Lorch Bankruptcy Outline 2012 Fall

8/9/2019 Lorch Bankruptcy Outline 2012 Fall

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Lorch_Bankruptcy_Outline_2012 fallI. Background on State Law and Debt Collection

A. Creditors Rights1. Rights determined at state level through UCC/contract/tort law

. Bankru!tc" Code doesn#t create creditors# rights$ %ust limits/eliminates/or !rovides mechanism&or en&orcement

'. Secured vs. Unsecured Creditorsa( Secured creditors )mortgage on real !ro!ert" or securit" agreement &or !ersonal

!ro!ert"/collateral( t"!icall" entitled to sei*e !ro!ert"$ sell it$ and use sale !roceeds to !a"debt owed$ returning an" sur!lus to debtor

b( Unsecured creditors+have &ewer rights and o!tions &or collection$ usuall" have to bring civil action$ get entr" o& %udgment$ and !ursue writ o& e,ecution or garnishment.

)1( -or ersonal !ro!ert"$ need to get a writ of execution to en&orce collectiona&ter a %udgment is docketed.

) ( -or Real ro!ert"$ the creditor usuall" must get a %udgment on it in the count"where the land is located to get a lien on it$ and then record and interest

. Secured and Unsecured Creditors treated di&&erentl" in Bankru!tc" because Congress canabrogate contract rights$ but cannot abrogate !ro!ert" rights )0takings clause(1. Stages2 ) needed(

a. 3ttachment 4 the agreement is in !lace b/t the !arties )securit" interest$ and creditorhas e,tended 5(

b. er&ection 4 when all ste!s o& attachment have occurred 36D when &iled a &inancingstatement

c. riorit" date )o& a consensual securit" interest( 4 the D378 o& &iling o& the &inancingstatement )697 the date o& lev"(. riorit" date is 3L:3;S the date o& &iling the&inancing statement

S78 attachment

riorit" Date Date writ is delivered to sheri&& 8arliest o& date o& !er&ection ordate o& &iling

d. ?; 9 3i. Creditor 1 Sues Debtor

1. 4 9btains a


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iii. Creditor 1 has !riorit" b/c !riorit" date is be&ore Creditor #s. riorit" Date &or 1 is a!ril 1@ )when in Sherris inbo,( and attachment is 3!ril 1A th. -or F $

!riorit" date is 3!ril 1Ee. 79 73G8 3:3;2 7he e,!edient &iling o& &inancing statement is 3L:3;S best

II. Bankru!tc" Basics A. Primary Goals/Concerns of Bankruptcy

1. roviding a &air and orderl" distribution to creditorsa( a,imi*ing recover" o& creditors as a whole

b( 7reat creditors eHuall". iving debtors a &resh start$ and the abilit" to retain the going concern value o& his/her business

i& !ossible/a!!licablea( ersuade !eo!le to engage in economic activit" and take risks$ won#t be !unished too

severel" i& doesn#t work out B. !he Bankruptcy "olution

1. Bankru!tc" Code2 7itle 11+!rovides substantive and !rocedural law governing bankru!tc"liHuidation and reorgani*ation cases

a( Cha!ters 1$ '$ and A cover general material that a!!lies to all kinds o& bankru!tc"cases$ Cha!ters $ J$ 11$ 1 $ 1'$ and 1A relate to s!eci&ic t"!es o& bankru!tc"

!roceedings/relie& . Bankru!tc" Court2 Congress has authori*ed &ederal district courts to re&er all cases and

!roceedings related to bankru!tc" to bankru!tc" %udges K U.S.C. s. 1A )a(M$ so bankru!tc" courts !er&orm the trial court &unction e,ce!t when the law s!eci&icall" limits that role and reservescertain !owers to district courts

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b( 3!!ointment2 usuall" one standing trustee in each district and creditors have no choice'. Cha!ter 11 reorgani*ations generall" don#t have trusteesN debtor becomes 0debtor in

!ossession and is given most !owers o& a trustee ). )e'tors Responsi'ilities

1. Cha!ter 2 debtor#s role is limited$ individual debtor has to &ile a statement indicating whatintends to do with collateral &or an" secured claim and must be !re!ared to res!ond to ob%ectionsregarding e,em!tions or dischargeN business debtor even less o& role$ can#t receive discharge andgenerall" no e,em!tions

. Cha!ter 1'2 debtor has to remain gain&ull" em!lo"ed or &inanciall" !roductive since creditors !aid out o& !ost!etition earnings usuall"

+. 3.". !rustee1. Res!onsible &or su!ervising administration o& bankru!tc" estates+su!ervising all Cha!ter $

11$ and 1' cases and actions o& trustees serving those cases. 3!!oints members o& the !anel o& trustees &or each %udicial district

'. U.S. 7rustee is a !residential a!!ointee &or a region to re!resent the gov#t at ever" stage o& the !rocess and has an absolute right to be heard at ever" stage

4. Creditors1. Secured Creditors2

a( Ch. +generall" will &oreclose on collateral$ bankru!tc" !rocess might dela"$ butdoesn#t otherwise inter&ere

b( Ch. 1'+t"!icall" will continue to receive !a"ments on secured obligation according tooriginal/modi&ied !a"ment schedule

c( Ch. 11+debtor will o&ten agree to secured creditor#s terms because needs consent on !lan o& reorgani*ation

. Unsecured Creditors2a( Ch. +re!resented b" trustee$ ver" little involvement

b( Ch. 11+oversight o& debtor is le&t to committee com!rised o& creditors w/ largestunsecured claims

G. -ther Affected Parties1. Co 9wners2 bankru!tc" generall" onl" deals with debtor#s rights in !ro!ert"$ but o&ten not

!ossible to have no a&&ect on rights o& co owners. Co Debtors2 bankru!tc" generall" has no a&&ect on liabilit" o& co debtors

'. re!etition 7rans&erees2 ma" have to return to estate. 8Huit" Interest ?olders2 is debtor undergoing Ch. 11$ the owners o& the debtor )interest holders(

have a role in remaining in control o& debtor in !ossession and tr"ing to negotiate a !aln o&reorgani*ation that will allow them to retail all or a !ortion o& their eHuitable stake in the debtor

A. 8m!lo"ed ro&essionals2 trustee$ debtors in !ossession$ and certain creditors# committees ma")w/ court authori*ation( em!lo" attorne"s$ accountants$ and other !ro&essionals at e,!ense o& estate

+must generall" be disinterested and &ree &rom adverse interest 5. Bankruptcy timeline

a. etition datea. 8state is &ormed OA 1

b. 3utomatic sta" begins O'E )collection action &ro*en( b. 7rustee is a!!ointed

a. eets w/ debtor$ &igures out what#s in the estate. eeting o& creditors O' 1 b. Collects claimsc. a"s claimants using the !ro!ert" o& the estate )a&ter selling it(d. a"ment !ro rata

c. Discharge o& debts

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6. Consumer Credit Counseling1. s. 1@J)h( has recentl" made credit counseling a !rereHuisite to &iling &or bankru!tc" !rotection

&or most individualsa( Individual debtor must receive$ !rior to &iling the !etition &or bankru!tc"$ certain

counseling during the 1 @ da" !eriod !rior to &iling in order to be eligible &or relie& Kunlessmeets reHuirements under s. 1@J)h()'(M

. Re&lects growing belie& that consumers# misuse/abuse o& credit cards is what causes man" ormost &inancial !roblems and that credit counseling can solve !roblem

'. Congress envisioned that credit counseling would !rovide individuals with skills necessar" tolead &inanciall" res!onsible lives$ but it#s evolved into an e,!ensive$ draconian gate kee!ingreHuirement that has !revented man" deserving individuals &rom Huali&"ing &or bankru!tc" relie&

a( 6n re !ali' 2 debtor didn#t !ursue credit counseling in advance o& scheduled &oreclosureand couldn#t meet the s. 1@J)h()'( e,igent circumstances e,em!tion$ so denied bankru!tc"relie&

b( S. 1@J)h()'(2 debtor e,em!t &rom credit counseling &or e,igent circumstance i&2#$% Can descri'e exigent circumstance that merits wai1er7#&% )e'tor re2uested counseling 'ut was una'le to o'tain ser1ices during , day

period 'eginning on date of de'tors re2uest7 and #(% 6s satisfactory to the court

8. "tarting the Case9Petition and "chedules1. Bankru!tc" case begins with &iling o& !etition and schedules identi&"ing debtor#s name$

address$ a!!ro,imate F o& creditors$ estimated amount due to them$ the total value o& debtor#sassets$ and cha!ter o& Code under which !etition &iled$ and with !a"ment o& &iling &ee

a( Poluntar" !etition Q order &or relie& &iled b" debtor b( Involuntar" !etition Q brought b" creditors$ to grant courts must &ind that2 debtor

Huali&ies &or relie& under s!eci&ied cha!ter$ debtor is not !a"ing debts as the" become due$and !etitioning creditors Huali&" in number and in amount and t"!e o& claim

III. 7he Bankru!tc" 8state A. Generally

1. 8state is created at the time the bankru!tc" !etition is &iled. 8state determines what is available to creditors

'. ro!ert" o& the estate includes 0all legal and eHuitable interests o& the debtor in !ro!ert" as o&the commencement o& the case Ks. A 1)a(M

B. Property in the +state :s. ,*$#a%7 #c%#$%;1. 3ll legal and eHuitable interests o& the debtor in !ro!ert" at the time the case is commenced Ks.

A 1)a()1(M$ e,ce!t &or e,ce!tions in A 1)b( and s!endthri&t trusts in )c() (a. Constructive trusts are e,em!t &rom the estate as well

i. Ie2 Late child su!!ort !a"ments received a&ter &iling are held in a trust &or the childii. 6n Re


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. 3n" interest in !ro!ert" !reserved &or the bene&it o& or ordered trans&erred to the estate under s.A1@)c( Kcourt ordered eHuitable subordinationM or AA1 Kautomatic !reservation o& an avoidedtrans&er &or the bene&it o& the estateM+Ks. A 1)a() (M

a( 3voided trans&ers+see s. A $ A $ A A$ A $ A $ A J$ and )a(A. 3n" interest in !ro!ert" that would have been !ro!ert" o& the estate i& such interest had been

the debtor#s on the date o& &iling that debtor acHuires or becomes entitled to acHuire within 1 @da"s a&ter &iling2

a( B" beHuest$ devise$ inheritanceN b( 3s a result o& a !ro!ert" settlement agreement w/ s!ouse$ or o& an interlocutor" or &inal

divorce decreeNc( 3s a bene&iciar" o& a li&e insurance !olic" Ks. A 1)a()A(M.

