40.1 b a c kn e x t h o m e  Identify the purposes for bankruptcy and who may file for it.  Describe the procedures in a bankruptcy (liquidation) case.  Explain the effect of a discharge of indebtedness.  Summarize the effect of nonliquidation bankruptcy plans. Chapter 40 Objectives © 2002 West Educational PublishingTo accompany Law for Business, 14e, by Ashcroft and Ashcroft

40.2 b a c kn e x t h o m e Kinds of Debtors Voluntary  A petition is filed by the debtor. Involuntary  Creditors file petition, forcing debtor into bankruptcy.  Court enters an order of relief.

40.3 b a c kn e x t h o m e Liquidation Certain property cannot be liquidated:  Residence  Vehicle  Household effects  Tools of the trade  Non-mature life insurance contracts  Wearing apparel  Personal effects such as family heirlooms

40.4 b a c kn e x t h o m e Duties of Debtor  Debtor must cooperate fully with the trustee.  Debtor must attend creditors’ meetings and furnish evidence about debts due.  Debtor must prepare a schedule of all assets and liabilities.  Debtor must obey all orders of the referee.

40.5 b a c kn e x t h o m e Claims  What would an owner of consigned or bailed goods in possession of a debtor do to regain the property?  Give examples of the following:  Fully secured claims  Partially secured claims  Unsecured claims  What claim has the highest priority? Let’s Discuss Let’s Discuss Let’s Discuss Let’s Discuss Let’s Discuss Let’s Discuss Let’s Discuss Let’s Discuss

40.6 b a c kn e x t h o m e Debts Not Discharged  Claims for alimony and child support.  Taxes incurred within three years.  Debts owed by reason of embezzlement.  Debts due on judgments.  Wages earned within three months of proceedings.  Debts incurred through fraud.  Educational loans.

40.7 b a c kn e x t h o m e Nonliquidation Plans Business reorganization: Chapter 11 plans  Business affairs can be restructured rather than liquidated.  Voluntary or involuntary. Individual debtor: Chapter 13 plans  Reorganization for individuals with less than $100,000 unsecured debts and less than $350,000 secured debts.  Voluntary.