Chapter 1



Chapter 12

Bankruptcy and Environmental Law

Chapter Outline

1. Introduction

2. The Bankruptcy Code

3. Liquidation Proceedings

4. Reorganizations

5. Individual Repayment Plans

6. Environmental Law

Chapter Objectives

After completing this chapter, you will know:

• The various types of relief available for debtors under federal bankruptcy law

• The basic procedures involved in an ordinary or straight bankruptcy proceeding

• How bankruptcy law provides relief for corporate debtors and what basic procedures are involved in corporate reorganizations

• The major laws regulating environmental pollution

• The basic purpose and provisions of Superfund

Chapter Outline

I. INTRODUCTION

A. Since 1980, the number of personal bankruptcies filed has risen from fewer than 300,00 per year to over 1.6 million per year.

B. Bankruptcy law is an area where there will be an increasing demand for paralegals

II. THE BANKRUPTCY CODE

A. Bankruptcy is Federal law.

i. Governed by the Bankruptcy Code.

ii. The Bankruptcy Code was amended in 2005 by the Bankruptcy Reform Act.

B. Goals of Bankruptcy Law

i. Provide relief and protection to debtors who have gotten in over their heads.

ii. Provide a fair means of distributing the debtor’s assets among the creditors.

C. Bankruptcy Courts

i. Bankruptcy hearings are held in Federal Bankruptcy Court.

ii. Appeals are to the U. S. District Court.

D. Types of Bankruptcy Relief

i. Chapter 7, Total wipeout.

ii. Chapter 9, Municipalities

iii. Chapter 11, Business reorganization

iv. Chapter 12, Family Farm Bankruptcy

v. Chapter 13, Individual Reorganization

III. Liquidation Proceedings

i. Chapter 7 Bankruptcy

ii. Ordinary or straight bankruptcy.

iii. All assets are turned over to a bankruptcy trustee who sells the non-exempt assets.

iv. Proceeds are distributed to the creditors.

v. Remaining debts are discharged.

vi. Individuals, partnerships and corporations can file under Chapter 7.

vii. File a Petition in Bankruptcy. This can be done voluntarily or involuntarily.

E. Voluntary Bankruptcy

i. Before filing, the debtor must undergo credit counseling.

ii. Petition must contain the following “schedules”

1. List of secured and unsecured creditors. Their addresses and the amount owed.

2. Statement of the financial affairs of the debtor.

3. List of all property owned

4. List of current income and expenses.

5. Certificate from the credit counseling service

6. Proof of salary.

7. Statement of the monthly income.

8. A copy of the debtor’s federal income tax return.

iii. Additional Information May Be Required.

iv. Time Period for Filing Schedules

1. Must be filed within 45 days after the petition was filed.

v. Substantial Abuse and Means Testing

1. Petition will be dismissed if substantial abuse occurs

a. Presumed if the debtor’s income is above the state’s median income by $6,000 or more.

b. Abuse is not presumed if the income is below the state’s median income.

vi. Additional Grounds for Dismissal

1. Failing to file necessary schedules.

2. Debtor was convicted of committing a violent crime.

3. Debtor fails to pay child and spousal support.

F. Involuntary Bankruptcy

i. Creditors force the debtor into bankruptcy.

ii. Debtor can challenge the involuntary petition.

G. Automatic Stay

a. Granted the moment the bankruptcy petition is filed.

b. Suspension of every collection effort by creditors.

c. Exceptions

i. Spousal or child support.

ii. Investigations by a securities regulatory agency

iii. Certain claims against real property

iv. Eviction actions

d. Limitations on the Stay

i. Creditor can request relief from the stay. If requested, the stay expires at the end of 30 days unless the court grants an extension.

ii. Bad faith on the part of the debtor.

H. The Estate in Property

a. This estate contains all of the property of the debtor.

