What are the basic actions that occur in a bankruptcy?
- 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.
For what debts does bankruptcy NOT stop collections?
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
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)?
Discharges all non-exempt debt
Can only be filed every 8 years from previous Ch. 7 filing
Voluntary or involuntary filing
Certain businesses are disallowed from Chapter 7 bankruptcies
- Railroads; Banks; Insurance companies; Savings & loans (think: 7th inning RBIs)
What are the requirements for a Voluntary Bankruptcy filing under Chapter 7?
Must pass means test Your income must be below the median income for your state
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 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 - Upon filing; a judge will declare an order for relief unless the debtor protests
What entities are disallowed from involuntary Chapter 7 bankruptcy filings?
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?
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?
- 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
What are the duties and abilities of a bankruptcy trustee?
Represents the bankruptcy estate 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 Can be elected by creditors or can be appointed by the court Prior association with the debtor is allowed
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?
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
What is the treatment of a secured creditor in a bankruptcy?
- 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.
What are key aspects of a bankruptcy involving a landlord or leases under Chapter 7?
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
What is the bankruptcy estate?
The pool of assets available to creditors until liquidation
What assets are exempt from creditors in a bankruptcy estate?
Social security Disability payments
Unemployment; Wages; Pensions
Child Support; Alimony;
Annuities to the extent that they provide reasonable support for debtor and dependents
How long after a Chapter 7 bankruptcy filing can creditors claim inheritance or insurance payments for repayment?
Inheritance/Insurance payments received within 180 days of filing for a Chapter 7 bankruptcy become part of the BK Estate
What is a garnishment with respect to a bankruptcy?
Court allows a creditor to garnish or take a portion of the debtor's paycheck
What is a mechanics lien?
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
What is an artisan's lien?
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
What is a surety (co-signing)?
A third party agrees to be liable for a loan Example: A parent co-signs on their child's car loan
How is a surety liable in a transaction?
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
What is a cosurety; and how are they liable in a transaction?
- 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
What is a guarantor?
Similar to surety; but a guarantor is secondarily liable
What are the basic rights of a debtor under the Fair Debt Collection Practices Act?
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
Current monthly Income for the determination if a debtor can pay all debts?
- IF equal to or less then State Median income: Ch. 7 Permitted
- IF debtor's income Exceeds State Median Income: Means Test Applied
The Means Test Results: If LESS then $7,475?
- Chapter 7 is Permitted
The Means Test Results: if $12,475 or More?
- Presumption of Abuse
The Means Test Results: If More then $7,475 & Less then $12,475
- Abuse only if amounts Equals 25% of non-priority claims
What amount of debt $$ can creditors join Petitions?
- Owed at least $15,325
If a Debtor has less then 12 Creditors, any One or more Creditors who are owed at least?
- $15,325 in Unsecured Debt may File
If a Debtor has MORE then 12 Creditors, at least 3 Creditors who are owed at least?
- $15,325 in Aggregate, in Unsecured, Undisputed debt must join in the Involuntary Petition
Section 341 Meeting is what?
- Creditor's Meeting
- Held within 20-40 days after the order for relief
- Notice Req.: name, adrs, Soc. Security # of debtor
Debts not discharged of an individual under Ch. 7 or Ch. 11 are?
- Taxes Due within 3yrs of filing
- Debts incurred by Fraud
- Debt undisclosed in the bankruptcy Petition
- Embezzlement, Larceny & Fiduciary Fraud
- Alimony, maintenance, Support, Settlements: Martial
- Willful & Malicious Injury: Negligent Torts are dis-chargeable
- Fines & Penalties
- Educ. loans: unless 'undue hardship'
What is the order of payment for the 9 Priority Creditors ?
- Support obligations to Spouse & Children
- Adms. expenses of Bankruptcy proceedings
- Gap Creditors
- Wages up to $12,475 each employee, within 180days from filing
- Employee benefit plan contributions up to $12,475 for each employee, reduced by wage claims, within 180days
- Grain Farmers & Fisherman's claims up to $6,150
- Consumer Deposits for goods paid for but not delivered up to $2,775
- Injury Claims, by DUI
- Non-Priority Claims: Pro Rata