Indiana University Bloomington



OutlineTuesday, November 15, 20111:31 PMI. Chapters One & Twoa. Secured transactionsi. C is secured to the extent C has attached value to the collateral1) Examples:a)b) c) d) e)b. Repayment to CsC sues D for not paying medical bill. A filing of judgment creates a lien on property. This allows C to change status from unsecured to secured.D has a house worth 100K with a 50K mortgage. C obtains a 10K judgment. C can foreclose on D's property. If D doesn't have a house, but he does work. C can garnish D's wages.Non-consensual liens: turn unsecured debts into secured onesOther collection tools: assignment for benefit of C & receivershipi. "First come, first served"1) Cs who file and obtain judgments earlier, get paid earlier. Repayment is done in order of date.a) Same follows for garnishment. First C is likely to get statutory max, successive Cs will likely not.ii.Treating like Cs the same1) Unsecured Cs are treated pro rataiii. iv.Bankruptcy court give Cs one forum to sue D Bankruptcy court prefers certain debts1) 507 priorities2) 727 limits on dischargabilityv.4 things that generally happen in bankruptcy1)362--the automatic stay2)541--creation and distribution (by priorities) of the estate3)727--discharges4)522--exemption of certain assets from distribution of estatec. In re Talib [109(h)]i. 109(h)(1) requires D to obtain credit counseling within 180 days before filing unless those services are determined to be unavailable within 7 days of request or there are exigent circumstances.1) Court can let it slide initially, but D must do it within 30 days of filing then. [109(h)(3)(B)2) 109(h)(1) doesn't apply to active military, disabled, or incapacitated people who cannot comply as determined by the court.d. Types of bankruptcyi. ii. iii.Chapter 7 ("straight liquidation bankruptcy")Chapter 11 (reorganization of business [sometimes an individual]) Chapter 13 (reorganization of individual)1) People with temporary loss of income who are trying to keep up with billsiv.Chapter 15 (cross-border bankruptcy)e. Appeals from B.Ct.i. B.Ct. --> BAP or D.Ct. --> App.Ct. --> SCOTUSf. Players in bankruptcyi. T1)2)Chapter 7: Panel T Chapter 13: Standing Ta) Handles and distributes money3) US Trusteesii.a) CreditorsAG's Office (DoJ) watchdogs, especially active in Chapter 111) Secured (with collateral)2) Unsecured (represented by T)iii. iv.D (co-debtors generally not protected by other D's bankruptcy) Transfereesg. Stern v. Marshalli. B.Ct. doesn't have constitutional authority to rule on issues of state tort law even when resolving B issues. B.Ct. can only hear "core" proceedings and "private rights" issues (between government and private individual)h. Problem 2-3i. ii. iii.(a)--B isn't for everyone. If D can sell his assets to cover his debts, that might be preferable(b)--D suffered a triggering event stemming from medical bills, Chapter 13 might be the solution(c)--D is very poor and has no assets, getting a B "fresh start" might not be that helpful.II.Chapter 3: The B Estatea. In generali. Upon filing B, an estate is created in all of D's legal and equitable interests. Only D's interest is put into estate (not co -owner's). First, Tneeds to identify D's interest in property1) US v. Whiting Pools [542 & 363(b)(c)&(e)]a) 542(a) includes property where IRS has a secured interest. D still has some rights in the property, therefore the 542(a)includes the property until there is a sale.b) IRS has rights in the liened property, but not right to being the property into the Service's legal custodyi) IRS still has a secured interest (lien) on the property, but cannot prevent D from using the property to reorganize his business2) Estate extends to property D would receive from a divorce coming 180 days after filing. [541(a)(5)(B)].ii.What doesn't come into estate1) Spendthrift trusts and other trustsa) Megafood Stores [541(d)]i) B.Ct. finds that comingled funds designated for taxes were in a special statutory "constructive" trust that was not part of estate2)3)b. PreferencesERISA-qualified pensionsPost-petition earnings (unless in a Chapter 13)i. (1) A payment or transfer to the benefit of C; (2) on account of an antecedent debt;(3)that was made when D was insolvent (there is a presumption of this for the 90 days preceding filing [547(f)]) ; (4)that benefits C at the expense of others;(5) and gives them more than they would have under Chapter 7 within 90 days of filing1) C only has to pay back portion that is a preferenceii.In re DAK Industries [547(b)]1) Company was paying its expenses even though the company had declared Chapter 11 bankruptcy two and a half years earlier and was a debtor in possession this entire time2) The company was solvent during the preference period, so because it was operating, they were able to prefer some creditorsiii.The nine defenses 547(c)(1)-(9):1) Payments in ordinary course [547(c)(2)]a) Elementsi) ii) iii)Debt incurred in ordinary course of D and C Payment made in ordinary course of D and C Payment made according to ordinary business termsb) Union Bank v. Wolasi)ii)Bank paid 2 interest payments on long -term debt. T says it's not ordinary course because it's long -term debt. Court says it is ordinary course to pay interest on debtc) Tolona Pizzai)ii)D issued 8 checks to supplier according to continuing business practices, rather than what the K said. Court says ordinary practice matters, not what K saysc. Fraudulent transfers [548]i. ii.Unlike with preferences, there is no presumption of insolvency during the 90 days preceding bankruptcyT pursues these transfers in two ways1) 548(a)(1)(A) & (B): actual and constructive frauda) Look for badges of fraud2) 544(b): application of state lawiii. iv. v.Purchase of property isn't necessarily fraudulent, it's the transfer to a third partyGo over Problem 3-17, get notes from someoneBFP v. Resolution Trust Corporation [548(a)(1)(B)(i)]1) Foreclosure value is a "reasonably equivalent" value when that's the only method of salevi.Charitable institutions are protected from constructively fraudulent transfers, but not actually fraudulent transfers [548(a) (2)]III.Chapter Four: Exemptionsa. In generali. Exemptions protect D from judicial liens1) Does not protect from consensual liens (mortgage) or, in some cases, statutory liens (mechanic's)2) Exists out of bankruptcy (state law)3) Only individual have exemptions [522(b)(1)]a) Typically, exemptions are per individual, not per familyii.States can opt out of federal exemptions, in which case only state exemptions apply [552(b)]b. Jurisdictioni. ii.iii.If D has not moved within the past 730 days, jurisdiction of where D livesIf D has moved within past 730 days, court looks to the 180 days before the 730 days. Where D lived longest during that period is what law governs.Two tests1) Residency test for filing purposes2) Exemption test (180 days prior to 730 days)c. Getting your exemptionsi. ii.D is only trying to exempt equity.Stacking of exemptions (if legitimate), is allowed in most states1) Ex: D can combine tools of trade and motor vehicle exemptions and apply them to a single truck2) Not allowed in Indiana3) Husband and wife can stack their exemptions on the same property; however both must elect state or federala) Default if disagreement is state exemptions [522(b)(2)]iii.D has to own property and claim property to exempt it1) If wife owns horse solely, husband cannot exempt it2) TXE and JT property is exempt if exempt under applicable nonbankruptcy law [522(b)(3)(B)]d. Allocation of exemptionsi. ii.Federal homestead pour-over provision, with cap [522(d)(5)]Items given away (via fraudulent transfer) that come back into B estate by T are not allowed to be exempted, even if an exemp tion were available for it [522(g)(1)(A)]1) Prohibition on exemption here does not apply if transfer was involuntary or avoidable by D under 522(f)iii.iv.With respect to 522(g) transferred property, if T refuses to go after it, D can take over T's avoidance powers and recover pr operty[522(h)]Federal exemptions are retained after B to prevent Cs from getting D's stuff after B [522(c)]e. Valuation of propertyi. ii.Feds use FMV of property at the time of filing, under 522Postpetition