Chapter 36 Bankruptcy

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

2. Types of Bankruptcy Proceedings and Cases[36-1] PROCEEDINGS Chapter 13: Extended Time Payment Chapter 7: Liquidation Chapter 11: Reorganization Voluntary: Commenced by Debtor(s) Involuntary: Commenced by Creditors CASES vs. Chapter 36

3. Declaration of Bankruptcy[36-2] Chapter 36

4. Steps in a Bankruptcy Case [36-3] Executory Contracts (60 days) Property Rights (180 days) Involuntary Order of Relief List of Creditors Appt. of Trustee Evaluation of Claims Creditors1 Meeting Collection of Assets Petition Dismissal Voluntary Voidable Preference Valid Sale and Payment Priority of Creditors Discharge Exemptions 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 Social Security DisabilityAlimony 1Automatic with Involuntary Petition2Insolvent = “bankruptcy” sense (liabilities > assets) Chapter 36

5. Priority of Claims in Bankruptcy [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 Chapter 36

6. Non-Dischargeable Debts and Grounds in Bankruptcy [36-5] 1. Fraudulent transfers within 1 year 2. Failure to keep financial records 3. False testimony 4. Depletion of assets 5. Refusal to obey court order 6. Taxes 7. Student loans 8. Fraudulent agreements 9. Drunk driving 10. Alimony 11. Child support 12. Unscheduled debts 13. Willful injury Chapter 36

7. Reorganization under Chapter 11[36-6] debtor Identifies ownership interests and debts not affected by adoption of the plan or File plan for reorganization of the debtor party in interest Identifies ownership interests and debts affected by adoption of the plan or committeeof creditors Owners and creditors have only such rights as are specified in the plan Confirmation of plan—Approval by court Specifies whatwill be done tointerests and claims affected Chapter 36

8. Chapter 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. Chapter 36

9. Chapter 36 Summary [2] 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

10. Chapter 36 Summary [3] 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. Chapter 36

11. Chapter 36 Summary [4] 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. Chapter 36

12. Chapter 36 Summary [5] 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. Chapter 36

13. Chapter 36 Summary [6] 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. Chapter 36

14. Chapter 36 Summary [7] 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. Chapter 36

15. Chapter 36 Summary [8] 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. Chapter 36

16. Chapter 36 Summary [9] Federal, state, or local law may not discriminate against anyone on the basis of a discharge in bankruptcy. Chapter 36