E. roceeds$ !roduct$ o&&s!ring$ rents$ or !ro&its o& or &rom !ro!ert" o& the estate$ e,ce!t &orindividual debtor#s earnings/wages Ks. A 1)a()E(M

. 3n" interest in !ro!ert" that the estate acHuires a&ter the commencement o& the case Ks. A 1)a() (M

. A 1)c()1(M ro!ert" becomes !ro!ert" o& the estate notwithstanding anti alienation/tranfers .OA 1c1

a) Can#t be a !rovision o& nonbankru!tc" law that restricts / conditions trans&ers o&debtor#s interest conditioned on the insolvenc" or &inancial condition o& the debtor and thate&&ects or gives an o!tion to e&&ect a &or&eiture$ modi&ication$ or termination o& the debtor#sinterest in !ro!ert" Ks. A 1)c()1(M

b( Restricts/conditions trans&ers Q season tickets$ ta,i licenses$ etc.N so trustee can takeeven though sa"s nontrans&erable K)c()1()3(M

c( I!so &acto clause2 3greement stating that void i& !art" &iles &or bankru!tc" is noten&orceable K)c()1()B(M

C. Property not in the +state :s. ,*$#'%7 #c%#&%7 #d%;1. 3n" !ower that the debtor ma" e,ercise solel" &or the bene&it o& an entit" other than the debtor

Ks. A 1)b()1(M. 3n" interest o& the debtor as a lessee under a lease o& nonresidential real !ro!ert" that has

terminated at the e,!iration o& the stated term o& such lease 'efore the commencement of the case and ceases to include an" interest o& the debtor as a lessee under a lease o& nonresidential real

!ro!ert" that has terminated at the e,!iration o& the stated term o& such lease during the case Ks.A 1)b() (M

'. S!endthri&t trusts and !ension !lan bene&its Ks. A 1)c() (Ma( 7he s!endthri&t trust 4 i& have certain language$ debtor can kee! this out o& the estate.

9therwise$ under A 1c1 it becomes !art o& estate. Language2 6o interest o& the bene&iciar"under the trust shall be sub%ect to the claims o& creditors or other !ersons nor to an"

bankru!tc" !roceeding nor an" liabilities or obligation. 7rust !ro!ert" the debtor administers as trustee+legal$ not bene&iciar" interest Ks. A 1)d(M

). =uestiona'le Pre>petition Property Rights1. 7a, re&unds2 most courts im!l" allocate a ta, re&und received a&ter !etition based on the

!ro!ortion o& the ta,able "ear that &ell !re !etition )calendar da" !ro rationing(. Contingent rights2 i& debtor doesn#t have contractual right to a bonus$ most courts will e,clude

the entire bonus &rom the estate on the grounds that the ho!e o& receiving it was not a !ro!ert" righton the date o& the !etition

a( 6n re Ryerson 4 R"erson had a 0contract value interest in mone" to be !aid when hisem!lo"ment contract was terminated. Court &ound that under A 1a1 there is a right to themone" and some should be e,cluded under A 1aE as mone" earned a&ter com!ensation

b( 6n re Clay like R"erson$ but b/c contract value couldn#t be determined until termination o&em!lo"ment$ the earnings can#t come into Huanti&iable e,istence until temination. 3lso$ the"can#t be divided into !re/!ost !etition earnings until terminate. So 697 is !ro!ert" o& theestate

no one cites to Cla"$ but ever"one likes R"erson

A


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c(. ust ask2 is it a vested contract )one that#s en&orceable ( or contingent )not en&orceable( orillusor" )not en&orceable b/c 1 !art" is held and the other one cn do what it wants(. I-P8S78D2 more likel" to be !ro!ert" o& estate

R9BL8 -R9 CL3SS2:e#re the trustee. :hat can be !art o& the bankru!tc" estate1. arakeet

a. It#s !ro!ert" o& the estate under A 1)a(. 6ote2 those things that are o& no value to the estate$the"#re abandoned )go back to owner(.

b. arakeet eggs 4 !ro!ert" o& the estate. -ord 7aurus )still sub%ect to a !urchase mone" securit" interest(

a. ro!ert" o& estate A 1)a( )other !ro!ert" interests don#t matter(. Car in whole comes to estate$and trustee decides later how to divide it.

'. hotos o& &riendsa. 8state !ro!ert". Doesn#t matter i& insigni&icant. Could be sub%ect to e,em!tion 4 still !art o&

estate$ but the debtor ma" a!!l" an e,em!tion to the !ro!ert" and get it abandoned back to him. 7ickets to U concert

a. 8state !ro!ert".A. Shares o& monumental inc

a. estateE. Dividend &rom monumental 4

a. 8state. Directl" derived &rom estate !ro!ert" is !ro! o& estate. Catcher#s mitt that he lent to his brother4

a. 7his is a contract right. But as a contract right it is !ro!ert". S9 it becomes !ro!ert" o& theestate. 8ver" contract right o& the debtor becomes !ro!ert" o& the estate.

b. 6ote2 !ro!ert" right is a grant o& the bundle o& rights that comes with !ro!ert". 7his is anagreement that the brother will conve" !iece o& !ro!ert". Contract right usuall" don#t survive

bankru!tc"$ but !ro!ert" rights do.. Debtor is the trustee o& trust &or his niece

a. A 1d 4 not !ro!ert" o& estateJ. Salar" receive hours a&ter &iling

a. art o& estate. I& has 1 week !re!etition labor and 1 week !ost!etition labor$ divide it. A 1)a()E( !rovides that an" earnings a&ter commencement o& !roceedings are 697 !ro!ert" o& estate)96L; -9R I6DIPIDU3LS(. 3lso includes !roceeds o& contracts

+. Reco1ered Property1. Be sensitive to trans&ers made b" debtor be&ore the !etition date2

o Run it through elements o& A B to see i& !re&erential. I& it is$ then look at whether de&ensesa!!l". 3lso look at the trans&er to determine i& has indicators o& being a &raudulent trans&er.Look &urther back &or &raudulent trans&ers 4 u! to "ears be&ore !etition date under A +"ear statute o& limitations or "ears be&ore !etition date under A b and U-73+shorterstatute o& limitations. )J@ da"s &or !re&erential 1 "ear i& !re&erential to insider(.

1. 7rustee has broad !ower to reHuire an" entit" that !ossesses !ro!ert" o& the estate to turn the !ro!ert" over to the trustee Ks. A )a(M

. 7rustee can include reca!tured !ro!ert" that the debtor !reviousl" trans&erred awa" or which acreditor !reviousl" sei*ed in the estate Ks. A 1M

'. 7wo o& most im!ortant t"!es o& trans&ers that bankru!tc" trustee is em!owered to avoid arere&erences and -raudulent 7rans&ers

. Preferences 2 designed to undo certain !rebankru!tc" transactions that &rustrate the bankru!tc"distribution scheme$ allowing trustee to 0avoid a 0trans&er and com!el an alread" !aid creditor toreturn the mone" received and reinstating debt Ks. A M

a( Elements of an avoida le preference Ks. A )b(M 2#$% 7rans&er o& an interest o& the debtor in !ro!ert" :?transfer@ defined 'roadly in

s. $ $#,*% as the payment of money to another person. !ransfer need -! in1ol1eall rights to a particular piece of property;

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a. 7rans&er occurs u!on attachment o& the lien I- !er&ection o& the lien occursless than '@ da"s a&ter attachment

b. Remember$ &or attachment to take !lace "ou need2 value given$ debtor musthave rights$ and the securit" agreement must have been signed )an" order$ butdate o& ' rd event sets attachment(

#&% 7o or &or the bene&it o& a creditor OA b1)'( 9n account o& an antecedent debt :de't must ha1e arisen prior to preferential

payment; ,*D'&)described below(

#*% ade while the debtor was insolvent A b' )a( insolvent de&ined s. 1@1)' (+negative net worth )liabilities T assets()b( debtor assumed to have been insolvent &or the J@ da"s !receding

bankru!tc" &ilings+s. A )&(M#,% ade within J@ Da"s # or 9ne ;ear to an Insider %A b# % 7hat enables the creditor to receive more than i& the trans&er had not been

made and the debtor#s assets are liHuidated under cha!ter OA bA:re2uires proof that creditor 'enefited from transfer7 harder to accomplish in Ch. $$7 'ut as

general rule any payment 'y an insol1ent de'tor to a non>priority unsecuredcreditor will ha1e a preferential effect;

b( 6ote2 there is no intent reHuirement &or !re&erencesc( 3t beginning o&


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a. 7his is the most di&&icult de&ense to !rove and understand. b. ;ou must show $ then a or b2 debt incurred b" the debtor and creditor in their

normal business roles 36Da. trans&er made in the same manner as the !arties !a"ment histor"

be&ore the !re&erence !eriod9R

b. 7rans&er made according to the standards o& the industr"c. olic"2 don#t want creditors to have to run a credit check ever" monthd. ust show that there was no antecedent de t . e. 7iming2

a. Palue2 loan$ deliver" o& collateral b" S b. 3ttachment2 vaue>rights>securit" agreement

i. Look at when ' rd ha!!ens )value given$ debtor has rights$ signsecurit" agreement(

c. er&ection2 3ttachment$ -iledi. :henever the nd thing ha!!ens

d. 7rans&er2i. 9ccurs at attachment i& !er&ection is within '@ da"s.

ii. 9ccurs at !er&ection i& !er&ection ha!!ens more than '@ da"sa&ter attachment

iii. 7?862 determine time b/t trans&er and when value is given.B/c there is time b/t trans&er and value$ this is on account o&antecedent debt

e. In order to determine i& there is antecedent debt&. 7o determine i& there is antecedent debt2

a. Palue must occur be&ore trans&er.


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a. 7r" to see when the creditor sto!!ed trusting the debtor2 did the" !a" be&ore shi!ment or reHuire a wire trans&er

b. 6n Re !olona Pi00a Products Corp #D th Cir. $ (% )1@1( 4 09rdinar" business re&ers to the range o& terms that encom!asses the !racticesengaged b" similar &irms. 9nl" dealings S9 idios"ncratic as to &all outsidethat broad range should be deemed 0e,traordinar" and outsiceA )c() (

c. 3" 1. Holas )SC 1JJ1( 4 Long term debt !a"ments D9 Huali&" &or theordinar" course o& business e,em!tion

# % 6mpro1ement of position test ,*Dc, #&$I%1. De&ense to !re&erence. 69782 a!!lies only to !er&ect securit" interest in

inventor" or receivables. -IRS72 determine value o& all liens arising during the J@ da" !re !etition

!eriod.a. ust go over ever" account$ ever"thing during J@ da"s. ust add all

o& them u! b. Look at si*e o& unsecured claim on J@ th da" and unsecured claim on

!etition date. I& there is an" im!rovement )the si*e o& claim has beenreduced($ then that amount is what creditor is liable &or

c. I& no im!rovement$ then there is no !re&erence liabilit"d. I& creditor is &ull" secured on the J@th da" and on the !etition date$

there is no !re&erence liabilit" )this is about J@ o& situations(e. 6ote2 secured creditor#s !osition is deemed to be im!roved 697 i& its

secured claim is increased but onl" i& its unsecured claim is reduced.I& it im!roves 3R7I3LL;$ some is !rotected b" A cA and some is

!re&erential

A. -raudulent 7rans&ers2 when insolvent debtor trans&ers !ro!ert" without getting a reasonabl"eHuivalent value in e,change )gi&ts$ uneHual e,changes$ trans&ers meant to conceal assets orremove them &rom the %urisdiction( and dela"s$ hinders$ or de&rauds one or more creditors.

