Bankruptcy

Automatic Stay

Once bankruptcy petition filed, creditor cannot: Receive a security interest Perfect a security interest Enforce a security interest

(repossess)

Bankruptcy Trustee

Protects unsecured creditors.Enemy of the secured creditor.

Status of judicial lien creditor

Bankruptcy trustee has status of judicial lien creditor. Thus, will prevail over unperfected

security interests.

Problem 361 – p. 974

Power to Raise Debtor’s Defenses

Bankruptcy trustee can raise any defenses the debtor may have such as:

Statute of limitations Statute of frauds

Power of any actual unsecured creditor

Moore v. Bay – 1931 United States Supreme Court

Trustee’s recovery is not limited to the amount of the unsecured creditor’s claim.

Preferences

Debtor cannot prefer one creditor over another.

Creditors cannot be overly aggressive.

Preferences

1. Transfer by debtor

Includes grant of security interest.

Preferences

2. For preexisting debt

Not a new debt.

Preferences

3. Within 90 days of filing the bankruptcy petition

One year if transfer is to an insider (e.g., relative, partner, corporate officer)

Preferences

4. Increases the amount the creditor receives

Creditor is “better off” because of the transfer as compared to what the creditor would receive under a bankruptcy distribution.

Preferences

5. Debtor insolvent at time of transfer

Presumed within 90 days before filing.

Preferences -- Exceptions

1. Contemporaneous exchange

New value given for item.

Perfection of new value within 30 days of attachment.

Preferences -- Exceptions

2. Ordinary course debt payments

Utility bills Paying ordinary debts (even

secured ones)

Preferences -- Exceptions

3. PMSI

Perfected within 30 days of debtor receiving possession.

Preferences

Problem 362 – p. 979

June 8$80,000 loan$100,000 collateral

July 18Perfection

July 19Bankruptcy filing

Preferences

Problem 363 – p. 979

Nov. 1valueSecurity agreement

Nov. 15RightsAttachment

Dec. 6Bankruptcy filing

Dec. 5Filing

Preferences

Problem 364 – p. 979

Floating Liens

[amount unsecured 90 days before filing]

minus

[amount unsecured at time of filing]

equals

preference

Floating Liens

Amount of

debt 90days before filing

Value ofcollateral90 daysbefore filing

Preference =

Amountof debtat timeof filing

Value ofcollateralat timeof filing

• Problem 365 – p. 981

Fraudulent Conveyances

Under federal or state law.

Actual intent to defraud Debtor receives less than

reasonably equivalent value

Problem 366 – p. 989

Judicial Liens

Judicial liens within 90 days of bankruptcy filing are preferences and trustee has priority.

Statutory Liens

Statutory liens have priority over the bankruptcy trustee if under state law:

They would prevail against a BFP, and

Do not arise only because the debtor is insolvent.