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Order of priority: FIRST liquidate to those with a secured interest in the property and then to the estate (starting with admin. Priorities, taxes etc. re. §507), and finally to the “debtor”—which in a chap. 11 would be equity holders.



Allows for dismissal and conversion to Chap. 11 or 13 (if the debtor doesn’t do what they are supposed to do)
• Unreasonable delay
• Don’t pay court fees



Does allow the trustee to continue to operate the business:
• Must get approval and must operate lawfully.



Duties of Trustee (Trustee “shall”—mandatory language)
• Can only distribute money, not stock.
• Be accountant—
• Investigate the debtor’s financial position:
o If no assets just file a “no asset report” including no causes of actiondischarged.
• If advisable—oppose the discharge of the debtor they need to make sure you are entitled to the discharge
o Ie. For reasons of fraud


• §1129(a)(7)

Must get more than they would get from liquidationApplies to consenting AND dissenting classes.



bars junior interest holder’s receipt of new property on account of his prior interest.



If paying in less than full, must abide by “absolute priority” rule!!



• Election: (b): Non-recourse lender gets treated as a resources lender IFF the debtor keeps the property:
• (b)(2): Further election to protect creditor from judicial undervaluation of the secured portion of the claim. Hybrid where, plan must pay out the full amount of the undersecured claim (ignoring §506(a)), but the present value need only equal the smaller secured portion of the claim. The lien though and the secured claim is larger so it protects in case of immediate sale.
o Waives right to a deficiency claim



right to “credit bid” (in auction, can bid with credit that is owed, forcing competitors to outbid by a lot more).



o (I) ASC (allowed secured claim)—can put a lien on the property, to make sure you get paid, regardless of whether the property is sold to someone else.
o Must pay at time of plan proposal the ASC portion of the bifurcated claim pay over time but pay interest rate so that the present value of that future payment equals the ASC.
 How to calculate this rate (Till SC case)(BUT note that Till was chap 13 case, so would not necessarily apply to chap. 11)
• Formula rate (Till) prime rate plus adjustment for risk, up to 3%.
o This is the easiest to determine
• Coerced loan rate if bank were to invest the money in another party with same risks, what would they charge?
• Contract rate revert to the contract rate, subject to small adjustments
• Cost of funds look to market rates what would it cost now?
o (II) If debtor sells Maintain 363(k) right right to “credit bid” (in auction, can bid with credit that is owed, forcing competitors to outbid by a lot more).
o (III) Another option“indubitable equivalent” of the claim (*Note though: this creditor would still be considered “impaired” for purposes of voting)
 Basically allow them to take the property (ie. stock would not be enough)
 Also identical property, even if technically different.
 Rad-lax: If it’s a sale roman numeral II applies. So can’t give 1 million secured portion of the 1.3 million claim, and keep the extra .3.



• Any change to legal, equitable, and contractual rights of a party in interest
o Change in interest rate, coupled with extension OR reduction in term impaired that is even an enhancement of rights would still be impaired.
o Equity for debt instruments impaired
 NOTE: that this kind of proposal would also leave equity common stockholders impaired as well.
• Any default must be cured in addition to damages for “reasonable reliance” by effective date of the plan:



• Criteria for cramdown: at least one impaired consenting class of non-insiders



“adequate disclosure” for “typical” class member judge must approve the disclosure
• Can give different disclosures to different classes
• Maybe some question of who is the “typical” member in large class
• (b)—neither acceptance nor rejections of a plan can be solicited until the court has approved the disclosure statement (by debtor OR by creditors…)
• **What info is necessary?
o Possible claims against creditors
o Most courts—require a valuation if the company were liquidated in chap. 7 to assist with the evaluation in case of cramdown!


• §1122

• “substantially similar claims” should be classified together share common(a) priority and (b) rights against the debtor’s estate.
• Reasons for classification must be independent of debtor’s motivation to secure the vote of an impaired, assenting class of claims. (Phoenix Mutual)—NOTE: not all courts agree.
• Claims and interests cannot be classified together
• Priority claims and general unsecured claims cannot be classified together
• Secured creditors separately classified—
o To be in same class for secured creditors- property must be BOTH of (a) equal priority and (b) in the same property (need not arise out of same transactions).


• §506(a)

when estimating secured claims bifurcate the secured debt from the undersecured debt which becomes an unsecured remainder.



• First 120 days—only debtor can file a plan, 180 days (total not additional) to gain acceptance of plan.
o Thereafter debtor can continue to propose plans as can any creditor or party in interest can propose a plan.
 el comandante- “party in interest”= anyone with financial or legal stake in the outcome of the case, including a post-petition transfer.
o *if trustee appointed—exclusivity period automatically ends. §1121(c)(1)
• Upon finding of cause (9 factors—Express One)—court can shorten or lengthen the exclusivity period:



Proof of claim/interest necessary but may be filed by either a creditor or the debtor



a- claim or interest is deemed allowed unless challenged
-b-2: no umatured interest
-b-4: claim by insider for payment that exceeds the value of services
b-9: No claim if not timely filed



kinds of debt should not be subject to this discharge (21 categories but generally):
o Incurred through fraud
o Secured debt?
o Child support, student debt, DUI accidents--- important to society
o Taxes get priority



Effect of Discharge



Limited authorization to trustee to operate business in chap 7 type case



Broad definition of property of the estate as any "legal or equitable interest", or one acquired within 180 days of the filing.


541(b)(1) - (7)

Property that is NOT property of the estate (exercised solely for the benefit of non-debtor or investments on behalf of close family member or retirement accounts so long as a yr before the filing)



restriction on the transfer of a beneficial trust that is enforceable under non-bk law, is also enforceable under bk law.



Exemptions must be exercised to take something out of the "property of the estate"



“unless the court orders otherwise, the trustee may operate the debtor’s business”
• BJR rule applies, so we don’t second guess decisions of the trustee (Curlew Valley) where in good faith, upon a reasonable basis, within the scope of his authority under th code= “arbitrary and capricious” standard.
o “unless the court orders otherwise” means if the court determines that it is proper to dismiss/ change to liquidation where proper—not that the trustee’s management can be conditioned or second guessed rebuttable presumption of continued operation.
o Code sections allow judicial oversight of the DIP, but those provisions are missing from §1108, suggesting the same limitations don’t apply to an appointed trustee


362(a), (b) & (d)

Automatic Stay:
Protects the debtor--broader than "property of the estate"--"against the debtor OR against their property"
Super broad: "property of the estate" + "property from the estate" + "exercise control over property of the estate"

-Must petition for relief from the stay in order to continue collection.



Interim trustee becomes permanent trustee in most cases, unless option for election of trustee is exercised



3 general reasons to refuse discharge:
(a)-debtor is not an individual
-fraud or other improper behavior
-recently got a discharge



if there is a failure of the adequate protection that is given to the creditor (assuming they asked for it) it becomes a super admin. Claim!