1. 2 “as in many areas of law, bankruptcy law must balance between competing interests. when an...
TRANSCRIPT
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“As in many areas of law, bankruptcy law must balance between competing interests.
When an individual or business files for bankruptcy protection, generally neither debtor or creditor comes out
whole.”
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OVERVIEW I
Congress has recently amended the Bankruptcy Code to address
a recent rise in bankruptcy filings. The new laws were
effective October 17th, 2005
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OVERVIEW II
THE BANKRUPTCY CODE IS DIVIDED INTO EIGHT
CHAPTERS.
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OVERVIEW III
Chapters 1, 3, and 5 are administrative rules.
Chapters 7, 9, 11, 12, and 13 are substantive rules that apply to specific types of bankruptcies.
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OVERVIEW IVNumber Topic Description
Ch. 7 Liquidation Assets are sold to pay creditors. Businessterminates, but creditors do not have rightsto future earnings.
Ch. 9 Municipal
Bankruptcies
Deals with cities (not covered in this book)
Ch. 11 Reorganization Businesses and wealthy individuals.Business continues and creditors mayreceive current assets and future earnings.
Ch. 12 FamilyFarmers
(not covered in this book)
Ch. 13 Consumerreorganization
Creditors usually receive a portion of currentassets and future earnings.
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OVERVIEW V
Chapters 9 and 12 are for specialized types of debtors and are not covered in this textbook.
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OVERVIEW VI
The objective of Chapters 11 and 13 of the Bankruptcy Code is rehabilitation of the debtor.
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OVERVIEW VII
When debtors are unable to develop a feasible plan for
rehabilitation, Chapter 7 allows for liquidation (also known as
straight bankruptcy).
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GOALS
To preserve as much of the debtor’s property as possible.
To divide the debtor’s assets fairly between the debtor and the creditors.
To divide the debtor’s assets fairly among the creditors.
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CHAPTER 7 -- LIQUIDATION
Credit counseling first Then Chapter 13
If unsuccessful, file a Petition Petitions may be voluntary or
involuntary.
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CHAPTER 7 (CONT’D)
VOLUNTARY
VS
INVOLUNTARY
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TRUSTEE
The trustee is responsible for gathering the bankrupt’s assets
and dividing them among creditors.
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CREDITORS
Unsecured creditors must submit a proof of claim within 90 days after the meeting of creditors.
Secured creditors do not file proofs of claim unless the claim exceeds the value of their collateral.
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AUTOMATIC STAY
An automatic stay prohibits creditors from collecting debts
that the bankrupt incurred before the petition was filed.
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PURPOSE
The purpose of the automatic stay is to give the debtor time and space to make a rational plan for
paying debts without pressure from creditors.
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ESTATE
AssetsExempt PropertySecured Property
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VOIDABLE PREFERENCES
A preference is a transfer of money or property just before filing bankruptcy.
The trustee can void a transfer that meets all of the following requirements:
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FRAUDULENT TRANSFERS
A transfer is fraudulent if it is made within a year before a petition is filed and its purpose is to hinder, delay, or defraud creditors.
A trustee may void fraudulent transfers. A trustee cannot void pre-petition payments
made in the ordinary course of business.
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PAYMENT OF CLAIMS
The trustee pays the bankruptcy estate to the various classes of claims in the following order of rank: Secured Claims Priority Claims Unsecured Claims
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DISCHARGE
Once a bankruptcy estate is distributed, the creditors cannot make claims on the debtor for
money owed before filing.
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NON-DISCHARGEABLE DEBTS
Debts that cannot be discharged include (among others): Income taxes and property taxes Money obtained fraudulently or illegally Some loans for luxury goods Recent cash advances on credit cards Alimony and child support debt Fines and penalties Some student loans
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REAFFIRMATION
To reaffirm a debt means the debtor promises to pay even after discharge. Court very strict about permitting
reaffirmation.
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REAFFIRMATION MUST:
Not violate laws for fraud, duress or unconscionability.
Be filed in court. Clearly state that the debtor has the
right to rescind within 60 days. Not impose undue hardship on the
debtor.
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CHAPTER 11-- REORGANIZATION
Chapter 11 does not require a trustee; the petitioner (called debtor in possession) serves as the trustee. He: Operates the business, and Develops a plan of reorganization.
A creditors’ committee watches over the interests of the creditors.
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PLAN OF REORGANIZATION
The debtor comes up with a plan that is acceptable to the creditors.
The creditors may accept a reorganization plan that they believe will be better for them than liquidation.
If they reject the debtor’s proposal, they may submit alternative plans.
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PLAN
A typical plan of reorganization gives some current assets to the creditors and promises to pay them a portion
of future earnings.
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CONFIRMATION OF THE PLAN
A confirmation hearing is held to determine whether it should accept the plan.
The court will approve a plan if a majority of each class votes in favor of it.
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CONFIRMED PLAN
A confirmed plan is binding on the debtor, creditors and
shareholders if complied with.
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DISCHARGE
If the debtor complies with the terms of the plan, the debtor now owns the assets in the bankrupt estate, free of all obligations except those listed in
the plan.
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CHAPTER 13 -- CONSUMER REORGANIZATION
The purpose of Chapter 13 is to rehabilitate an individual debtor.
Creditors cannot use an involuntary petition to force a debtor into Chapter 13.
A trustee is appointed to supervise the debtor, who remains in possession of all assets.
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CH. 13 -- PLAN OF PAYMENT
Plan of payment must be submitted by the debtor within 15 days after filing the petition.
The plan must: Commit some future earnings to pay off debts, Promise to pay all secured and priority claims in
full, and Treat all remaining classes equally.
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CONFIRMATION OF PLAN
Once confirmed, the plan is binding on all creditors.
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DISCHARGE
Upon complying with the plan, the debtor is washed clean of all pre-
petition debts except those provided for in the plan.