Chapter 7 Section 3: Bankruptcy Flashcards
(43 cards)
What are the most important types of bankruptcy?
7, 11, 13
What is chapter 7?
Liquidation - trustee appointed
Who can fall under chapter 7?
Individual, partnership, corporation
What does the trustee do for chapter 7?
Collects debtor’s assets, liquidate them, and use the proceeds to pay off creditors to the extent possible
If an individual, the rest of the debts are discharged (with a few exceptions)
If a corporation or partnership, it is dissolved
What is chapter 13?
Adjustments of debts, only for individuals.
What happens under chapter 13?
Debtor repays all or a portion of their debts over a 3-5 year period. There is no liquidation, but a trustee oversees the proceeding. Any remaining debts at the end are discharged
What is chapter 11?
No liquidation, no trustee
What happens under chapter 11?
Reorganization - there is hope, there is no liquidation, and a trustee is not required. Usually used by business, but available to individuals. They remain in possession of their assets. Creditors are paid as possible, and they remain in business.
What is chapter 15 used for?
Ancillary and cross-border cases
What is the means test?
Used for dismissal or conversion of a chapter 7 case. When a chapter 7 case by an individual consumer debtor is started, it can be dismissed or (with the debtor’s consent) converted to a case under chapter 13 if they find that granting relief under chapter 7 would constitute abuse.
What are the steps to the means test?
- Calculate income - average the income for six months preceding. If equal or less than state median income, 7 is permitted. If greater, apply the means test.
- Means test - average monthly income less allowed expenses times 60. If less than 7475, 7 is permitted. If greater than 12475, presumption of abuse
What if, in the means test, the income is between 12475 and 7475?
Abuse only if amount equals 25% of nonpriority claims
What are the two exceptions to the presumption of abuse?
If you can show special circumstances like serious illness or active military duty, or if you are a disabled veteran
Who may not file chapter 7?
RIBS
Railroads
Insurance
Bank
Savings and loans/stockbroker
What is the credit counselling requirement?
If the debtor is an individual, it can’t happen more than 6 months before the filing. You also have to complete a financial management course
What are the duties of debt relief agencies?
These agencies are paid to assist consumer debtors in filing bankruptcy petitions.
They enter into a written contract with a debtor, they may not advise them to enter into more debt prior to bankruptcy
What is automatic stay?
It becomes effective against most creditors in either a voluntary or involuntary case. It stops most collection efforts, but doesn’t apply to criminal prosecutions or family court obligations.
What does a debtor need to file after the petition?
List of creditors and their addresses
Schedule of assets and liabilities at FMV
Schedule of current income and expenditures
Copies of pay stubs
Statement of monthly net income
Copy of tax returns
Which cases can be voluntary or involuntary?
7: both
11: both
13: voluntary only
Does a debtor need to be insolvent to file?
No, but they do need to pass income tests
Can spouses file jointly?
Yes, to avoid duplicative fees
What are the grounds for a creditor to file an involuntary case?
Generally not paying debts when due (default)
Doesn’t apply to farmers or charities
What creditors need to join the petition for an involuntary case?
If fewer than 12 creditors, one or more must be owed 15,325 in the aggregate
If more than 12, three in the aggregate must be owed at lease 15,325
Does an involuntary petition constitute an order for relief?
No. There is a gap between the filing and the order for relief, called the involuntary case gap
