Bankruptcy Outline

1. Basics of Article 9 (attachment, perfection, basic priorities, PMSI)

With a secured interest (s/i), before default, a creditor has a contractual interest to get paid and a property interest against the debtor, so that they do not have to go through the levy and sale process need to have the debtor grant property interest at the outset Advantages: Can repossess without the state and have your own private sale Have a property interest at the outset Have an interest in personal property or fixtures which secures payment or performance of an obligation (UCC 1-201(37)) Having collateral means the property is subject to a s/i

Unsecured creditors have contractual rights, but once they get a judgment, they will have to go through a process where they turn the contractual right into a property interest

Attachment of the s/i creates the property interest UCC 9-203(b) a s/i is enforceable against D and third parties with respect to the collateral only if: (1) Value has been given value is generally given by C to D (this creates the obligation) (2) D has rights in the collateral or the power to transfer rights in the collateral to a secured party; and Assures that D cannot just steal property and use it as collateral or use property in an unauthorized way (3) Agreement Plus D has authenticated (signed) a security agreement that provides a description of the collateral, OR The collateral is in possession of the secured party under UCC 9-313 pursuant to Ds security agreement Note: A secured party cannot get attachment of a s/i in property that D has not yet acquired. Ex.: Suppose the security agreement covers after acquired equipment, attachment of the s/i in the after acquired equipment does not occur until D gets rights in the after acquired equipment By itself, attachment is not enough against other lien creditors and secured parties. Also need to have the perfection step

Perfection (creates priority) Have to have this in addition to attachment To have a s/i that is enforceable against D and all other parties, the secured party has to take a step to give people notice of their interest in the property Otherwise, this interest would be invisible To have perfection of a s/i, need to have attachment and then meet the applicable requirements for perfection File a financing statement with the secretary of state (most common way) Indicates names of D, secured party, and collateral in question Anyone who wonders if a particular property is encumbered can go to the filing system and look at the name of D to find out Take possession of the collateral pursuant to the agreement (alternative)

Basic Priorities Secured Party v. Lien Creditor (Executioner or Trustee) Clause (h) UCC 9-317(a): An unperfected security interest is subordinate to the rights of .. a person who becomes a lien creditor before the earlier of the time the security interest is perfected or a financing statement covering the collateral is filed (governs contest between secured party and lien creditor) Unperfected secured party is a creditor who has yet to get their lien subordinate to someone who has gotten perfection Mission is to achieve perfection of their security interest before JC becomes a LC (getting sheriff to levy upon the property) Did SP perfect security interest, or at the very least file a financing statement, before JC became a LC (before levy occurred) Filing a financing statement stakes a claim covering the collateral A SP can file a financing statement before giving out a loan (could be a race against time), but has to subsequently go through with the attachment First in time wins! 1 files a f/s covering collateral (perfection step) 2 LC collateral 3 SP attachment (completed perfection) SP would win here. Secured Party v. Secured Party Clause (m) UCC 9-322(a): Priority among conflicting security interest in the same collateral is determined according to the following rules: Conflicting perfected security interests rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest is first perfected SP1 files financing statement SP2 attachment p/s SP1 completes attachment (financing statement will lapse in a period of 5 years unless an amendment or continuance is filed) Secured Party 1 beats out SP2, because they perfected first

PMSI liens used to furnish the credit necessary for the purchase of the collateral Allows for D with limited funds to be able to purchase something on credit and grant a s/i in the very thing D is purchasing Under UCC 9-317(e), in regard to PMSI, if a person files a financing statement with respect to a PMSI before or within 20 days after D receives delivery of the collateral, the s/i takes priority over the rights of a buyer, lessee, or lien creditor which arise between the time the s/i attaches and the time of filing. Situation where secured party has not filed before judgment creditor becomes lien creditor, but gives secured party additional time NEED A PMSI FOR THIS TO HAPPEN Describes a situation where a person has not filed financing statement before lien creditor comes into being and still win out To take advantage, secured party needs to have a PMSI and the creditor also has to file the financing statement within 20 days from the time the debtor receives possession of the collateral Tricky party: debtor purchases the property, but it takes some time before the debtor receives possession of the collateral Remember that the clock does not begin to run for the secured party until the debtor receives possession of the collateral

Post-judgment remedies (execution (personal property), garnishment, judgment liens by recordation (real property), basic priorities)

When a C pursues collection in a court, the first step is to establish that a debt is owed (may involve a trial w/factual determination). Once this determination is made, the judgment debt-collection process begins. The following is an outline of the general procedure involved in collection efforts of the Judgment-Creditor (J-C)

Execution (Involuntary liens): The judgment gives no rights to the J-C per se, but instead makes the claim undisputable (liquidated). The J-C remains an unsecured creditor until an execution is obtained on the judgment. Execution applies to the property of the debtor Definition the enforcement of a judgment by the seizure and sale of nonexempt property of the debtor Collection Process: WRITS (writ of attachment, writ fi.fa.) The process begins with a writ which is simply a court order that orders the sheriff to go and seek non-exempt property of the Judgment-Debtor for attachment (ordinarily, the J-C lawyer will tell the sheriff where to look) LEVY (seizure, physical or otherwise, on property of Judgment-Debtor) the sheriff will either take physical or symbolic possession of any personal property of the J-D that is nonexempt. Real property is seized by posting since it cannot be taken into possession physically. Once the sheriff levies upon the J-D property, the s/i of the J-C in that property is perfected and no other creditor later in time may defeat J-Cs rights to the proceeds from the sale of such perfected property. (J-C becomes lien creditor) JUDICIAL SALE (of assets seized via writ) After the levy, the sheriff will advertise the property for public sale and sell to the highest bidder. The proceeds will be used to satisfy the debt, and the remainder will be returned to the debtor. If the proceeds are insufficient, the sheriff will seize more property via a new writ and sell that.

Garnishment: one of the most important assets a J-C can reach is an asset held for the J-D by another person (e.g., wages owed, bank accounts, payments owed to J-D on installment plan, any debt of money or property owed to J-D by a 3rd party). The key element is that the 3rd party owed the J-D money, goods, or an obligation. Here, the J-C attempts to reach the debt owed by the 3rd party to J-D through a lawsuit known as a garnishment. Garnishment is a separate lawsuit that requires three parties: D, Garnishee, and Garnishor. It also requires at least two debts: one from the J-D to the J-C/Garnishor, and one from the Garnishee to the J-D. Definition a creditors (garnishors) levy on property of the debtor in the possession of a third party (garnishee), or on a debt or obligation due by the garnishee to the debtor. Liabilities of the Garnishee If the garnishee fails to comply with any aspect of the writ (willfully), it may be liable to the J-C for the amount of the property, or even the entire amount of the judgment Defenses of the Garnishee to the garnishment Set-off When, for example, the garnishee owes the J-D money, but the J-D owes the garnishee money back, the garnishee may set-off the amount it is owed by J-D against what it owes to the J-D in the garnishment. Timing is crucial, where in some jurisdictions, the bank must set-off before the writ of garnishment hits. Unenforceable Debt garnishee may assert the defense to the garnishment that the debt the garnishor is attempting to collect is unenforceable, such as a gambling debt, or loan sharking Debt Already Paid garnishee may assert the defense to the garnishment that its debt the J-C has already been paid to the J-D Restrictions on Wage Garnishment If the garnishor were allowed to seize the entire wage of the garnishee, the garnishees ability to survive would be seriously jeopardized. It would also give the J-C excessive leverage in the bargaining with the J-D (e.g., a J-D facing garnishment of his entire wage might give up exempt property to the J-C to stave off having his entire wage taken.) Maximum Allowed Garnishment the maximum amount of aggregate disposable earnings that may be garnished is the lesser of: 25% of disposable income for the week; OR Up to an amount that would leave the J-D with disposable income equal to 30 times the minimum Federal Wage Restrictions do not apply to the following garnishments: Child support or alimony Chapter 11 or Chapter 13 payments to the Trustee under a Plan of Reorganization Any Federal tax due No employee may discharge any employee by reason of the fact that his earnings have been subjected to garnishment, and if that employer does, he can be fined and/or imprisoned

Judgment Liens by Recordation: In almost all states, special procedures exist to obtain a lien of J-Ds property quickly without going through the full blown execution process. For instance, a judgment lien against real property is obtained by filing a lien with the County Deed Office. Advantages Cost effective the process is extremely cost effective, because the J-C does not have to go out and physically seize the J-Ds assets Leverage acts as an effective leverage device because no one wants to purchase property from a J-D with this sort of encumbrance attached

