior to claims of other types of creditors

Can take either collateral or cash proceeds from the sale of an asset

If collateral doesn't satisfy amount owed; Secured Creditors become a general creditor for the difference.

Bankruptcy & Debt


1. BK Trustee and Attorney fees get paid before all other unsecured credit cards
2. Salaries required to continue business once BK proceedings begin
3. Any claims filed resulting from business operations that occur after involuntary BK is filed
4. Wages owed to employees
5. Retirement contributions within last 6 months
6. Consumer deposits for undelivered goods
7. Child Support & Alimony
8. Taxes
9. Other general unsecured claims

Bankruptcy & Debt


The bankruptcy trustee can act in the best interest of the creditors and assign the leases under contract to the creditors

The trustee has 60 days to assume leases on equipment after bankruptcy is granted or the leases will be rejected

Bankruptcy & Debt


The pool of assets available to creditors until liquidation

Bankruptcy & Debt


Social security

Disability payments

Unemployment; Child Support; Alimony; Wages; Pensions; Annuities to the extent that they provide reasonable support for debtor and dependents

Bankruptcy & Debt


Inheritance/Insurance payments received within 180 days of filing for a Chapter 7 bankruptcy become part of the BK Estate

Bankruptcy & Debt


Court allows a creditor to garnish or take a portion of the debtor's paycheck

Bankruptcy & Debt


Lien on real property to secure payment for a repair/improvement done to the house

A contractor builds an addition to your house and you won't pay. They can't repo your house; so they get a Mechanics Lien that sticks until you sell your house and they get paid

Bankruptcy & Debt


Applies to personal property like a car

If the dealership does $500 in repairs to your car; you don't get the car back until you pay

Bankruptcy & Debt


A third party agrees to be liable for a loan

Example: A parent co-signs on their child's car loan

Bankruptcy & Debt


A surety is primarily liable

Surety can be released from liability if the creditor behaves in a way that increases the risk that they
initially agreed to

Surety can be released from liability if the debtor changes the loan agreement in a way that materially
increases the surety's risk

Bankruptcy & Debt


Two sureties are guaranteeing the same debt

Proportionately liable - If one cosurety is released from their obligation; then the remaining cosureties
have their proportionate share reduced by the released party's percentage

If one surety pays more than their proportionate share of the risk; then the other sureties must compensate them for the difference; which is called Right of Contribution

Bankruptcy & Debt


Similar to surety; but a guarantor is secondarily liable

Bankruptcy & Debt


Basically - your creditors have the right to collect from you; but not abuse you or embarrass you

The can't contact you once you're represented by an attorney

They can call other people to find out where you are; but they cannot identify themselves as collectors

They must stop calling you at work if you send them a certified letter that says my employer doesn't allow me to take calls at work.

They must call you only at reasonable hours of the day - according to your time zone; not theirs

Bankruptcy & Debt