a( Big di&&erent b/t !re&erences and &raudulent trans&ers is the in the !re&erence case wedidn#t &ind an" element o& disa!!roval or misconduct

b( Uni&orm -raudulent 7rans&ers 3ct )U-73(+ado!ted in ' states and DC. Remainingstates have their own$ nonstandard acts

1 U-73 allows an aggrieved unsecured creditor to sue the recipient o& a &raudulenttrans&er to rescind the trans&er 34!A s. *#a%#$% AC!3AJ fraudulent transfer . deals with transactions done with0actual intent to hinder$ dela"$ or de&raud an" creditor K0true &raudulent trans&ers M

+a!!lies to !resent and &uture creditors)a( 7his is di&&icult to !rove)b( 0Badges o& -raud !rovide indirect evidence o& intent &or true&raudulent trans&ers+s. )b( 2 to insider$ sus!icious timing$ secrec"$trans&ers on !a!er w/out change o& !ossession$ trans&ers that !lace assets ina &oreign %urisdiction

) ( 34!A s. , Constructi1ely fraudulent transfer. Covers trans&ers &or whichinsolvent debtor received less than reasonabl" eHuivalent value )creditor#s claimmust arise be&ore trans&er in this instance(

a. 3vailable to creditors whose claims arose be&ore the trans&er was made b. 6o re&erence to intent$ state o& mind$ or even recklessnessc. olic"2 i& "ou are insolvent$ "ou have a dut" to "our creidtors not to

de!lete "ou estate#(% I)a!!licable to a and A( ) I think this is also AA@)a( )b(( Series o& 7rans&ers

a. Doesn#t matter i& 1st trans&eree acted in good &aith$ i& didn#t receive it at value itcan still be taken back )need good &aith 36D took it at value(. I& both

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reHuirements met$ can#t be taken back and can#t get it &rom subseHuenttrans&erees )C?8CG 7?IS(

b. In a series &or trans&ers$ with the second trans&eree$ i& the trans&eree took it ingood &aith and at value$ can#t recover and can#t recover &rom subseHuenttrans&erees

c( U-73 given e&&ect in bankru!tc" through s. A )b( and s. A$ ". ,**#'% authori0es trustee to use state law to a1oid certain transfers within *

years of when suit 'rought to rescind them)a( 7o use U-73 through A $ trustee has to &ind an actual creditor andsue in rel to that creditor

#&% 7rustee can bring a &raudulent trans&er action wa"s2)a( S. A gives trustee e,!ress !ower to avoid certain &raudulent trans&erswithin "ears be&ore bankru!tc" !etition)b( 9R use U-73 )or state#s( but must go through tortuous to do that2A b. a" use this and sue in state court to recover the &raudulenttrans&er. BU7 the language that sa"s 0voidable under a!!licable law b" acreditor holding an unsecured claim means that he must &ind a creditor w/claim outside o& bankru!tc" law.

, !voidin liens/ secured claimsa. OA strong arm !ower

i. b. 7wo !rinci!al !art to A1. A a1 4 !rimar" e&&ect is to invalidate securit" interests that were un!er&ected

when the bankru!tc" !etition was &ileda. also grants the trustee the status o& creditor w/ a %udicial lien on all the

debtor#s !ro!ert". A a' 4 gives the trustee the status o& a bona&ide !urchaser o& all the debtor#s real

!ro!ert"a. trustee is conclusivel" !resumed to lack knowledge o& the unrecorded

interest )&or avoidance !ur!oses( b. A@Ea 4 in an undersecured case$ we do bi&rucation. 7here#s a secured claim u! to the value o& the

collateral. Claim above that is an unsecured claim that#s treated w/ all the resti. with an oversecured claim2 don#t bi&rucate

ii. 8Huit" above the collateral will go to the estate. 7rustee is more likel" to sellc. A a1 4 gives trustee on behal& o& estate$ the moment be&ore the !etition moment$ the rights o& the

lien creditor

d. R9BL8 E ' ! @J 8,!lains A a1i. -n &/$7 ) ga1e security interest in certain o1ens used as e2uipment to B$. B$ ne1er filed a

financing statement7 and thus its security interest is unperfected. -n D/$7 ) ga1e securityinterest in same e2uipment to B & in return for a loan. B & perfected 'y filing a proper

financing statement the day of transfer. ) files Chapter D. Hhat happens7 and who has priorityK

1. -irst in time is &irst in right$ but !er&ected alwa"s beats un!er&ected.. Because both trustee and bank have !er&ected claims$ bank trum!s trustee.

'. Bank 1 didn#t !er&ect$ so not in the running. Bc gets the claim$ trustee#s claim &ills u! the rest o& the eHuit"$ and B1#s

un!er&ected lien$ under A a$ is !ushed down to an unsecured claim.A. 6ote2 same result i& B1 was a %udicial lien. 3n involuntar" lien is treated the same

as a voluntar" lien &or all situations dealing w/ avoiding the lienii. er&ection2

1. Consensual lien 4 Date o& &iling &inancing statement.


11/38

. 1 e,ce!tion2 J '1 )see !g @ (. @ da" grace !eriod a&ter lender o& SI takes !ossession o& !ro!ert" to !er&ect.

a. I& this ha!!ens !ast the @ da" !eriod and a&ter the !etition date$ it#s aviolation o& the automatic sta"

b. I& this ha!!ens within @ da"s$ but a&ter the !etition date$ it#s &ine.iii. S88 3B9P8 R8-8R86C8S A b &or more on lien avoidance

4. +xemptions1. Im!ortant2

a) E emptions only apply to individual de tors" not entities,) Only protect e uity in property

c) E emptions %O protect a ainst 3udicial liensd) 4tacka le 5 a cate ory of e emption may e used to carryover to another

cate ory, 6an have any 7color of chips8 on a piece of property" up to e uity,. 522b1 an individual debtor may claim exemptions under subparagraph 2 or 3.

'. -ederal e,em!tions located in O A )d(.. OA b allows states to o!t out Ks. A )b(M and about /' o& states haveN those that have not

o!ted out$ residents ma" elect either state or &ederal e,em!tions )69782 inton and Indiana o!tout(. inton statute 1'.@

A. :hich state#s rules do "ou use OA )b()1( )'(A b'a 4 start with the !etition date and go back '@ da"s ) "ears(. 3sk i& the debtorhas lived in 1 state during whole "ears. I& "es$ then use that state#s e,em!tion statute.I& &or an" time out o& the '@ da"s$ debtor has been domiciled in another state$ thencheck !revious 1'@ da"s. :hatever state was in &or most o& 1'@ da"s$ 7?37 is thestate we use &or choice o& law:hether or not "ou can use the &ederal e,em!tions has nothing to do w/ the e,em!tionstate. Bases entirel" on law o& state in which you are currently domiciled

6ote2 7here are some state laws that allow "ou onl" to a!!l" e,em!tions i& "our houseis in that state )sa"$ :isconsin(. I& "our !ro!ert" is not in :isconsin and the" onl" let"ou use their e,em!tions on the house i& it#s in :isconsin$ OA b' hanging !aragra!hsa"s i& "ou are denied b" a state#s law b/c not domiciled there$ "ou C36 a!!l" the-ederal e,em!tions even i& the state sa"s "ou can#tOA ! 4 a debtor ma" not e,em!t an" amount o& interest in a homestead that wasacHuired during the 1 1A da" !eriod !receding the date o& the &iling

a. !roblem at the end o& the cha!ter that la"s this out

11


12/38

E. :hether using state or &ederal e,em!tions$ retirement funds held in IR3s )u! to 51$@JA$@@@(and virtuall" all t"!es o& em!lo"er s!onsored retirement !lans are e,em!t &rom bankru!tc" estate

+s. A )b()'()C($ )d()1 (. O(22f avoidance ma" be &iled b" debtor when he claims e,em!tions. Sometimes can use it

later$ but attorne"s tr" not to amend the schedules. ?ow would the trustee deal with s!eci&ic e,em!tion situations

a( RUL8 @@'a2 trustee or creditor must ob%ect to debtor#s claim o& e,em!tion within 90 days o&the creditors meeting. 6ote2 RUL8 @@'c sa"s that the burden is on the ob%ecting !art"

b( I& !ro!ert" e,ceeds allowable e,em!tion amount$ in Cha!ter cases the trustee will sell the !ro!ert" and return the value o& the e,em!ted amount to the debtor

c( I& otherwise e,em!t !ro!ert" is sub%ect to valid and unavoidable lien$ onl" the debtor#s eHuit"in the !ro!ert" )i& an"( can be e,em!ted

d( I& costs o& sale and trustee#s commission would leave onl" a de minimis amount &or creditors o&the non e,em!t value o& the !ro!ert"$ the court will likel" order the trustee to abandon the !ro!ert"and debtor will get to kee!

e( ?ow to value !ro!ert" &or !ur!oses o& e,em!tion2 !racticall" s!eaking$ most will be valuedaccording to the debtor#s claims on bankru!tc" &ormN legall" s!eaking$ it#s fair market value &or&ederal e,em!tions Ks. A )a(M$ and state e,em!tion isn#t clear

J. 8,em!tions in Recovered ro!ert". wa"s to treat !re!etition trans&er o& !ro!ert" that wouldhave been e,em!ted2

a( Poluntar" trans&er2 trustee recovers !ro!ert" and debtor isn#t !ermitted to claim an e,em!tion init$ !ro!ert" comes back into the estate &or the bene&it o& all general creditors+s. A )g()1()3(

b( Involuntar" trans&er2 debtor ma" still claim an e,em!tion in the !ro!ert" the trustee recovers Ks.A )g(M$ and i& trustee re&uses to go a&ter !ro!ert" )because wholl" e,em!tible and not worth time($the debtor ma" e,ercise the trustee#s avoiding !owers and seek to recover the !ro!ert" Ks. A )h(M

1@. 5anson 1. 4irst ational Bank )1 A(a. summar"2 did debtor attem!t to de&raud creditor when the" sold cars$ etc. to son &or - P

be&ore &iling bankru!tc" and used mone" to bu" li&e insurance and !re!a" their mortgage)e,em!tions(. 69 4 debtor did not clearl" have an intent to de&raud creditors

$$. orwart Bank e'raska 1. !1etena. Same as above$ but 7vetens were rich. 9wed creditor 51Jm and converted 5 @@k o&

none,em!t assets to e,em!t !ro!ert". 7his was decided in &avor o& the debtor )0head start not0&resh start (

IP. Claims A. Generally1. Debtor#s Schedule tells trustee who to send notice o& bankru!tcies to+notice tells creditors

that debtor has declared bankru!tc" and that automatic sta" has been !ut into !lace. U!on receiving notice$ creditor should &ile a !roo& o& claim+s. (01 N claim includes !re!etition

collection e,!enses$ interest$ etc. B. Allowed Claims

1. 9nce a !roo& o& claim has been timel" &iled b" creditor$ it will be 0allowed unless a !art" ininterest ob%ects+s. A@

. :hen "ou don#t have to &ile !roo& o& claim2a. Cha!ter no asset case

b. Cha!ter 11 case 4 when listed b" debtor as being a creditor$ unless "ou have a !roblem

with it$ "ou have a !roo& o& claim assumedc. 6ote2 when "ou re!resent a debtor$ 3L:3;S &ile a !roo& o& claim. ;ou never know i&the"#ll &ind some assets