Basic Priorities: Which J-C will get to collect from the J-D first? The usual rule is that First in Time, is First in Right, so the J-C that perfects first will have priority of the J-Ds assets Definition the ranking of liens and other interests in the same property Unsecured J-C vs. Unsecured J-C An unsecured J-C must first get a judgment and then levy. The levy perfects the judgment lien on the particular piece of property, therefore, between the two J-Cs, the first to levy (i.e., perfect) will win. Unsecured J-C vs. Secured Creditor The priority here is determined again by who perfected first. The critical issue then is what constitutes perfection for a S-C? The secured creditor perfect when it records its consensual lien according to the statutory rules. If the J-C perfection is later than this, it loses to the S-C, but if the J-C perfection is sooner than this, it wins. Unsecured J-C and S-C vs. Buyers The general rule is again First in Time, is First in Right, and is again measured by perfection with J-C (levy on lien), S-C (proper recordation), and Buyer (proper recordation) vying for perfection. Statutory Lien/Trust Priority Sometimes, statutes will mandate that certain trusts or liens will get priority over other creditors, even if those creditors were First in Time; this has to do with public policy and the lobbying efforts of certain groups (e.g., Artisans Liens, etc.) Unsecured J-C and S-C vs. the TIB Consenual (S-C) and J-C creditors will face rigorous tests as to the validity of their debts from the TIB; more often than not, J-C liens will be avoided in Bankruptcy.

2. Basics of prejudgment remedies Common situation if debtor has demonstrated willingness to hide assets or transfer them away and plaintiff is confident that they will prevail on the merits plaintiff can go to court and request authorization of creation of a lien as a way of ensuring that property will be available once the plaintiff prevails Can be problematic, because liability hasnt even been established yet More controversial than getting a post judgment remedy because of constitutional protections Limitations Certain procedural hurdles need to be crossed Creates leverage Writ is sometimes called a lien attachment or writ of attachment

3. Fraudulent conveyances under UFTA

J-D may attempt to avoid the consequences of the J-C levying on his property by conveying it to another (e.g., a friend or relative) with the understanding that the property will eventually be returned to him after his credit troubles have ended. Typically, J-D will transfer non-exempt property which otherwise would have been subject to sale and seizure by the J-Cs.

The purpose of the Uniform Fraudulent Transfer Act is to determine whether the J-D has shown sufficient intent to delay, hinder or defraud creditors, such that what J-D has done is fraudulent. The UFTA developed the concept of constructive fraud. Constructive Fraud & Quasi-Constructive Fraud: Permits a J-C to set aside a transfer even though the J-D was entirely innocent of any fraudulent intent. Such a transfer is regarded as unfairly disadvantageous to the J-Cs regardless of intent UFTA 5(a) - Constructive Fraud Permits J-C to avoid any transfer made by J-D at a time when: the exchange was made for an unfairly low consideration, AND when the J-D was insolvent UFTA 4(a)(1-2) Quasi-Constructive Fraud The J-D has a blameworthy intent, but no specific intent to defraud can be shown. 4(a)(1) sets forth the actual fraud provisions (badges of fraud), and 4(a)(2) sets forth the quasi-constructive provisions.

Basic Provisions of the UFTA: UFTA 1 Definitions Page 269-70 of Statutory Supplement. (Affiliate, Asset, Claim, Creditor, Debt, Debtor, Insider, Lien, Person, Property, Relative, Transfer, Valid Lien) 1(2)Asset: means property of a debtor, but does not include 1(2)(i) property to the extent it is encumbered by a valid lien 1(2)(ii)property to the extent it is generally exempt under nonbankruptcy law or 1(2)(iii)an interest in property held in tenancy by the entirety to the extent it is not subject to process by a creditor holding a claim against one tenant 1(3)Claim: means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. 1(12)Transfer: means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance. UFTA 2 Insolvency J-D is insolvent when: (a) total liabilities > total assets at FMV (b) J-D is not paying bills as they come due is presumed to be insolvent (c) for partnerships, if aggregate of partnerships debts > aggregate of partnerships assets at FMV (d) assets do not include property that has been transferred fraudulently (e) debts do not include those debts that are secured by a valid s/i UFTA 3(a) Value Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise that in the ordinary course of business to furnish support to the debtor or another person UFTA 4 Transfers Fraudulent as to Present and Future Creditors (a) A transfer is fraudulent whether claim of the J-C was incurred by J-D before or after the questionable transfer if: (1) J-D made the transfer with the actual intent to hinder, delay, or defraud; OR To determine actual intent, the Court may look to the Badges of Fraud (4b): J-D made transfer to an insider (bad) J-D retained possession or control after transfer (bad) J-D disclosed (good) or concealed (bad) the transfer to J-C J-D was threatened with suit or sued before the transfer was made or debt incurred J-D transferred substantially all of his assets J-D absconded J-D removed or concealed assets J-D got reasonably equivalent value for asset transferred or debt incurred (good) J-D was insolvent or became insolvent shortly after the transfer was made J-D made transfer shortly before or shortly after a substantial debt incurred (2) J-D made the transfer without getting reasonable equivalent value in exchange, AND (i) was engaged in a business for which the remaining assets of the J-D would make J-D insolvent after the transaction, OR (ii) intended to incur or reasonably believed he would have incurred debts beyond his ability to pay as they came due (i.e., makes J-D insolvent) UFTA 5 Transfers Fraudulent as to Present Creditors As to J-Cs whose claim arose before the transfer in question the J-Ds transfer is fraudulent if the J-D made it: (1) without receiving reasonably equivalent value in exchange AND (2) the J-D was insolvent at the time, or became insolvent as a result of the transfer As to J-Cs whose claim arose before the transfer in question the J-Ds transfer is fraudulent if the J-D made the transfer: (1) to an insider for a pre-existing debt, (2) the J-D was insolvent at the time, AND (3) the insider had reason to believe that J-D was insolvent and bought the stuff, or let J-D incur the debt to the insider anyway UFTA 7 Remedies of Creditors If a fraudulent conveyance is found, a J-C may obtain: (1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditors claim (2) Attachment against the asset transferred (3)(i) Injunction against further disposition by the J-D or a transferee, or both, of the asset transferred or of other property; (3)(ii) Appointment of a Receiver to take charge of the asset transferred or of other property of the transferee; OR (3)(iii) Catchall any other relief the circumstances may require (b) Levy the J-C may levy execution on the asset transferred or its proceeds UFTA 8 Defenses, Liability, and Protection of Transferee What a person who buys from J-D can assert as his defense, and to what extent such a transferee is liable is covered here: (a) Transfer or obligation is not voidable under 4(a)(1) [actual intent] against a person who took in good faith and for an reasonably equivalent value (b) the J-C may get judgment for the value of the asset transferred, as adjusted under (c), or the amount necessary to satisfy the J-Cs claim, whichever is less. The judgment may be entered against: (1) the first transferee of the asset or the person for whose benefit the transfer was made; or (2) any subsequent transferee other than a good-faith transferee or obligee who took for value or from any subsequent transferee or obligee (c) if the judgment under (b) is based upon the value of the asset transferred, the judgment must be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require (d) A good faith transferee or obligee is entitled, to the extent of the value given to the J-D for the transfer or obligation, to: (1) a lien on the asset (or right to retain an interest in the asset), (2) enforcement of any obligation incurred, OR (3) a reduction in the amount of liability on the judgment (set-off), equal to the amount he spent for the asset

4. State collective remedies (assignment for the benefit of creditors, compositions, extensions, and receiverships)

A way for the interests of the collective to be represented outside of bankruptcy law. Each of the following devices are a response to the recognition that grab law does not solve everything, and some sort of collective method that vindicates the collective of the creditors and maximizes return to those creditors and also allows for the most economically maximal outcome whole allowing the company to continue for the benefit of everyone is needed.

Assignments for the Benefit of Creditors: D assigns non-exempt assets to an assignee and now, rather than going against D, C files claims against the assignee who, as an officer of the court, manages all the claims and pays them out Creditors are paid back in a more equitable way A major limitation of this is that it does not discharge D from unpaid portions of outstanding debts, since Constitutionally, only federal law can discharge debts

Compositions: Agreement between D and all of Cs that the Cs will accept a stated partial payment in full satisfaction of their debts Sometimes, an ABC is the vehicle for a composition Generally subject to the rules and principles of K law, and since it is a K, it is only binding on Cs who assent to it Important to get everyone on the same page

Extensions: A K between D and C or Cs, under which D is allowed an extension of time in which to pay outstanding debts. Often runs in conjunction with compositions.

