Understanding Bankruptcy: Chapters 7, 11, and 13, Slides of Law

Download Understanding Bankruptcy: Chapters 7, 11, and 13 and more Slides Law in PDF only on Docsity! docsity.com Quote of the Day “One could always begin again in America, even again and again. Bankruptcy, which in the fixed society of Europe was the tragic end of a career, might be merely a step in personal education.” John A. Krout and Dixon Ryan Fox, The Completion of Independence docsity.com Goals • The Bankruptcy Code has three primary goals: – To preserve as much of the debtor’s property as possible. – To divide the debtor’s assets fairly between the debtor and the creditors. – To divide the debtor’s assets fairly among the creditors. docsity.com Chapter 7 -- Liquidation • Filing a Petition – Any individual, partnership, corporation, or other business organization that lives, conducts business, or owns property in the United States can file under the Code. • Petitions may be voluntary or involuntary. docsity.com Ch. 7 -- Voluntary Petition • May be filed by any debtor; not necessary to be insolvent or for liabilities to exceed assets. • Filed by providing a petition, list of creditors, schedule of assets and liabilities, claim of exemptions, schedule of income and expenditures, and a statement of financial affairs. docsity.com Creditors • Unsecured creditors must submit a proof of claim within 90 days after the meeting of creditors. • Secured creditors do not file proofs of claim unless the claim exceeds the value of their collateral. docsity.com Automatic Stay • An automatic stay prohibits creditors from collecting debts that the bankrupt incurred before the petition was filed. • The purpose of the automatic stay is to give the debtor time and space to make a rational plan for paying debts without pressure from creditors. docsity.com Bankruptcy Estate • Exempt Property – The Code permits individual debtors (but not organizations) to keep some property for themselves. – Usually, debtors cannot keep property that is the collateral for a secured loan. If the loan amount is for more than the debt, the property can be sold and the debtor may be able to keep the difference. docsity.com Payment of Claims • The trustee pays the bankruptcy estate to the various classes of claims in the following order of rank: – Secured Claims – Priority Claims (seven subcategories) – Unsecured Claims (three subcategories) • All creditors with Secured Claims are paid before any in the Priority Claims category, etc. docsity.com Discharge • Once a bankruptcy estate is distributed, the creditors cannot make claims on the debtor for money owed before filing. • There are some circumstances that prevent debts from being discharged, such as repeated bankruptcy filings, dishonesty, and conduct of some kinds of business. docsity.com Discharge (cont’d) • Debts that cannot be discharged include (among others): – Income taxes and property taxes – Money obtained fraudulently or illegally – Some loans for luxury goods – Recent cash advances on credit cards – Alimony and child support debt – Fines and penalties – Some student loans docsity.com Plan of Reorganization • The debtor has 120 days to come up with a plan that is acceptable to the creditors. • The creditors will usually only accept a reorganization plan that they believe will be better for them than liquidation. • If they reject the debtor’s proposal, the creditors or shareholders may submit alternative plans. docsity.com Confirmation of the Plan • A confirmation hearing is held to determine whether it should accept the plan. • The court will approve a plan if a majority of each class votes in favor of it. docsity.com Discharge • A confirmed plan is binding on the debtor, creditor and shareholders. • A typical plan of reorganization gives some current assets to the creditors and promises to pay them a portion of future earnings. • The debtor now owns the assets in the bankrupt estate, free of all obligations except those listed in the plan. docsity.com Discharge • Once confirmed, the plan is binding on all creditors. • The debtor is washed clean of all pre- petition debts except those provided for in the plan, but (unlike under Chapter 7), the debts are not permanently discharged. docsity.com “As in many areas of law, bankruptcy law must balance between competing interests. When an individual or business files for bankruptcy protection, generally neither debtor or creditor comes out whole.” docsity.com