Bankruptcy Law: Garnishment, Consumer Bankruptcy, and Homestead Exemptions, Study notes of Law

Download Bankruptcy Law: Garnishment, Consumer Bankruptcy, and Homestead Exemptions and more Study notes Law in PDF only on Docsity! STATE REMEDIES I. Garnishment I.a. Garnishment = the process by which you go after the debtor’s property that is in the hands of a 3rd party. I.b. E.g. Garnishable Property: wages, bank accounts, contents of a safe deposit box I.c. 2 Most common ∆’s in a Garnishment Action: Banks & Employers I.d. Restrictions on Wage Garnishment I.i. The Consumer Credit Protection Act I.1. States that the maximum wage garnishment = 25% of disposable earnings. I.2. Maximum Limitation = 30 x Minimum Wage. the person at least has to take home 30 x the minimum wage. I.ii. FL protects 100% of wages for head of household up to $500 I.iii. Can garnish up to 60% of disposable earnings in a support order. I.e. Florida: Any tangible or intangible personal property of a ∆ can be garnished if it’s in the hands of a third party, so the case may have been different under our law. I.f. Firing Employees I.iv. “For any one indebtedness” I.3. This means that the same creditor can garnish over and over. I.4. But if 2 separate creditors garnish, than the protection is lost. I.v. The actual protection is pretty weak. If the employer is mad enough, he will just pay the $1,000 fine. II. Florida’s Judgment Lien on Personal Property (JLoPP) I.g. The effective date of the judgment lien is the date (including the time of day) of filing. I.h. No lien attaches to the property and a creditor does not become a lien creditor until the debtor acquires an interest in the property. I.i. Defining “Personal Property” I.vi. Real Property – not included. Lien does not attach to real property I.vii. Fixtures – not included in personal property. § 55.202(2). (e.g. entertainment center). You can levy on fixtures, tho it probably depends on to what extent you can remove the fixture from the real property. It will get complicated due to the mortgage. But you cannot get a JLoPP. I.viii. Bank Accounts, Debts owed by 3rd Parties, Liquor Licenses: You cannot get a JLoPP on things that are intangible. I.ix. Partnership Interests: You cannot levy on a partnership lien. You can get a charging order any distributions to the partner-debtor will go to the creditor. III. Fraudulent Conveyances I.j. Leveraged Buyouts (LBO) I.k. Florida’s Homestead Exemption – Havoco (handout): The homestead is protected under the Florida constitution even if it was purchased with non-exempt assets in order to hinder, delay or defraud creditors. I.l. Charitable Contributions of up to 15% of gross income are not avoidable as fraudulent transfers. I.m. UFTA does not protect Debtors IV. State Collective Remedies I.n. Assignment for the Benefit of Creditors (C/L) I.o. Composition and Extension (C/L) I.p. Receiverships (C/L) CONSUMER BANKRUPTCY I. Elements Common to Consumer Bankruptcies I.a. Property of the Estate –§ 541 Professor Davis Bankruptcy Outline us.docsity.com I.i. § 541(a) – Tells you what is included in the estate I.ii. § 541(b) – Tells you what you the estate does not include I.iii. § 541(c)(1) – Tells you that you can’t beat the bankruptcy code by being clever I.iv. § 541(c)(2) – Protects Spendthrift Trusts I.v. § 541(d) – Property in which debtor has legal title and no equitable interest I.vi. Licenses / Entitlements: Some are property and some are not, Depends on how personal or transferable I.1. Liquor Licenses / Brothel Licenses (property) I.2. Drivers Licenses / Law Licenses / Country Club Memberships (not) I.b. The Automatic Stay § 362 I.vii. The Scope of the Stay: § 362(a) & (b) I.3. Broad: covers “any act to obtain possession of property of the estate” or “to exercise control over property of the estate” - § 362(a)(3) I.a. Garnishment is stayed I.b. Pending Civil Actions against Debtor is stayed. I.c. IRS Litigation against Debtor is stayed I.4. Exceptions to the Stay: § 362(b), These are things that are not stayed: I.d. (1) Criminal actions against the debtor I.e. (2) Garnishment for alimony, child support I.f. (4) Certain government regulatory actions I.g. (10) The act of a lessor of non-residential property that has terminated I.h. (22) Landlord can continue with an eviction, if it is virtually complete (a judgment of eviction must be obtained before filing) I.i. (23) Landlord can evict debtor if there is an endangerment of property or on the illegal use of controlled substances on the property. (extraordinarily narrow) I.5. Acts to Collect violate the automatic stay I.viii. Remedies: § 362(k) I.6. For willful violations of the stay an individual can recover I.j. Actual damages I.k. Costs and attorneys fees, and I.l. Punitive damages (in appropriate circumstances) I.ix. Utility