Chapter Twelve. The Automatic Stay—11 U.S.C 362

1. Chapter Twelve. The Automatic Stay—11 U.S.C 362 • After reading this chapter, you will be able to: • Describe litigation that occurs in the bankruptcy system • Understand the concept of the automatic stay as an element of debtor relief • List creditor activities subject to the automatic stay • List creditor activities not subject to the automatic stay • Understand the procedures utilized by creditors to obtain relief from the stay

2. Adversary Proceedings • When an issue is brought before the court in the form of a motion and is opposed, it is considered a contested matter. • A contested matter is treated as an adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 9014.

3. Automatic Stay • Automatic stay is a statutory bar to the conducting of any collection activity by creditors after a bankruptcy petition has been filed.

4. Activity Subject to the Automatic Stay • Section 362(a)(1) prohibits the commencement or continuation of any judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the filing of the petition to recover a prepetition claim.

5. Actions Subject to Automatic Stay • Civil actions or administrative legal proceedings. • Enforcement of judgments • Acts to obtain possession or control of property of the estate • Acts to perfect liens upon property of the estate. • Acts to perfect liens upon property of the debtor • Any act to collect a prepetition claim • The making of setoffs (the common law right of a creditor to balance mutual debts with a debtor) • Proceedings before the United States Tax Court

6. Common Actions Excepted from the Automatic Stay • Criminal prosecutions • Collection of alimony, maintenance or support from other than property of the estate • Lien perfection within statutory grace period • Governmental proceedings to enforce police or regulatory powers other than enforcement of money judgments • Limited setoffs in commodity broker or stockbroker proceedings • HUD foreclosures subject to National Housing Act Slide 1 of 2

7. Common Actions Excepted from the Automatic Stay • Issuance of notice of tax deficiency, audit, demand for returns or assessment • Expired nonresidential real property lease • Retirement loan repayments • Residential evictions Slide 2 of 2

8. Motion for Relief from Automatic Stay • Moving Party • Notice of motion • Motion • Declaration of provable value • Exhibits • Promissory note • Document evidencing security interest (UCC-1, mortgage, or trust deed • appraisal • Any other document required by local rule

9. Motion for Relief from Automatic Stay • Opposing Party • Request for hearing • Declaration or affidavits in opposition • Points and authorities • Exhibit: appraisals • Any other document required by local rule

10. Motion for Relief from Automatic Stay • Motion to Impose Stay for Cause Shown • 1. Serial filings 11 U.S.C. §362(c)(3), (4) • 2. Statement of Intention 11 U.S.C. §362(h) • 3. Small Business Cases 11 U.S.C. §362 (n) • 4. Residential evictions 11 U.S.C. §362(b)(22), (l)

11. 30/30/30 Rule • 30 days after a request for relief the stay will terminate • a preliminary hearing must be held within 30 days of the motion • a final hearing, if necessary, must be held within 30 days of the preliminary hearing.

12. Chapter Thirteen. Objections to Discharge and Dischargeability of Debts • After reading this chapter, you will be able to: • Understand that a discharge may not relieve a debtor from all debts and that, in certain circumstances, a debtor may be denied a discharge altogether. • Describe which debts are automatically not dischargeable • Describe which debts are not dischargeable only if a creditor obtains a judgment that the affected debt is not dischargeable • List those acts which can prevent a debtor’s discharge altogether • Understand the procedure for filing a complaint to determine the dischargeability of a debt or the debtor’s discharge.

13. Practice Pointer • Even if the creditor takes no action, the debtor will normally not be discharged of most debts relating to taxes, domestic support obligations, governmental fines or penalties, and death or personal injury caused by drunk driving.

14. Nondischargeable Debts • A debt not subject to a debtor’s discharge. • A debtor is not relieved from legal liability for the affected debt. • Some types of nondischargeable debts require the filing of a Complaint to Determine Dischargeability of Debt for the debt to become nondischargeable. • Nondischargeable debts are described in Bankruptcy Code Section 523(a).

15. Nondischargeable Debts • The following debts are nondischargeable without an affected creditor being required to take any affirmative action:

16. A Creditor May Object to Discharge of the Following Debts • Fraud • Intentional fraud • False written financial statement • Limited prepetition credit transactions • Defalcation, larceny, embezzlement • Willful and malicious injury

17. Fresh Cash Rule • The fresh cash rule covers the portion of a debt incurred by use of a false written financial statement.

18. Chapter Fourteen. Property of the Estate and Turnover Complaints • After reading this chapter, you will be able to: • Define “property of the estate” • Identify those assets which are not property of the estate and therefore not subject to the trustee’s administration • Describe the trustee’s various rights to recover estate property, the turnover rights and the avoiding powers

19. Property of the Estate • All property in which the debtor has a legal or equitable interest at the commencement of a case is property of the estate. • During the course of the case, the trustee must “administer” all the property. • The figure (next slide) illustrates a typical consumer no-asset Chapter 7 where all property is either collateral for one or more secured creditors, exempt, or abandoned by the trustee as burdensome or of inconsequential value to the estate.

