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Consumer Bankruptcy Key Concepts Outline

Law Outlines > Consumer Bankruptcy Outlines

This is an extract of our Consumer Bankruptcy Key Concepts 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 (1898-1978) o Created Chapter 7 Heavily supplemented by Chandler Act in 1930s 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 odd-numbered 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 INITIAL MISCELLANEOUS PROVISIONS

* Eligibility for Bankruptcy 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 pre-BK 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

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If a creditor violates automatic stay, BK judge may subordinate creditor's claim to all other claims even if secured

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Purposes:
? to freeze status quo

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assure a pro rate 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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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

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Meeting of Creditors o Convened by US Trustee w/in reasonable time o Debtor must be there o BK judge cannot be there o Purpose: to allow creditors to examine debtor under oath and to determine accuracy of debtors schedule and asset statements

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 stay-to 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 non-exempt property is sold for cash
? Proceeds of liquidation:

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-First to secured creditors
-Second to pay certain administrative expenses
-Last to unsecured creditors pro rata according to priority 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

BANKRUPTCY ESTATE

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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."

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May Include: o Anything earned pre-petition 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 After-acquired Property (obtained after petition filed) i. Chapter 7: not part of BK unless "sufficient rooted in pre-Bk 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 pre-petition 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 o 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.
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.
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.
SS541(a) defines "property of the estate" wherever or by whomever held including all legal and equitable property interests of the debtor.
SS542 augments SS541 and is a qualification on Butner.

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