Receiverships If D mismanages property (e.g., trying to escape jurisdiction), under common/statutory law, you can get an officer of the court to take charge of Ds finances or in a business their business operation in a way that preserves the assets. Grounds for the appointment of a receiver must be shown, including a probability of success on the underlying action and a likelihood that the property will suffer harm if it is not placed under the control of an impartial administrator A limitation is that if a receiver is appointed for mismanagement, they only have some powers

a. Trustee Stuff Misc

323 Role of trustee as representative of the estate(a) Trustee in a case under title is representative of the estate(b) Trustee in a case under title has capacity to sue and be sued

326(a) Guidelines on Trustees CompensationIn a case under chapter 7 or 11, the court may allow reasonable compensation under 330 to trustee for services, payable after rendered, such services, not to exceed 25 percent on the first $5,000 or less, 10 percent on any amount in excess of $5,000 but less than $50,000, 5 percent on any amount in excess of $$50,000 but less than $1 million and reasonable compensation not to exceed 3 percent of such moneys in excess of $1 million, upon all moneys disbursed or turned over in the case by trustee to parties in interest, excluding the debtor, but including holders of secured claims

330 Compensation of officers(a)(1) after notice to parties in interest and trustee and after hearing, a court may award to trustee, consumer privacy ombudsman appointed, examiner or professional person(A) reasonable compensation for actual, necessary services rendered and(B) reimbursement for actual, necessary expenses. (a)(2): Court may on its own or by motion of trustee award less than amount requested(a)(3): reasonable compensation to be awarded under chapter 11 based on relevant factors(A) time spent on services(B) the rates charged for such services(C) whether the services were necessary to administration of or beneficial at the time at which the service was rendered to the completion of a case under this title(D) whether the services were performed within a reasonable amount of time(E) with respect to a professional person if they are board certified etc(F) whether the compensation is reasonable based on the customary compensation of comparably skilled practitioners in same field.

5. Basic structure of Chapter 7

In a Chapter 7 liquidation, the D gives up all nonexempt assets, the Trustee in Bankruptcy sells these assets, the proceeds are distributed pro rata to Cs, and D is then discharged from all pre-existing (unsecured) debts. This achieves two goals: fair distribution of Ds assets and a fresh start for the D.

Basic Structure: Once D files (surrenders nonexempt assets and gets a discharge of debts), 362 Automatic Stay is triggered where Cs cannot act unilaterally against property of the estate Under 541 Property of the Estate, all legal and equitable interests are property of the estate. A Trustee is appointed and gathers assets Eligibility to file for Chapter 7 - 707 D has a right to get exemptions D ultimately wants a discharge of its pre-petition debts. If D gets a discharge, provided that there is no reaffirmation of debt, there is a total fresh start. There are two ways in which the D might not get this: Disaster strikes and D is denied the discharge under 727 D loses part of the discharge under 523 when certain debts are rendered non-dischargeable

6. Property of the estate ( 541) (Step 1: Get everything into property of the estate and then sort things out)

At the moment a bankruptcy petition is filed (voluntary or involuntary commencement of the case under 301, 302, 303), an estate is created by operation of law. All the property owned by the D becomes property of the estate which is a deliberately vague definition, designed to be as inclusive as possible. The estate is a legal entity distinct from the D.

541(a) lists what is included in the estate: (1) all legal or equitable interests of the D in property as of the commencement of the case (5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date by: (AFTER CREATION OF ESTATE) Bequest, devise, or inheritance As a result of a property settlement or divorce decree with spouse As a beneficiary of a life insurance policy or of a death benefit plan (6) Proceeds, product, rents, or profits of or from property of the estate, EXCEPT post-petition wages (earned, not received) (basis for the fresh start) (7) any interest in property that the estate acquires after the commencement of the case

541(b) lists the exceptions; Property of the estate does not include: (1) - any power that the D may exercise solely for the benefit of an entity other than the debtor;

541(c) Ipso Facto Clauses are restrictive clauses relating to an interest in property that provides within its own terms that the interest in question may not be included in the Bankruptcy Estate. (1) any provision in an agreement that restricts or conditions the transfer of a Ds assets in the event of a bankruptcy, or that is conditioned on the insolvency or financial condition of D is invalid Intended to protect the estate from ipso facto clauses Congress has permitted a few specific restrictions on alienation to be effective to keep property out of the bankruptcy estate (2) a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case Spendthrift trust exception a device by which a parent or other benefactor may preserve the interest of a minor, spouse, or another beneficiary who may need financial protection; the benefactor wants to be certain the trust will continue to perform this function. Has also been expanded to retirement accounts that are ERISA qualified, or plans protected under state law

541(d) Property in which D holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by D but as to which the D retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under (a)(1) or (2) only to the extent of Ds legal title to such property, but not to the extent of any equitable interest in such property that D does not hold.

a. Filing

521(a)(1) Debtors duties.(a)(1)(a) debtor must file, list of creditors(a)(1)(b) unless the court orders otherwise (i) a schedule of assets and liabilities; (ii) a schedule of current income and current expenditures (iii) statement of debtors financial affairs

521(b)(1) Debtor must also file a certificate from an approved non-profit budget and credit counseling service under 109(h)521(b)(2) Debtor must file a copy of the debt repayment plan, if any, developed under section 109(h) through the approved nonprofit budge and credit counseling agency referred to in (b)(1).

521(a)(2) Debtor must state intention with respect to collateral.(a)(2) if individual debtors schedule of assets and liabilities includes debts which are secured by the property of the estate(a)(2)(a): within 30 days after date of filing of petition in chapter 7 or on or before the date of the meeting of creditors, whichever is earlier, or additional time for cause, a statement regarding the intention with respect to the retention or surrender of such property and, if applicable, that property is claimed as exempt, the intention to redeem or reaffirm; and(a)(2)(b): within 30 days after the first date set for the meeting of creditors, or additional time court grants for cause, perform his intention with respect to such property as specified in A.

521(e)(f) additional duties and paperwork required(e)(1) in Chapter 7 or 13 and an individual and if creditor files with court at any time a request to receive copy of petition, etc, the court must make available(e)(2)(a): debtor shall provide:(e)(2)(A)(i) a tax return for the most recent tax year not later than 7 days before date first set for first meeting of creditors(e)(2)(A)(ii): must provide to any creditor who requests in a timely fashion(e)(2)(b): failure to comply with A means court shall dismiss the case unless debtor demonstrates that the failure to so comply is due to circumstances beyond control of debtor.(e)(2)(c): same as b except if fails to provide tax return.(e)(3): under chapter 13 court must make available to a creditor a copy of the plan, at a reasonable cost and within 7 days.(f): at request of course, the trustee, or party in interest in a case under 7 11 or 13 who is an individual shall file with the court(f)(1): if case is still pending any tax returns filed during must be provided to court.(f)(2): if tax returns not filed for prior 3 years, then any returns filed after petition for preceding years must be provided.(f)(4): in chapter 13:(f)(4)(a): on the date that is either 90 days after the end of such tax year or 1 year after the date of the commencement of the case, whichever Is later, if a plan is not confirmed before such later date; and(f)(4)(b): annually after the plan is confirmed until the case is closed, not later than the date is 45 days before the anniversary of the confirmation of the plan, showing the income and expenditures of the debtor during the tax year of the debtor most recently concluded before such statement is filed, and of how the monthly income of the debtor, that shows how income, expenditures and monthly income are calculated.(J)(1) if debtor fails to file tax return that becomes due after commencement of case or to properly obtain an extension, the taxing authority may request the court enter an order converting or dismissing the case.(j)(2): if debtor doesnt file required return in (j)(1) within 90 days after the request is filed by taxing authority, court shall dismiss or convert the case, whichever is in the best interests of the creditors and estate.

1108(b) Extension of time, (tolling on nonbankruptcy time periods)Except as provided in a, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding or an agreement fixes a period within which debtor or individual file any pleading or similar acts and such period has not expired before the date of filing of the petition, the trustee may only file, cure or perform as the case may be before the later of(1) The end of the nonbankruptcy period, including suspension of such period occurring on or after the commencement of the case or(2) 60 days after the order for relief.

