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Consumer Bankruptcy Condensed Outline

Law Outlines > Consumer Bankruptcy Outlines

This is an extract of our Consumer Bankruptcy Condensed Outline document, which we sell as part of our Consumer Bankruptcy Outlines collection written by the top tier of Oklahoma City University School Of Law students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Consumer Bankruptcy Outlines. Due to the challenges of extracting text from PDFs, it will have odd formatting:

HISTORY OF BANKRUPTCY

* Bankruptcy Act (18981978) o Created Chapter 7 o Heavily supplemented by Chandler Act in 1930s which: o Created Chapters 11
? Before under Chapter 7 assets had to be liquidated & sold for scrap o Created Chapter 13 as simplified version of 11 but for individuals o Used Roman Numerals o Individual debtors are eligible for any of the 3 types

* Bankruptcy Reform Act of 1978 o Called the Bankruptcy Code Resulted in huge increase in bankruptcies o Created Modern BK Code o No insolvency requirement o Uses all oddnumbered Arabic numerals

* 2005 Amendments o Reduced number of bankruptcy cases Created the "means test" for Chapter 7 filings (which wipe out all debt) o Debtor only eligible if he can show that he lacks the means to make some payments on the debt TYPES OF BANKRUPTCY OVERVIEW

* Chapter 7: Bankruptcy Liquidation (Straight BK) o Purpose: is to give debtor a fresh start free and clear of prior debts o Rule: All property of the debtor owned at time BK petition filed becomes part of the BK estate.
? This creates an automatic stayto prevent any creditor from getting an unfair advantage.
? An individual is entitled to EXEMPT certain property from the BK later released to the debtor. o Under Chpt. 7, only an INDIVIDUAL can be discharged. (businesses don't need fresh start, they are just dissolved) o Access for individuals whose income prior to the BK exceeded state medians is limited by the "means test" (leaves Chpt. 13 as only practical alternative) o If the secured claim is greater than the value of the collateral (determined by replacement value=retail value) then the property has no value to the estate and will be abandoned. o If secured claim is less than value of collateral (debtor has equity) then the property goes into the BK estate.
? Trustee can sell the collateral; pay off secured claim, and use rest for the other creditors. o Liquidation any remaining nonexempt property is sold for cash
? Proceeds of liquidation:
First to secured creditors
Second to pay certain administrative expenses 1

Last to unsecured creditors pro rata according to priority o For Debtor this means:
? Personal liability for prepetition debts discharged
? Debtor post petition income protected from pre petition debts (limited by means test)
? Debtor must give up any nonexempt property or pay the liens (redemption)
? Doesn't allow debtor to modify liens or retain any nonexempt property (liens flow through BK)

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Chapter 13: Reorganization Bankruptcy o Only available to : (1) Individuals (2) With regular income (3) Owing less than $336,900 in noncontingent, liquidated, unsecured debt and less than $1,010,650 in noncontingent, liquidated, secured debt. o Consumer version of Chapter 11 o Allows debtor the benefit of discharge w/o losing nonexempt property o Liens on nonexempt property can be MODIFIED (don't flow through BK to extent that they are modified)
? Debtor can "cram down" the amount of the debt that exceeds the value of the collateral (replacement value) o Debtors post petition income is NOT protected from prepetition debts o Debtor required to come up with plan where promises to pay some or all of preBK debts over period of time (5 years max) o Doesn't require creditor approval o When all payments completed the debtor entitled to discharge of debts provided for under plan (secured debt paid first) o Unsecured creditors prefer Chpt. 13 o Secured Creditors prefer Chpt. 7 because liens can't be modified.