1


13/38

'. D8-I6I7I96 9- CL3I Ks. 1@1)A(M2 ri ht to payment )must eventuall" be in terms o&dollars($ :hether or not such ri ht is reduced to 3ud ment" li uidated )reduced to s!eci&ic orcom!utable dollar amount($ unli uidated )e,. liable in tort but no %ur" damage decision "et($fi ed" contin ent )obligation whose e,istence is uncertain and will onl" be determined b" a &utureevent+event can ha!!en !ost !etition($ matured )immediate right to !a"ment($ unmatured )rightto !a"ment on &uture date($ disputed" undisputed" le al )right to !a"ment &or damages($ e uita le)in%unctions$ s!eci&ic !er&ormance+instructions &rom court to do something$ but still must be ableto be reduced to dollar value to be claim+e,. covenant not to com!ete$ s!eci&ic !er&ormance tocom!lete construction !ro%ect(

. R8 8 B8R2 3llowed claim will be discharged when bankru!tc" !roceedings closed$ socreditor won#t be able to collect therea&ter

A. 3n ownershi! interest in the debtor )stock$ investment in !artnershi!$ LLC$ etc.( is not a claim$ but is instead an interest

E. ?ow !arties treat claims2iv. 9ther unsecured creditors are the most likel" to dis!ute claims because it increases their

share i& another claim is disallowed$v. Debtors !re&er &or all claims to be allowed so that the"#re discharged &rom &uture !a"ment$

vi. 7rustee has guaranteed !ercentage o& estate so doesn#t care. In Re Ward

Issue2 Does a noncom!ete clause survive bankru!tc" )en&orceabilit" o& a noncom!ete clause(Decision2 69Reasoning2 8Huitable remed" is a claim i& it gives rise to right to !a"ment$ but in this case the" can

%ust get an in%unction Bankru!tc" court sa"s2 sa"ing that damages are hard to estimate is no :hen no

eHuitable remedies2 domestic violence situation. 7here reall" is irre!arable harm andinadeHuate remed" at law. 6othing that !a"ment can do that will com!ensate.

C. )isallowed Claims1. Disallowed claims2 s. (02& )&2);&-)

. Claims o& creditors who &ail to re!a" a !re&erential trans&er are disallowed+s. (02&d)'. (02e disallows reimbursement &or contribution.

, ?PO@SC863RI9 12

U3R CR 8S7378redistribution @ @

-iled claim 1@k)cont( 1@k)&i,ed( WW 3llowed claim @ 1@kDistribution @ k X kT

ost distribution )Ek( Ek )against creditor( X kT)Ek( 1@k

So uarantor can#t collect$ but creditor is ha!!" b/c collected &rom guarantor

SC863RI9 2U3R CR 8S7378

redistribution )1@k( @k-iled claim 1@k)&i,ed( @k WW 3llowed claim 1@k @Distribution k @ )(

ost distribution @k @ ) k()Ek( )1@k(

SC863RI9 '2U3R CR 8S7378

redistribution )Ek( Ek

1'


14/38

-iled claim Ek)&i,ed(/ k)cont( k )&i,ed( WW 3llowed claim Ek kDistribution . k 1.E ) @ ( )(

ost distribution X . Tk . )&rom g( ) k()Ek( 1@k

). !ardy Claims1. Cha!ter 2

a( Late &iled$ non !riorit" unsecured claims are e&&ectivel" allowable$ but subordinated totimel" &iled claims )unless creditor has no knowledge o& bankru!tc" in time to &ile ontimel" basis but still managed to &ile be&ore distributions made(+s. *2 &a)&2)" &9)

b( riorit" claims are allowed and retain their !riorit" as long as the !roo& o& claim is &iled be&ore the trustee makes distribution to claims o& that !riorit"+s. *2 &a)&1)

. Cha!ter 1 and 1'2 tard" claims are disallowed+s. (02& )&-)'. Cha!ter 112 tard" claims can be allowed b" bankru!tc" court i& arise &rom 0e,cusable

neglect +which reHuires eHuitable balancing o& interests$ &ocusing on danger o& !re%udice todebtor$ length o& dela" and its !otential im!act on %udicial !roceedings$ reason &or dela" )whetherw/in reasonable control o& claimant and whether acting in good &aith( KRule J@@E)b()1(N ioneerInvestment Services v. Brunswick 3ssoc. Limited artnershi!M

+. Contingent Claims1. Contingent claims reHuire that a certain event occur be&ore liabilit" accrues$ so court must

determine the !robabilit" that a s!eci&ied event will ha!!en+s. A@ )c(. 7ests courts use to deal with contingent claimsN

a( 3ccrued State Law Claim 7est )0right to !a"ment (2 a claim doesn#t arise in bankru!tc" until an action has accrued under relevant substantive nonbankru!tc" law

b( Conduct 7est2 i& a debtor#s conduct &orming the basis o& liabilit" occurred !re!etition$ aclaim arises when that conduct occurs$ even though the in%ur" resulting &orm this conductwas not mani&ested at the commencement o& the case

#$% 6n re 5assanally #$D %)a( Issue2 is an action &iled a&ter bankru!tc" over a debtor#s bad conduct

!er&ormed bankru!tc" a claim )making it dischargeable with bankru!tc"()b( Decision2 ;es. I& there is conduct giving basis to liabilit"$ claim ariseswhen the conduct occurs. 7his su!!orts the idea o& a -resh Start

c( re!etition Relationshi! 7est2 an individual has a s. 1@1)A( claim against a debtor i&2#$% +1ents occurring 'efore confirmation create a relationship7 such as contact7

exposure7 impact7 or pri1ity 'etween claimant and de'tors product7 and #&% Basis for lia'ility is the de'tors prepetition conduct in designing7

manufacturing7 and selling the allegedly defecti1e or dangerous product '. Due !rocess issues arise when tr" to discharge a &uture claim without notice to the !erson who

will be in%ured. =(02e1 5 e,ce!tion to normal !rocedure. Court will not wait until a contingent claim becomes

&i,ed. It#ll estimate it$ allow the claim in that amt$ and move &orward.a. 7his is like when the claim is having a claim against a tort&easor. I& there#s going to be a long$

drawn out litigation$ have to estimate. 4. +xecutory Contracts E 3nexpired Jeases :s. ( ,;

1. 8,ecutor" contract2 when some substantial as!ect o& !er&ormance )other than merel" !a"mento& mone"( remains due &rom both !arties$ constitutes both an asset and liabilit" o& estate

. 7rustee must decide whether to assume or re%ect e,ecutor" contracts and une,!ired leases)a!!roved b" bankru!tc" court(+s. 'EA)a($ )d(N 7rustee has ' o!tions2 Re%ect$ 3ssume = !er&orm$or 3ssume = 3ssignN

a( Re%ect non debtor !art" gets !re!etition claim &or breach. Do this when - P isdown and the contract isn#t bene&icial$

&1) I& trustee re%ects contract/lease$ it#s treated as a !re!etition breach and !roduces a !re!etition claim+ s, 9 (& )

1


15/38

b( 3ssume and !er&orm as i& no bankru!tc"+to assume must become current in !a"ments/!er&ormance. Do this when - P is u! and the contract is bene&icial$

c( 3ssume and assign to someone elseN do this when the lease is bene&icial but debtorcan#t assume it. )note2 see below$ a(

)1( 7rustee has authorit" to assign the rights and duties o& an assumed contract or lease+ s. 'EA)&()1(+and i& does so$ bankru!tc" estate has no liabilit" &or &uture breach b" assignee

+s. 'EA)k() ( I& contract sa"s not assignable$ can ignore+almost alwa"s assignable unless it is a

!ersonal contract that can onl" be !er&ormed b" debtor )e,. !aint !icture('. Long term commercial lease is highl" litigated issue because s, (02& )& ) limits claim to larger

o& either rent &or 1 "ear or 1A o& rest o& lease not to e,ceed ' "ears. O9 (d9 4 7rustee must !er&orm all the obligations o& the debtor arising &rom an" une,!ired

lease o& residential real !ro!ert" or !ersonal within E@ da"s a&ter the order &or relie&. I& this isn#tdone$ the contract or lease is deemed re%ected

A. =9 (&p) 4 i& a lease o& !ersonal !ro!ert" isn#t timel" assumed )'EA)d(+E@da"s( b" the trusteeor is re%ected$ the lease is not !ro!ert" o& the estate and the lease is terminated. 7he debtor ma"noti&" the leasor that the" are assuming the lease )and taking on the res!onsibilities($ but the leasorcannot be &orced to let the debtor assume the contract )%ust !ersonal !ro!ert". 6ot residential or real

!ro!(E. 7here#s a ca! on the claim o& the leasor resulting &rom the termination o& a lease o& real

!ro!ert". )can#t %ust sit back and not rent it(*, PAOBLE (;C &1-()Deanna has "ear to "ear lease on a!artment and has a "ear lease on car w/ "ears le&t. Both leasesmake &iling &or bankru!tc" a de&ault. She &iles on E/1A. 3t that time$ she was current on a!artment

!a"ments and behind on car.a. I& trustee obligated to make !a"ments to landlord or car leasor

a. 'EA)d()'( is &or nonresidential real !ro!ert"$ and here we have nonresidential and !ersonal !ro!ert"

b. S9 no obligation o& trustee to !a" a&ter the &iling o& the !etition u! until make decision tore%ect or not re%ect

c. ersonal !ro!ert" obligation under cha!ter 11$ not cha!ter d. :hat i& we re%ect it a&ter E@ da"s O'EAd1 sa"s that i& nothing is done within E@ da"s$

leases o& !ersonal and residential real !ro!ert" are deemed re%ectedi. :hat i& acce!t a&ter E@ da"s 7here#s a claim on the !re!etition areers and !ost !etition !a"ment due. 3ll gets !aid o&& at rate give O'EAb1

b. 7rustee is the holder o& the leasehold$ not the debtor. 7rustee is charging rent to debtor. I& trusteeknows he#s going to re%ect$ make sure debtor vacates be&ore re%ection. I& not$ then lessor couldclaim that there was constructive assum!tion

c. I& don#t do something in E@ da"s$ than lease is re%ectedA. C.

d. ersonal !ro!ert" can be assumed i& the debtor acce!ts it$ as long as the creditor a!!roves. 'EA!.e. 7his means that the debtor can assume the car$ but not the a!artment&. 8ver"thing we owe to the leasors a&ter the !etition date$ u!on re%ection becomes a !re!etition

claim.

a. 6ever a!!ears an"where in the code$ but courts decide that the nondebtor !art" iscom!elled to continue to !er&orm until time o& re%ection )leasor must let "ou use car$a!artment$ etc.(

1A


16/38

P. Secured Claims )!1J (3. Secured Claims !aid out o& collateral sub%ect to lien$ not !aid out o& estateB. 3mount o& Secured Claim is limited to the value o& the collateral+s , (0 &a)

1. So$ b" de&inition$ secured claims are satis&ied in &ullC. Rule '@@ 6o !roo& o& claim needs to be &iled &or secured claimD. ?aving a lien on !ro!ert" does 697 make it a secured claim. ust have an eHuitable interest OA@Ea