7. Automatic Stay

Under 362, the Automatic Stay is imposed to prevent Cs from enforcing their claims against D. It is a fundamental protection of D provided by the Bankruptcy Code. The Automatic Stay prevents the Cs attempts to continue to collect from the D or the Ds property. It is likened to closing the windows and locking the doors to prevent property from leaving the newly formed estate. Until the stay is lifted by court order or discharge, Cs must refrain from their collection activities. The primary intention of the stay is to permit the parties to sort things out. The stay comes into effect upon the filing of the petition The stay is binding on all entities individuals, corporate entities of all kinds, and governmental units The stay generally remains in effect until the case is closed or dismissed The stay generally applies only to property of the estate The stay applies regardless of the Cs knowledge it is in place (i.e., that C is still bound by it)

Sections 362(a) and (b) set out what activity is stayed and what is not. If a particular act is not mentioned in either subsection, and 362(a) cannot be interpreted to encompass it, the act is not subject to the stay. To prevent it from occurring, the debtor or trustee must convince the court to use its injunctive powers under 105.

Under 362(a), there are eight instances where the automatic stay applies: (a)(1) the Automatic Stay applies to the commencement or continuation of any action or proceeding that (1) was or could have been begun against the D before the petition was filed; or (2) is to recover a claim that arose before the petition. (a)(2) a judgment obtained before the case cannot be enforced against the D or the Estate property (a)(3) any act to obtain possession of property of the estate, or to exercise control over the property of the estate is halted (a)(4) - a lien against property of the estate may not be created, perfected or enforced after the stay is imposed (i.e., after filing) (a)(5) Cs may not enforce, perfect, or create a lien against the property of the D once the petition is filed (as opposed to (a)(4) above which applies to property of the estate); this protects Ds exempt property from attachment once the stay is imposed (a)(6) the Automatic Stay applies to any act to collect, assess, or recover a claim against the D that arose before the commencement of the case (a)(7) If D owed money to C before Ds petition is filed, C is stayed from setting off debt that C owes to D (e.g., a bank owed money by D may not, once the stay is in place, set off any checking accounts or savings accounts in Ds name against the debt owed the bank) (a)(8) A special provision applies the automatic stay to proceedings before the Tax Court; Bankruptcy Code trumps the Internal Revenue Code in this instance

Under 362(b), there are a number of situations in which the automatic stay does not stop pre-filing actions: (b)(1) the Automatic Stay does not affect criminal actions or proceedings against D (e.g., Before the bankruptcy, D gives C a bad check; as long as a criminal prosecution arising from this is not motivated by C trying to collect the debt the stay will not prevent the prosecution.) (b)(3) of any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustees rights and powers are subject to such perfection under 546(b) or to the extent that such act is accomplished with the period provided under 547(e)(2)(A) (when transfer occurred is what this covers) Translation: the C may perform acts to perfect or to maintain or continue perfection if that action is recognized by 546 or 547 as binding on the estate The stay does not affect certain specified actions taken by a creditor under nonbankruptcy law to perfect or consolidate rights against the debtor of the estate. Rationale: these are merely legal procedures that the creditor is entitled to take under nonbankruptcy law to validate a legitimate claim.

Under 362(c), the duration of the Automatic Stay is as follows: (c)(1) the stay of an act against property of the estate under (a) continues until such property is no longer property of the estate; Property may be released by the estate for different reasons: trustee may sell it in the course of liquidation; it may be abandoned to a claimant because neither the D nor the estate has any equity in it; it may be abandoned to the D as exempt (c)(2) the stay of any other act under (a) continues until the earliest of: The time the case is close; The time the case is dismissed; The time a discharge is granted or denied

8. Relief from the Stay

Under 362(d), on request of a party in interest and after notice and a hearing the court shall grant relief from the stay provided under (a), such as terminating, annulling, modifying, or conditioning such stay (1) for cause, including the lack of adequate protection of an interest in property of such party in interest; Confined to claimants such as secured creditors, lessors who have leased property to the D, co-owners of Ds property, and other with a valid interest in property Adequate protection is designed to reduce the SCs risk of loss from the stay by requiring the trustee to take action to protect the collaterals value Factors to consider: Present value of the property in relation to debt Calculations of the rate of increase or decrease of the debt and a comparison to the future value of the collateral Likelihood of a successful rehabilitation (2) with respect to a stay of an act against property under (a), if (A) the D does not have an equity in such property; and (B) such property is not necessary to an effective reorganization Under Chapter 7, this is automatic, since there is no reorganization Termination: Lifting of the stay so that the applicant can commence or resume the suspended activity Annulment: Terminates the stay retroactively, so the stay is treated as if it was never in effect, prior acts in violation of the stay become valid (only used in exceptional circumstances) Modification: Appropriate when court decides to permit some activity but not to allow the applicant full rights to proceed with the enforcement of the claim Conditioning: Leaves the stay in effect, subject to the D or trustee satisfying some condition

361 examples of adequate protectionWhen adequate protection is required under 362, 363, 364, adequate protection may be provided by(1) Requiring trustee to make a cash payment or periodic cash payments to entity, when results in a decrease in the value of entitys interest in property(2) Providing to an entity an additional or replacement lien to extent that such stay, use, sale, lease or grant results in decrease in the value of entitys interest in such property(3) Granting such other relief, other than entitling such entity to compensation allowable under 503(b)(1) of this title as an administrative expense, as will result in the realization of such entity of the indubitable equivalent of such entitys interest in such property.

Under 362(e)(1), thirty days after a request for relief from the stay, such stay is terminated with respect to the party in interest making such request, unless the court, after notice and a hearing, orders such stay continued in effect pending the conclusion of, or as a result of, a final hearing and determination.

Under 362(h)(1), for individuals, the stay is terminated with respect to personal property of the estate or of D securing in whole or in part a claim, and such personal property shall no longer be property of the estate if D fails within the applicable time set by 521(a)(2) (A) to file timely any statement of intention required under 521(a)(2) with respect to such personal property (B) to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies Ds intention to reaffirm such debt on the original contract terms and C refuses to agree to the reaffirmation on such terms

Under 362(k), an individual injured by any willful violation of a stay shall recover actual damages, including cost and attorneys fees, and, in appropriate circumstances, mat recover punitive damages

9. Eligibility under Chapter 7

707 Dismissal of a Case or Conversion to a Case under Chapter 11 or 13

Under 707(a), a court may dismiss a case after notice and a hearing provided that there is cause for doing so. Cause can be shown by the presence of: (1) unreasonable delay by D that is prejudicial to Cs; (2) nonpayment of any fees or charges requires under 28 USC 123; AND (3) failure of D in a voluntary case to file, within 15 days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of 521(a), but only on a motion by the U.S. trustee. List of creditors, schedule of assets and liabilities, schedule of current income and expenditures, statement of financial affairs

Petitions can be dismissed if it is found that there was substantial abuse of its provisions. Sometimes, courts, based on Ds income, will close off Chapter 7 even if there was no substantial abuse or wrongdoing to force D to file Chapter 13 Reorganization instead.

The 2005 Amendment to the Code created a semi-automatic analysis to determine whether there exists a presumption that D is abusing the system by looking at Ds income if they have a lot of income, want to see how much they have left over after given reasonable expenses to pay back pre-petition Cs. If they have a fair amount left over, D should not be in Chapter 7.

101 (10A) Current Monthly Income: the average monthly income from all sources that D receives during the 6 month period ending on the last day of the calendar month preceding the filing Does not matter whether or not the income is taxable, and it includes regular payments made by another entity to D for household expenses Ds average monthly income is then multiplied by 12 to get Ds average annual income, which is then compared to the median family annual income If Ds income is greater, any party in interest can move for dismissal of the case, and the formula set out in (b)(2) most be used to decide if the presumption applies. If Ds income is lower, the standing to move for relief is narrowed under (b)(6). Also, if Ds income is less than the family median, D falls within the safe harbor of (b)(7)

101 (39A) Median Family Income the median family income as calculated and reported by the Bureau of the Census for the most recent year.

707(b)(1) states that after notice and a hearing, a court, on its own motion or on a motion by the U.S. trustee, trustee, or any party in interest, may dismiss a case filed by an individual D whose debts are primarily consumer debts, or with Ds consent, convert to a Chapter 11 or Chapter 13, if it finds that the granting of relief would be a substantial abuse of Chapter 7. Consumer debt ( 101(8)) means debt incurred by an individual primarily for personal, family, or household purpose.