appreciation of property goes to the estate1) However, if property is entirely exempted at time of filing, postpetition appreciation goes to D (some courts disagree)f. Abuse of exemptionsi. Taylor v. Freeland & Kronz [522(l)]1) Property listed on list of exempt items is exempt unless objected to in a timely manner (30 days after 341 conference)a) Because Ch. 11 & 13 don't have Ts, in theory, D could make spurious exemptions, hope Cs don't catch it, and then convert to a Ch. 7i) One court closed this loophole by requiring a new 341 conference upon conversionii.Hanson v. First National Bank1) D sold property for FMV and used the proceeds to buy exempt life insurance policies under the exemption amount and pre-pay part of the mortgage.2) Court finds these are not badges of fraud3) 522(o) sets out to solve the Hanson problem by prohibiting prebankruptcy exemption planning in this manneriii.Norwest Bank Nebraska v. Tveten1) $19M of debt, D tries to exempt about $750K in life insurance.2) Argued and decided same say as Hanson3) Courts finds this to be abusivea) Courts would rather see D abuse exemptions in favor of a homestead rather than something elseiv.In re Sholdan1) D converted unexempt property into case to buy a $135K house2) Court says that despite being its preference for homesteads, this was still a fraudulent transfer3) 522(p) denies any exemption amount in a homestead above $146K attributable to an interest acquired within 1,215 days (3 years 4 months) before petition for Ds with state exemptionsv. Ask about 522(o) & (p) and Problems 4-13 & -14 (p. 166)IV.Chapter Five: Claimsa. C must file a claim and unless objected to, the claim stays [502(a)]b. C's failure to repay preferences will result in the disallowance of his claim [502(d)]c. Late claims are subordinated to timely claims [726]d. Contingent claims [502(c)]i. In re Piper Aircraft1) Future unknown claimants have a claim under B law if there was sufficient prepetition exposure/contact2) Seconded by In re Hassanallyii. iii.Assigning a numerical value to a contingent claim is really tough (Lorch's satellite case)D want contingent claims allowed so they will be done with, Cs do not. However, C is gambling that there may not be a viable organization after discharge.e. Equitable claims [101(5)(B)]i. ii.Equitable rights are claims only if their breach gives rise to a right of paymentIn re Ward1) If non-compete is something that cannot be translated to damages, then it's not a claim and the injunction should remain. If translatable into damages, it is a dischargeable claimf. Executory Ks and unexpired leases [365]i. Acceptance1) D has to make C whole again and give assurance [365(a)]2) If there is a right to cure, the K is still able to be accepted. However, if the K is "dead", you cannot and period for cure has run, Tcannot force C to maintain a dead K with D3) T doesn't have a cure nonmonetary breaches, so T can accept a K with a shopping mall and "leave the lights dark" despite the Ksaying it cannotii.Rejection1) Treated as a prepetition claim [365(g)]2) Minutiae [365(d)(4), (h), (i), (j), (n), (p)]iii.Assignment1) T can assign a K to a third party, even if K says that's not allowed [365(f)(1)] and estate has no liability for assignee's future breach [365(k)]2) If T assigns, he has to cure, but profits from assignment become part of the estateiv.Unassumable Ks [365(c)]1) "personal services" Ks2) K in which D promises to make loan3) Lease of nonresidential property that was terminated prepetitionV. Chapter Six: Secured Claimsa. General treatmenti. D can't strip undersecured lien on Chapter 7 mortgage (Dewsnup)1) Can D strip lien on other things?ii.Postpetition treatment of prepetition liens1) Floating liens aren't allowed unless traceable [552(b)(2)]a) Postpetition rents might be liened on, but this might not apply to hotel/motel fees and nursing home feesiii.Postpetition interest [502(b)(2)]1) Typically, C doesn't get postpetition interest unless C is oversecured [506(b)]iv.Lien avoidance and the strong-arm powers [544(a)]1) T gets 3 imaginary roles to avoid liensa) C who gets a postpetition judgment on all D's property b) C who executes a judgmentc) C who becomes bonafide purchaser of D's real propertyv. Automatic preservation of avoided transfer [551]1) T can avoid a lien and then preserve the benefit of the estatea) Where Mortgage #1 is avoided, T "takes" Mortgage #1's position to prevent Mortgage #2 from taking #1's place b) Prevents junior lien holders from taking primary lien holder's placeb. Liens & Preferencesi. Generally:1) Payments to a fully secured C is not a preference2) Payments to a partially secured C is always a preferenceii.Contemporary exchanges [547(c)(1)]1) If there is an immediate exchange of cash and a good, D's assets has changed form, but not value2) Preferences have to be on account of an antecedent debta) Creating a loan in exchange for a security interest (like a mortgage) is fine, and thus unavoidableiii.Perfection grace period [542(e)]1) Transfer of a security interest will be deemed to have occurred when the interest attached, if perfection occurred within the following 30 daysiv.PMSI [547(c)(3)]1) Say you have a lien on units of oil and the value appreciates. This is not a preference, this is luck. There was never a transfer.v. Improvement of position test [547(c)(5)]1) (c)(5)--Improvement of Position Test (expressly secured Cs)a) There is an avoidable preference--not if C's secured claim increases--but if C's unsecured claim decreasesb) Formula: find (debt - value of collateral) both 90 days before and day of petition. The amount the position improves is an avoidable preference.vi.Preference analysis under 547 for a secured C1) In re Ebbler Furniture and Appliancesa) Use a case-by-case standard of review to determine what standards (like FMV, replacement, or wholesale value) to usevii.Statutory liens [547(c)(6)]1) Statutory liens arising during preference period are immune to avoidance but are subject to their own special avoidance rules[545]c. Most common types of liens in Chapter 7i. Liens Impairing Exemption1) Consensual liens [522(f)(1)(B)]a) [522(f)]--D can avoid a nonpossessory, nonPMSI in household goods and furnishings, tools of trade, and professionally proscribed health aids to the extent that the lien impairs an exemption to which D would otherwise be entitledi) If the lien was possessory at the get -go by C, then the lien wouldn't be avoidableb) In re McGreeveyi)ii)Guns may or may not be household goods shielded from a consensual lien(f)(4)--outlines what a household good is. [A car is not a household good.]2) Judicial liens [522(f)(1)(A)]a) Avoidableb) You can't avoid domestic support obligations on exempt propertyi) Farrey v. SanderfootOne. Two.H and W divorce. H gets house in return for paying wife. H declares B and wants to pay W nothing. H can only avoid the fixing of a lien on property he owned solely before the divorce (not the house)3) Claiming Exemptions after using T's avoiding power [522(i)]a) Page 236 problemi) A judgment lien impairs an exemption to the extent that the sum of:One.The lien, all other liens, and amount of exemption; minus FMVFirst.In re Silveirab) Questions to ask:1. Where lien > impairment from lien, the excess is not avoided.i) ii) iii)Did D have the property before? Math computation?To what extent can you avoid lien?c) Page 241 problemd) Confusingii. iii.Statutory liens [545]Liens Securing Fines and Penalties [724(a)]1) T can avoid fines for no pecuniary lossVI.Chapter Seven: The Automatic Staya. Generally [362(a)i. ii.Point is it maintain status quo of estate during B processAny postpetition act to collect a prepetition claim is enjoined, whether the act is directed at D, D's property, or the estat e's property[362(a)(1)-(7)]1) Very broadiii. iv.In addition, all efforts to collect a postpetition claim that are directed against property of the estate are stayed [362(a)( 3) & (4)] Stay doesn't apply to postpetition actions against postpetition property that is not part of the estateb. Exceptions to the automatic stay [362(b)]i. ii. iii.Certain civil and all criminal proceedings may continue despites the stayGovernment may continue to act as regulator so that B is not a safe haven for corporation criminals (polluters)In re First Alliance Mortgage Co.1) State sues D for shady loan practices and wants civil penalties and restitution.2) State wins, but each claim is considered prepetition, and will therefore get little or nothing from Bc. Duration of stay [362(c)]i. ii. iii.For claims against property of the estate, stay expires when property seizes to be property of estate [362(c)(1)]For all other acts, stay expires when B is closed or dismissed, or D is granted/denied a discharge (whichever is first) [362( c)(2)] (c)(3)--Where D filed B within past year and was dismissed under 707(b):a) (A)--automatic stay ends in 30 days unless filed in good faith (and there is a presumption of bad faith)iv.