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Chapter 11: Reorganization Bankruptcy o Can be used by Individuals and Organizations, but primarily designed for businesses o Debtor normally allowed keep assets and continue operation of its business as a debtor in possession o Debtor in possession proposes a plan of reorganization under which creditors will be paid, sometimes over a period of time, from assets of the estate or post confirmation earnings of debtor o Unlike Chpt 13, plan considered only after voted on by the various classes of creditors and stockholders of debtor

INITIAL MISCELLANEOUS PROVISIONS

* Eligibility for Bankruptcy 2

o BC SS301: A voluntary case can be commenced by an ENTITY that may be a DEBTOR
? Entity= person, estate, trust, or governmental unit
? Not all entities can qualify as debtors
? only a Person or Municipality may be a debtor

* Person includes individuals, partnerships, and corporations (not governmental units) o Banks and Insurance Companies cannot be debtors o Railroads: only debtors under Chapter 11 but not Chapter 7

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Automatic Stay o Filing of petition results in Automatic Stay against variety of acts by creditors o Automatic Stay bars:
? The commencement or continuation of judicial proceedings against the debtor or against property of the estate
? The enforcement of any preBK judgment against debtor or property of estate
? Any act to obtain possession of property of estate
? Any act to create, perfect, or enforce any lien against property of estate o If a creditor violates automatic stay, BK judge may subordinate creditor's claim to all other claims even if secured o Purposes:
? to freeze status quo
? assure a pro rata distribution of nonexempt assets to unsecured creditors based on priority at moment of filing
? to create a BK estate
? Gives trustee in BK a lien on all property of estate
? This line has priority over all SUBSEQUENTLY obtained interests

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3 Trustee in Bankruptcy o US & administrative trustees are federal employees
? Job is to monitor bankruptcy filing to prevent abuses o Case Trustee is administrator of estate
? Gathers assets and makes decisions regarding disposition of assets and proceeds to creditors
? Acts primarily for benefit of unsecured creditors (fiduciary relationship)
? Trustee has lien in amount of all unsecured claims
? Goal is to maximize assets avail to unsecured creditors
? Can employ professional to help (lawyers & accountants)
? Has power of TURNOVER, LIEN AVOIDANCE, PREFERENCE, LIEN MODIFICATION

LIENS

* All liens are a secured claim in Bankruptcy o The distinction is whether they are consensual or nonconsensual. o Nonconsensual liens are not security interests in Bankruptcy.

* 3 ways to obtain a lien: o Consensual lien = voluntary by debtor (ex: mortgage) o Judicial lien = judicial action taken by creditor (ex: money judgment) o Statutory lien = statute creates and enforces status

* Inconsistency between Bankruptcy Code and State Law: o Lien:
? Under State Law, lien means nonconsensual liens
? Under BC, lien includes both consensual and nonconsensual liens o Security Interest:
? Under State Law, means both consensual and nonconsensual liens, but only on personal property.
? Under BC, means only consensual liens, but on real or personal property.

* Judicial Lien: o Nonconsensual, secured claim in Bankruptcy (property interest, but because not consensual it is not a security interest). o BC SS101(36) = lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding. o Only enforceable against exempt property to the extent it does not impair the exemption of a debtor. 522(f)(1)(A) o Real Property o Personal Property: "Levy and Execution"
? Writ of execution issued to sheriff who levies by seizing possession of personal property. o 2 kinds of judicial liens:
? Prejudgment liens: "Attachment Lien"

* A prejudgment seizure of a debtor's assets to give creditor protection against risk that debtor will conceal or remove property from jurisdiction (may have to show likelihood).

* Since state action, must have due process notice and hearing

* Only available if been a judicial determination of probable validity of creditor's claim.

* Cloud title.
? Postjudgment liens: "Judgment and execution liens"

* Judgment Lien = real property (including afteracquired property): arises when judgment is recorded in records of county where real property located. o Sheriff does levy and execution.

* Execution Lien = personal property that is not exempt: arises either at time of delivery of writ of execution or at time levy is made. 4

o Intangible property: garnishment of wages

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5 Statutory Lien: o Nonconsensual, secured claim in Bankruptcy (property interest but not security interest in BK cause not consensual). o Can be crammed down, even if on debtor's residence. o Ex: repairman's lien, landlord's lien, warehouseman's lien. Consensual Lien: o How created outside of Bankruptcy:
? Personal property = Article 9
? Real Property = Mortgage, Deed of Trust, etc. (State Law) o Security Interest: "Whether they have property rights? Look to state law"
? Under State Law (UCC Article 9), means both consensual and non
consensual liens, but only on personal property.
? Under BC, means only consensual liens, but on real or personal property. (so not statutory or judicial liens) o Article 9 Security Interest
? Attachment alone is good against the debtor only
? Perfection together with attachment is good against 3rd parties also.
? Attachment: 3 requirements

* Value given

* Debtor has rights in the collateral

* Either: o Debtor creates a security agreement o Collateral in possession of secured party
? Perfection

* Applicable requirements satisfied: action where secured party gives notice of security interest.