707(b)(2) The Means Test Makes it easier to establish abuse by creating a presumption of abuse under prescribed circumstances, which arises if, based on the formula set out in this provision, Ds disposable income would be sufficient to support a payment plan under Chapter 13 If D is shown to have a disposable income in excess of that prescribed by the formula, a presumption arises that D is abusing the provisions of Chapter 7. Unless D can rebut the presumption, grounds for dismissal under 707(b)(1) are established Formula as set out in 707(b)(2)(A)(i) Calculate Ds current monthly income as defined in 101(10(a)) Average of the monthly income that D derived from all sources within 6 months before filing the petition Deduct from this monthly income Ds monthly expenses, which are determined by adding together the amounts allowed under 707(b)(2)(A)(ii), (iii), (iv) This will provide a figure for Ds net monthly income (disposable income) (ii) Monthly expenses Reasonably necessary health insurance, disability insurance, and health savings account expenses Does not include payments for debts Also includes Reasonably necessary expenses incurred to maintain the safety of D and family of D If reasonably necessary, an additional allowance for food and clothing up to 5% of the food and clothing categories as specified by the National Standards issued by IRS Reasonably necessary expenses for care and support of elderly, chronically ill, or disabled household member or member of Ds immediate family Administrative expenses for Chapter 13 up to amount of 10% of projected plan payments Actual expenses of each dependent child up to $1,175 per year per child to attend public or private school need detailed explanation as to why reasonable Allowance for housing and utilities (iii) Ds average monthly payments on account of secured debts shall be calculated as the sum of Total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition; and Any additional payments to secured creditors necessary for the D in filing a plan under Chapter 13 to maintain possession of Ds primary residence, car, or other property necessary for the support of D and Ds dependents, that serves as collateral for secured debts; divided by 60 (iv) Ds expenses for payment of all priority claims (including priority child support and alimony claims) shall be calculated as the total amount of debts entitled to priority, divided by 60 Disposable income is then multiplied by 60 to provide a 5 year total figure for D/s net disposable income This 60 month disposable income figure is then compared to the prescribed standards. Abuse is presumed if the figure is not less than the lesser of: 25% of Ds non-priority unsecured claims in the case, or $7,025, whichever is greater; or $11,725. Note: If disposable income is high enough (above $200), you know a presumption of abuse will arise. Conversely, if the disposable income is low enough (below $200), you know a presumption of abuse will not arise.

Rebutting the Presumption of Abuse If the presumption of abuse arises because Ds 60 month disposable income exceeds the limits set out by 707(b)(2), D has an opportunity to rebut the presumption (If the presumption is rebutted, the court must decide whether to dismiss the case under the considerations set out in 707(b)(3)) 707(b)(2)(B) sets out what D must show to rebut the presumption (i) provides that the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call to active military duty, and only to extent that the special circumstances justify an increase in expenses or an adjustment to current monthly income for which there is no reasonable alternative (ii) places the burden on D to provide full itemization, documentation, and an explanation of any claim of adjustment (iii) requires D to attest under oath to the accuracy of the information (iv) provides that the presumption of abuse may only be rebutted if the adjustments established by D have the effect of reducing Ds disposable income to a level below that which gave rise to the presumption in the first place Presumption is only rebutted if the ultimate figure, as adjusted, shows a low enough 60-month disposable income to pass the means test

707(b)(3) Even in a situation where a presumption does not arise under the mechanical test, a court might still find abuse if D filed under bad faith or if under the totality of the circumstances, Ds financial situation demonstrates abuse. In cases where the presumption of abuse does not arise or is rebutted, the court may nevertheless dismiss the Ch. 7 case for abuse under 707(b)(1) if the applicant for dismissal establishes, or the court on its own motion determines, that the filing is abusive. 707(b)(3) provides guidelines on what the court should consider in deciding if there has been abuse in the absence of the presumption (B)(3)(A)Bad faith - covers situations in which Ds conduct shows improper motives for filing the petition Absence of any attempts to pay creditors Failure to reduce living expenses to a reasonable level Manipulation of assets and finances Lack of candor in dealing with creditors or the court Ability to make substantial payments to creditors under Ch. 11 or Ch. 13 (B)(3)(b)Totality of the Circumstances allows the court to consider a variety of factors to decide if, on balance, the filing constitutes an abuse of the Code. Whether petition was a response to sudden illness or calamity Whether D made excessive consumer purchases or racked up debt before filing Whether Ds budget is reasonable Whether D made attempts to deal with creditors through negotiation or state law remedies Whether Ds schedules are accurate

707(b)(6) Only the court (judge or U.S. trustee) can bring a motion under 707(b) if the current monthly income of D is equal to or less than the median debtor. Motion to dismiss may not be made be made by the other parties in interest who would otherwise have standing to move for dismissal Even though the below median D is not subject to the Means Test, there are certain parties that can use 707(b)(3) to find actual abuse

707(b)(7) If Ds current monthly income is equal to or less than the median income, then no one can file a motion to dismiss the petition based upon the means test. Safe harbor precludes application of the presumption of abuse where Ds current monthly income (for this purpose, combined with that of his spouse, even if the petition is not a joint petition) is less than the applicable median family income Below median D is not subject to the Means Test

10. Exemptions under state law and the Bankruptcy Code

Once the Bankruptcy Estate has been created, and is in protection of the Automatic Stay, the TIBs process of assembling the Estate for eventual liquidation and distribution to Cs begins. The first step for the TIB is to divide the property in the estate between that reserved for Ds fresh start, and that available for liquidation for the benefit of the Cs. The property reserved for D is exempt property, and all property not listed as exempt is denominated as non-exempt and will be sold by the TIB so that the proceeds can be distributed to the C.

The Bankruptcy Code provides for federal exemptions, so that D can choose either state or federal exemptions, depending on Ds circumstances. States, however are authorized to opt out if they want from the federal scheme under 522(b) if they want to make the state exemption the only one available to D. 522(b) is known as the opt-out clause.

Under 522(a)(2), value means FMV as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate. Some courts say liquidation is the correct valuation

Under 522(d), the following are exempt: (1) Ds aggregate interest in real or personal property that D uses as a residence up to $21,625 (2) One motor vehicle, not to exceed $3,450 (3) Ds interest in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, held for primarily personal use of D or his dependent family up to $11,525 in aggregate, but only $550 in each item (4) Ds interest in jewelry held for family use not to exceed $1,450 **(5) WILDCARD Ds interest in any property, not to exceed $1,150 PLUS up to $10, 825 of any of the unused Residence Exemption ( 522(d)(1)) (6) Ds interest in tools of the trade not to exceed $2,175 (7) Ds interest in an unmatured life insurance K in any amount (8) Ds interest in a Dependents unmatured life insurance K up to $11,525 (9) Professionally proscribed health aids up to any amount (10) Ds rights to receive (A) SS Benefit; (B) VA Benefit; (C) Disability Benefit; (D) Alimony, support maintenance to extent necessary to support D; (E) Pension or Death Benefit (11) Ds right to receive (A) an award under a crime victims reparation law; (B) payment to D for an award of wrongful death of someone upon whom D was dependent; (C) payment under a life insurance K to D for someone upon whom D was dependent; (D) payment up to $21, 625 for bodily injury actions; (E) payment for lost future earnings owed to the individual (12) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under the Internal Revenue Code

Wildcard Exemption - 522(d)(5) is an exemption in ANY PROPERTY, not just listed in 522(d), and the amount is determined by the extent to which the debtor uses up the homestead exemption under 522(d)(1) up to $10,825.

Under 522(l), D files a list of property that D claims as exempt under (b) and unless a party in interest objects, the property claimed as exempt on such list is exempt.

Under 522(m), subject to the limitation in (b), this section apples separately with respect to each debtor in a joint case.

11. Debtors avoidance power under 522(f)

Under 522(f), D is granted limited rights to avoid certain types of liens on property to the extent that it impairs an exemption to which D would otherwise be entitled.

522(f)(1)(B) is a very limited exception to the general rule that consensual liens take priority over an exemption in the collateral A non-possessory (i.e., C has not taken possession of the collateral as part of the agreement), non-purchase money s/i upon any of the following is avoidable for policy reasons: Household Furnishings, Household Goods, Wearing Apparel, Appliances, Books, Animals, Crops, Musical Interests, or Jewelry held for family purposes Tools of the Trade Professionally Proscribed Health Aids for D or dependents

Policy rationale: The reason that D can avoid such liens is that traditionally, they were used by Cs as arm-twisting measures to get D to pay other loans, since there is really not much market value in any of these items; they are simply garnered by C for leverage against D.

Essentially, rather than the s/i coming first and the remainder going back to D, the outcome is such that the exemption is preserved in total and the secured party only has a s/i to the extent that it can assert it with respect to this. The s/i is avoided, but only to the extent necessary to fully protect the exemption.

12. Claims (bifurcation and treatment of claims for interest and attorneys fees)

101(5) Claim: means101(5)(A): right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal equitable, secured, or unsecured or101(5)(B): right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

Once it is clear what property belongs to Ds estate and what property D may properly exempt, the TIB begins assembling any nonexempt property for sale in satisfaction of Cs claims. The proceeds will be distributed pro rata to the Cs.