(c)(4)--Where D filed B twice or more within past year and was dismissed:a) (A)--on request of a party in interest, there is no stayb) (D)--there is a presumption of bad faithd. Relief from stay [362(d)]i. (d)--B.Ct. can grant relief from stay1) (1)--for cause (depreciation/obsolescence), including the lack of adequate protection (that protect the extent of a secured claimsuch as periodic cash payments, maintenance, and insurance, but not the entire claim), of such party in interest2) (2)--w.r.t. a stay of an act against property under (a) if:a) (A)--D has no equity in property; andb) (B)--property is not necessary to an effective reorganization1) [For a 7, where debt > collateral, secured party can take property. For an 11, you need to know if there is equity.]2) Essentially:One. Two.e. Violations of stay [362(k)]Collateral < debt --> no equity --> give to secured C Collateral > debt --> value to estate --> no relief from stayi. ii. iii.Technically, no intent is required to violate stayD can sue C for willful violation of stay [362(k)(1)]In re Schwartz [362(d)]1) IRS actions taken in violation of the automatic stay are void, not voidable. Therefore, D doesn't have to affirmatively challengeviolations for C to get in trouble or have that debt discharged.f. Application of stay to rejected leasesi. T is going to reject residential leases because they are worthless to the estate1) Generally with personal property and residential realty, rejection gives rise to a prepetition breach but does not terminate the lease2) Rejection is merely an abandonment of the lease to Dii.When non-residential real property is involved, if a T fails to assume the lease, T must immediately surrender the property to C. [365 (d) (4)]1) This means 362(a)(3) no longer applies to C, because estate no longer has interest in lease or the property.2) However, D and estate will have property in building, and C cannot mess with thatg. Actions against nondebtorsi. ii.Nondebtors not covered by stay except in Chapter 13s where a consumer debt stay can apply to a cosignorOnly debtors get the stay. This applies for H and W. (?)h. Prohibition on discrimination [525]i. ii.Public entities are prohibited to denying licenses to, denying employment to, or terminating the employment of D merely becau se D is insolvent or has filed for B. [525(a)]Private employers are prohibited from discharging an employee who filed for bankruptcy merely because of B or being insolvent . [525(b)]1) Hiring decisions can be affected howeveriii.Student loans cannot be denied. [525(c)]i. Tolling rules [108]i. ii. iii.108(a)--tolls statutes of limitation for actions that could be brought by D108(b)--tolls time for T to file pleadings and do other similar things108(c)--tolls statutes of limitation for actions against DVII.Chapter Eight: The Liquidation Processa. Even after T abandons property, C must ask for stay to be lifted to foreclose b. The four R'si. Reaffirmation [524(c)]1) Where D has built up a substantial amount of exempt equity in collateral, D may wish to reaffirm the debta) Vehicles (90%+)b) Allows D to make periodic payments. If there is subsequent default, C can go after D (after stay is lifted) for default amount and any underlying obligation2) Elementsa) D must assume entire debt b) C consent is requiredc) Agreement cannot impose undue hardship3) In re Riggsa) D has a car and wants to reaffirm. Attorney did not sign declaration saying it is in D's best interest. b) BAPCPA says there is a presumption of an undue burden if: income < expenses + affirmed debtc) Judge must determine if presumption is rebutted:1) Rule of thumb = over 10% interest or over $20d) Holding: reaffirmation denied; however, (before BAPCPA) D can keep it and retain it so long as D was already current and continues to beii.Redemption [722]1) D has option to pay for what property is worth (not what is owed)2) C isn't harmed: C gets either this amount or the actual property (same value)3) D needs money upfront (often problematic)4) Only applies to personal property of individual Ds5) If you redeem, and property is worth more than D's outstanding loan, D only has to pay outstanding loan amountiii.Repossession1) Cs are still subject to automatic stay even though they are not paid from the estate2) T must abandon property first; this protects D with exempt equity in property3) Postponement, rather than cancellation, of foreclosure sale is fine because it maintains the status quo (rather than going back to square one)iv.Retention1) In re Boodrowa) Retention, by having been and staying current with payments, is allowed in some courts. This allows a D current on payments to retain his original K with C.2) Not allowed in 7th CircuitVIII.Chapter Nine: Priorities and Distributiona. Appraisal and salei. T may, with B.Ct.'s approval, hire an appraiser or broker to facilitate the sale of estate property. [327(a)]b. Distributions of Chapter 7 estate property [726]i. 726 determines how property is distributed1) 726 incorporates 507, which determines priorities2) 507 incorporates 502, which regards administrative expensesii.726 applies only in Chapter 7 cases, but 507(a) priorities are also recognized in Chapters 11, 12, and 13c. Prioritiesi. Support claims [507(a)(1)]1) Benefits of this prioritya) Immunity from preference liability and D's exemptions b) Partial immunity from stayc) Protection from lien avoidance actionsd) Protection from discharge1)2) Issues:[522(f)(1)(A), 547(c)(7), 522(c)(1), 362(b)(2)(B), 523(a)(5)]a) Is it a property settlement or support?1) Obligation ends on date of death of payee, remarriage, etc. --> support2) If alimony (support), payor gets deduction and payee gets incomeii.Administrative expenses [503(b)]1) Costs of preserving estate2) Costs of continuing the business (buying/selling, postpetition line of credit)a) PA Dep't of Environmental Resources v. Tri-State1) D dumps blood illegally prepetition, files B, gets caught postpetition, and a fine is assessed postpetition2) Quid pro quo requirement. Priorities are for purposes of obtaining credit that D would otherwise not receive. It is not for punitive damages mean to be taken at the expense of other Cs. [503(b)(1)(A)]b) In re Leitnera) D's lawyer gets a mortgage on D's property to get paid. D reaffirms.b) Professionals employed by the estate cannot hold a position adverse to the estate. [327(a)]1) If professional has a prior claim against D, that claim must be waived for professional to work on D's case and collect administrative expenses.c) In re GIC Government Securitiesa) Law firm is hired to sue brokerage firm to bring money into estate, but fails. Firm charged a reasonable amount, but court knock down fee because firm lost. [328(a)]b) Court wants to avoid "churning" --doing work that adds no value, but will cost estate moneyd) In re Jartrana) D contracts with 2 firms to place ads throughout the US. Between time of K and time of publication, D files B. b) Two part test (Mammoth Mart)1) Expenses must arise from trx with DIP2) Expenses must be beneficial to DIPe) Resource Technology Corporation v. Rotiiii.a)T's compensationA tort occurring between appointment of T and discharge is not an administrative expense in a Chapter 7. During aChapter 7, T is just there to wind down company, whereas in Reading, company was a going-concern.1) T is entitled to reasonable compensation for services but such compensation is capped at a percentage of the distributions to Cs[326(a), 