Chapter Seven.Overview of Chapter 7 After reading this chapter, you will be able to:

Describe the basic events which occur in all bankruptcy proceedings.

Understand the rules relating to professional retention and compensation in bankruptcy proceedings.

Define the concept of discharge Define the concept of reaffirmation and the

procedures utilized to reaffirm a debt

Consumer No Asset Chapter 7 Proceeding A consumer no asset Chapter 7 proceeding is

a proceeding filed by an individual debtor or joint debtors in which there will normally be no assets available for the trustee to administer for distribution of dividends to unsecured creditors.

Any assets owned by the debtor will be either secured or exempt.

Practice Pointer

The Bankruptcy Code describes ‘‘joint debtors’’ as an individual debtor ‘‘and such individual’s spouse.’’ The Code recognizes married couples but no other joint filings.

Employment and Compensation of Professionals The Bankruptcy Code regulates the

employment and compensation of professionals rendering services in any bankruptcy proceeding.

Bankruptcy Petition Preparers

Section 110(a) defines a bankruptcy petition preparer as a person other than the debtor’s attorney or the attorney’s employee under that attorney’s direct supervision who prepares for compensation a document for filing with the Bankruptcy Court.

An unsupervised paralegal may be a bankruptcy petition preparer.

A document for filing is any document prepared for filing by a debtor in a bankruptcy case.

Exempt

Exemptions are statutorily defined property that an individual debtor may protect from administration by a bankruptcy estate.

Exempt property is not available for liquidation to pay a dividend to creditors; a debtor may keep exempt property.

Exemptions are a primary element of debtor relief.

Discharge

Discharge is legal relief from debt provided for by Section 524 of the Bankruptcy Code.

The discharge is one of the three elements of debtor relief provided for in the Bankruptcy Code.

Automatic Stay

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

The automatic stay is one of the three major elements of debtor relief provided by the Bankruptcy Code.

Fresh Start

“Fresh Start” is the phrase most frequently used colloquially to describe the basic elements of debtor relief: Discharge Exemptions Automatic Stay

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Eight Basic Requirements for Bankruptcy Petition Preparers The preparer must sign the document and include the

preparer’s name and address. Provide a notice to the debtor, prior to the preparation

of any document, stating that a petition preparer may not give legal advice.

The preparer shall include the preparer’s Social Security number on the document.

The preparer shall furnish the debtor with a copy of the document not later than the time the document is presented to the debtor for signature.

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Eight Basic Requirements for Bankruptcy Petition Preparers The preparer shall not execute any document on

behalf of a debtor. The preparer shall not use the word “legal” or any

other similar term in advertisements or advertise under any “legal” category.

The preparer may not receive or collect payment for court fees.

The preparer shall, within ten days after filing of a petition, file a declaration under penalty of perjury disclosing any fees paid or promised by or on behalf of the debtor.

Reaffirmation

Reaffirmation is a debtor’s agreement to remain legally liable for repayment of a debt otherwise dischargeable in a bankruptcy proceeding.

For a debt to be legally reaffirmed, strict compliance with the provisions of Bankruptcy Code Section 524 is required.

Chapter Eight.Conversion and Dismissal After reading this chapter, you will be able to:

Define the concept of conversion Describe how a bankruptcy proceeding may

be dismissed Describe the procedure to convert or dismiss a

proceeding and to define the effect of the conversion or dismissal of a Bankruptcy proceeding upon the debtor’s financial affairs.

Conversion

Conversion means that a Chapter 7 is changed to a Chapter 11 or vice versa.

Commonly, a Chapter 13 or Chapter 11 reorganization that has failed is converted to a Chapter 7 liquidation.

Dismissal

A dismissal will terminate a bankruptcy proceeding and render the proceeding ineffective.

Practice Pointer

It is important to understand the distinction between a ‘‘discharge,’’ which relieves the debtor of his/her personal liability and a ‘‘dismissal,’’ which returns the debtor back in his/her prepetition position and reinstates all of his/her prepetition debts and obligations.

