Andersons DavidP.TwomeyBostonCollege
MarianneM.JenningsArizonaStateUniversity
1
st
Twomey-Jennings, Business Law and the Legal Environment,duplicated, in whole or in part, except for use as permitted in a license distributed with a
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 21 Ed.
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2011 Cengage Learning. All Rights Reserved. May a be copied, scanned, or duplicated, in whole or in part, use.
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Chapter 35
Bankruptcy
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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2
A. Bankruptcy Law
1.TheFederalLaw
2.TypesOfBankruptcyProceedings
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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3
A. Bankruptcy Law
1. Federal Law. In2005,Congressamended
In2005,Congressamended
theBankruptcycodetobothpreventabuseand
protectconsumers.Jurisdictionover
bankruptcycasesisinU.S.districtcourts,
whichmayreferallcasesandrelated
proceedingstoadjunctbankruptcycourts.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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4
A. Bankruptcy Law
2. Types of Bankruptcy Proceedings:
(A) Chapter7(ConsumerLiquidation).All
(A)
consumerdebts(withafewstatutory
exemptions)aredischarged.Under2005
law,bankruptcycourtscanconverta
Chapter7toChapter13ifthedebtordoes
notsatisfythemeanstest.Onlythose
debtorswhofallbelowtheirstatesmedian
disposableincomewillbeabletocontinue.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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5
A. Bankruptcy Law
2. Types of Bankruptcy Proceedings:
(B)Chapter11(BusinessReorganization).
(B)Chapter11(BusinessReorganization).
(C) Chapter13(ConsumerTimePayment
Plan).Allowsaconsumerreorganization
plan.Individualmustoweunsecureddebts
oflessthan$336,900andsecureddebtsof
lessthan$1,010,650,andhaveregular
income.Bankruptcyreformnowrequires
consumerstofileaChapter13,ratherthan
automaticallydeclaringChapter7
bankruptcy.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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6
B. How Bankruptcy Is Declared
3.DeclarationOfVoluntaryBankruptcy
4.DeclarationOfInvoluntaryBankruptcy
5.AutomaticStay
6.IfTheCreditorsAreWrong:RightsOf
DebtorInAnInvoluntaryBankruptcy
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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7
B. How Bankruptcy is Declared
AliquidationproceedingunderChapter7may
beeithervoluntaryorinvoluntary.[LO.1]
3. Declaration of Voluntary Bankruptcy.
Declaration
Voluntary
Beginswhendebtorfilesapetition(jointpetition
withhusbandandwife).
Abusewillbepresumedifdebtor(s)failthe
meanstest:ifprojectedincome(currentmonthly
incomelessallowableexpensestimes60)isnot
lessthaneither:(i)25%ofunsecuredclaimsor
$6,000,or(ii)$10,000.InreJass:disposable
incomemeansprojectedincome.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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8
B. How Bankruptcy is Declared
4. Declaration of Involuntary Bankruptcy.
Declaration
(A) Eligibility.Aninvoluntarycaseis
(A)
commencedbythecreditorsfilingapetition
withthecourt.
(B) NumberofCreditors.If12ormore
creditors,atleast3whoseunsecured
claimstotal$13,475ormoremustsignthe
involuntarypetition.Iflessthan12
creditors,anycreditorwhoseunsecured
claimisatleast$13,475maysignthe
petition.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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9
B. How Bankruptcy is Declared
4. Declaration of Involuntary Bankruptcy.
Declaration
(C)GroundsforRelief.Ifdebtordoesnot
(C)GroundsforRelief.Ifdebtordoesnot
contestthepetition,courtwillenterorderof
reliefif:(i)debtorisnotpayingdebtsOR(ii)
within120daysoffilingacustodianof
debtorsestatewasappointed.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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10
B. How Bankruptcy is Declared
5. Automatic Stay. Automaticstayatfiling
Automaticstayatfiling
preventscreditorsfromtakinglegalaction
againstthedebtor.