330(a)]2) T gets $45 for each case filed in a Chapter 7 [326(b)]3) T can employ himself as a profession [327]a)b)d. Other prioritiesT hires himself as a lawyer [327(d)]T's compensation for professional services is not capped by a percentage of distributions in a case [330(a)]i. Wage and benefit claimsii.1) Taxes1)2)3)Wages [507(a)(4)] and benefits earned [507(a)(5)] within 180 days are given priority, there is a cap, however.507(a)(8)(A)(i)--if D files bankruptcy today, any tax returns with 3 years (including extensions) of today, then it gets priority.507(a)(8)(A)(ii)--or taxes are assessed (without the filing of a tax return) within 240 days before filingTax liens can be avoided to the benefit of administrative claimants [724(a)]iii.Torts for driving while intoxicated1) Non-dischargeable and tenth priority [507(a)(10)]e. Problem 9-9 (page 347)i. Good exam questionIX.Chapter Ten: Discharge and Dismissala. Denial of dischargei. Cs can file suit under [727] to prevent discharge1) Time requirementsa) (8)--D has a Chapter 7 or 11 within the past 8 yearsb) (9)--D has a Chapter 12 or 13 within the past 6 years if Cs weren't paid more than 70% of their plan2) Other reasonsa) (1)--Chapter 7s are limited to individual Dsb) (2)--with intent to hinder (etc.), make a fraudulent transfer or destroy property c) (3)--failure to maintain proper financial recordsa) It's what a reasonable person would do under reasonable circumstances ( e.g., ticket-scalper isn't going to have exhaustive records; however, a stockbroker would)d) (4)--D knowingly and fraudulently EITHER false claim/oath OR withheld items from officersa) Elements of fraud (all required) C must prove1) D made a statement under oath2) Statement was false3) Statement related materially to the case4) D knew statement was false5) D made statement with fraudulent intentb) In re Mitchelli) ii) iii)D withheld lots of info from filing, including details of life policies, payments, income, etc. "Reckless indifference" sufficient to constitute a false oath under 727(a)(4)(A)D doesn't get dischargec) In re Baldridgei)ii)b. Non-dischargability of claimsD kept more than his share of mother's estate, but was forced to make notes to his siblings. These notes were80% of debt. D was offered land from uncle, but D had uncle give it to W. D was being a bit evasive with how he gets paid, etc., all to skirt BLesson: Disclose, disclose, disclosei. ii.Non-dischargeability still allows Cs to take according to prioritiesExceptions to discharge [523]1) (a)--no discharge fori. (1)--taxesa) Priority taxes are usually the non -dischargeable taxes, generally [523(a)(1)(A)]b) Whether or not taxing authority filed claim, as long as D failed to file return or did so within the past two years, taxes are still not dischargeable [523(a)(1)(B)]c) If a return was never filed, or fraudulent, then [523(a)(1)(C)]d) [507(a)(8)] priority tax debts are non -dischargable, as are loans taken out to pay tax debts and other non - dischargable debts [523(a)14)]ii.(2)--credit/services/etc. obtained by false pretencesa) Elements of fraud in annotated statutesb) In re Hashimii)ii)D runs up 60K in debt right before declaring B Discharge not allowediii.(3)--C's claims that D failed to put on a schedule of creditorsi.ii.iii.Exception: In a no asset Chapter 7 and there are no other bases of denying a discharge, then the discharge is allowed. "No harm, no fowl"However, even if D doesn't want to discharge a claim, he must disclose it or else right a failure of omission and false statement which could affect the entire dischargeCohen v. Delacruzi)ii)If underlying root is fraud, the fruits are fraudNo novation meant to rectify fraud allowed (?)iv. v. vi.(4)--embezzlement, fiduciary fraud(5)--support obligations(6)--willful and malicious injuriesi. ii.Injury must be intentional, not merely negligent (Geiger) "W and M" blend togethervii.(8)--educational loansi. Brunner test:i) ii) iii)D can't maintain minimal standard of libingAdditional circumstances mean this will continue into the futureThere was an attempt to repay the debtii.Generally, if mentally and physically able, D must repayi) In re GerhardtFirst.Cello teacher likely doesn't satisfy (2) or (3)iii.It doesn't matter if it was D's education, if D has loan or cosigns, D can't dischargeviii. ix.(14)--D cannot discharge debts incurred to pay off non-dischargeable debts(15)--any other obligation out of a divorceiii.Priorities are in B, discharges are outside of BX. Chapter Eleven: Individual Debt Adjustment in Chapter 13a. Chapter 13 safe havensi. ii. iii.Catch up on their homes if behindCatch up on car debtTo pay debts1)b. Why file?Impossible to catch up with IRS, so Chapter 13 prevents IRS from collecting or charging penalties or interest for 5 yearsi. ii. iii.Exemptions don't cover equityTemporary layoff, but now D is employed[707(b)] means test problems1) Presumptive abuse from high incomeiv. v. vi.Slightly broader income Taxes may be paid over time Cram down debts1) Chapter 11-13 all allow cramming down of debt!c. Who can file?i. Individuals with income1)2)d. MechanicsPost-petition income is part of estateLimit to amount of debt D can havei. ii.[1007(6)]--statement of monthly income and expensesThere are standing (rather than Chapter 7 panel) Ts1) Reviews claims, recommends whether claims should be allowed,iii. iv.[1303] and [1304]--powers that remain with DGoal of Chapter 13 is to get a dischargee. D cannot be forced to file a Chapter 13 f. What's in a plani. [1322]--3 mandatory provisions of what must be in a Chapter 131) Submit future earnings necessary to execute the plan2) Make full payment of priority claimsi. Exception: if T is so far behind on support that it's impossible to catch up, that's OK [odd provision])a) Must be current on postpetition support payments3) If there are separate classes of C, D must treat Cs the same in each classg. Optional provisionsi. [1301]--there is also a stay for the co-D (who is an individual) even though co-D is not in B1) Show for personal, family, household debts (not business)2) D's debt (and not the co-D's debt)ii.[1301] stay can be lifted if it doesn't pay the debt in fullh. What secured Cs geti. [1322(b)(2)]--plan can cram down secured Cs1) Ex: D owes 50k on real estate and FMV is worth 25k. This is a secured debt. 25k is secured, 25k is unsecured.a) This is other than property secured only by a home mortgage. Other interests can be crammed down.ii.i. Mortgages in 13This is not lien avoidance1) D can strip a wholly unsecured second mortgage in a 13. T cannot do this in a 7.a) Why?i)Nobleman (13),b) The stripping doesn't occur until plan is confirmed c) Wholly unsecured second mortgagei) First mortgage blankets all the value of the home. Second mortgage attaches to no value in the property.2) Exceptions to cram down (reducing loans to value of collateral)a) D can't alter a loan D borrowed from himself from a pension or savings b) Cars are the most crammed down debti) If D buys car within 910 (2.5 years) days with a PMSI, D cannot cram debt down [1325]One."The famous hanging paragraph" before (b)i. Requirements under 1325 for confirmationi. ply with statute and paid court costsGood faith (prevents serial filers)1) A zero percent plan is not bad faith (unsecured don't get anything)2) Filing a 7 then filing a 13 to keep the house is not bad faithiii.Best interest of Cs test (para 4 of 1325)1) Value of property to be distributed (…)a) Liquidation test--you see if D had done a 7, what would have been left to Cs (say its $20K in a 7, then in a 13, D must give away at least $20K)2) You must have a timely claims and you consider net liquidationiv.[Stuff about cars, blah, blah, blah]1) Rash (replacement value is value),j. [1325(b)(1)], and you also have to show under [1325(b)(1)(B)] that D will have disposable income paid to unsecured Csi. D's current monthly income is the average of the 6 months before filingk. Lanning casei. If there's been a known change in circumstances (…)l. 1328(b) & (c): hardship discharge2nd Ann.Tuesday, November 15, 20111:31 PMI. Generally:a. 101: Definitioni. 