R6 Module 1

Question 1

six types of bankruptcy

Answer 1

1) Chapter 7 liquidation
2) Chapter 9 municipal debt adjustment
3) Chapter 11 reorganization
4) Chapter 12 family farmers with regular income
5) Chapter 13 adjustment of debts of individuals with regular income
6) Chapter 15 ancillary and other cross-border cases

Question 2

chapter 7 liquidation

Answer 2

-a trustee is appointed and required
-trustee collects debtor’s assets and sells them off to use proceeds to pay off creditors as much as possible
-if debtor is an individual or married couple, debtor’s debts are discharged with certain exceptions
-if debtor an entity, it is dissolved. No discharge is given but effect is the same-the debts are wiped out

Question 3

chapter 13 adjustment of debts of individuals with regular income

Answer 3

-debtor repays all or portion of his debts over 3 yr period to max of five yr period
-no liquidation
-trustee oversees handling of Chapter 13 proceeding
-after proceeding, remaining debts of debtor discharged
-trustee is required

Question 4

chapter 11 reorganization: no liquidation, trustee not required

Answer 4

-usually used by businesses but can be used by individuals
-trustee not usually appointed
-debtor remains in possession of his or her assets and a plan of reorganization is adopted
-creditors are paid to extent possible and business continues
-commencement of bankruptcy case may be voluntary or involuntary

Question 5

chapter 15 ancillary and cross-border cases

Answer 5

-the U.S. adoption of the Model Law on Cross-Border Insolvency implemented by United Nations
-adopted to promote a uniform and coordinated legal regime for cross-border insolvency cases

Question 6

dismissal or conversion of chapter 7 case

Answer 6

-for an individual consumer debtor may be dismissed if granting relief under Chapter 7 would constitute abuse or debtor has sufficient income to pay debts
-if individual or married couple have monthly income > state median income for family of same size, state, or interested creditor, or court file motion to dismiss case
-test is done through the means test or for general abuse because debtor has enough income to pay debts

Question 7

means test

Answer 7

-used to determine whether creditors would be better off under Chapter 13, five yr reorganization
-60 times debtor’s average monthly income - allowable expenses is compared with high and low threshold ($9,075 and $15,150)
-if 60 times debtor’s average monthly income - allowable expenses > $15,150; presumption of abuse by debtor and covert to Chapter 13

Question 8

eligible debtors for chapter 7 bankruptcy

Answer 8

-person who resides in U.S.
-has place of business in U.S.
-includes individuals, partnerships, corporations etc.

Question 9

Entities who cannot file for Chapter 7 bankruptcy

Answer 9

1) Railroads
2) savings institutions
3) insurance companies
4) banks
5) small business investment companies

Question 10

entities who can be debtors under chapter 11 reorganization

Answer 10

1) anyone under Chapter 7 EXCEPT stockbroker or commodity broker
2) railroad can be a debtor

Note: an individual eligible for relief under Chapter 11

Question 11

automatic stay

Answer 11

-goes into effect against creditors when a bankruptcy petition is filed in either a voluntary case or involuntary case
-stay stops almost all collection efforts (filing lawsuit or demanding payment)
-does not apply to criminal prosecutions, paternity suits, and cases brought to establish or collect spousal or child support obligations

Question 12

duties of debtors after petition is filed, debtor should file:

Answer 12

1) a list of creditors and their addresses
2) a schedule of assets and liabilities
3) a schedule of current income and expenditures
4) a statement of debtor’s financial affairs
5) copies of pay stubs received within 60 days before filing
6) copies of federal tax returns from last tax yr

Note: if debtor has not paid taxes for previous tax yr, debtor must do so before bankruptcy can proceed

Question 13

if debtor fails to file any items for Chapter 7 case

Answer 13

if debtor fails to file any items specified above within 45 days after filing petition, the case automatically dismissed on the 46th day

Question 14

chapter 7 and 11 voluntary cases

Answer 14

-debtor must file voluntary case by filing a petition for relief
-debtor may not be insolvent to file and meet income tests
-spouses can file jointly to avoid duplicate fees
-voluntary petition constitutes “an order for relief”, meaning a case may proceed unless a court orders otherwise