20. Property of the Estate

21. Avoiding Powers • The ability of a trustee to set aside certain pre- or postfiling transactions that might otherwise be valid under nonbankruptcy law. • Preferences, fraudulent transfers, and the ability to set aside unauthorized postpetition transfers are the most common of the trustee’s avoiding powers.

22. Included as Property of the Estate • Community property • Property recovered by the trustee • Property acquired within 180 days of filing by bequest, inheritance, or devise, domestic property settlement, life insurance proceeds • Proceeds, product, or offspring from property of the estate • Property subject to an ipso facto clause

23. Excluded as Property of the Estate • Personal postfiling earnings of an individual Chapter 7 or 11 debtor • Powers exercisable for the benefit of another (e.g. power or attorney) • Interest in an expired nonresidential lease • Principal assets of a spendthrift trust • Property in which the debtor holds bare legal title

24. Turnover • The concept of turnover is simple. • Someone has property of the estate: It may be the debtor, it may be a third party, it could be anyone. • If the third party refuses to voluntarily turn the property over to the trustee, the court can order the third party to turn it over.

25. Chapter Fifteen. Avoiding Powers--Introduction • After reading this chapter, you will be able to: • Describe the concept and purpose of the trustee’s avoiding powers • List the general limitations upon the trustee’s avoiding powers

26. Avoiding Powers • The abilities given a trustee to avoid certain pre- or postfiling transactions that would otherwise be valid under nonbankruptcy law are known as the avoiding powers. • Preferences, fraudulent transfers, and the ability to set aside unauthorized postpetition transfers are the most common avoiding powers.

27. Strong Arm Clause • Section 544 gives the trustee various powers collectively and commonly known as the strong arm powers, or the strong arm clause. • The strong arm rights collectively place the trustee in full command of all a debtor’s assets affected by the bankruptcy proceeding.

28. Chapter Sixteen. Avoidable Preferences—11 U.S.C. §547 • After reading this chapter you will be able to: • Describe the avoidable preferences under the Bankruptcy Code • List he elements of an avoidable preference • Understand the affirmative defenses which a creditor may assert to defeat a trustee’s claim of an avoidable preference • Describe the basic procedures of a preference complaint

29. Preferences • A preference is a transfer of property or an interest in property to a creditor, on the eve of bankruptcy, in full or partial satisfaction of debt to the exclusion of other creditors. • A preference meeting certain defined conditions will be avoidable by a bankruptcy trustee.

30. Practice Pointers • The Code defines a ‘‘transfer’’ to mean: • (1) the creation of a lien • (2) retention of title • (3) foreclosure of the debtor’s equity of redemption • (4) any mode, ‘‘direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or an interest in property.’’

31. Elements of a Preference • Transfer of property or an interest in property • To or for the benefit of a creditor • On or for account of an antecedent or preexisting debt • Made while the debtor is insolvent • Made within 90 days of filing or within one year if the transferee is an insider • That enables the creditor to receive a greater Chapter 7 dividend than it would otherwise receive

32. Preference Defenses • A contemporaneous exchange for new value • A debt incurred and paid in the ordinary course of business • Within any nonbankruptcy perfection periods or within 30 days of debtor receiving possession • Unsecured debt incurred for new value • Floating liens, except for improvement of position • Unavoidable statutory liens • Domestic support obligations • A consumer debtor’s consumer debts of up to $600 (permits preferential payment of nominal debts) • Business transfers less than $5,475 • Consumer approved repayment plan • Noninsider security interests for the benefit of insider

33. Plaintiff/Trustee Pleadings • Summons and Complaint • Cover Sheet, as required by local rule • Evidence Proving Preference: • Checks • Contracts • Recorded documents • Documents of title

34. Defendant/Transferee Pleadings • Answer • Evidence Proving Defense • Checks • Contracts • Recorded documents • Documents of title

35. Chapter Seventeen. Fraudulent and Postpetition Transfers • After reading this chapter, you will be able to: • Understand fraudulent transfers as they exist in the bankruptcy code • Describe the avoidability of unauthorized postbankruptcy filing (postpetition) transactions • List the damages recoverable by a trustee who successfully exercises the avoiding powers • Describe the bankruptcy code’s treatment of a creditor’s common law right of setoff.

36. Fraudulent Transfer • A fraudulent transfer is a transfer made by a debtor with an intent to hinder, delay, or defraud creditors. • A transfer without reasonable or fair consideration made while a debtor is insolvent or that renders a debtor insolvent will also be fraudulent. • Fraudulent transfers are the subject of Bankruptcy Code Section 548. • Fraudulent transfers are one of the trustee’s avoiding powers.

37. Postpetition Transfers • A transfer of estate property after a bankruptcy filing that is made without court approval or is not otherwise authorized by the Bankruptcy Code. • An unauthorized postpetition transaction may be avoided by a bankruptcy trustee. • Postpetition transactions are the subject of Bankruptcy Code Section 549.

38. Setoffs • A setoff is the common law right of a creditor to balance mutual debts with a debtor.