101(5)--claims: very broad1) (B)--equitable rights are claims only if they are translatable into damagesii.101(31)--insiders1) (A)--one-year preference period applies to any transfer to an insider or for their benefitiii.iv. v. vi. vii. viii.101(32)--insolvent: sum of all liabilities exceeding value of all nonexempt assets (negativenet worth)101(36)--judicial lien101(37)--lien101(51)--security interest101(53)--statutory lien101(54)--transfer: by any method, of any part of an interest in property, that D had an interest inb. 102: Rules of constructionc. 105: General grant of power to B.Ct.d. 108: Tolling of various time limitsi. ii. iii.108(a)--tolls statutes of limitation for actions that could be brought by D108(b)--tolls time for T to file pleadings and do other similar things108(c)--tolls statutes of limitation for actions against De. 109: Who may be a D under different chaptersi. 109(g)--D can't be a D if in the preceding 180 days:1) 109(g)(1)--case was dismissed for D's willful failure to abide by court orders; or2) 109(g)(2)--D requested, and received, voluntary dismissal of case following the filing of a request for relief from the automatic stayii.109(h)(1)-requires D to obtain credit counseling within 180 days before filing unless thoseservices are determined to be unavailable within 7 days of request or there are exigent circumstances.1) Court can let it slide initially, but D must do it within 30 days of filing then. [109(h)(3)(B)2) 109(h)(1) doesn't apply to active military, disabled, or incapacitated people who cannot comply as determined by the court.f. 326-330: Compensation to parties involved in B proceedingsi. 326: Limitation of compensation of T1) (a)--T is entitled to reasonable compensation for services but such compensation is capped at a percentage of the distributions to Csa) T gets percentage of distributions plus percentage of administrative expenses2) (b)--T gets $45 for each Chapter 7 caseii.327: Employment of professional persons1) (a)--T may, with B.Ct.'s approval, hire an appraiser or broker (or other professional) to facilitate the sale of estate property. The professional must be disinterested.2) (d)--T may hire himself as attorneyiii.328: Limitation on Compensation of Professional Persons1) (a)--B.Ct. can limit amount professionals get. It is within court's discretion to grant payment.iv.329: D's trx with attorneys1) (a)--D's attorney has to disclose with the B.Ct. how much he has been (or plans to be)paid2) (b)--B.Ct. can void payments deemed to be excessivev. 330: Compensation of officers1) (a)--T is entitled to reasonable compensation for services but such compensation is capped at a percentage of the distributions to Cs.a) However, T's compensation for professional services is not capped by apercentage of distributions in a caseg. 361: Adequate protection for 362-364i. ii. iii.(1)--cash payment(2)--replacement lien(3)--administrative expense compensationh. 362: Automatic stayi. (a)--Stays actions and efforts to transfer property rights. Does not stay automatic expiration of property rights, nor does it toll expiration of rights of redemption or the expiration of a lease. Operates as stay of: [many of the following may apply:]1) (1)--commencement or continuation of collection process against D for prepetitiondebts2) (2)--enforcement against D (or estate's property) obtained prepetition3) (3)--acts to obtain property, control of property, or possession of property4) (4)--acts to create, perfect, or enforce lien against property of estate5) (5)--acts to create, perfect, or enforce lien against D's property to extent liens arose prepetition6) (6)--acts to collect/recover prepetition claims against D7) (7)--the setoff of any debt owing to D that arose prepetition against any claim againstD8) (8)--commencement or continuation of a U.S. Tax Ct. proceedingii.(b)--Exceptions to the automatic stay1) (b)(1)--commencement or continuation of a criminal action against D2) (b)(2)--under subsection (a):a) (b)(2)(A)--of the commencement or continuation of a civil action or proceeding1) (b)(2)(A)(i)--for establishment of paternity2) (b)(2)(A)(ii)--for establishment/modification of domestic support obligations (but not collection)3) (b)(2)(A)(iii)--concerning child custody or visitation4) (b)(2)(A)(iv)--for divorce, except to the estate that such proceeding seeks to determine the division of property that is property of the estate; ir5) (b)(2)(A)(v)--regarding domestic violenceb) (b)(2)(B)--allows for collection of postpetition spousal and child support against non-estate (exempt) propertyc) (b)(2)(C)--withholding of income that is part of estate or property of D forpayment of domestic support obligationd) (b)(2)(D)--withholding driver's, recreational, or professional license e) (b)(2)(E)--reporting of overdue child supportf) (b)(2)(F)--interception of a tax refundg) (b)(2)(G)--enforcement of a medical obligation3) (b)(3)--authorizes the filing of a U.C.C. Article 9 continuation statement4) (b)(4)--allows government agencies to enforces their police and regulatory power and obtain (but not enforce) monetary judgmentsa) Government can be a regulator, not a C5) (b)(10)--authorizes a lessor of nonresidential property to obtain possession of the property if the lease expired before the bankruptcy petition or the lessor obtained a judgment for possession prepetition6) (b)(21)--subsection (a) is not a violation if:a) (b)(21)(A)--D is ineligible to be a D under 109(g)b) (b)(21)(B)--case violates previous B order prohibiting D from filing a case7) (b)(22)-authorizes a lessor of nonresidential property to obtain possession of the property if the lease expired before the bankruptcy petition or the lessor obtained a judgment for possession prepetitioniii.(c)--Except for (d), (e), (f), and (h):1) (c)(1)--For claims against property of the estate, stay expires when property seizes to be property of estate2) (c)(2)--For all other acts, stay expires when B is closed or dismissed, or D isgranted/denied a discharge (whichever is first)3) (c)(3)--Where D filed B within past year and was dismissed under 707(b):a) (A)--automatic stay ends in 30 days unless filed in good faith (and there is a presumption of bad faith)4) (c)(4)--Where D filed B twice or more within past year and was dismissed:a) (A)--on request of a party in interest, there is no stayb) (D)--there is a presumption of bad faithiv.(d)--B.Ct. can grant relief from stay (including retroactively)1) (1)--for cause (depreciation/obsolescence), including the lack of adequate protection (that protect the extent of a secured claim such as periodic cash payments, maintenance, and insurance , but not the entire claim), of such party in interest2) (2)--w.r.t. a stay of an act against property under (a) if:a) (A)--D has no equity in property; andb) (B)--property is not necessary to an effective reorganization (not req'd in a 7)1) [For a 7, where debt > collateral, secured party can take property. For an11, you need to know if there is equity.]2) Essentially:One. Two.v. (k)--violations of stayCollateral < debt --> no equity --> give to secured C Collateral > debt --> value to estate --> no relief from stay1) (k)(1)--a D injured by violation of stay can recover actual damages, attorney fees, and sometimes punitive damages. Gives D a private cause of action for willful violationsi. 363: Limitations on the use, sale, and lease of propertyi.ii. iii. iv.v.(b) & (c)--authorize T to use, sell, or lease "any property" of estate subject to certain conditions for the protection of Cs with an interest in that property(d)--T can only use property as authorized by law(e)--C is entitled to adequate protection for its interests(f)--T can sell property free and clear of any interest by a third party if one of five factors [363(f)(1)-(5)] is fulfilled. [If value will be diminished if property is split then sold, T can sell then split proceeds](k)--lien holder can buy liened property at an auction and have the amount offsetj. 364: Rules for obtaining creditk. 365: Assumption or rejection of certain executory Ks and unexpired leasesi. ii.(a)--T may assume or reject any executory K or unexpired lease(b)1) (b)(1)--if in default, T can't assume K unless T or D promptly cures the default, compensates other party for losses, and provide adequate assurance of future performance2) (b)(2)--K clause stating that filing bankruptcy or being insolvent is a default isineffectiveiii.