I. Creditor’s Meeting and Claims

i. Between 20 and 40 days of the petition being filed, a meeting of the creditor’s takes place.

ii. Debtor is required to attend unless excused by the Court.

iii. Creditors file a proof of claim with the court. The claim is allowed unless contested by the debtor, the bankruptcy trustee, or another creditor.

J. Exemptions

a. The following are examples of property that is exempt from the bankruptcy

i. 1. $18,430 in equity in the debtor’s home and burial plot.

ii. Interest in a motor vehicle up to $2,950.

iii. Personal property valued at $9,850.

iv. $1,225 worth of jewelry.

v. $1,850 worth of the debtor’s tools of trade.

vi. Unmatured life insurance

vii. Prescribed health aids

viii. Social security, welfare, alimony and retirement funds and pensions.

ix. Personal injury awards.

K. Homestead Exemption

a. Exemption was amended by the 2005 Reform Act.

L. Bankruptcy Trustee

a. Duty of the trustee are:

i. To collect and liquidate the non-exempt property of the debtor.

ii. Review all materials filed by the debtor.

iii. Determine if the case is a bad faith case.

iv. Give notice to a person who is owed child support or spousal support.

b. Powers of the Trustee

i. Order a person holding a debtor’s property to deliver the property to the trustee.

ii. Can set aside or void a sale or other transfer of the debtor’s property

iii. Recover payments made to one creditor in preference over another.

iv. Void any fraudulent transfers of property that took place within two years of filing the bankruptcy.

I. Distribution of Property

a. Secured creditors are paid first.

b. Unsecured creditors are paid in the following order

1. Domestic support obligations.

2. Administrative Expenses

3. Unpaid wages.

4. Claims by farmers and fishermen

5. Taxes and penalties.

6. Claims for personal injuries

7. Claims of general creditors.

M. Discharge

a. Purpose is discharge of debt.

b. Exceptions to Discharge

i. Discharge of debt may be denied because of the claims made or the conduct of the debtor.

ii. The following are examples of debts that are not discharged

1. Bank taxes accrued within 2 years prior to the bankruptcy

2. Amounts borrowed to pay Federal Taxes.

3. Property or funds obtained by fraud.

4. Claims of creditors who did not receive notice of the bankruptcy.

5. Claims based upon the debtor’s fraud or embezzlement of funds.

6. Domestic support.

7. Payments due to a retirement account.

8. Government fines.

9. Student loans.

c. Objections to Discharge

i. Discharge can be denied based upon the debtor’s conduct.

ii. Property is sold and assets are distributed but the debt is not discharged.

d. Discharge can be denied because:

1. The debtor concealed or destroyed property.

2. The debtor concealed or destroyed financial records.

3. Failure to complete the credit counseling course.

4. Debtor being charged with a felony.

e. Effect of Discharge

Any judgment of a discharged debt is void.

Any collection action must stop.

f. Revocation of Discharge

a. Discharge may be revoked within one year if it is shown the debtor acted fraudulently during the bankruptcy proceeding.

N. Reaffirmation of Debt.

a. Reaffirmation of the debt—the debtor voluntarily agreeing to pay a debt that could be discharged.

b. Must be done before the discharge is granted.

c. Court approval may be required. Must not be an undue hardship on the debtor

i. Presumption of Undue Hardship

1. If the debtor’s monthly income minus the monthly expenses is less than the scheduled payments, undue hardship is presumed.

2. This can be rebutted.

ii. New Reaffirmation Disclosures

1. Certain disclosures must be given to debtors prior to signing a reaffirmation agreement.

a. Debtor is not required to reaffirm debt on mortgages or cars.

b. The amount of debt reaffirmed must be disclosed.

c. Interest rate must be disclosed.

d. Date payments begin.

e. Right to rescind within 60 days of filing the agreement with the court or the date of the discharge, whichever is later.

IV. REORGANIZATIONS

A. Chapter 11 Reorganization is the bankruptcy type most commonly used by a corporate debtor.

i. A plan is developed where the debtor pays a portion of the debt and the rest is discharged.

ii. Debtor is allowed to continue in business.

iii. Case may be brought voluntarily or involuntarily.

iv. Automatic stay is the same.

v. Principles governing the granting of the discharge are the same.