If proof of claim or interest is properly filed by C under 501, it is deemed allowed under 502(a), unless a party in interest objects to Cs claims. If a TIB objects, most often the argument is that there was no valid debt under state law (502(B)(1)), or that the amount of the debt was lower than the C claimed.

Under 502(b)(2), no post-petition interest is allowed on unsecured claims, because that would be an interest unmatured on the date of the Bankruptcy If you have an unsecured claim, you get no post-petition interest, but you can get pre-petition interest to the extent in the contract. Also, you cannot, as a general rule, get post-petition attorneys fees. A holder of an unsecured claim cannot get that on account of their unsecured claim.

If Cs debt arises post-Bankruptcy, the interest can be claimed as a 503 administrative expense

506(a) sets forth the special rights of Secured Cs in making claims. A valid secured claim is an allowable secured claim. An allowed secured claim will be equal to (1) the amount of the debt; or (2) the value of the collateral, whichever is less.

Bifurcation many claims made by Secured Cs are actually both secured claims and unsecured claims: If the collateral is worth less than the total debt owed, then Cs debt to the extent of the value of the collateral is secured, while the amount that the debt exceeds the collateral is unsecured If the collateral is worth more than the total debt owed, then Cs debt is recovered to its full extent, and the remainder goes into the general fund for distribution to the unsecured Cs

506(a)(2) Valuation of the collateral determines the extent of Cs claim. Determined by Replacement Value price a retail merchant would charge (considering age and condition) Only applies to individual debtors under chapter 7 or 13.

Under 506(b), if the secured C is oversecured (i.e., if the value of the collateral exceeds the debt is secures, including pre-Bankruptcy interest), then the secured C can receive post-Bankruptcy interest at its contract rate, until the value of the collateral is exhausted. Once the collateral runs out, they can no longer post-petition interest on account of their claim, because they have used up their secured claim and are trying to get post-petition interest on their unsecured claim.

Creditor Ability to Claim Attorneys Fees (Both Pre and Post Petition) Attorney fees incurred prior to the filing of the bankruptcy petition are treated the same as pre-petition interest: if a C, secured or unsecured is entitled to pre-petition attorney fees either by K or state law, then the attorney fees are simply part of the C total secured or unsecured claim Post petition attorney fees situation is much less clear: Secured Cs who are oversecured clearly entitled to post-petition attorney fees, until the value of the collateral is exhausted ( 506(b)) Unsecured Cs should not be able to claim post-Bankruptcy attorney fees because they cannot claim things like post-Bankruptcy interest, and interest and attorney fees are both akin to administrative expenses which are controlled by 503. 503 only permits recovery of attorney fees in special circumstances.

13. Priority claims

After the Secured Cs have been satisfied by the sale of their collateral, the unsecured Cs being the process of dividing the remaining assets. The unsecured Cs (to the extent that the sale of the collateral did not satisfy their allowed secured claims) join in the process.

Under 507, there is a system of priorities under which some obligations are deemed of greater social importance than others, and as such, those claims will be paid ahead of others. Ex. Payments to a former spouse will precede those paid to the general creditors. Note: The priority claims of 507 only deal with unsecured Cs.

Order of Priorities under 507(a): (1) unsecured claims for domestic support obligations that, as of the date of the filing, are owed to or recoverable by a spouse, former spouse, or child of D administrative expenses of the trustee allowed under (1), (2), and (6) FIRST PRIORITY (2) - administrative expenses allowed under 503. These are expenses of the Estate, and arise post-Bankruptcy, and generally cover wages of employees or the Estate, rent paid on leases in the Estate, repayment for money borrowed by the Estate, etc. (4) unsecured claims to the extent of $11,725 (does not mean recovery is limited to this, any remainder owed will be placed into the unsecured general fund for distribution with the other Cs) for each individual or corporation earned within 180 days before the date of the filing or the date of the cessation of Ds business, whichever occurs first, for: (A) - Wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual; or (B) - sales commission earned by an individual or a corporation with only one employee, is and only if, during the 12 months preceding, at least 75% of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor. (7) unsecured claims of consumers who made deposits before the bankruptcy case in connection with a security deposit, other leases, property, for goods or services, etc. that were not performed or satisfied. The amount of these claims is limited to $2,600 per person. (8) unsecured claims of governmental units, only to the extent that such claims are for: (A) a tax on or measured by income or gross receipts for a taxable year ending on or before the date of the filing of the petition For which a return is last due after 3 years before the date of the filing of the petition Assessed with 240 days before the date of the filing of the petition (B) a property tax incurred before the start of the case and last payable without penalty after one year before the date of the filing of the petition (C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity (D) an employment tax on a wage, salary, or commission of a kind specified in (4) earned from D before the date of the filing of the petition, whether or not actually paid before such date, for which a return is last due, under applicable law or under any extension, after three years before the date of the filing of the petition.507(b) failure of adequate protection:If the trustee, under 362, 363, 364, provides adequate protection of the interest of a holder of a claim secured by a lien on property of the debtor and if, notwithstanding such protection.362 363 364(d) Then such creditors claim under such subsection shall have priority over every other claim under such subsection.

14. Exceptions from discharge under 523

Discharge in general From Ds perspective, the purpose of a liquidation bankruptcy is almost always to discharge outstanding debt. Once all Cs claims have been paid to the extent possible, D anticipates discharge from all remaining debts. However, D is not entitled to discharge as a matter of right, but the discharge will be granted unless it is challenged by the TIB or any C TIB or Cs may object to Ds discharge in particular debts ( 523) or in all of the debts ( 727) 523 if granted, renders only the debt objected to non-dischargeable (applies to all Chapters of Bankruptcy) 727 if granted, renders all of Ds debts non-dischargeable (applies only to Chapter 7 liquidation)

523(a) (Marksmans Approach) lists a series of debts that are not dischargeable for various reasons, including public policy and the behavior of D at the time when he incurred the debts. If a particular claim is non-dischargeable under 523, once the Bankruptcy is finished (i.e., D is discharged on other debts, or if no other debts discharged, Cs are paid to the fullest extent), C may pursue the collection of that debt as if the Bankruptcy never occurred. (1) Tax and customs duty debt that are excluded form discharge include: Those arising in the ordinary course of Ds business during the Gap period; Gap period time period between the filing of the petition and the order for relief date Taxes for which returns were due (whether or not filed) for three years before the Bankruptcy petition filed; Taxes due as to which a return was not filed or was fraudulently filed (with no time limit) (2) Fraudulent Representations in Gaining Credit: Upon application to the Court by C claiming non-dischargeability, debts which D obtained from C in money, property, services or extension of credit can be made non-dischargeable if obtained through fraud. Requirements For a fraudulent credit statement to be excepted from discharge, the credit statement must: Be materially false; AND Have been reasonable relied upon (C must in face have relied upon the false statement itself and not have discovered it later in an effort to avoid discharge); AND Have been made by D with the intent to deceive (D did not make a reasonable and good faith attempt to disclose his financial condition) Presumption of Fraud In two cases, 523(a)(2) creates a presumption of fraudulent conduct on the part of D that will cause those debts to be non-dischargeable unless D can rebut the presumption; those cases are where: D (1) aggregated debts of more than $600; (2) to a single C; (3) for luxury goods or services; (4) within 90 days before the order for relief; OR D obtained cash advances under an open end credit plan (e.g., credit card, overdraft on bank account) of more than $875 within 70 days before the order for relief (4) Fraud, Defalcation, Embezzlement, Larceny Upon Cs application for the Court to determine whether the debt is non-dischargeable, a debt will be denied dischargeability if it was incurred through fraud, etc., while D was in a fiduciary capacity. (5) Obligations for Support or Alimony If a debt is for alimony, maintenance or support stemming from a separation agreement, divorce decree, or a court order, it will not be discharged (6) Willful and Malicious Injuries Debts resulting from Ds willful and malicious injury of another (or anothers property) will not be discharged. (15) Further Limitations on Dischargeability of Alimony/Support If D has divorce or separation obligations incurred in connection with an agreement or a court proceeding, they are generally not dischargeable

15. Global denial of discharge under 727

D has a right to discharge unless any one of the reasons below for denial is proved. Presence of any one of the reasons will cause a discharge to be denied in full. If an individual is denied discharge under 727(a), all of Ds debts remain intact except to the extent the Cs have already been satisfied by the liquidation of Ds assets. 727(a) should be distinguished from 523(a) which denies discharge for particular debt. (a)(1) D is not an individual: As state above, discharge is limited to individuals; corporations are disallowed from getting a discharge (a)(2) Fraudulent Transfers by D: a discharge will be denied if either D or TIB transfers, removes, destroys, mutilates or conceals property (or has permitted these things to occur) with intent to hinder, delay or defraud Cs. This provision applies both to transfers of Ds property made within one year before the filing and to transfers of the Estate property after the filing. Intent is Key: the intent to hinder, delay or defraud is an essential ingredient of the act of preventing discharge. There is no constructive fraud provision. It is usually impossible to prove fraudulent intent other than by proving the facts to the court and demonstrating that no other motive can explain Ds actions. (a)(3) Inadequate Records: Discharge may be denied if F has concealed, destroyed, mutilated or falsified or failed to keep or preserve any recorded information from which Ds financial condition or business transactions may be ascertained, unless such failure of D was justified. (a)(4) Crimes or Bad Acts Committed during a Bankruptcy Case: D knowingly made and fraudulently, in or in connection with the case Made a false oath or account; Presented or used a false claim; Gave, offered, received, or attempted to obtain money, property, or advantage, for acting or forbearing to act; or Withheld from TIB any recorded information relating to Ds property or financial affairs (a)(5) Inadequate Explanation of Losses: Discharge will be denied if D has failed to satisfactorily explain any loss of assets or the reasons for his inability to meet liabilities.