1. What if there are multiple liens on the same piece of property?

2. The lien that has priority gets to take collateral up to lien amount. If theres any left over, second claim gets to eat up the rest. Then whatsleft of claim 2 ecomes an unsecured claim

8. Lien Stri!!ing1. Palue 0shall be determined in light o& the !ur!ose o& the valuation and the !ro!osed dis!osition

or use o& such !ro!ert" +s. A@E)a()1(. 3 lien is void to the e,tent that the creditor is undersecured+s. A@E)d(

a( SC greatl" limited e&&ect o& A@E)d( 46ow all it does is avoid liens that securedisallowed claims )claims that the debtor doesn#t legall" owe(KDewsnu! v. 7immM

4. Jiens on Collateral Ac2uired Post>petition1. 3 0-loating lien is a securit" interest on all o& debtor#s inventor" and accounts$ whether

owned at time securit" interest or subseHuentl" acHuired. re!etition securit" interest in !ro!ert" acHuired !ost !etition is invalidated b" s. AA )a(

'. Secured claimants can retain their liens on !ost !etition !roceeds o& !re!etition collateral$allowing &loating lien to largel" retain its value+s. AA )b()1(

a( Secured !art" can !rotect interest b" &ollowing !roceeds &rom !re!etition through useo& a lock bo, which onl" lender has access to

G. Post>Petition 6nterest and +xpenses1. enerall" claims &or !ost !etition e,!enses are disallowed and creditors are not entitled to

com!ensation &or an" dela" in !a"ment that results &rom bankru!tc" !rocess+s. A@ )b() ($ bute,ce!tion i& debtor is solvent and able to !a" all claims in &ull+s. E)a()A( !rovides that interestat 0legal rate is !a"able &rom date o& !etition

. Oversecured creditors )i& the value o& the collateral e,ceeds the creditor#s claim( are allowedto recover &rom the collateral 0interest on such claim$ and an" reasonable &ees$ costs$ or charges

!rovided &or under the agreement under which the claim arose+s. (0 & ) )this is a startlinge,ce!tion to the general rule that a claim is &ro*en at the !etition moment.. the value o& thecreditor#s claim continues to rise and eat into the eHuit" that would go into the estate(i. good incentive &or trustee with an oversecured creditor and eHuit" in the !ro!ert" to sell it HuickV

1E


17/38

'. Under secured creditors 4 there is no debtor eHuit"$ so trustee wouldn#t bother selling the !ro!ert"

5. A1oiding Jiens1. Several di&&erent Code !rovisions allow trustee or debtor to avoid a creditor#s lien &or a variet"

o& di&&erent !olic" reasons+results in more collateral being &reed u! &or estate or debtor cane,em!t !ro!ert". 7hen a 0secured creditor le&t with unsecured claim

. otivations &or avoiding secured claims2a( Debtor will want to ob%ect i& !ro!ert" would otherwise be e,em!t

b( 7rustee will want to ob%ect because securit" interest in collateral takes it out o& theestate$ thus cutting the si*e o& the estate$ o& which trustee gets

c( Unsecured creditors will ob%ect because collateral would be added to estate i& securedclaim not allowed

'. Strong 3rm owers Ks. A Ma( 0Strong arm clause Ks, ( &a). gives trustee !ower to avoid certain liens and other

trans&ers o& an ownershi! interest in !ro!ert" b( 7rustee is creditor w/ %udicial lien on all o& the debtor#s !ro!ert" at the time o&

bankru!tc" !etition$ so trustee has !riorit" over another entit"#s interest in !ro!ert" o& thedebtor or !ro!ert" trans&erred b" the debtor$ an

c( A )a()1( 7ool &or trustee to invalidate un!er&ected securit" interests.3LS9 grantstrustee the status o& creditor w/a %udicial lien on all the debtor#s !ro!

)1( 8,ce!tion to !ower i& secured !art" has SI in inventor"$ has @ da" grace !eriod to !er&ect a&ter &iling+s. 'E )b($ A E)b()1()3(

d( ( a9 7rustee has status as bona &ide !urchaser o& all debtor#s real !ro!ert"$ so trusteema" invalidate unrecorded mortgages on and unrecorded deeds o& real !ro!ert" o& thedebtor trustee is conclusivel" !resumed to lack knowledge o& the unrecorded interest+&oravoidance !ur!oses(

$ 6nteraction with s. ,*$#d% might allow trustee to take priority o1er 'eneficiary of aconstructi1e trust and keep property in estate

. urchase one" Securit" Interest 4 where value that is e,tended b" the lender is meant &or the !urchase o& the s!eci&ic collateral and is in &act is used &or the !urchase o& the collateral

a( @ da" grace !eriod J '1 )see !g @ ( b( I& give bulldo*er on SI$ et @ da"s &rom time that secured !art" actuall" takes

!ossession o& bulldo*er to !er&ect. 7hen the date o& !er&ection re&ers back to the date o& thetransaction

c( :hat i& tr" to !er&ect !ast the @ da" !eriod )and a&ter !etition date(#$% 6f after petition date7 its a 1iolation of the automatic stay - JL if past & day

period.

e. R9BL8 E ' ! @J 8,!lains A a1 )this is re!eat in&o &rom above(i. -n &/$7 ) ga1e security interest in certain o1ens used as e2uipment to B$. B$ ne1er filed a

financing statement7 and thus its security interest is unperfected. -n D/$7 ) ga1e securityinterest in same e2uipment to B & in return for a loan. B & perfected 'y filing a proper

financing statement the day of transfer. ) files Chapter D. Hhat happens7 and who has priorityK

1. -irst in time is &irst in right$ but !er&ected alwa"s beats un!er&ected.. Because both trustee and bank have !er&ected claims$ bank trum!s trustee.

'. Bank 1 didn#t !er&ect$ so not in the running. Bc gets the claim$ trustee#s claim &ills u! the rest o& the eHuit"$ and B1#s

un!er&ected lien$ under A a$ is !ushed down to an unsecured claim.A. 6ote2 same result i& B1 was a %udicial lien. 3n involuntar" lien is treated the same

as a voluntar" lien &or all situations dealing w/ avoiding the lienii. er&ection2

1. Consensual lien 4 Date o& &iling &inancing statement.


18/38

'. Un!er&ected securit" interest alwa"s subordinated to !er&ected securit" interest. 1 e,ce!tion2 J '1 )see !g @ (. @ da" grace !eriod a&ter lender o& SI takes

!ossession o& !ro!ert" to !er&ect.a. I& this ha!!ens !ast the @ da" !eriod and a&ter the !etition date$ it#s a

violation o& the automatic sta" b. I& this ha!!ens within @ da"s$ but a&ter the !etition date$ it#s &ine.

A. R9BL8 E A ) 11(a( C gets %udgment against D and has sheri&& lev" on D#s car a &ew da"s be&ore D &iles

bankru!tc".


19/38

#(% Jessor of nonresidential property can o'tain possession of property if leaseexpired 'efore 'ankruptcy petition or lessor o'tained udgment for possession

prepetition9s. ( '%#$ %7 #&&%d( OO 'E )b()E($ ) ($ )11($ )1 ($ ) ( Designed to !revent sta" &rom undermining

commercial markets or corru!ting &inancial !roductse( OO'E )b() @($ ) 1( Deals with debtors who &ile bankru!tc" a&ter having a !revious

bankru!tc" case dismissed or the sta" li&ted in the !revious&( O'E )b() ( Deals w/ governmental actions )e,. criminal !roceedings+s. 'E )b()1((N

govt. units can en&orce their !olice and regulator" !owers to obtain mone" %udgments$ butcannot en&orce mone" %udgments+s.

. Duration o& and Relie& &rom the Sta"a( Duration o& sta" governed b" s. 'E )c( 4 sta" doesn#t end at the same time.

1 3ctions against !ro!ert" o& the estate2 sta" e,!ires when !ro!ert" ceases to be !ro!ert" o& the estate )sometimes e,tended to !rotect !ro!ert" -R9 the estate$which is !ossessed b" estate($

)1( 9ther actions2 sta" e,!ires when bankru!tc" case closed or dismissed or thedebtor is granted/denied a discharge$ whichever occurs &irst

b( O9 2d otion &or Relie& &rom Sta"+ an" !art" ma" bring a -RS under this !rovision. ost litigated. 7his is how the" li&t the sta" to &oreclose on !ro!ert" Kgenerall"onl" relevant to secured creditorsM2

1 an" secured creditors will tr" this i& their claim has decreased b/c o&de!reciation. A th amendment !rohibits bankru!tc" to cause a loss in value o&

!ro!ert" rights.rounds &or motion &rom relie& &rom sta"2 )! E book(

a -irst ground2 lack o& adeHuate !rotection o& an interest in !ro!ert")i.e. secured creditor has little eHuit" cushion and collateral is de!reciatingor threatening to de!reciate &aster than debtor is !a"ing o&& debt( KadeHuate

!rotection+s. 'E1M$ and&a) Second ground. Debtor lacks eHuit" in !ro!ert" 36D its not needed&or a success&ul reorgani*ation =9 2d2& )7hird round -or Cause )man" causes . 6o insurance$ didn#t !a"ta,es or a lot o& time invested in an ongoing litigation(. =9 2d1)c( 6ote2 oversecured creditor has no chance o& getting a relie& &rom sta".

1J


20/38

c( art" seeking relie& &rom sta" &iles a motion KRules @@1$ J@1 M$ and i& court doesn#trule otherwise$ the sta" will normall" terminate '@ or E@ da"s a&ter motion &iled+s. 'E )e(

A. Piolations o& the Sta"a( O'E k 4 teeth to O'E ives court !ower to grant actual damages &or violation o& sta"

and order !unitive damages where necessar". 7his isn#t being used much an"more b/ccreditors are being more care&ul

b( Piolation o& sta" is !unishable as civil contem!tN com!ensator" damages are readil"available. 6o intent reHuired$ but unknowing violation not likel" to be &ound in contem!t

c( Debtor has !rivate cause o& action when in%ured b" will&ul violation o& sta" )i& creditorin&ormed o& sta" and acts deliberatel"(+s. 'E )k()1(

E. 3!!lication o& sta" to re%ected leases2a( Landlord whose debtor has de&aulted on lease !a"ments+either !re!etition or

!ost!etition+must obtain relie& &rom the sta" to evict the debtor and obtain control o& the !remises unless some e,ce!tion to the sta" a!!liesN

b( can#t inter&ere with or e,ercise control over estate#s !ro!ert" on !remises )s. 'E )a()'((and can#t attem!t to collect a !re!etition claim &rom !ro!ert" o& the estate or !ro!ert" o&the debtor without violating the sta" )s. 'E )a() ($ )E((

. 3ctions against nondebtors2 Cha!ters and 11 have no !rovisions e,tending the sta" toindividual co obligors$ but Cha!ter 1' does Ks. 1'@1)a(M

. rohibitions against discrimination against debtors2 s. A A !rohibits !ublic entities &romden"ing licenses to$ den"ing em!lo"ment to$ or terminating the em!lo"ment o& a bankru!tc" debtor S9L8L; because insolvent or has &iled &or bankru!tc" !rotection. 7he word S9L8L; is ashelter the" %ust need to come u! with a second reason to &ire the individual

C. !olling Rules :s. $ I;1. Concerns actions that the debtor might have been able to bring$ but now belong to the trustee.