Chapter Nine.Exemptions After reading this chapter, you will be able to:

Define of exemptions Understand the concept of exemptions and their

importance to individual debtors in Bankruptcy proceedings

Describe the Code concept of the “opt out” provision Understand which exemptions to select, when a choice

is available Identify how exemptions are claimed by individual

debtors Identify specific exemptions Describe the homestead exemption and how a

homestead is claimed in many jurisdictions Describe how a claim of exemption is opposed by the

trustee or a creditor

Opt Out

Although the Bankruptcy Code gives a debtor an election to use state or federal exemptions, Congress has also given individual states the opportunity to “opt out” of the federal exemptions scheme.

Homestead Exemption

Homestead is an exemption permitted in an individual debtor’s place of residence.

Section 522(d)(1) of the Bankruptcy Code provides a federal homestead exemption.

State law also provides homestead exemptions.

Summary of Federal Exemptions

Residence of debtor or dependent

Motor vehicle Household goods,

furniture, and wearing apparel

Personal jewelry Any property catch all Tools of trade Unmatured or term

insurance

Cash value of insurance Professionally

prescribed health aids Social Security, welfare,

veterans benefits, alimony, disability, or unemployment

Certain personal injury claims

Retirement accounts

Chapter Ten. Trustees, Official Creditor Committees, and Examiners After reading this chapter, you will be able to:

Describe the role and basic duties of the bankruptcy trustee.

Define the role of the debtor-in-possession in Chapter 11 proceedings

Identify the United States Trustee Describe the Official Creditors Committee Identify the Examiner

Trustees

Section 321 provides that a competent individual who has an office or resides in the district or in an adjacent district where the proceeding is pending may be a trustee in a Chapter 7, 12, or 13 case.

Practice Pointer

Remember, a ‘‘disinterested person’’ is a defined term under the Bankruptcy Code. It includes a person who is not a creditor, an insider, or someone who holds ‘‘an interest materially adverse to the interest of the estate.’’ 11 U.S.C. §101(14).

Practice Pointer

Remember, once the debtor files for bankruptcy, all legal interests or actions that the debtor could have maintained prepetition now belong to the bankruptcy estate.

Once appointed, the trustee represents the estate and may pursue those actions on behalf of the estate.

Office of the United States Trustee

The Office of the United States Trustee is charged with monitoring the progress of all cases, regardless of Chapter, and to act appropriately to ‘‘prevent undue delay.”

Debtor-in-Possession

The debtor-in-possession is the fiduciary entity created by a debtor filing a Chapter 11 reorganization proceeding.

The debtor acts as its own trustee.

Official Creditors Committee

The official creditors committee is an entity created in a Chapter 11 proceeding to act on the collective behalf of unsecured creditors.

Examiner

An examiner is an individual appointed in a Chapter 11 proceeding to conduct an independent investigation of some or all of a debtor’s financial affairs.

Ombudsmen

An ombudsman may be appointed in two discrete situations. First, where an asset sale involves the sale of

personally identifiable information, then the court shall order the appointment of an ombudsman to review the seller’s privacy policy and report on the potential losses or gains to consumers and the estate by the proposed sale.

Second, in a health care business bankruptcy, the court shall order an ombudsman to represent the interests of patients where necessary to regularly report to the court on the quality of patient care.

Chapter Eleven. Preparing a Proceeding for a Trustee After reading this chapter, you will be able to:

Understand the number of simple actions which can be taken to greatly ease the handling of any bankruptcy proceeding

Provide a specific checklist of acts which can be taken in an asset proceeding to enhance the likelihood of creditor dividends

List questions commonly posed by individual consumer debtors

Prefiling Checklist

Value Assets Obtain Documents of Title (Such as Vehicle Ownership

Documents) and Keys to All Vehicles Obtain Name and Address of Landlord(s) Obtain Itemized Inventory and Equipment List, with Values, if Possible Obtain Bank Records Compile Accounts Receivable Data Return Leased Equipment to Lessors Maintain Security Obtain Prior Years’ Tax Returns

Postfiling (Asset Case) Checklist

Learn identity of trustee Communicate with trustee Close bank accounts and obtain cashier’s

check for trustee Encourage insider cooperation with trustee