B. Workouts

a. Workout – out of court negotiated agreement between the debtor and a creditor regarding repayment of the debt.

C. Must Be in the Best Interests of the Creditors.

a. Court may dismiss or suspend any of the proceedings in a Chapter 11 bankruptcy if that would better serve the interests of the creditors.

b. Case can also be dismissed for cause.

D. Debtor in Possession

a. Debtor in Possession means the debtor is allowed to continue to operate the business during the bankruptcy.

b. A trustee or receiver may be appointed by the court if there is gross mismanagement.

E. Collective Bargaining Agreements

a. Code sets out the standards and procedures to be used to accept or reject a collective bargaining agreement.

F. Creditor’s Committees

a. A creditors’ committee of unsecured creditors is appointed.

b. The Committee must consent to any orders or a hearing must be held where the court hears the position of the committee.

G. The Reorganization Plan

a. The plan must:

i. Designate classes of claims.

ii. Specify how each class is to be treated.

iii. Provide an adequate way for the plan to be carried out.

iv. Provide for payment of tax claims over a five year period.

b. Filing the Plan

i. Only the Debtor may file a plan within the first 120 days of the order for relief.

ii. If this deadline is not met, any party may propose a plan.

c. Acceptance and Confirmation of the Plan

i. Each class of creditors must accept the plan.

ii. The court can refuse to accept the plan if it is not in the best interests of the creditors.

iii. Court can confirm the plan over the objection of the creditors. This is known as the cram down provision.

d. Discharge

i. Discharge can be granted any time after the plan is confirmed.

V. INDIVIDUAL REPAYMENT PLANS

A. Chapter 13 allows for “Adjustment of Debts of an Individual with Regular Income”

1. Filing the Petition

a. The debtor is the only person who can file a petition for an individual repayment plan.

b. Can be converted to a Chapter 7 case at the request of the debtor or the creditor under certain circumstances.

c. Trustee is appointed once the petition is filed.

d. The automatic stay applies.

2. Filing the Plan

a. Only the debtor may file a repayment plan.

b. The duration of the plan, three or five years, is determined by the debtor’s median income.

c. Debtor must make timely payments from his or her disposable income.

d. Debtor must begin making payments 30 days after the plan is filed with the court.

e. Failure of the debtor to start and to make timely payments will allow the court to either convert the case to a Chapter 7 bankruptcy or to dismiss the case.

3. Confirmation of the Plan

a. The court will hold a confirmation hearing where creditors may object to the plan.

b. The court will confirm the plan with respect to secured creditors if one of the following conditions is met:

1) If the secured creditors have accepted the plan.

2) If the plan allows a secured creditor to retain their claim to the property until either payment is made in full or the debtor receives a discharge.

3) If the debtor surrenders the property to the creditor.

4. Objections to the Plan.

a. Unsecured creditors can object to the plan.

b. Plan can be approved over the unsecured creditor’s objections if:

1) The value of the property to be distributed is at least equal to the amount of the claims.

2) When all of the debtor’s disposable income will be applied to making payments.

5. Modification of the Plan

a. The plan may be modified at the request of the debtor, the trustee or an unsecured creditor.

6. Discharge.

a. After completion of all the payments, the court grants a discharge of the debts as set out in the repayment plan.

b. The discharge can be revoked within one year if there was fraud.

VI. ENVIRONMENTAL LAW

A. Common-Law Actions

i. Common-law remedies against environmental pollution originated centuries ago in England.

ii. A developing area of tort law, and legal practice, involves toxic torts―actions against toxic polluters.

B. Federal Regulation of the Environment

i. Environmental Regulatory Agencies

1. The most well-known agency regulating environmental law is the Environmental Protection Agency (EPA), created in 1970.