I& the statute o& limitations would e,!ire 1 da" a&ter the !etition date$ the trustee has 7:9 ;83RSto bring that action C?8CG 7?IS

. 1@ b 4 obligations that debtor/trustee ma" have to do a&ter the !etition date w/in some !eriodo& time like2 &iling state ta, re!ort$ res!onse to show cause &rom &ed or state env agenc"$ etc. In thiscase$ the" onl" get E@ da"s a&ter statute o& limitations to res!ond to this action.

a( Pro lem *;1 ) A1( :hich actions violate the automatic sta"i. Sending the debtor a bill &or !re!etition debt. ( &a

ii. Sending the debtor a bill &or !ost!etition debt M 1iolation only in chapter $(iii. Bringing suit against debtor &or !ost!etition debt M ok iv. Suit against debtor &or !re!etition debt 4 ( &a$N ( &a v. -iling motion to dismiss &or &ailure to state a claim in state court brough b" debtor

!re!etition > ( &a( #this is property of the estatevi. Recording a !re!etition %udgement against debtor ( &a&7 (7 *7 , #recording can create

a lien%vii. Receiving wire trans&ers &rom D#s em!lo"er !ursuant to a !re!etition order garnishing

debtors wages+ ( &a #doesnt matter if creditor didnt recei1e notice%viii. Re&using to sell the debtor goods or services unless debtor !a"s !re!etition debt+

(& a i,. Re&using to sell debtor goods or services unless debtor !a"s in advance 9this is

pro'a'ly okay. 8ust ha1e to make sure that this is a regular practice of the creditor7and not in response to the 'ankruptcy,. Demanding !a"ment o& !re!etition debt &rom guarantor o& debtor+ okO Remem'er

though7 that $ says that a guarantor can 'e protected in 'ankruptcy if necessary,i. Bringing an action against debtor#s liabilit" insurer &or !re!etition claim+ depends on

state. Jimit reco1ery to extent of insurance) Pro lem *;2 &2(2)

9ne month a&ter &iling bankru!tc"$ D commits tort against . a" sue Da. ma" sue D a&ter &iling o& the !etition$

b. But i& obtains %udgment$ she cannot e,ecute on the !ro!ert" o& D )O'E a1$ 'E a (c. 3; garnish D#s wages b/c O'E aA onl" !rotects against !re!etition claims

@


21/38

c) Pro lem *;9a. Bank account in the name o& debtor. D claims it all as e,em!t. D wants to withdraw &unds to

!a" rent a&ter &iling$ and bank won#t allow it. Landlord threatens eviction. Does D have causeo& action against Bank

a. 6ote2 even i& this is e,em!t$ the !ro!ert" &irst goes into the estate. 3&ter e,em!tion isclaimed$ i& it#s correct$ trustee will eventuall" abandon it

b. ?ere$ Debtor is violating the automatic sta"V O'E a1 )sta" is a!!licable to all entities(c. Bank also has a claim against the estate )b/c !art o& agreement is that the debtor will

move all o& accounts into that bank(i. In this case$ bank has debt o& 5 k &rom estate and 5 k in account. Bank can

take the 5 k and bring claim o& 5 'k d. Bank is treated as a secured creditor to e,tent o& the 5 k

d) PAOBLE *;(Client who is an obligor )not BG debtor(. Someone has %udgment against her and has begin togarnish her wages. 3mount is intolerable. She comes to us

A. :hat to do2 &ile bankru!tc". 7hat creates an automatic sta" and then dischargeE. 7hen she comes back and asks i& she can get back mone" she !aid hos!ital be&ore

&iling. Can shea. I& the trustee does not bring an action$ debtor can bring an action i& the trans&er

is avoidable under O ( * to the e,tent the debtor could have e,em!ted such !ro!ert" under g1. OA h

b. 9!!osing council will look &irst to A b )that#s satis&ied($ then look to A c.7hat contains de&enses. De&ense that works here is2 A c

i. A c sa"s 5E@@k is the deminimus amount &or deminimus !re&erenceactions

c. Solution2 wait weeks to &ile bankru!tc"$ until 5E@@ is garnished$ and it#s nolonger deminimus.

e) PAOBLE *;CDuke and Duchess were divorced. Decree ordered Duke to !a" Duchess 5 k/mo &or ' "ears$ butDuke made no !a"ments and &iled Cha!ter bankru!tc" last week.

. -irst Huestion2 is this a domestic su!!ort obligation )1@1 1 a( . 9!!osite o& domesticsu!!ort obligations is a !ro!ert" division obligation

. 3nal"*e two wa"s2

Dom Su! 9bligation ro!ert" division 9bLev" on Car )'E a $'$ ( 6o e,ce!tion )!ro!ert" o& the

estate 4 so 'E b B doesn#t count()I& trustee abandons it$ can lev" onit even during case(

6o 8,ce!tion

arnish ost etition :ages'E aA$ 'E aE

;8S 6o 8,ce!tion

J. :hat changes in Cha!ter 1' In cha!ter 1'$ !ost!etition wages &or the !eriod o& the !lan remain !ro!ert" o& the estate. S9$ couldn#t garnish !ost!etiton wages during bankru!tc" )see 'E b C(

f) Pro lem *;10 &2 )Hhich of the following actions may 'e taken postpetition w/out 1iolating automatic stayKK1. Count" assesses a ta, against debtor#s real estate 4 9 2 -d e,em!t &rom sta"

. State bar sus!ends a debtor &rom !racticing law 4 9 2 e,em!t )bar association is !art o& su! court and involved in licensing attorne"s(

a. Common note o& interest2 &alls under b i& action relates !rimaril" to state#sen&orcement o& health$ wealth$ moral$ sa&et". 697 !ecuniar" interest.

'. otor vehicle de!t sus!ending driver#s license 4 b or b1)i& criminal act( b. I& sus!ending license &or !re!etition s!eeding ticket 4not sta"ed under b i&

revoked &or statutor" !eriod o& time.

1


22/38

c. I& sus!ension is li&ted u!on !a"ment$ it#s an attem!t to collect a debt andviolation o& sta"

d. I& this is !unishment$ not violation b/c not !rotected b" b. 889C 9rders rehire o& em!lo"ees 4 ok under b

e. Instruction to !a" another &.


23/38

) ( ust be &iled with court and be either )i( accom!anied b" a re!resentation o&no undue hardshi! b" the debtor#s attorne" Ks. A )m(M$ or )ii( a!!roved b" courta&ter a hearing on the matter Ks. A )c(M

)a( Debtor#s law"er will have to sign sa"ing that believes agreement is inthe debtor#s best interest. Di&&icult$ usuall" a con&lict o& interest. Law"ercould withdraw and make the client go hersel&$ but this is still di&&icult

)'( Creditor ma" solicit rea&&irmation agreement without violating sta") ( In Re Riggs ) J1( 4 A 1a 3 sa"s must either redeem$ surrender$ or rea&&irm.

Debtor wants to retain$ but can#t. So he rea&&irms )no attorne"( and court denieda!!roval. eo!le assumed that then it would &all back on surrender$ but insteadcourt sa"s that we can use retain.

b( Redem!tion+debtor must !a" the lienor the amount o& the 0allowed secured claim)value o& the collateral$ not the &ull debt( to redeem the !ro!ert" Ks. MN secured !art" hasno choice in the matter

1 Drawbacks2 debtor must come u! with necessar" cash$ redem!tion !rice isdetermined b" the !ro!ert"#s re!lacement value without reductions &or costs o& saleor marketing Ks. A@E)a() (M$3vailable onl" in limited circumstances o& individual debtors with tangible

!ersonal !ro!ert" intended !rimaril" &or !ersonal$ &amil"$ or household !ur!oses.' 7he !ro!ert" also must be e,em!t or abandoned and debtor must !a" the lum!

sum o& the amount o& the secured claim within E@ )or A ( da"s a&ter the meetingo& the creditors. USU3LL; !aid b" an insider

c( Re!ossession+secured creditors !rohibited &rom taking action to collect debts$ such asre!ossessing their collateral or conducting a &oreclosure sale a&ter a bankru!tc" !etition has

been &iled Ks. 'E )a()'( )E(M.)1( Courts usuall" &ind that !ost!oning &oreclosure sale is su&&icient under O'E )a(

)1($ but de!ends) ( creditor can seek relie& &rom sta" under s. 9 2&d) ; reHuirements

d( Retention+dis!utes over whether s. A 1) ()3( leaves room &or o!tion o& retention+s.A 1)a()E( in @@A 3mendments seems to have restricted debtor#s right to retain collateralwithout redeeming it or rea&&irming the debt b" reHuiring the debtor to rea&&irm the debt orredeem the collateral within A da"s o& the s. ' 1 meeting$ but doesn#t a!!l" to realt"collateral or to non !urchase mone" securit" interest in !ersonalt"

a. R9BL8 )!'1@(i. Zuestion o& what client can do when the"#re a consumer. D is in cha!ter . 7here#s a

5 $A@@ motor vehicle e,em!tion. D#s car is sub%ect to a !er&ected securit" agreement &romL. Ds made all the reHuirement monthl" !a"ments.Determine 1( what D could do to kee! his carN ( i& redem!tion is available$ what it wouldcost D to redeem the carN '( what D#s best o!tion isN and ( what Lender#s best course o&action is.

1. :e need to remember is that in the case o& an individual SI we ma" not retain

)consumer( Palue Claim Rea&&irm)available &or 36;debtor(

Redeem)&or individuals(

Retain

1 car worthk$ claim is

51@k )&orcar(

k 1@k 51@k>)negotiate(

5 k 69 4 b/cSI

4 Car k 1@k

'


24/38

worth 5 k$debt is 51@k.

one" used&or home' Car worth51 k. claimis 51@k )&orcar(

1 k 1@k 51@k> 51@k )amt o& secured claim( 69

car worth51 kN debt51@k &orhome

1 k 1@k

Business1. k 1@k 0 Y 69

. k 1@k Y'. k 1@k 0 Y 69

. k 1@k Y

PIII. riorities and Distribution

A. !rustees )uty to Ji2uidate +state1. 7rustee is reHuired to 0collect and reduce to %udgment the !ro!ert" o& the estate and closesuch estate as e,!editiousl" as is com!atible with the best interest o& the !arties in interest +s.