(c)--unassumable Ks1) (c)(1)--personal services K (like a painter painting a painting, or an actor in a film). T cannot assign that K and force painter or actor to do anything for a third party without that party's consent.2) (c)(2)--K in which D promises to make a loan3) (c)(3)--lease of nonresidential property that was terminated prepetitioniv.(d)--in Chapter 7, if T doesn't assume or reject K (or unexpired lease of residential propertyor personal property) within 60 days of order for relief, the K is deemed rejected1) (d)(4)--if T rejects non-residential real property, T must surrender it to Cv. (e)--certain clauses in K are unenforceable:1) (e)(1)(A)--insolvency or financial condition clauses2) (e)(1)(B)--filing bankruptcy3) (e)(1)(C)--appointment or taking of K by T or a custodian before petitionvi. vii.viii.(f)(1)--notwithstanding what a K says, T can assign a K to a third party(g)--if T rejects K or lease, it is treated as a prepetition breach, producing a postpetition claim(k)--if T assigns K to a third party, estate has no liability for assignee's future breachl. 366: Utility servicei.ii. iii.(a)--except (b) and (c), utility cannot alter, discontinue, or refuse service, or discriminate solely based on petition(b)--utility can refuse alter service (etc.) if within 20 days of order for relief if T or D fail to give adequate assurance of payment in form of security or deposit(c)--definitions, court decides what a reasonable assurance ism. 502-507: Rules regarding C's claimsi. 502: Allowance of claims1) (a)--claims are allowed unless a party objects2) (b)--if objection, court determines what claim is worth (including disputed and unliquidated claims); except for the followinga) (b)(1)--certain unenforceable claims (like if claim is contested by D because C'sproduct is defective, for ex:)b) (b)(2)--unmatured interestc) (b)(3)--tax > value of propertyd) (b)(4)--insider/attorney services > reasonable value of property e) (b)(5)--unmatured debts (like unmatured support obligations)3) (c)--court must determine amounts of contingent claims4) (d)--C's entire claim is disallowed if C fails to repay a preferential transfer5) (f)--claims arising after petition but before order for relief is entered in an involuntary case are considered prepetition6) (h)--some postpetition claims (like unwinding a preference) are treated as prepetition7) (k)--B.Ct. can disallow 20% of claim on unsecured consumer debt if C refuses to negotiate with D on a nonbankruptcy payment plan offered by a nonprofit credit serviceii.503: Allowance of administrative expenses1) (b)--costs of preserving estate and continuing business (buying/selling goods, postpetition line of credit)a) Costs are postpetition costs, not prepetition1) Two part test (Mammoth Mart)1) Expenses must arise from trx with DIP2) Expenses must be beneficial to DIP2) (b)(1)(A)--Quid pro quo requirement. Priorities are for purposes of obtaining creditthat D would otherwise not receive. It is not for punitive damages mean to be taken at the expense of other Cs.3) (c)--what cannot be an administrative expenseiii.506: Determination of secured statusa. (a)(1)--the amount of the secured claim is limited by the value of the collateral b. (b)--oversecured C can get postpetition interest to extent C is oversecuredc. (d)--invalidates lien to extent that C is undersecured (subject to exceptions)i. ii.D cannot do this to mortgages in Chapter 7 "strip down" provision rejected by Dewsnup1) D cannot invalidate undersecured aspect of lien and C gets future appreciationiv.507: Priorities (page 314 of CB)a. (a)(1)--support claims and the expenses incurred to recover those paymentsi. Immunity from preference liability and D's exemptions, partial immunity from stay, protection from lien avoidance actions, protection from discharge1) [522(f)(1)(A), 547(c)(7), 522(c)(1), 362(b)(2)(B), 523(a)(5)]b. (a)(2)--administrative expenses (includes the 503(b)(1) costs incurred to preserve and liquidate the estate)c. (a)(4)--wages within 180 days are given priority, there is a cap, however.d. (a)(5)--benefits earned within 180 days are given priority, there is a cap, however. e. (a)(8)--priority taxesi.ii.507(a)(8)(A)(i)--if D files bankruptcy today, any tax returns due with 3 years (including extensions) of today, then it gets priority. [If D files B in 2/2007, the taxes for TY 2003-2006 are priority]507(a)(8)(A)(ii)--or taxes are assessed (without the filing of a tax return) within240 days before filing1) Postpetition taxes are 507(a)(2) administrative expenses2) Priority taxes are 8th priority and non-dischargable3) Tax liens can be avoided for the benefit of administrative claimants[724(b)]f. (a)(10)--torts for driving while intoxicated are priority and non -dischargeablen. 521: D's dutiesi. (a)(6)--Requires D to reaffirm or redeem debt. Makes it tougher to retain it appears.o. 522: Exempting propertya. (b)--exemptions take property out of an individual's B estatei. ii. iii. iv.v.vi.(b)--states can opt out of federal exemptions(b)--mixing and matching both state and federal exemptions is not allowed(b)(2)--husband and wife have to both pick either state or federal, default is state (b)(3)(A)--if D has moved within 730 days, court looks to the 180 days prior to the 730 days to determine which state's exemption laws govern(b)(3)(B)--TXE and JT property is exempt, so long as it is exempt under applicable nonbankruptcy law(b)(3)(D)--regardless of D's choice of state or federal, tax -exempt retirement funds(IRAs, etc.) are exemptb. (c)--federal exemptions are retained after B to prevent Cs from getting D's stuff after Bi. (c)(2)--non-avoided liens stay in place after dischargec. (d)--there is a slate of federal exemptions available to Di.ii.(d)(5)--unused federal homestead allowance ($20,200) "pours over" into household goods (capped at $11,500)(d)(10)--exemption of retirement fundsd. (f)--D can avoid a nonpossessory, nonPMSI in household goods and furnishings, tools of trade, and professionally proscribed health aids to the extent that the lien impairs an exemption to which D would otherwise be entitledi.ii. iii. iv.(f)(1)(A)--judicial liens on exempt property, other than domestic support obligations,are avoidable(f)(1)(B)--certain specified consensual liens on exempt property are avoidable(f)(3)--Congress' limited scope attempt to limit scope of this rule(f)(4)--outlines what a household good is. [A car is not a household good.]e. (g)--Items given away (via fraudulent transfer) that come back into B estate by T are not allowed to be exempted, even if an exemption were available for it (unless transfer was involuntary or avoidable by D under 522(f))f. (h)--With respect to 522(g) transferred property, if T refuses to go after it, D can take overT's avoidance powers and recover propertyg. (i)--an avoided lien can be preserved for the benefit of D to the exempt that benefit is exemptible [impairment computation= judgment lien + other liens + exemption - FMV;Judge Becker example]h. (l)--property on the "exempt" list is treated as exempt unless objected to in a timely manner i. (n)--really high exemption amount ($1M+) for IRAs and Roth IRAs (not other exempt funds)j. (o)--solves Hanson problem by prohibiting D from converting nonexempt assets into an exempt homestead with an intent to hinder, delay, or defraud. Applies to transfers as much as ten years before petition.k. (p)--denies any exemption amount in a homestead above $146K attributable to an interestacquired within 1,215 days (3 years 4 months) before petition for Ds with state exemptionsp. 523: Exceptions to dischargea. NOTE: (2)(4) & (6), C has to prove by a preponderance of the E.b. NOTE: (2)(4) & (6), if C believes D owes him, C must file suit within 60 days of meeting of Csc. NOTE: (6), court must believe subjectively the injury was likely to happen d. (a)--no discharge fori. ii.(1)--taxes(2)--credit/services/etc. obtained by false pretencesi. ii.(A)--statement other than financial condition(B)--financial statement fraud1) Elements:1) False financial statement2) Issued with intent to deceive3) Reasonable that other person would rely on the statementiii.