Scope:

Under 727(b), a discharge under (a) discharges D from all debts that arose before the date of the order for relief, and any liability on a claim that is determined under 502 as if such claim had arisen before the commencement of the case, whether or not a proof of claim based on any such debt or liability is filed under 501, and whether or not a claim based on any such debt or liability is allowed under 502.

524 Effect of Discharge524(a)(1): a discharge in a case under this title voids any judgment at time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to debt discharged under 727 whether or not discharge is waived.

524(a)(2): a discharge operates as an injunction against the commencement or continuation of an action, the employment process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.

524(f): voluntary repayment Nothing in subsection (c) or (d) prevents debtor from voluntarily repaying the debt.

16. Post-discharge discrimination against bankruptcy debtor

Once the Bankruptcy court discharges the D, the effects of the bankruptcy on D may still linger. To reaffirm the positive effects of discharge, certain acts are set forth in 525 that may not be executed against a discharged D.

Simply because an individual is or has been a debtor, has been insolvent, or has not paid a debt that is dischargeable: 525(a) Prohibitions Applicable to Governmental Units: governmental units may not deny, revoke, suspend, or refuse to renew a license or similar grant, or discriminate with respect to a grant. Governmental units also may not discriminate with respect to employment. 525(b) Prohibitions Applicable to Private Employers: private employers may not terminate the employment of, or discriminate against. Note: if there are other factors which may explain the employers decision, then it is not solely based upon the prior bankruptcy and not in violation of this provision

Broad Application of 525: Congress has accompanied 525 with its caution that it be read broadly and that the list of examples of discrimination is not exhaustive. The courts are encouraged to expand 525 to prevent behavior that unduly interferes with Ds fresh start.

17. Redemption, reaffirmation, and the possibility of ride-through

The financial position of D post-discharge is often surprisingly tangled with some of the same debt that forced them into bankruptcy the first time around. The important thing to note is that discharge rids D of the unsecured obligations, but leaves the secured creditors (and their liens) intact. This principle is expressed in 524, which expressly emphasizes that a discharge voids personal liabilities, but not liens. This means that all unsecured debts are effectively vaporized, but a secured debt remains attached to its collateral after bankruptcy, even though D cannot be sued for any deficiency should the property by sold and C turn out to be undersecured.

If D does not does not wish to surrender his secured debt to C, D has only 3 options under the Code with respect to this secured debt: Redemption, Reaffirmation or Ride-Through

Redemption of Assets by D - 722: Redemption is the right of an individual D to procure the release from lien and return of property that is intended primarily for personal, family, or household use. To take advantage of redemption (and keep the collateral), under Chapter 7, the property that D seeks to redeem will have to be either: Fully exempt, (if partially exempt, must pay off the estate for the deficit between the exemption amount, and the FMV minus the lien amount if TIB has not abandoned) OR Abandoned by the TIB under 554 554 After notice and a hearing, the TIB may abandon any property of the Estate that is burdensome to the Estate or that is of inconsequential value and benefit to the Estate 722 provides that D may keep the collateral by paying the amount of the allowed secured claim, which is always the value of the collateral, not the value of the original debt

Breaking down 722 Redemption: 722 requires that property subject to redemption be: Personal or Household Use Property property subject to redemption must be tangible personal property intended primarily for personal , family or household use (no stocks, bonds, bank accounts, etc) Property Must be Secured Property subject to redemption must be subject to a lien Property Must be Fully Exempt or Abandoned as either burdensome or of inconsequential value to the estate Making a Redemption - Assuming the asset has been properly valued, the D is given the right of first refusal to purchase the property from C. The purchase price is determined as follows: Fair Exchange the amount of the allowed secured claim is the same as the amount of debt Oversecured Claims If C is oversecured (collateral > debt), the amount of the allowed secured claim is also the same as the amount of the debt, so D pays the amount of the debt Undersecured Claims If C is undersecured (collateral < debt), the amount of the allowed secured claim is equal to the value of the collateral, so D only pays the value of the collateral

Reaffirmation of Debts by D - 524(c) Under 524, a reaffirmation is an agreement with a C that D will become once again legally bound to pay a pre-bankruptcy debt notwithstanding the discharge. Either a secured or unsecured debt may be reaffirmed. Many Cs decided that it makes more sense to let D keep the property and continue the payments on it rather than foreclose or demand repossession of that property in the event of default. Requirements of Reaffirmation under 524: A reaffirmation agreement must: Be made before the discharge Contain a statement that D can rescind it at anytime before the discharge or within 60 days after the agreement is filed with the Court, whichever occurs later Be filed with the Court, together with an affidavit of Ds lawyer that the agreement is voluntary and does not impose undue hardship on D, that D is fully informed, and the lawyer has advised D of the effects of the reaffirmation (Note: If D is not represented by a lawyer, the Court must then approve the reaffirmation agreement unless it concerns a consumer debt secured by a lien on real property) Under 524(d) governs what happens if the individual is not represented by a lawyer in a reaffirmation.

Voluntary repayment of debt after discharge:There are a number of reasons as to why D might forego the advantages of discharge of unsecured debts. For instance, D might have concern about a relative who cosigned, and will be held liable if D doesnt pay or D might have concern about being socially perceived as a deadbeat. D does not have to go through the reaffirmation process to pay back debts on unsecured claims. Under 524(f), it is clear that D who has been discharged may voluntarily repay any debt. The difference between voluntary payments and reaffirmation is that under voluntary repayments, there is no formal agreement to continue to make those payments, and D may stop doing so at any time without adverse consequences.

Ride-Through!As an additional way for D to keep property subject to a security interest, if D has not defaulted on payments on the secured debt, some courts have allowed D to retain the collateral while continuing to pay installments to the secured party as required by the K. This is known as a ride-through because the secured transaction rides through the bankruptcy without being formally administered and dealt with as part of the estate. If D later defaults, the creditor can foreclose on the collateral, but any deficiency would be discharged. De Facto Ride Through Essentially, if there has not been a default and if C assents, D can continue to pay on collateral, keep it, and ride through the petition.

18. Basic Structure of Chapter 13

Chapter 13 provides a form of reorganization that is considerably simpler than a Chapter 11, but is restricted to an individual, or an individual and his spouse with regular income. Chapter 13 is never involuntary, and the individual can never be forced into an involuntary Chapter 13. Chapter 13 is usually most appropriate for Ds who have many non-exempt assets that they wish to keep.

The major difference between Chapter 7 and Chapter 13 is that in Chapter 7, D finances the process by way of pre-petition assets and gets to keep future assets, while in Chapter 13, the source of financing is in a large extent financed by future earnings and discharge does not occur until after D completes payments under the plan. Under the plan, D keeps its assets, but in exchange, must propose a plan subject to restrictions that pays Cs a certain amount over a 3-5 year period.