@ )a()1(. ain !rovision authori*ing trustee to liHuidate estate is s. 'E'

'. 7rustee must distribute mone" to claimants 0as !rom!tl" as !ossible +Rule '@@J. I& the estate has an interest in collateral o& secured claim$ then trustee must sell the !ro!ert"

!rior to com!leting distribution !rocess Ks. AM B. )istri'utions of the +state :s. D& #a%; )!'1 o& book has visual o& O E

[ 3&ter &inishing the &ormation o& the estate$ liHuidation o& claims$ go to O E868R3L LIS7 B8L9:2


25/38

1. Su!!ort 9bligations2 OA@ a1. 3dministrative 8,!enses KOA@ a . Re&ers us to OA@')b(. ives a none,clusive listM

a( Costs and e,!enses o& !reserving the estate )!ost !etition($ b( Com!ensation to !ro&essionals+trustees$ attorne"s$ accountants$ etc. Ks. ''@)a(M$ )note2

' allows trutee to em!lo" these !eo!le(c( Reimbursement o& certain creditor e,!enses and com!ensation &or certain creditor

services'. Certain e,!enses arising &rom involuntar" &ilings )OA@ a'(

. Certain em!lo"ee wage claims Ku! to 51@$JA@ 7973L including section belowM )OA@ a andA@ aA(

A. Certain em!lo"ee bene&it claims Ku! to 51@$JA@/em!lo"ee 7973L including section aboveME. Certain consumer de!osits Ku! to 5 $ AM4 heav" burden on estate when debtor is a retailer and

when de!osits have been !ut down. )OA@ a (.. Certain ta, claims )OA@ a (. Claims owed b" de!ositar" institutions to maintain ca!ital levels

J. ersonal in%ur" claims resulting &rom drunk driving1@. [[[[[[[[[[1 J are s. A@ )a( !riorit" claims[[[[[[[[[[[[[[11. 7imel" unsecured claims1 . Untimel" unsecured claims1'. re!etition claims &or &ines and !enalties1 . Interest on an" o& the claims listed above1A. 7o the debtor )i& cor!. then to shareholders who &iled !roo& o& interest(

C. 5ow )istri'uted 1. Claims within each ranking are !aid in &ull be&ore moving down to ne,t level Ks. E)b(M

. I& insu&&icient assets to !a" all claims within a single ranking$ those claims share on a !ro rata basis Ks. E)b(

). Priorities1. Su!!ort Claims OA@ a1

a( 0Domestic su!!ort obligation Q one 0in the nature o& alimon"$ maintenance$ orsu!!ort without regard to whether such debt is e,!ressl" so designated Ks. 1@1)1 3()B(M

b( Court has to anal"*e each !a"ment obligation to determine i& it#s reall" su!!ort or adivision o& !ro!ert" Ks. A@ )a()1(M+look to sub%ective intent and substance o& obligation+ unlikel" to Huali&" as su!!ort i& !a"ments to continue a&ter creditor s!ouse dies orremarries

. 3dministrative 8,!ensesa( 7rustee#s Com!ensation2

#$% !rustee recei1es *, for each Ch. D case filed out of the filing fee9s. (( #'%#&% !rustee entitled to reasona'le compensation for ser1ices7 capped at percentage

of distri'ution to claimants :s. (& #a%7 (( #a%;#(% !rustee who is lawyer might hire self in litigation to reco1er a preference or

fraudulent transfer9su' ect to court appro1al :s. (&D#d%; and compensation for such professional ser1ices not capped 'y Q of distri'ution :s. (( #a%;

b( Com!ensation &or 8m!lo"ed ro&essionals$ )e'tors attorney seldom paid out of estate assets9may 'e paid through

prepetition retainer7 'ut court has authority and duty to re1iew the reasona'lenessof fees and to order any unreasona'le amount either to not 'e collected or to 'edisgorged :s. (& #'%;

)a( Law"er has to be care&ul with retainer$ can#t trans&er mone" &romretainer trust &und to law"er#s account all at once because would be anavoidable !re&erence+instead law"er should get retainer and draw on theretainer at least dail" &or work done$ so !roviding new value a&ter

!re&erential trans&er cancels out the !re&erential trans&er & Attorney or accountant whose 'ill for prepetition ser1ices remains e1en partly

unpaid cant 'e employed postpetition 'y trustee or de'tor>in>possession 'ecause

A


26/38

must 'e disinterested9s. $ $#$*%#A% :exceptions s. (&D#'%7 s. $$ D#'%7 and s.(&D#e%;N court has o1ersight of professional fees in two ways

)b( Court ma" determine and a!!rove the terms o& the !ro&essional#scom!ensation in the a!!ointed order+s. ' )a($ or )c( Court can evaluate the reasonableness o& the &ee b" e,amining theservices with the bene&it in hindsight+s. ''@)a()'(

c( :age = Bene&it Claims Ks. A@ )a() ($ )A(M+wages !ost!etition &all underadministrative e,!enses in s. A@ )a() (

d( 7a,es Ks. A@ )a() (M+onl" addresses ta,es &or which ta,ing authorit" has not &iled alien Kta, liens are treated as secured claims+IRS ta, lien !laces a lien on all !ersonal andreal !ro!ert" however acHuired and wherever located$ overcoming an" e,em!tion$ etc.M

1 I& &ile bankru!tc" !etition be&ore 3!ril 1A at an" "ear$ debtor accrues !riorit" ta,liabilit" &or "ears o& an" un!aid ta, liabilit"I& &ile bankru!tc" !etition a&ter 3!ril 1A at an" "ear$ debtor accrues ' "ears o& ta,liabilit"

' roblem J J$ B1 $ !A deals with this. a" ta,es &iled a&ter !etition date$ and ones' "ears be&ore. I& we don#t have enough mone" to cover all o& the !re!etitionta,es$ !rorate.

IY. Discharge and Dismissal A. )ischarge

1. eneral rule2 courts shall grant the debtor a discharge o& debts$ which &or the most !art coversall !re!etition debts as well as some obligations treated as !re!etition under s. A@ N also coversobligations &or which creditor has not &iled a !roo& o& claim Ks. )a(

. 8&&ect o& discharge2 once a debt is discharged the creditor is !ermanentl" en%oined &rom tr"ingto collect it &rom the debtor Ks. A )a() (M. 7he debt itsel& still e,ists$ so can go a&ter guarantor$credit s"stem can still use debt to determine the credit worthiness o& debtor$ and technicall" debtorcan still voluntaril" re!a" it Ks. A )&(M

'. 9nl" &or individuals. Cor!s/!artnershi!s don#t need one or get one. Ks. )a()1(M. Denial o& Discharge

a( ost destructive to the wel&are o& the debtor. I& sustained b" court$ entire discharge isdenied. o here &or lists o& reasons wh" "ou#d den" discharge on e,am. O

b( Discharge denied i& debtor !er&orms certain misconduct Kmaking &raudulent trans&er ordestro"ing !ro!ert"$ &ailing to maintain adeHuate &inancial records$ l"ing to bankru!tc"court$ &ailing to e,!lain loss o& assets$ disobe"ing order o& bankru!tc" courtM Ks. )a() ()E(M

#$% 4raudulent intent in 'ankruptcy filings can 'e shown 'y either actual intent todecei1e or a reckless indifference for the truth D&Da$.

#&% D&Da( deals with records. 6ts clear if the de'tor destroyed records7 'ut whatif de'tor ust failed to keep records with info the court might needK

#(% D&Da* M making a false claim or other.


27/38

A. $ondischar ea le 6laims 2 claims that survive bankru!tc" !rocess even i& debtor granted adischarge OA '

a( 8ven i& claim is nondischargeable$ the claimant is still entitled to share in distributions&rom the bankru!tc" estate

b( Di&&erence in tone b/t OA ' and O . 7he debt does share in the estate$c( OA 'a 4 with $ when want to den" a discharge$ creditors have a E@ da" window

a&ter date o& O' 1 meeting in which com!lain has to be brought to den" discharge$ and theO ma" onl" be ad%udicated in bankru!tc" court. 3 OA ' action isn#t !recisel" de&ine$and o&ten the declaration never arises in bankru!tc". 3 de&ense here &or the debtor is 1 bE.

#$% e,ce!tions under OA '2 N 4 &raud b" a &iduciar"$ and E will&ul andmalicious. -or these ' grounds$ the creditor must bring an action in the bankru!tc"court w/in E@ da"s a&ter meeting in order to have that claim declarednondischargeable.

d( Unscheduled debts2 i& debtor &ails to list a creditor on schedule o& debts and creditorisn#t noti&ied o& bankru!tc"$ creditor#s claim is generall" e,ce!ted &rom discharge unlessit#s a 0no asset case Ks. A ')a()'(M

e( 7a,es2 nondischargeabilit" o& ta, debts includes ta,es accruing in the ' "ears !rior tothe bankru!tc" &iling$ ta,es &or which the debtor never &iled a return or &iled a &raudulentreturn$ and debts incurred to !a" ta,es. 7a,es that &all into A@ a are both th !riorit" 36Dnondischargeable Ks. A ')a()1()3( )C($ )a()1 ($ )1 3(M

a. Courts have decided that I678R8S7 on a ta, claim is !art o& the claim&( Claims &or Su!!ort2 su!!ort obligations and !ro!ert" settlement obligations incident to

divorce are nondischargeable Ks. A ')a()A($ )1A(Mg( enerall" creditors with nondischargeable claims can#t go a&ter the debtor#s e,em!t

assets even a&ter the bankru!tc" !rocess$ but e,ce!tion &or nondischargeable ta, debts andnondischargeable su!!ort claims Ks. A )c(M

h( isconduct Claims2$ Hillful and


28/38

i( 8ducation Loans Ks. (29&a)&C).@educational loan debts to a govt. unit or non!ro&itinstitution o& higher learning is nondischargeable so long as it doesn#t im!ose 0unduehardshi! on the debtor or debtor#s de!endents. 7he" come down !rett" hard on studentloans

%( Death or !ersonal in%ur" &or o!erating while into,icated. 7his is a &iller &or A 'aE$ b/cmost DUI o&&enses are negligence. 7his is


29/38


30/38

8D loan @ @ @S!ousal Su!!ort @ 1ACredit Cards 1@ @

9

c. Destitute has an estate o&2

51@$@@@ )encumbered car.(5Ak in e,em!t asset$5Ak in none,em!t assets5 @$@@@

d. Liabilities25 @$@@@ 8ducational Loans5 @$@@@ Dom su! obs51@$@@@ credit card )car is secured$ so that doesn#t count5E@$@@@ total

e. Both the educational loans and the DS9 are nondischargeable loans$ but the" are 697 eHual in !riorit".

i. C?8CG A@ a 4 educational loans do 697 have !riorit"

&. 7his leaves debtor a&ter the case with 5Ak in his estate and 5'Ak claims )C3S8 I(g. :?37 to doi. 3n" !a"ment to a nondischargeable obligation is 697 a !re&erence

ii. 7ake the mone"/none,em!t assets and convert them into e,em!t assets1. 7his leaves the &ormer s!ouse with nothing$ because there are no none,em!t assets

le&th. 7his creates C3S8 2 8state2 1@k and Debt2 @k )this is &ine i& debtor is retiring and not earning

an"thing else. Bad &or "oung debtor(i. 7R;2

i. Can#t take mone" &rom the credit card to make it e,em!t2 B3D. ;ou ma" not get adischarge at all$ or the credit card com!an" could make the debt nondischargeable

ii. S92 tr" to add 5 @k )&rom available credit on credit card( to debt and the e,em!t assets become '@. 7his !uts debtor in total 5'@k e,em!t estate and 5 @knondischargeable debt.

ood !lace.iii. Could also use 5 @k credit to !a" the s!ouse#s claim. 7hen$ wait J1 or 1 da"s )so credit

card com!an" doesn#t get an"thing($ then have2 51@ or the estate and 5 @k totalnondischargeable claims. )7?IS is best i& client is "oung and will earn a lot more mone"(

%. 7his is an area o& R837 controvers"V 6o clear line is drawn. rebankru!tc" !lanning is amine&ield. Gnow where "ou#re going$ bounce ideas o&& lots o& !eo!le.