Question 15

chapter 7 and 11 involuntary cases

Answer 15

-unsecured creditors may petition debtor involuntarily into bankruptcy proceedings
-creditors must show debtor is not paying debts as they become due
-only creditors who are owed, individually or together at least $18,600 in unsecured, undisputed debt can file petition
-number of creditors who must file depends on debtor’s total number of creditors
-if < 12 creditors, any one or more creditors owed at least $18,600 in unsecured debt may file
-if > 12 creditors or more, at least three creditors owed $18,600 in total in unsecured, undisputed debt must join in involuntary petition
-farmers and nonprofit charities cannot be petitioned involuntarily into bankruptcy

Question 16

section 341 meeting: creditors’ meeting

Answer 16

-within 20 to 40 days after order for relief, a meeting of creditors is held
-all interested parties, including creditors, bankruptcy trustee, and debtor must be given notice of meeting

Question 17

property included in debtor’s bankruptcy estate

Answer 17

1) includes all debtor’s real and personal property at time of filing
2) estate includes income generated from property received within 180 days after filing petition for relief
3) property debtor receives from divorce, inheritance, or insurance within 180 days after filing petition
4) leases of property assumed and retained by trustee, another person or rejected by trustee

Lies under the Chapter 7 bankruptcy

Question 18

property excluded in debtor’s bankruptcy estate

Answer 18

1) money debtor earns after a petition is filed
2) basic household items needed to live (clothing, medical devices etc.)

Question 19

how is a trustee treated as in bankruptcy?

Answer 19

as having a lien on all of debtor’s property the instant the bankruptcy petition is filed
-this means trustee has priority over all creditors except with creditors with prior perfected security interests or prior statutory or judicial liens

Question 20

trustee with power over fraudulent transfer

Answer 20

-trustee has power to set aside fraudulent transfers made within two years of filing date

Question 21

fraudulent transfer

Answer 21

any transfer made with intent to hinder, delay, or defraud creditors or any transfer in which debtor received less than equivalent value while debtor was insolvent

Question 22

trustee can disaffirm preferences

Answer 22

-trustee has power to set aside preferences
-when payment set aside, it is taken back from creditor who receive payment and becomes part of bankruptcy estate

Question 23

preferential payment

Answer 23

1) transfer made to or for benefit of creditor
2) on account of an already existing (antecedent) debt of debtor
3) made within 90 days prior to filing of petition (one yr if creditor is an insider like officer of debtor org. or relative)
4) made while debtor was insolvent
5) results in creditor receiving more than creditor would have received under Bankruptcy code

Question 24

transfer

Answer 24

includes not only the payment of money or giving of property, but also giving of security interest

Question 25

preexisting debt (rather than contemporaneous exchange)

Answer 25

a payment is a preference only if it is for an antecedent (preexisting) debt.
A contemporaneous exchange for new value is not a preference

Question 26

Insolvency

Answer 26

debtor is presumed to be insolvent during the 90 days immediately preceding date the bankruptcy petition is filed

Question 27

receipt of greater share

Answer 27

a preference exists only if creditor receives more than would receive in a bankruptcy distribution
therefore, payment to a fully secured creditor is not preference because creditor would have received collateral and been paid in full anyway

Question 28

transfers that cannot be set aside by trustee

Answer 28

a transfer made to repay a debt that debtor incurred in ordinary course of business is not avoidable preference
-these transfers cannot be set aside by trustee

Question 29

claims against the estate

Answer 29

claims include all rights to payment from debtor’s estate:
1) to have claim allowed, unsecured creditors must file proof of claim and shareholders file proof of interest with bankruptcy court
2) unless someone objects, filed claim or interest will automatically be allowed by court
3) unsecured creditor who fails to timely file claim may not take part in distribution of debtor’s estate
4) a perfected security interest passes through and survives bankruptcy even if creditor does not file proof of claim

Question 30

trustee serve as professional for estate

Answer 30

-trustee can serve as a professional (tax preparer, accountant, or lawyer) for estate if court approves
-trustee serving as tax preparer for estate may receive compensation as professional in addition to trustee’s compensation if court approves