Stayfreezesallcreditorslitigation,
collections,andfilingdatepositions.
Automaticstayendswhencaseisclosed
ordismissed,ordebtorisgranted
discharge.
6. Rights of Debtor in Involuntary
Rights
Bankruptcy.
Bankruptcy.
Debtormaybeawardedfeesanddamages
ifthecaseisdismissedwithoutconsentof
11
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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C. Administration Of The Bankruptcy
Administration
Estate
Estate
7.TheOrderOfRelief
8.ListOfCreditors
9.TrusteeInBankruptcy
10.TheBankruptsEstate
11.VoidablePreferences
12.ProofOfClaim
13.PriorityOfClaims
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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12
Administration of a Bankruptcy Case
Administration
[LO.2]
[LO.2]
Dismissal
Order
of
Relief
Executory
Contracts
(60 days)
Property Rights
(180 days)
Petitioneither voluntary
or involuntary
List
of
Creditors
Appt.
of
Trustee
Collection
of Assets
Evaluation
of Claims
Creditors*
meeting
Automatic with
Involuntary Petition
*
Voidable
preference
Exemptions
Discharge
Sale and
Payment
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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Priority of
creditors
13
C. Administration of the
C.
Bankruptcy Estate
Bankruptcy
7. Order of Relief: enteredautomaticallyina
Order
enteredautomaticallyina
voluntarycase,orwhencreditorsestablish
debtorisunabletopaydebtsinan
involuntarycase.
8. List of Creditors.
9. Trustee in Bankruptcy. Bylaw,trustee
Trustee
Bylaw,trustee
becomesownerofalldebtorspropertyin
excessofexemption.Trusteeholdsallrights
debtorformerlyowned.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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14
C. Administration of the
C.
Bankruptcy Estate
Bankruptcy
10. Bankrupts Estate. Allofthedebtors
Bankrupts
Allofthedebtors
propertyisincludedintheestate.Trustees
havethepowertosetasideorVOID:(1)
transferstocreditor,or(2)preferences.
11. Preferences.Trusteecanvoid
transferwithintwoyearsoffilingwhen
debtorsactualintentwastohinder,delay,or
defraudcreditors.
(A) Voidable InsolventDebtor:balancesheettest.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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15
C. Administration of the
C.
Bankruptcy Estate
Bankruptcy
11. Voidable Preferences.(continued)
(B) PreferentialTransfers:tocreditormaybe
setasidebytrusteeif:(i)transfermadeto
paydebtincurredatearliertime,or(ii)
madewhiledebtorinsolvent,within90
daysoffilingpetition.Transfersmadeto
insiderswithin12monthspriortofiling
maybesetaside.
(C) SelfSettledTrust:voidabletransferswithin
10years.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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16
C. Administration of the
C.
Bankruptcy Estate
Bankruptcy
12. Proof of Claim.
13. Priority of Claims. Securedcreditorsarenot
Securedcreditorsarenot
affected.Unsecuredclaimsarepaidinthisorder:(i)
domesticsupportobligations,(ii)costsandexpenses
ofadministrationcase,(iii)claimsarisinginthe
ordinarycourseofadebtorsbusiness,(iv)claimsfor
wages,salaries,orcommissionsofdebtorsbusiness,
limitedto$10,950/person,(v)employeebenefit
claims,(vi)farmproducers(upto$10,950),(vii)
claimsbyconsumercreditors,(viii)certaintaxesand
penaltiesduegovernment,(ix)allotherunsecured
creditors,(x)remainder(ifany)todebtor.
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17
D. Debtors Duties And Exemptions
14.DebtorsDuties
15.DebtorsExemptions
16.DebtorsProtectionAgainst
Discrimination
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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18
D. Debtors Duties and
D.
