Creditors’ Rights In Bankruptcy

Chapter 7

Chapter 13 Debtor Creditor Trustee Trustee

Chapter 11 Debtor Creditor Trustee Trustee

The Players Debtor Trustee Creditors

The Automatic Stay

Statements and Schedules Critical Information Regarding Debtor Critical Information Regarding You

341 Meeting

Protect your right to disbursement Proof of Claim Protect your right to disbursement Form available online: http://www.utb.uscourts.gov/

Reclamation

Reclamation Timing Notice Requirement Limitations Delivered within 45 days of filing Notice Requirement Within 45 days of delivery, no later than 20 days after commencement Limitations Secured Party Good Faith Buyer

Reclamation Procedure Make Written Demand to Debtor/Debtor’s Counsel File Notice of Reclamation with Court Consider Injunction File Motion for Relief from Stay for Return

Missed The Window? Goods Sold To Third Party? Reclamation Missed The Window? Goods Sold To Third Party?

Objections to discharge Dischargeability What? Objections to discharge Global Bad things in bankruptcy Just You Bad things to you

Not Comply with Bankruptcy Rules Not Comply with Court Orders Global Examples Lie Not Comply with Bankruptcy Rules Not Comply with Court Orders

Obtain property by false representations Just For You Examples Obtain property by false representations False financial statement Willful/malicious injury to property

Priority Secured Creditors (in their collateral) Domestic Support Admin Expenses * Value of goods within 20 days Unsecured Claims for Wages Unsecured Claims for Contributions to Employee Benefit Plan Taxes DUI Unsecured Creditors Equity

Preferences Transfer of the Debtor’s Property To or for benefit of Creditor Within 90 days of bankruptcy filing On account of antecedent debt While Debtor insolvent Which gives Creditor greater return than would receive in Chapter 7.

5 Defenses to Preference Action Contemporaneous Exchange For New Value Ordinary Course New Value Too Small Venue

Contemporaneous Exchange Transfer was intended by Debtor and Creditor to be contemporaneous new value, and Was a substantially contemporaneous exchange.

Ordinary Course of Business Payment for debt incurred in the ordinary course of business affairs of Debtor and Transferee and was made: In the ordinary course of the business affairs of the debtor and the transferee OR According to ordinary business terms.

Ordinary Course: Subjective Test Pre-Preference Period Payments v. Preference Period Transfers Length of time parties engaged in transaction Amount or form of tender differed from past practices Debtor or creditor engaged in any unusual collection or payment activity Circumstances under which payment made.

Ordinary Course: Subjective Payment Invoice No. Invoice Date Days Late 1/10/10 1122 11/23/09 48 2/23/10 3344 12/22/09 63 3/21/10 5566 2/14/10 35 6/9/10 7788 4/15/10 55 9/10/10 9900 7/30/10 42 Average 48.6

Ordinary Course: Objective Test Were the Payments Consistent With the Terms That Creditors and Debtors Use In Ordinary Circumstances When Debtors are Healthy?

New Value Following a Preference Payment, Creditor Provides New Value on Account of which the Debtor did not Make an Otherwise Unavoidable Transfer.

New Value Payment Date Invoice No. Amount Shipped Invoice Date Preference Balance $25,000 1/1/10 10/1/09 1500 $10,000 1/15/10 $15,000 1515 $5,000 1/20/10 2/1/10 1600 2/10/10 - 0-

Too Small Less than $6,225? You keep it! Cannot use preference defense to reduce exposure to threshold amount.

Venue Limits Less than $12,475? They have to come to you State of Incorporation State of operating business

Practice Tips Apply To Most Recent Invoices Go COD Third-Party Guarantees Avoid Post-Dated Checks Consistent Policies and Accurate Record Keeping

Sherilyn A. Olsen (801) 799-5818 solsen@hollandhart.com