Services - § 366 I.7. § 366(a) – a utility cannot turn off the utilities once a debtor has filed bankruptcy I.8. § 366(b) – Within 20 days, the debtor needs to provide adequate assurance of future payment of utilities I.c. Notice & Filing I.x. § 521 Says Debtor must file certain things I.9. List of Creditors I.10. A Schedule of Assets & Liabilities I.11. A schedule of current income and current expenditures I.12. A statement of financial affairs I.13. A certificate of the attorney I.14. Copies of all pay stubs I.15. A statement of monthly net income, itemized I.16. A statement disclosing anticipated increase in income or expenditures over the next year. I.17. Intention statement regarding secured debt I.18. Debtors must file a Certificate from the agency that provided credit counseling - § 521(b) I.xi. All must be filed within 45 days of filing for bankruptcy. I.xii. Lawyer has a Duty to Investigate § 707(b)(4). Consumer Bankruptcy - Liquidation Bankruptcy – Chapter 7 I. Eligibility for Ch 7 Professor Davis Bankruptcy Outline us.docsity.com I.p. 3 Ways to Keep Property that is Subject to a Valid Lien I.l. Redemption § 722 I.li. The Ride-Thru aka Installment Redemption aka Retention I.lii. Negotiation of a Reaffirmation Agreement § 524 Consumer Bankruptcy - Chapter 13 Bankruptcy I.lii.a.Payments to Secured Creditors I.lii.a.i. the present value of the allowed secured claim under § 1325(a)(5)(B)(ii) I.lii.a.ii. A creditor may seek to get relief from the A/S to repossess the collateral § 362(d) I.lii.a.ii.1. 2 possible grounds: I.lii.a.ii.1.a.§ 362(d)(1) For Cause (Adequate protection) I.lii.a.ii.1.b.§ 362(d)(2) The debtor has no equity in the property & the property is not necessary to an effective reorganization. I.lii.a.iii. Modifying the Secured Creditor’s Contract I.lii.a.ii.2. The value of the collateral = its replacement value. § 506(a)(2) I.lii.a.ii.3. Lien Stripping § 1325(a) I.lii.a.ii.1.c.Limitations on lien stripping (things you cannot lien strip): I.lii.a.ii.1.c.i. (1) You cannot lien strip home mortgages § 1322(b)(2) I.lii.a.ii.1.c.ii. (2) The Hanging Paragraph at the end of § 1325(a)(9) I.lii.a.ii.4. The only relief in Ch 13 as to a home mortgage is to “cure and maintain” – to catch up on the past due arrearage while making current payments on the mortgage as they come due. § 1322(b)(5). I.lii.b.Payments to Unsecured Creditors I.lii.a.iv. The Plan Must be: I.lii.a.ii.5. Proposed in good faith. § 1325(a)(3) I.lii.a.ii.6. In the Best interest of creditors. § 1325(a)(4) I.lii.a.v. All priority claimants under § 507 are entitled to payment in full § 1322(2). I.lii.a.vi. Disposable Income Test - § 1325(b) I.lii.a.ii.7. The Median Income Test I.lii.a.ii.8. Below-Median Debtors I.lii.a.ii.1.d.Courts apply a totality-of-the circumstances approach to determine what expenses are reasonably necessary. I.lii.a.ii.9. Above-Median Debtors I.lii.a.ii.1.e.Debtors who have income in excess of the applicable median suffer 2 adverse consequences: I.lii.a.ii.1.c.iii. (1) They must propose a 5 year plan. § 1325(b)(4). I.lii.a.ii.1.c.iv. (2) Because the Ch 7 means test applies here too, if the debtors would have been barred from Ch 7 b/c of a surplus of income over expenses, the amount of that surplus is what they are required to pay to unsecured non-priority creditors in a Ch 13 plan. §1325(b)(2)-(3) I.lii.a.ii.10. Ch 13 requires you build a plan around Projected Disposable Income I.lii.a.vii. Modification and Dismissal of Ch 13 Plans § 1329(a) I. Threshold Eligibility for Chapter 13 I.lii.c.§ 109(e) limits access to Ch 13 to I.lii.a.viii.natural persons with I.lii.a.ix. limited debts and I.lii.a.x. regular income. I.lii.d.The debts must be Non-contingent, Liquidated Debts Business Bankruptcy – Chapter 7 Liquidation I. Involuntary Bankruptcy (“IB”) § 303 I.a. What Type of Debtor May be Put Into IB § 303(a). 2 Types debtors may be put into IB: I.i. A person, except not a farmer or family farmer Professor Davis Bankruptcy Outline us.docsity.com I.ii. A corporation that is not a moneyed, business, or commercial corporation. I.b. Debtor must fail the “Generally not Paying” Test to be put into IB. § 303(h)(1) I.c. Three Creditors Must Join in the IB Petition. § 303(b)(1) I.iii. § 303(b)(2) If there are less than 12 creditors then only 1 creditor can put a debtor into IB I.iv. A parent corp and its subsidiary may be 2 separate creditors, so long as the 2 have an independent existence and exercise independent judgments. I.d. The Risks associated with filing an IB petition without an adequate basis I.v. Attorneys fees and costs (and sometimes punitive damages) may be granted against an unsuccessful involuntary petitioner. § 303(i) Business Bankruptcy – Chapter 11 Reorganization I. Nontraditional Ch 11 Cases I.a. Auctions