Exemptions
Exemptions
14.Debtors Duties. [LO.3]
Debtors
[LO.3]
15.Debtors Exemptions. Statutoryfederal
Debtors
Statutoryfederal
andstateexemptionsforpersonalandreal
property.Homesteadexemptionlimitedto
$136,875.Otherexemptions:IRAs,college
savingsaccounts,paymentsfromlifeinsurance,
alimony,andchildsupport.
16.Debtors protection against
Debtors
discrimination.
discrimination.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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19
E. Discharge In Bankruptcy
17.DenialOfDischarge
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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20
E. Discharge in Bankruptcy
Thedecreeterminatingbankruptcyproceedings
isgenerallyadischargethatreleasesthedebtor
frommostdebts. [LO.4]
[LO.4]
17. Denial of Discharge. Courtwilldeny
Courtwilldeny
dischargeif:(i)within1yearpriortofiling
committedfraud,(ii)failedtokeepproper
financialrecords,(iii)madefalseoath,(iv)
unexplainedlossofassets,(v)refusalofcourt
order,(vi)bankruptcydischargewithinprevious
8years,(vii)failedtocompletefinancial
managementcourse.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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21
E. Discharge in Bankruptcy
17. Denial of Discharge.(continued).The
followingdebtsarenotdischargeable:(i)loans
securedbydeception,(ii)unlisteddebts,(iii)
fraudulentdebtsarisingwhendebtorwasacting
asafiduciaryorbyembezzlementorlarceny,
(iv)alimonyandchildsupport,(v)ajudgment
forwillfulandmaliciousinjury,(vi)aconsumer
debttoasinglecreditortotalingmorethan
$5550forluxurygoodsorservices,
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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22
E. Discharge in Bankruptcy
17. Denial of Discharge.(continued).
(vii)damagesarisingfromdrunkdrivingor
operationofvesselsoraircrafts,(viii)loans
usedtopaytaxes(includingcreditcards),(ix)
taxesnotpaidasaresultofafraudulent
return,(x)prebankruptcyfeesand
assessmentsowedtohomeowners
associations,and(xi)debtsowedtotax
qualifiedretirementplans.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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23
F. Reorganization Plans Under
F.
Chapter 11
Chapter
18.ContentsOfThePlan
19.ConfirmationOfThePlan
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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24
F. Reorganization Plans
F.
under Chapter 11
under
Individuals,partnerships,andcorporationsin
businessmaybereorganizedunderChapter11
sothatthebusinessmaycontinuetooperate.
18. Contents of the Plan. InreLooper:
Contents
debtorspoorchoices,nothardship,isnota
legalreasontodischargedebtinbankruptcy.
19. Confirmation of the Plan.Courtmust
approveplan.Approvalusuallyoccursif
submittedingoodfaithandtermsare
reasonable.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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25
Reorganization under Chapter 11
debtor
or
party in
interest
or
File
plan for
reorganization
of the
debtor
committee
of creditors
Owners and
creditors have
only such rights
as are specified
in the plan
Confirmation of
plan Approval by
court
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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Identifies ownership
interests and debts
not affected by
adoption of the plan
Identifies ownership
interests and debts
affected by adoption
of the plan
Specifies what
will be done to
interests and
claims affected
26
G. Payment Plans Under Chapter 13
20.ContentsOfThePlan
21.ConfirmationOfThePlan
22.DischargeoftheDebtor
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
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27
G. Payment Plans under Chapter
G.
13
13
Extendedtimepaymentplansforindividualdebtors
withlessthan$336,900unsecureddebts,and
secureddebtsof$1,010,650. [LO.5]
[LO.5]
20. Contents of the Plan. Aplanfor
Contents
Aplanfor
extendedtimepaymentmustalsobeconfirmed
bythecourt.Mustprovideforfullpaymentofall
claimswithpriorityunderBankruptcycode.
21. Confirmation of the Plan.
22. Discharge of the Debtor. Debtormust
Discharge
Debtormust
firstcompletefinancialmanagementcourse.
Twomey-Jennings, Andersons Business Law and the Legal Environment, 21st Ed.
2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
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28