(3)--C's claims that D failed to put on a schedule of creditorsi.ii.Exception: In a no asset Chapter 7 and there are no other bases of denying a discharge, then the discharge is allowed. "No harm, no fowl"However, even if D doesn't want to discharge a claim, he must disclose it or elseright a failure of omission and false statement which could affect the entire dischargeiv.v. vi.(4)--embezzlement, fiduciary fraud(5)--support obligations(6)--willful and malicious injuriesi. ii.Injury must be intentional, not merely negligent"W and M" blend togethervii.(8)--educational loansi. (B)-even if it's not a loan (university extended D credit and was expecting to be paid later by loan), it's still not dischargableviii.ix.(14)--D cannot discharge debts incurred to pay off non -dischargeable debts(15)--any other obligation out of a divorceq. 524: Effect of dischargea. (a)--meaning of dischargei. ii.iii.(1)--voids judgments related to discharged debts(2)--in B, automatic stay [362(a)] is a temporary injunction, whereas discharge is a permanent one(3)--injunction against new actions against Db. (c)--reaffirmationc. (e)--if debt is secured by property of a third party, that property can be reached to the full extent permitted outside of Br. 525: Protection against discriminatory treatmenta. (a)--Public entities are prohibited to denying licenses to, denying employment to, or terminating the employment of D merely because D is insolvent or has filed for B.b. (b)--Private employers are prohibited from discharging an employee who filed for bankruptcy merely because of B or being insolvent.i. Hiring decisions can be affected howeverc. (c)--Government units (or private companies operating under student loan program) can't deny D a student loan because D is or has been in Bs. 541: What property is included in the estate to pay C's claimsi. (a)--includes all legal and equitable interest D has1) (a)(5)--Some postpetition acquisitions within 180 days by D become part of estate(bequest, inheritance, divorce, life insurance proceeds)a) (B)--estate extends to property D would receive from a divorce2) (a)(6)--earnings from services performed by D postpetition in a Chapter 7 are not included in the estate.3) (a)(7)--any interest the estate acquires postpetition becomes part of the estatea) Ex: if stock in estate gets dividends, they become part of estateii.(b)--things not included in the estate1) (b)(2)--nonresidential real property leases [real estate lessors lobby]2) (b)(4)--interest in liquid or gaseous hydrocarbons [oil and gas industries lobby]3) (b)(5)--certain education IRA contributions not included in estate (subject to rules)4) (b)(6)--certain 529 education plans not included in estate (subject to rules)5) (b)(7)--estate does not include wage deductions and employee contributions intended to be placed in employee benefit plans, deferred compensations plans, or other retirement plans. Funds that are withheld but not yet remitted to plan administrator apparently fall under this section.6) (b)(8)--property pawned to a pawnbroker where pawnbroker has possession of property and D has no obligation to pay back7) (b)(9)--money ordersiii.(c)(1)--Remarkable! Overrides contractual and legal rules that prohibit D from transferring particular property, to ensure that estate acquires D's rights in the property1) (c)--K clauses stating that bankruptcy or insolvency is a default is invalid2) (c)(2)--Specifically excludes "spendthrift" trusts from the estateiv.(d)--if D only has legal (but not equitable title) to a trust (i.e.: D = trustee), then only legal title comes into estate (not equitable title)t. 542: Turnover of property to the estatei.ii.(a)--requires entity (other than custodian) holding any of D's property to turn it over to T for purposes of T using it in 363. C still gets protections, but cannot withhold property from estate to protect self.(b)--gives T power to require any entity that owes an obligation constituting property of theestate to make payment to Tu. 544-549: T's extremely important avoiding powersi. 544: T will mess you up powers (aka "strong arm" powers)1) (a)--"strong arm" clausea) Give's T strong powers and creates in T a fictional character. T gets an imaginary role, and there doesn't need to be an actual Ci) Role #1: C who got a judgment lien on all of D's property as of thecommencement of case [(a)(1)]One.Meant to protect against unperfected security interests (subject to20 day grace period)ii)iii)Role #2: C who executes a judgmentRole #3: Bona fide purchaser of REAL property, which thereby invalidates all unperfected security interests [(a)(3)]One.Meant to protect against unrecorded mortgages and deeds2) (b)--authorizes T to use state law to avoid certain transfers (generally 4 year SoL)where there is an actual Cii.545: Statutory liens1) T may avoid fixing of a statutory lien on D's property to extent that such liena) (1)--first becomes effective against D:i) ii) iii)(A)--when D commences B case(B)--when D commences another insolvency proceeding(C)--when custodian is appointed/authorized to take possessioniv) v) vi)(D)--when D becomes insolvent(E)--when D's financial situation fails to meet a specific standard; or(F)--when party other than lienor executes against propertyb) (2)--when property is not perfected against bona fide purchasers c) (3)--is for rent; ord) (4)--is a lien for distress for rentiii.546: Limitations of avoiding powersa. (a)--an avoidance action under 547 may not be brought more than 2 years after commencement (2 year SoL), but some courts allow the use of 502(d)b. (b)(1)--T's powers under 544, 544, and 549 are subject to any law thata) (A)--permits perfection of interest against entity that acquires rights in property before perfection; orb) (B)--provides for maintenance or continuation of perfectionc. (b)(2)--If,a) (A)--law requires seizure; andb) (B)--such property has not been seizedd. (c)--recognizes that C's right to reclaim goods is not lost upon the D’s B if D wasinsolvent at the time and within 45 days before the commencement of the caseiv.547: avoidable preferencesa. Generally, if D pays an unsecured, nonpriority C within preference period. This also applies to the granting of voluntary and involuntary liens.1) (b)--A transfer of an interest in D's property [all elements required]a) (b)(1)--to or for the benefit of a creditorb) (b)(2)--made on account of an antecedent debt c) (b)(3)--made while debtor was insolventd) (b)(4)--made within the 90 days preceding the B petition, or within one year if made to or for the benefit of an insidere) (b)(5)--that enables C to receive more than if the transfer had not been madeand D's assets are liquidated under Chapter 7i)ii)Payments to a fully secured C is not a preferencePayments to a partially secured C is always a preference2) (c)--affirmative defenses to preferences actionsa) (c)(1)--almost exclusively by secured Csi) 547(c)(1)(A)One. Two.Contemporaneous exchange for new value given (grocery store example)If there is a delay or extension of credit (i.e., the check bounced, sopay me in 3 days – this is an extension); these are NOTcontemporaneous exchangesb) (c)(2)--Payments in the Ordinary Coursei) Elementsa) Debt incurred in ordinary course of D and Cb) Payment made in ordinary course of D and Cc) Payment made according to ordinary business termsc) (c)(3)--Purchase Money Security Interest (PSMI)i)ii)Transfer occurs when D acquires propertyGenerally not a preference unless C's unsecured claim is reduced. If C's position isn't improved, then no preferencea) Appreciating units of oil example (i.e., not a preference)d) (c)(4)--New Value Exception ("Net Result Rule")i) Protects the payment that was already made to the extend new credit is given. The new "value" (credit) given must be extended after the payment, and doesn't carry forward to future paymentse) (c)(5)--Improvement of Position Test (expressly secured Cs)i)ii)There is an avoidable preference--not if C's secured claim increases--but ifC's unsecured claim decreasesFormula: find (debt - value of collateral) both 90 days before and day of petition. The amount the position improves is an avoidable preference.f) (c)(6)--Statutory liens (expressly secured Cs)i) Statutory liens arising during preference period are immune to avoidance but are subject to their own special avoidance rules [545]g) (c)(7)--Spousal and Child Support Paymentsi) Other protections: exception from discharge [523(a)(5)]; immunity from exemptions [523(c)]; and priority [507(a)(7)].h) (c)(8)--De minimis consumer transfers (everyday purchases)i) Transfer not to exceed $600 in aggregatei) (c)(9)--De minimis nonconsumer transfers ($5,475 limits)3) (e)--transfer of a security interest will be deemed to have occurred when the interest attached, if perfection occurred within the following 30 days (making lien unavoidable)4) (g)--C has burden of proving defensesv. 