B. oving on to the means test2KC I 8 )1/E@ ,S9( 4 )1/E@,S (M , E@ TQ

a. S9QSecurit" 9bligations b. S Qtotal Su!!ort a"mentsc. :hat are we doing Looks at the !arameters o& a h"!othetical Cha!ter 1' case. :e#re going to

decide i& we#ll let them &ile Cha!ter and begin anew$ 9R are we going to reHuire "ou to &ileCha!ter 1' instead and live on a bare income ever" month until "ou#ve !aid o&& creditor

i. 7his is 697 realit". 7his is a construct o& cha!ter 1'$ and something that resembles realit".It#s not what we might do in a cha!ter

d. See eans Charte. F1$ com!are the &amil"#s current onthl" income to the median &amil" income &or the state. I& it#s

below$ S79 right there. 6o one will Huestion noncom!liance with the means test. ) @ b (. Seethe a!!endi, in the book )73B( or check online.

&. F check monthl" e,!ensesi. 6ational standards )!AAJ( )controvers"2 ntl standard &or what it takes to live is based on

how much mone" "ou makeV(

'@


31/38

ii. Subtract A &or &ood in clothing )alwa"s do this(g. 3ttorne"s work this b" going onto the website

3. R9BL8 S87 C?3 78R ?36D9U7a. I#m the trustee. Case &iled the da" be&ore "esterda"

b. -irst2 see what the assets o& the 8S7378 are2 )kee! e"e on CL3I S(R9 8R7; LiHuidation Palue Lien Palue to estate

Land 5 @$@@@ 6one 5 @k -ord 7ruck 51Ak 51 $@@@ bank

5 k e,em!t)Draw this(

51k )could abandon$ buteasil" sold so sell(

Boat 51@k


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6ov. 1$ @@ delinHuent rent?o! Cassid" Loan 1@@@ )&or being own attorne"5 ' @

3dd amount ke!t &rom motorc"le 4 1 k 4 b/c it#s monies dis!ersed in the case b" the trustee to !arties ininterest e,cluding the debtor ' Ea )selling it b/c selling is bene&icial &or the estate( Bene&it b" the amounthe dis!erses to the secured !art" )697 -79 7?8 D8B79R(

5 J$ @ )amt in estate( / @$A@@ Q .E1 @A ulti!l" .E1 @A times unsecured claims.

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ZU8S7I96 7o im!rove the debtor#s !osition$ what should the debtor#s attorne" do ositive2 Debtor !aid nondischargeable debts$ has 5 k in cash$ Ek in clothes :hat could he have done

o Convert none,em!t land and motorc"cle into e,em!t assetso Bu" a residence worth 51Ak o ut a home on the land that would make it a homestead )tents don#t work$ trailers do(

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II. Cha!ter LiHuidations )&or !ur!ose o& com!aring to Cha!ter 1' and 11(a. -1er1iew

i. ur!ose2 &air distribution o& none,em!t !ro!ert" o& debtor$ give debtor &resh start b"discharging obligation to !a" un!aid !ortion o& most debts

ii. 3vailable to both individuals and businessesiii. 7akes ' E monthsiv. Begins when debtor &iles !etition &or bankru!tc" relie& and !a"s a!!ro!riate &ee or when

creditor &iles an 0involuntar" !etition1. Debtor must be eligible+income can#t e,ceed certain amount

v. 3utomatic sta" goes into !lace when !etition &iledN in%unction against virtuall" all creditorcollection activit"

vi. Creditors must &ile 0!roo& o& claim to demonstrate validit"$ nature$ and amount o& claimNi& timel" &iled and correct then 0allowed

vii. -irst meeting o& creditors occurs shortl" a&ter &iling$ attended b" debtor$ debtor#s law"er$and trusteeN trustee will ask Huestions to locate missing !ro!ert" or uncover &raudulenttrans&ers

viii. 8state2 all o& debtor#s legal and eHuitable interests in e,istence when the case begins$ an" !ro!ert" that the debtor trans&erred !rior to commencement that trustee is able to recover&or the bene&it o& creditors$ certain limited !ro!ert" that debtor acHuires a&tercommencement$ earnings and sale !roceeds acHuired with !ro!ert" o& estate

1. 8state doesn#t include e,em!t !ro!ert" and debtor#s &uture wagesi,. a"ments o& claims2 &irst to !riorit" claims Kchild su!!ort$ ta,es$ em!lo"ee#s claims &or

wages$ trustee#s &eesM$ then rest o& assets distributed !ro rata to unsecured creditorswhatever remains is most likel" discharged

1. Secured claims generall" ignored because retain interest in collateral and cane,tract value &rom that

III. Cha!ter 1' )b A( ) 11(a. -1er1iew

i. Individual debtor must have regular income and debt must not e,ceed certain s!eci&iedamounts. )&ocused on the debtor#s income in cha! 1'N while in cha!t &ocus on !ro!ert"(

ii. 8state includes debtor#s !ost !etition wages/salar" and debtor is generall" !ermitted toretain his/her assets

iii. a"ment !lans lasts &or ' A "ears$ with trustee taking s!eci&ied amount o& wages anddistributing to creditors according to !riorit" o& claims at end o& !a"ment !lan$ debtorreceives discharge o& most un!aid debts

iv. a"ments ma" take longer &or creditors to receive$ but each creditor must receive )in !resent value terms( at least what he/she would receive i& debtor went into Cha!ter

v. 3dvantage over Cha!ter 2 debtor is able to kee! most o& assets regardless o& whether their value e,ceeds the e,em!tion amount

'. +ligi'ility Compared Chapter D 1s. Chapter $(i. 8ligibilit" ReHuirements/disadvantages o& Cha!ter 1'

1. ust be individual debtor with regular source o& income and &airl" modest debtlevels to be eligible+s. 1@J)'(N 1@1)'@(

. lan must !a" creditors what would have gotten under Cha!ter )s. 1' A)a() ((and must do so with ' or A "ears )s. 1' )d((

'. lan must !rovide &or &ull !a"ment o& all !riorit" claims+s. 1' )a() (. 3dministrative e,!enses must be !aid &irst and can substantiall" increase the cost

o& com!leting a Cha!ter 1' !lan+s. 1' )a() (ii. 8ligibilit" disadvantages o& Cha!ter

1. Debtors with high income ma" &ail the means test+s. @ )b(. Debtors who receive discharge in last several "ears are ineligible &or a Cha!ter

discharge Ks. )a()J(M$ but ma" be able to get a new discharge in Cha!ter 1' Ks.1' )&(M

'. Debtor receives slightl" broader discharge under Cha!ter 1' Ks. 1' )a(M

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. Cha!ter 1' debtors can cure de&aults on secured obligations$ 0de accelerate debts$and stri! down some secured claims )e,ce!t home mortgages and !urchase mone"loans( Ks. 1' )b() ($ )A( and )c(M

c. Eligibility for Chapter 13i. ?uman being$ regular income Ks. 1@J)e(N s. 1@1)'@(M

ii. Unsecured debts o& less than 5''E$J@@ and secured debts o& less than 51$@1@$EA@N debtsmust not be noncontingent and liHuidated$ but ma" be dis!uted Ks. 1@J)e(M

1. onetar" limitations meant to drive debtors with large debts into Cha!ter 11where more court su!ervision

iii. O1' )&( ust not have received discharge under Cha!ter $ 11$ or 1 during !ast "ears&rom !etition moment to !etition moment or Cha!ter 1' during !ast "ears )!etition to

!etition( to receive a discharge o& all debts )can still &ile(+ iv. ?ave to go through credit counseling during 1 @ da" !eriod !rior to &iling to be eligible+

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1, I& C I is less the amounts s!eci&ied$ the !lan ma" not !rovide &or !a"ments over a !eriod longer than ' "ears )'E months(. I& C I is greater than -I A "ears.

iv. Debtor must &ile schedules giving in&ormation about em!lo"ment$ income$ e,!enses$ debts$ !ro!ert"$ and estimates o& &uture monthl" income/e,!enses+Rule 1@@ )c( and must &ile a !lan within 1A da"s o& &iling !etition+ Aule 901(& )

v. Debtor must begin making !a"ments to trustee within '@ da"s a&ter !lan &iled$ even i& !lannot "et con&irmed+s. 192 &a)&1)

1. I& !lan never con&irmed$ trustee gives mone" back to debtor+s. 192 &a)&2)e. !he +state

i. ro!ert" o& the estate &or Cha!ter 1'+s. 1'@E+ever"thing &orm Cha!ter and !ro!ert"and earnings acHuired a&ter &iling and be&ore the case is closed

ii. 9nce the !lan is con&irmed$ the !ro!ert" o& the estate is vested back in the debtor+s. 'E f. !he "tay creditors en oined from making any efforts to collect prepetition claims9s. ( a%# %9

from petition moment until case is closed #when last payment is made and trustee filed statementwith court saying final payment made and court grants discharge%

i. Co debtor Sta"2 s. 1'@1)a( !revents creditors &orm attem!ting to collect a consumer debt&rom an individual co debtor during the !endenc" o& a bankru!tc" case )more !rotectionthan Cha!ter (

g. !rustee #?"tanding !rustee@%i. Dis!ersing agent$ taking !a"ment &rom debtor and giving to creditors+s. 1'@ )b()A($

1' E)c(ii. Recommends a!!roval or disa!!roval o& claim+s. 1'@

iii. Can ob%ect to im!ro!er creditor claimsiv. Can ob%ect to debtor#s discharge+s. 1'@ )b()1(v. Incentive2 won#t get !aid i& debtor can#t make !a"ments or i& debtor backs out )in which

case mone" goes back to debtor(vi. Can receive as much as 1@ o& all disbursements made to creditors under the !lan )doesn#t

a&&ect secured claims$ but reduces !ercentage o& recover" o& unsecured claimants(h. !he Plan 4 mainl" OO1' and 1' A

i. eneral ReHuirements OO1' a$ b1. riorit" claims 4 !a" in &ull over li&e o& the !lan$ but without interest+s. 1' )a(

) (. lan ma" classi&" claims into di&&erent grou!s !rovided it doesn#t discriminate

un&airl" among classes o& claims and !rovided that it treats all claims within aclass alike+s. 1' )a()'($ )b()1(

'. Rules o& con&irmation2a. Secured and !riorit" claimants must be !aid in &ull unless agree to other

treatment+s. 1' A)a( b. lan must be !ro!osed in good &aith+s. 1' A)a(c. Best interest o& creditors test2 3n unsecured creditor in cha!ter 1' must get

at least as much out o& the !lan as it would in cha!ter O1' Aad. 6on!riorit" unsecured creditors must either be !aid in &ull or debtor must

allocate all dis!osable income &or the 0a!!licable commitment !eriod toth

Lorch Bankruptcy Outline 2012 Fall

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