2. Other federal agencies, such as the Department of the Interior, the Department of Defense, and the Nuclear Regulatory Commission also have authority to regulate specific environmental matters.

ii. Environmental Impact Statements

1. The National Environmental Policy Act (NEPA) of 1969 requires that an environmental impact statement (EIS) be prepared for every federal action that significantly affects the quality of the environment.

2. EISs must contain

a. The impact on the environment the action will have.

b. Any adverse effects on the environment and available alternative actions.

c. Irreversible effects the action may have.

3. EISs have become instruments used by private citizens and consumer interest groups to challenge federal agency actions.

C. Air Pollution

i. Mobile and Stationary Sources of Pollution

1. The Clean Air Act of 1963 covers both mobile and stationary sources of pollution.

a. Mobile sources include automobiles, sport utility vehicles, and trucks.

b. Stationary sources include manufacturing plants, electric utilities, and other non-moving sources of pollution.

ii. Penalties for Violation of the Clean Air Act

1. The EPA can assess civil penalties of up to $25,000 per day for violations of emission limits.

2. Additional fines of up to $5,000 per day can be assessed for other violations, such as failing to maintain required records.

3. Persons who provide information about violators can be paid up to $10,000.

4. Those who knowingly violate the act may face criminal penalties, including fines up to $1 million and imprisonment for up to two years.

5. Corporate officers may be subject to these penalties.

D. Water Pollution

i. Navigable Waters

1. Navigable waters include coastal waters, freshwater wetlands, and lakes and streams.

2. In 1972, the Clean Water Act was enacted.

3. Under the Clean Water Act, violators are subject to civil and criminal penalties.

ii. Drinking Water

1. The Safe Drinking Water Act of 1974 (amended in 1996) gives the EPA flexibility in setting regulatory standards governing drinking water.

iii. Ocean Dumping

1. The Marine Protection, Research, and Sanctuaries Act of 1972 (amended in 1983) prohibits entirely the dumping of certain materials in the ocean.

2. Violators are subject to civil and criminal penalties.

iv. Oil Pollution

1. In response to the Exxon Valdez disaster, Congress passed the Oil Pollution Act of 1990.

2. Any oil facility, shipper, vessel owner or operator that discharges oil into navigable waters can be liable for civil penalties and the costs of the clean-up.

E. Toxic Chemicals

i. Pesticides and Herbicides

1. Under the Federal Insecticide, Fungicide, and Rodenticide Act of 1947, pesticides and herbicides must be registered before they can be sold, and they can be used only for approved applications.

2. Under 1996 amendments to the act, there must be a “reasonable certainty of no harm” for a pesticide to remain on the market.

3. Violators are subject to civil and criminal penalties.

ii. Toxic Substances

1. The Toxic Substances Control Act of 1976 regulates chemicals and chemical compounds known to be toxic.

2. The EPA may require special labeling, limited use, set production quotas, or prohibit the use of a substance altogether.

iii. Hazardous Water

1. Some industrial, agricultural, and household wastes pose more serious threats than others.

2. If released into the environment, they may contaminate public drinking water.

a. Resource Conservation and Recovery Act (1976). This act regulates, monitors, and controls hazardous-waste disposal.

b. Superfund (1980).This act regulates the cleanup of disposal sites from which hazardous waste is leaking into the environment. The Superfund imposes strict liability on the potentially responsible party (PRP).

c. PRPs include:

1) The person who generated the waste.

2) The person who transported the waste.

3) The person who owned or operated the site at the time of the disposal.

4) The current owner or operator of the site.

F. State and Local Regulation

i. Many states regulate the degree to which the environment may be polluted.

ii. A business’s proposed development may have to be altered to conform to these regulations.

iii. Local zoning laws also control some land use to protect the natural environment.

G. Environmental Law and the Paralegal

i. Paralegals who specialize in environmental law find employment with federal or state environmental agencies, local government agencies, or a corporate legal department.

ii. Some environmental law paralegals may be involved in extensive litigation concerning environmental claims.

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