I.b. Prepackaged Plans I.c. Single Asset Real Estate Cases (SARE) I.d. Liquidation in Ch 11 II. The Automatic Stay and Adequate Protection I.e. Things that are excepted from the Stay - § 362(b) I.f. Lifting the Stay II.i. Ct shall grant relief from stay in 3 instances § 362(d) II.1. for cause (including lack of adequate protection) II.2. Debtor does not have an equity in the property & The property is not necessary to an effective reorganization II.3. SARE special circumstances II.ii. § 105 General Power II.4. § 105 and § 362 work together. The B-court can use § 105 to stay a cause of action against an individual who is not in bankruptcy if it is in the interest of the bankruptcy process. I.g. Adequate Protection Payments § 361(a) I.h. Good Faith: A Ch 11 case is subject to conversion or dismissal if not filed in good faith and it is in the best interest of the creditors. II.iii. Debtors does not have to be insolvent to file II.iv. If debtors are wholly solvent, they must have a valid reorganizational purpose in order to file Ch 11, or else it will be dismissed for bad faith. SGL Carbon Corp, p. 430 III. Operating in Ch 11 I.i. Who’s Running the Show? II.v. Debtor in Possession II.vi. Trustee II.vii. Examiner I.j. What Happens to the Cash? II.viii. The use of cash on hand at the time of filing is constrained by 2 things: II.5. If the cash represents the proceeds of assets subject to a security interest II.6. The bank’s right of setoff II.ix. “Cash Collateral” may not be used by the DIP without the permission of the bankruptcy court. II.x. Bank’s Setoff Right I.k. Post-Petition Financing. § 364. II.xi. See 364 Hierarchy II.xii. § 552(a) – pre-petition security interests do not attach to property acquired by the DIP after bankruptcy. II.xiii. § 364(e) Appeals of the grant of DIP loans II.xiv. Equity-Holder or Owner Financing II.xv. Financing goods and Services: Critical Vendors Professor Davis Bankruptcy Outline us.docsity.com II.xvi. Supplier’s Right of Reclamation II.xvii. First Day Orders II.7. (1) additional injunctive relief, beyond the A/S II.8. (2) requirements for operating reports II.9. (3) authorization to buy or sell outside of the ordinary course, authorization to pay employee wages due, and other operating items of that sort II.10. (4) use of cash collateral and other matters related to cash management II.11. (5) approval of a post-petition financing arrangement II.12. (6) employment of counsel for the debtor and for a creditors committee. IV. The Trustee’s Avoidance Powers I.l. Introduction I.m. The Strong Arm Clause -- § 544(a) II.xviii. Personal Property -- § 544(a) works with § 9-317 of the UCC II.xix. Limitations on the Avoiding Powers: The Seller’s Right of Reclamation under § 546(c) II.xx. Real Estate II.xxi. Fixtures II.xxii. Other Property II.xxiii. Federal Tax Liens I.n. Avoiding preferential transfers. § 547(b) determines what constitutes a preference II.xxiv. Payment to Fully Secured Creditors is Not a Preference. II.xxv. Earmarking Doctrine – a judicial exception. There is no preferential transfer if the estate is not diminished due to the transfer. Basically, the value at issue never becomes part of the estate, and one creditor is simply substituted for another creditor with the same priority. II.xxvi. Trustee Can Avoid an Indirect Preference (Trustee Can Go After an Insider Who Benefited From a Preferential Transfer) II.xxvii. The Exceptions to § 547(b) § 547(c) II.13. Contemporaneous Exchange § 547(c)(1) II.14. Ordinary Course Exceptions § 547(c)(2) II.15. Purchase Money Exception § 547(c)(3) II.16. The New Value Exception § 547(c)(4) II.17. The “Floating Lien” § 547(c)(5) I.o. Setoff may act as a Preference § 553(b) I.p. Executory Contracts & Leases § 365 I.q. Statutory Liens, § 545 II.xxviii. Landlords’ Liens II.xxix. Bankruptcy Priority Liens I.r. Fraudulent Conveyance and Other State Avoidance Laws in Bankruptcy II.xxx. § 544(b) preserves state law rights of UFTA II.xxxi. § 548 is the Code’s fraudulent conveyance provision. II.xxxii. § 550 is the liability of the transferee of the avoided transfer. I.s. Equitable Subordination I.t. Lender Liability V. Confirming a Ch 11 Plan I.u. § 1129(a) Lays out the Requirements for a Confirmable Plan II.xxxiii. Ct must find that all 16 requirements are met. II.xxxiv. (a)(3) plan must be proposed in good faith II.xxxv. (a)(9) plan must provide that priority claims (except for tax claims) will receive cash on the day of confirmation II.xxxvi. 2 of the requirements must be satisfied even if the majority of creditors approves the plan: II.18. The “Feasibility” Requirement § 1129(a)(11) II.19. The “Best Interests” Requirement § 1129(a)(7) I.v. Classification and Voting II.xxxvii. § 1126(c) requires approval by both a Professor Davis Bankruptcy Outline us.docsity.com