* Notice =
o Possession of collateral OR o Filing security agreement or financing statement.
? Priority

* Given to first creditor who files a financing statement o "First in time, First in Right"

* Purchase money security interest in consumer goods is automatically perfected under UCC. o Personal, family, or household purposes.

* Certificate of title goods (cars) are NOT automatically perfected.
? Remedies (default)

* Bankruptcy may interfere with normal remedies because of Automatic Stay

* Normal remedy:

o On debtor's default, secured party can take possession of collateral by use of selfhelp as long as without breach of the peace.
? If breach the peace, repossession invalid and taking is conversion. o Secured party can then sell, lease, license, etc of collateral after:
? Reasonable notice to debtor and coowners who are not the debtor. o Security Interest in Real Property
? Creation: must be a debt, can be nonrecourse debt.
? Perfected by recording mortgage in county where land located
? Priority goes to first to record without knowledge of competing prior claims.
? Trustee has priority over unrecorded property interests even though he has notice of competing prior claims.
? Remedies:

* Judicial foreclosure: long and costly

* Sheriff's sale: must sell for at least 2/3 of appraised value BANKRUPTCY ESTATE

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6 Per SS541(a) the bankruptcy estate consists of "all legal or equitable interests (property interests) of the debtor as of the commencement of the case". This includes property interests of debtor "wherever located and by whomever held." May Include: o Anything earned prepetition o Unvested and Contingent Interests i. Chapter 7: may include portion of unvested, contingent interests (uncertain bonus) that accrued before or that relate to services performed before petition filed ii. Chapter 13: ALL unvested, contingent interests, regardless of when earned. o Afteracquired Property (obtained after petition filed) i. Chapter 7: not part of BK unless "sufficient rooted in preBk past". Really means only property that doesn't go to estate is post filing wages ii. Chapter 13: earnings and property acquired after commencement of estate BUT BEFORE IT IS CLOSED are part of the estate o Proceeds from prepetition property o Inherited assets i. Chapter 7: anything debtor inherits w/in 180 days of filing the petition ii. Chapter 13: Anything debtor inherits before case closed

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Any property returned to the estate pursuant to the Trustee's avoidance powers or turnover.

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Some property may lose its "estate" status and go back to debtor when: o Claimed exempt under SS522 o Abandoned or released to debtor under SS544 o BK Court lifts the stay as to that property

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The substantive rights of parties, including and especially property rights of the debtors and creditors, are determined by State law unless the BK specifically alters those rights. (BUTNER) The BK Code is procedural in nature, it does not extinguish the debt but rather cuts off the creditors procedural rights for collecting the debt.

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TURNOVER

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Trustee must use a turnover order to gain possession of estate property in the hands of 3rd parties (unless inconsequential value). Turnover only possible if Debtor has EITHER equity OR is doing a reorganization, so if no equity no turnover. In Chapter 7, trustee may use turnover ONLY if debtor has equity in property so turnover rare in consumer cases. ANALYSIS: (1) SS542 (a) requires a 3rd party in possession of "property that the trustee may sell, use, or lease under SS363" to deliver that property to the trustee. (2) SS363 says that trustee, after notice and hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. (3) SS541(a) defines "property of the estate" wherever or by whomever held including all legal and equitable property interests of the debtor.

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7 SS542 augments SS541 and is a qualification on Butner.
SS362, the automatic stay, works in conjunction with Turnover to help protect the assets that are available to the estate. So if the property is subject to the Turnover, and is brought into the estate, then the creditor or 3rd party in possession will have to ask for relief from the automatic stay under 362(d). Analysis for Relief from Automatic Stay (based on Whiting Pools & Chpt. 11) o Question 1: According to State Law what is the debtor's property interest in the seized property? Is it property of the estate under SS541(a)?
? If NO, then property need not be turned over.
? If YES, then must turn over property and go to question 2.

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