Provisions that carry over from Chapter 7: 362 Automatic Stay 541 Property of the Estate 522(d) Exemptions 522(f) Avoidance Powers 507 Priority Claims 506(a) Bifurcation

1302(b) - Duties of the TIB: The main duties of the TIB are in connection with confirmation of the plan and distribution of payments unlike in Chapter 7, the TIB acts more like Ds agents (1) perform all the duties specified in 704(a) (2) appear and be heard at any hearing that concerns: Value of property subject to a lien; Confirmation of a plan; or Modification of the plan after confirmation (3) dispose of moneys received or to be received in a case under Chapter 8 (4) advise, other than on legal matters, and assist D in performance under the plan (5) ensure that D commences making timely payments (6) if with respect to D there is a claim for a domestic support obligation, provide the applicable notice specified in (d)1303 Rights and Powers of Debtor:Subject to limitations on a trustee under chapter 13, the debtor shall have, exclusive of the trustee, the rights and powers of a trustee under sections 363(b), 363(d), 363(e), 363(f), and 363(l)

Commencement of a Chapter 13 Case: The following are the basic steps in the commencement of a typical Chapter 13 case: Filing of a Petition: D (and only D) files a petition under 301; there is no provision or C to file an involuntary Chapter 13 against D Creation of an Estate: The filing of the petition creates an estate of all legal or equitable interests of D in the property (541), and property acquired after commencement of the case, with D remaining in possession of the assets (DIP). The Estate includes income earned by D while under the Plan. 1306 Property of the Estate (in chapter 13) (a) Property of the estate includes, in addition to 541 (a)(1): all property of the kind specified in such section that debtor acquires after the commencement of the case, but before the case is closed, dismissed or converted, whichever comes first (a)(2): earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed or converted to a case under chapter 7 or 11, whichever occurs first (b) except as provided in a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate. The confirmation of the plan vests all of the property of the Estate in the DIP ( 1327(b)) Operation of the Automatic Stay: 362 restricts the actions of Cs against the property of the Estate or of D, prohibiting most acts against or attempt to collect from D, by Cs or third parties Filing of the Plan: D constructs a plan under 1321, 1322, and the TIB or C will recommend approval , denial, or modification of the plan. The plan is put forth for approval at Cs meeting, and the TIB will thereafter make his recommendations as to whether or not to confirm the plan.

The Plan - 1321 & 1322: The following elements are required by the Bankruptcy Code for an acceptable plan Under 1321, D is required to file a plan Under 1322(a), the Plan (1) shall provide for the submission of all or such portion of future earnings or other future income of D to the supervision and control of the trustee as is necessary for the execution of the plan Binds D to pay future earnings in an amount sufficient to execute the plan (2) shall provide for the full payment of priority claims under 507, unless the holder of the priority claim agrees otherwise Has to be cash payments, which can be deferred (3) while the plan is not required to classify claims, if the plan does so, then each claim within a class must receive the same treatment (4) may provide for less than full payment of all amounts owed for a priority claim, only if the plan provides that all of Ds projected disposable income for a 5 year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan If there is no disposable income, then D does not have to pay full amount of debts owed 1322(b) indicates what a plan may do (flexibility). The plan may - (1) designate a class or classes of unsecured claims, but may not discriminate unfairly against any class so designated, but, it may treat claims for a consumer debt of D is an individual is liable on such consumer debt with D differently than other unsecured claims (2) modify the rights of holders of secured claims, except for a claim secured only a by a s/i in real property that is Ds principal place of residence (deals with short term debt and extends it to be completed in 3-5 years) Option 2: modify rights of holders of unsecured claims Option 3: leave unaffected the rights of holders of any class of claims (3) plan may provide for the curing or waiving of any default; Includes de-acceleration (5) notwithstanding (2), may provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due. Long term debt not limited to 3-5 years No discharge of this particular debt until payments have been completed Generally dealing with mortgages 1322(c)(2) notwithstanding (b)(2) and applicable nonbankruptcy law, in a case in which the last payment on the original payment schedule for a claim secured only by a s/i in real property that is the debtors principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to 1325(a)(5) Situation is more common with second mortgages or equity loans D can modify whereas otherwise they couldnt

1322(d) - Length of the Plan If the combined current annual income of D and spouse is less than the median family income for a household of Ds size, the plan cannot go beyond 3 years without the courts approval for cause If the combined current annual income of D and spouse is higher than the median family income for a household of Ds size, the plan may extend to 5 years

1325 Confirmation of Plan 1325(a) requires the court to confirm a plan if it meets the criteria set out in the section and if confirmation is not precluded by 1325(b) Under 1325(a), the following are criteria for confirmation (1) The plan must comply with Chapter 14 and all other applicable provisions of the Code (3) (7) D must both have filed the petition and proposed the plan in good faith, and the plan must not violate the law GOOD FAITH TEST (4) The distribution to be paid to each unsecured claimant under the plan must be at least equal to what it would have received had the estate been liquidated under Chapter 7. Because the payments under the plan will be made over time, interest must be added to the amount distributed to each claimant so that the claimant receives the present value of its hypothetical Chapter 7 distribution BEST INTERESTS TEST (5) Unless a secured claimant accepts different treatment, the plan must either provide for the collateral to be surrendered to the claimant, or it must preserve the claimants lien and provide for full payment of the present value of the secured claim. Present value is determined by adding interest to the face amount of the claim MINIMUM VALUE TEST Lien stripping (gives secured creditor a hair cut) Under this provision, the holder of the secured claim, if you modify, (assuming the secured creditor isn't getting the collateral) still must be paid in the amount of the present value of the allowed secured claim. Here, you can also follow through on the bifurcation, and pay only the allowed secured claim rather than the full obligationthis is known as lien stripping. To the extent the debtor can strip the lien, it can limit the amount they have to pay on the claim. It is a follow through on 506(a)the debtor essentially modifies the claim and the rest of the claim, that isn't secured by the collateral (which is burned up) is unsecured. How to determine present value of collateral Rash Replacement Value Till Formula rate/riskless or prime rate and add for risk Bifurcating the 1325(a)(5) claim under 506(a) is limited in some instances by 1325(a)(9.5)--and you MUST PAY the full obligation rather than bifurcating (The HANGING PARAGRAPH!!!) This applies when there is a PMSI in collateral for a debt that was incurred in the 365 day period prior to filing for bankruptcy. THEN, it cannot be bifurcated and the secured claim must be paid in full. If the collateral for the PMSI is a motor vehicle and the debt was incurred 2.5 year prior to bankruptcy, you cannot bifurcate the claim--you must pay the secured claim in full, even if the secured creditor is undersecured.

19. Treatment of secured claims under Chapter 13 plan (modification, cure/reinstatement, and minimum payment requirements)

One of the most common reasons why D would choose a Chapter 13 is Ds desire to keep property that is subject to a s/i. The secured C in a Chapter 13 is better protected than his unsecured counterpart. There are two concerns of the secured C that are provoked by a Chapter 13 filing: (1) Adequate Protection of the collateral while D is in possession; and (2) Adequate Payment of Value to the Secured Party as measured by the present value of the collateral C can move to have the Automatic Stay lifted under 362(d), claiming that the collateral is not adequately protected OR C can object to the Plan and ask that it not be confirmed on inadequate payment of value grounds.

Adequate Protection - 362(d)(1): Since D will keep the property under a Chapter 13 plan, the secured party is naturally concerned about the risk that the collateral will lose its value over the life of the plan. Cs concern is that if D defaults under the Chapter 13 plan, and C is compelled to repossess, C could be left with property that has seriously declined in value since the initial filing of the bankruptcy. The two principle risks are that (1) the collateral will be destroyed; and (2) the collateral will seriously decline in value Under 362(d)(2), a secured C can get the stay lifted in a reorganization if: (1) D has no equity in the property (i.e., he owes more than the property is worth to the C); or (2) The property is not necessary to an effective reorganization

Adequate Payment - 1322(b)(2) & 1325(a)(5): The Adequate Payment of the secured C under the Plan is another point where litigation occurs. This issue focuses on the amount the secured party is entitled to receive under Ds plan if D succeeds in making all of the payments.

1322(b)(2)gives D the power to modify the original K between parties. Many Ds will structure their plans around saving their homes to avoid foreclosure, but the D in Chapter 13 does not have the freedom to create a new payment schedule or principal amount due for the home mortgage even if the home is worth less than the outstanding mortgage. Basically, this means that the plan must anticipate payment of the loan balance in full (not just to the value of the home) if D wishes to keep the home. The only relief in Chapter 13 for D as to his mortgage is to Cure and Maintain The power to cure any default in 1322(b)(3) & (5) is not limited by the ban against modifying a home mortgage in 1322(b)(2) because curing defaults is not a modification of the terms of the mortgage By curing a past default on a mortgage, and then continuing to make the regularly scheduled payments, D is able to keep the collateral from foreclosure.

20. Treatment of unsecured claims under Chapter 13 plan (good faith, best interests, and disposable income tests)

To save secured property, D must make special accommodation for secured C in Chapter 13, but this is not so for unsecured Cs in Chapter 13. The on