548: Fraudulent transfers (covers only those transfers in the two years before petition)1) (a)(1)(A)--T can avoid fraudulent transfersa) Made with actual intent to hinder, delay, or defraudi) Badges of fraud:a) Transfers to relative, friend, or other insider b) Suspicious timingc) Paper transfers w/o actual change of possession d) Transfers putting assets in foreign jurisdictionse) Secrecy2) (a)(1)(B)--T can avoid constructively fraudulent transfersa) (B)(i)--received less than a reasonably equivalent value in exchange for transfer;and:i) ii) iii)(B)(ii)(I)--while insolvent(B)(ii)(II)--while business was undercapitalized; or(B)(ii)(III)--while incurring debts beyond ability to pay as they come due3) (a)(2)--charitable institutions are protected to some degree from constructive (but notactual) fraud4) (c)--something about third party rights w.r.t. transfers (and bonafide purchases?)v. 549: Postpetition transactions (meant to cover voluntary transfers to family/friends, where stay is meant to prevent involuntary transfers to Cs)i. (a)--Except (b) or (c), T can avoid transfer of estate property1) (a)(1)--that occurs after the case; and2) (a)(2)(A)--that is allowed only under 303(f) or 542(c); or3) (a)(2)(B)--that is not authorized under the law or the courtii. iii.iv.(b)--T cannot avoid under (a) transfers made after commencement but before relief order is given, notwithstanding any notice or knowledge the transferee has(c)--T cannot avoid transfer of real property to good faith purchaser without knowledge ofcase, unless notice was filed and perfected(d)--An action here can't be started after the earlier of:1) (d)(1)--2 years after date of transfer sought to be avoided; or2) (d)(2)--dismissal or closing of casew. 550: Liability of transferee of an avoided transferi. Imposes liability on the preferred C to return the property transferred or the value. The preferred C need not be the transferee. Third party, bonafide purchasers may be protected by this statute, check to be sure.1) Technically, C has to return everything, but in practice, C only has to return the excessii.(c)--prevents a noninsider lender from being liable for a transfer made more than 90 daysbefore the bankruptcy filing that prefers an insider (overrules DePrizio)x. 551: Automatic preservation of avoided transferi. T can avoid a lien and then preserve the benefit of the estate1) Where Mortgage #1 is avoided, T "takes" Mortgage #1's position to prevent Mortgage#2 from taking #1's place2) Prevents junior lien holders from taking primary lien holder's placey. 552: Postpetition effect of security interest (and floating liens)a. (a)--invalidates prepetition security interests in property acquired postpetition b. (b)--limits effects of 552(a)i. (b)(1)--allows secured claimants to retain liens on postpetition proceeds of prepetitioncollateralz. 722: Redemptiona. D can pay the full amount of lien on personal property to C, if exempted or abandoned, to keep it. C isn't harmed because C either gets value of car, or the actual value of car after repossessing it. Only applies to individual Ds with personal property.aa.724: Treatment of certain liensa. (a)--T can avoid liens under 726(a)(4) [fines/penalties for non -pecuniary loss]b. (b)--tax liens can be avoided for the benefit of administrative claimantsbb.726: Distribution of property of the estate [applies only to Chapter 7]a. (a)--order of priorities according to 507, page 314 of CB.b. (a)(1)--tardy priority claims are allowed and retain their priority as long as the proof of claim is filed before T makes distribution to claims of that priorityc. (a)(2) & (3)--Chapter 7, late-filed, nonpriority, unsecured claims are subordinated to timelyclaimsd. (b)--claims within each ranking are to be paid in full before claims of a lower ranking are entitled to any payment at all. If there are insufficient assets to pay all the claims within a single ranking, those claims share on a pro rata basiscc.727: Dischargea. (a)--Court will give D a discharge, unless:i. ii. iii. iv.v. vi. vii.(1)--Chapter 7s are limited to individual Ds(2)--with intent to hinder (etc.), make a fraudulent transfer or destroy property(3)--failure to maintain adequate financial records(4)--D knowingly and fraudulently (1) false claim/oath; or (2) withheld items from officers(5)--unsatisfactory explanation of where assets where(8)--D has a Chapter 7 or 11 within the past 8 years(9)--D has a Chapter 12 or 13 within the past 6 years if Cs weren't paid more than 70%of their planII.Cases101(5)(B): In re Ward109: In re Talib327(a): In re Leitner328(a): In re GIC Government Securities362(a)-(d): In re Schwartz362(b): In re First Alliance Mortgage362(d): In re Schwartz363(b)(c) & (e): Whiting Pools502(c): In re Piper Aircraft; In re Hassanally503(b)--In re Jartran; Resource Technology Corp. v. Roti503(b)(1)(A): PA Dep't of Environmental Resources v. Tri -State521(2): In re Boodrow522(f): In re McGreevy; Farrey v. Sanderfoot522(i): In re Silveira522(l): Taylor v. Freeland & Kronz523(a)(2)(A): In re Hashimi523(a)(3): Cohen v. Delacruz523(a)(6): In re Geiger523(a)(8): Brunner; Gerhardt524(c): In re Riggs541(d): Megafoods Stores542: Whiting Pools547: In re Ebbler Furniture and Appliances547(b): In re DAK Industries547(c)(2): Union Bank v. Wolas; Tolona Pizza548(a)(1)(B)(i): BFP v. Resolution Trust Corporation522: Hanson v. First National Bank; Norwest Bank Nebraska v. Tveten; In re Sholdan522(l): Taylor v. Freeland & Kronz727(a)(4): In re Baldridge, In re MitchellToCFriday, December 09, 20111:56 PMI. Generally:a. 101: Definitionb. 102: Rules of constructionc. 105: General grant of power to B.Ct.d. 108: Tolling of various time limitse. 109: Who may be a D under different chaptersf. 326-330: Compensation to parties involved in B proceedingsi. ii. iii. iv. v.326: Limitation of compensation of T327: Employment of professional persons328: Limitation on Compensation of Professional Persons329: D's trx with attorneys330: Compensation of officersg. 361: Adequate protection for 362-364h. 362: Automatic stayi. 363: Limitations on the use, sale, and lease of propertyj. 364: Rules for obtaining creditk. 365: Assumption or rejection of certain executory Ks and unexpired leasesl. 366: Utility servicem. 502-507: Rules regarding C's claimsi. ii. iii. iv.502: Allowance of claims503: Allowance of administrative expenses506: Determination of secured status507: Priorities (page 314 of CB)n. 521: D's dutieso. 522: Exempting propertyp. 523: Exceptions to dischargeq. 524: Effect of discharger. 525: Protection against discriminatory treatments. 541: What property is included in the estate to pay C's claimst. 542: Turnover of property to the estateu. 544-549: T's extremely important avoiding powersi. ii. iii. iv. v.544: T will mess you up powers (aka "strong arm" powers)545: Statutory liens546: Limitations of avoiding powers547: avoidable preferences548: Fraudulent transfers (covers only those transfers in the two years before petition)v.w. x. y. z.aa. bb. cc.549: Postpetition transactions (meant to cover voluntary transfers to family/friends, where stay is meant to prevent involuntary transfers to Cs)550: Liability of transferee of an avoided transfer551: Automatic preservation of avoided transfer552: Postpetition effect of security interest (and floating liens)722: Redemption724: Treatment of certain liens726: Distribution of property of the estate [applies only to Chapter 7]727: Discharge ................
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