Chapter 36 Bankruptcy Twomey, Business Law and the Regulatory Environment (14th Ed.)

Chapter 36Chapter 36

BankruptcyBankruptcy

Chapter 36Chapter 36

BankruptcyBankruptcy

Twomey, Business Law and the Regulatory Environment (14th

Ed.)

(c) 2000 West Legal Studies Chapter 36 2

PROCEEDINGS

Chapter 13:ExtendedTime Payment

Chapter 7:Liquidation

Chapter 11:Reorganization

CASESInvoluntary:Commencedby Creditors

Voluntary:Commencedby Debtor(s) vs.

Types of Bankruptcy Proceedings Types of Bankruptcy Proceedings and Casesand Cases [36-1][36-1]

Types of Bankruptcy Proceedings Types of Bankruptcy Proceedings and Casesand Cases [36-1][36-1]


Declaration of BankruptcyDeclaration of Bankruptcy [36-2][36-2]Declaration of BankruptcyDeclaration of Bankruptcy [36-2][36-2]

Chapter 7 Chapter 11 Chapter 13

Trustee Yes No Yes

Eligible persons:IndividualsPartnershipsCorporations

YesYesYes

YesYesYes

YesNoNo

Voluntary Yes Yes Yes

Involuntary Yes, except Farmers andNonprofit

Yes, except Farmers andNonprofit

No

Exemptions Railroads, insurancecompanies, S&L’s, smallbusinesses (under SBA),municipalities, farmers

Same as Chapter 7 exceptfor railroads are eligiblefor Chapter 11 and stockbrokers are ineligible forChapter 11

Only individuals

Requirements —Voluntary

Debts Debts income <$269,250unsecured <$807,750secured*

Requirements —Involuntary

< 12 = 1/$10,775< 12 = 3/$10,775

< 12 = 1/$10,775< 12 = 3/$10,775

N/A

*special sections (chapter 9 - municipalities; chapter 12 - farmers)


Steps in a Bankruptcy Case Steps in a Bankruptcy Case [36-3][36-3]

Priority of Creditors

Petition Dismissal Order of Relief

Appt. of Trustee

Collection of Assets

Evaluation of Claims

Discharge Sale and Payment Exemptions

ValidVoidable

Preference

List of Creditors

Creditors1 Meeting

Executory Contracts (60 days)

Property Rights (180 days)

Social Security DisabilityAlimony

VOIDABLE PREFERENCES1. 1yr. fraud2. 1yr. insolvent2 and unfair3. 1yr. insider4. 90 days—insolvent—not ordinary course of business.5. Security for antecedent debt OK (not avoidable)$600 consumer debt contemporaneous exchange;regular payments

1Automatic with Involuntary Petition2Insolvent = “bankruptcy” sense (liabilities > assets)

Voluntary

Involuntary


Priority of Claims in Bankruptcy Priority of Claims in Bankruptcy [36-4][36-4]Priority of Claims in Bankruptcy Priority of Claims in Bankruptcy [36-4][36-4]

1. Secured creditors (to the extent of value in the collateral)

2. Administration costsAttorneys, Accountants, Trustees, Appraisers

3. Claims arising in ordinary course of business after bankruptcy petition is filed but before order of relief (involuntary)

4. Employee wages (not officers), salaries, commission up to$4,300/person for 90 days preceding petition

5. Contributions to benefit plans$4,300 maximum (reduced by wages received) 180 days preceding bankruptcy

6. Farmers and Fishermen

7. Claims by consumer creditors up to $1,950

8. Child support and spousal maintenance

9. Taxes and Penalties

10. All other unsecured debts


1. Fraudulent transfers within 1 year2. Failure to keep financial records 3. False testimony4. Depletion of assets5. Refusal to obey court order6. Taxes7. Student loans8. Fraudulent agreements9. Drunk driving10. Alimony11. Child support12. Unscheduled debts13. Willful injury

Non-Dischargeable Debts and Non-Dischargeable Debts and Grounds in BankruptcyGrounds in Bankruptcy [36-5] [36-5]

Non-Dischargeable Debts and Non-Dischargeable Debts and Grounds in BankruptcyGrounds in Bankruptcy [36-5] [36-5]


Reorganization under Chapter 11Reorganization under Chapter 11 [36-6][36-6]Reorganization under Chapter 11Reorganization under Chapter 11 [36-6][36-6]

debtor

or

party ininterest

or

committeeof creditors

Fileplan for

reorganizationof thedebtor

Identifies ownershipinterests and debts

not affected byadoption of the plan

Identifies ownershipinterests and debts

affected by adoptionof the plan

Specifies whatwill be done tointerests and

claims affected

Confirmation ofplan—Approval bycourt

Owners andcreditors have

only such rightsas are specified

in the plan


Chapter 36 SummaryChapter 36 SummaryChapter 36 SummaryChapter 36 Summary

Jurisdiction over bankruptcy cases is in U.S. district courts, which may refer all cases and related proceedings to adjunct bankruptcy courts.

Three bankruptcy proceedings are available: liquidation, reorganization, and extended-time payment.


A liquidation proceeding under Chapter 7 may be either voluntary or involuntary. A voluntary case is commenced by the debtor’s filing a petition with the bankruptcy court. An involuntary case is commenced by the creditors’ filing a petition with the bankruptcy court. If there are 12 or more creditors, at least 3 whose unsecured claims total $10,775 or more must sign the involuntary petition.

Chapter 36 Summary Chapter 36 Summary [2][2]Chapter 36 Summary Chapter 36 Summary [2][2]


If there are fewer than 12 creditors, any creditor whose unsecured claim is at least $10,775 may sign the petition. If the debtor contests the bankruptcy petition, it must be shown that the debtor is not paying debts as they become due or that within 120 days before the date of the filing of the petition a custodian had been appointed for the debtor’s property.



An automatic stay prevents creditors from taking legal action against the debtor after a bankruptcy petition is filed. The trustee in bankruptcy is elected by the creditors and is the successor to, and acquires the rights of, the debtor. In certain cases, the trustee can avoid transfers of property to prevent creditors from satisfying their claims. Preferential transfers may be set aside. A transfer for a present consideration, such as a cash sale, is not a preference.



Bankruptcy law regulates the way creditors present their claims and how the assets of the debtor are to be distributed in payment of the claims.



Secured claims are not affected by the bankruptcy of the debtor. Unsecured claims are paid in the following order of priority: (1) administrative expenses; (2) claims arising in the ordinary course of the debtor’s business; (3) wage claims, limited to $4,300 for each claimant and to wages earned within 90 days before the filing of the petition; (4) claims for contributions to employee benefit plans; (5) claims by consumer creditors; (6) certain taxes; and (7) general creditors. Certain property of the debtor is exempt from the claims of creditors.



The decree terminating bankruptcy proceedings is generally a discharge that releases the debtor from most debts. Certain debts, such as income taxes, student loans, loans obtained by use of a false financial statement, alimony, and debts not duly scheduled, are not discharged.




Individuals, partnerships, and corporations in business may be reorganized so that the business may continue to operate. A plan for reorganization must be approved by the court.

Individual debtors with a regular income may adopt extended-time payment plans for the payment of debts. A plan for extended-time payment must also be confirmed by the court.


Federal, state, or local law may not discriminate against anyone on the basis of a discharge in bankruptcy.


Chapter 36 Bankruptcy Twomey, Business Law and the Regulatory Environment (14th Ed.)

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Transcript of Chapter 36 Bankruptcy Twomey, Business Law and the Regulatory Environment (14th Ed.)