Chapter Eighteen. Use, Sale, or Lease of Property After reading this chapter, you will be able to: Describe the details of the actual liquidation process and common methodologies of liquidation, private sales and public auctions Define the concept of cash collateral and the limits upon its use Understand a sale “free and clear of liens” Describe the sale of joint tenancy or tenancy in common property

Capital and Noncapital Assets A capital asset is one that is used to operate the business, such as equipment or fixtures. A noncapital asset is, for example, the inventory of an operating business.

Cash Collateral Cash collateral is cash or, or its equivalent, in which a secured creditor may have an interest. Section 363(c) of the Bankruptcy Code restricts the use of cash collateral absent court approval.

Sales Requiring Prior Court Approval All Chapter 7 sales, except as in &2 Sales not in the ordinary course of business

Court Approval Not Required Chapter 9, 11, 12, or 13 sales in the ordinary course of business Chapter 7 sales in the ordinary course of business when a Chapter 7 trustee is authorized to operate

Sales Free and Clear of Liens-- Conditions Nonbankruptcy law permits Lienholders consent All liens will be paid in full Lien is in good-faith dispute Lienholder could be legally compelled to accept money satisfaction

Chapter Nineteen. Executory Contracts and Leases After reading this chapter, you will be able to: Define the term “executory contract” as a specialized form of asset Define the term “adequate assurance” Describe the procedure that is taken by a party seeking the assumption or rejection of an executory contract or unexpired lease List the deadlines contained in the Code to assume an executory contract or unexpired lease Describe the conditions when assumption of an executory contract or unexpired lease may not be assumed

Executory Contracts Contracts for which performance remains due to some extent on both sides. Franchise or license agreements are common executory contracts. Executory contracts are the subject of Bankruptcy Code Section 365. An executory contract may be assumed or rejected.

Adequate Assurance The providing of adequate protection to a nondebtor party to an executory contract subject to Bankruptcy Code Section 365. A trustee or debtor-in-possession assuming an executory contract must provide the nondebtor party to the contract with adequate assurance of future performance. An assignee of an executory contract must also provide adequate assurance of future performance. Providing adequate assurance includes curing existing defaults and convincing the creditor and the court that future performance will be rendered by the debtor.

Time Limits for Assumption or Rejection of Executory Contracts or Unexpired Leases ChapterNonresidential LeasesExecutory Contracts/ Residential Leases 7120 days60 days 9120 daysBefore confirmation or prior court order after motion daysBefore confirmation or prior court order after motion daysBefore confirmation or prior court order after motion daysBefore confirmation or prior court order after motion

Chapter Twenty. Miscellaneous Provisions Regarding Property of the Estate After reading this chapter, you will be able to: List the restrictions placed upon a trustee’s use of an estate’s cash assets Describe the disposition of burdensome or valueless property through the abandonment procedure Understand some miscellaneous provisions concerning utility service and discrimination based upon one’s status as a bankruptcy debtor List the conditions under which a bankruptcy estate may obtain credit

Abandonment The act of a trustee to remove from property of the estate assets that are burdensome or of inconsequential value to the estate. An asset with no equity or a meritless personal injury claim are common examples. Abandonment is governed by Section 554 of the Bankruptcy Code.

Practice Pointer Abandonment simply returns the asset to its prepetition status and removes it from the bankruptcy process and the protection of the automatic stay.

Obtaining Credit Section 364 regulates the obtaining of credit by a bankruptcy estate. A Chapter 7 estate will only make use of this provision if a trustee is authorized to operate a business or in extraordinary circumstances. A reorganization debtor will frequently make reference to or use of this provision.

Health Care Bankruptcies BAPCPA added provisions designed to account for the disposition of patient records and the transfer of patients from a closing facility in a health care business bankruptcy. The primary purpose of these provisions is to protect the privacy of the records and the safety of the patients.

Chapter Twenty-One. Claims After reading this chapter, you will be able to: Describe the procedures and forms used in filing creditor claims in Bankruptcy proceedings List the various basic objections which a trustee may make to a creditor’s claim Define the various classifications given to creditor claims in bankruptcy estates: Secured, administrative, priority, unsecured, and subordinated Describe the Statement of Intention procedure applicable in consumer proceedings

Claim Remember that a ‘‘claim’’ is defined as ‘‘right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.’’ 11 U.S.C. 101(5).

Filing a Proof of Claim Deadline: By claims bar date set by Court or United States Trustee Documents: Proof of Claim: Official Form 10 Evidence of Claim (such as promissory note; invoice) Evidence of perfection of security interest (such as recorded mortgage or UCC financing statement)

Objection to Proof of Claim Objection Documents: Notice of objection—30 day notice required Declarations, where necessary Points and authorities, where necessary

Procedural Claims Objections Late filed claims Duplicate claims Claim lacks adequate supporting documentation

Slide 1 of 2 Substantive Claim Objections A defense to the claim applicable under nonbankruptcy law (such as statute of limitations) Postpetition interest A property tax claim exceeding the property’s value Excessive or unreasonable insider atttorneys’ fee claims Postpetition alimony, support, or maintenance payments

Slide 2 of 2 Substantive Claim Objections Future rent on a rejected lease limited to greater of one year’s rent or 15 percent of three years’ rent remaining under lease, plus actual unpaid rent One year’s compensation, plus any actual unpaid compensation due under a long-term employment contract Claim is subject to the trustee’s avoiding powers Unreasonable refusal to accept composition in consumer case

Priority Claims Domestic support obligations Administrative claims “Gap Claims” incurred in involuntary proceeding Unpaid wages and benefits incurred within 90 days up to $10,000 per individual Pension plan contributions incurred within 180 days up to $10,000 per employee Farmers or fishermen with crops or catch in storage facility Deposits for consumer goods or services of up to $1,800 Most tax claims Financial institution minimum capital Death or personal injury caused by substance abuse Secured administrative claim where collateral used without consent or prior court order

Statement of Intention Contents 1. Notice required to be given secured creditors of consumer debt, advising of intended disposition of collateral after a Chapter 7 filing 2. Methods of disposition a. reaffirm b. return collateral c. redeem collateral

Statement of Intention Time Limits 1. Notice must be given within 30 days of filing 2. Intention must be performedwithin 30 days of date first set formeeting of creditors 3. Stay relieved by operation of law at end of time period (11 U.S.C. §362(h)).

Chapter Twenty-two. Administration After reading this chapter, you will be able to: List the order of distribution to classes of creditors Describe how to outline the entire bankruptcy administrative process, in terms of both steps and time

General Priority of Claims 1.Administrative (503) 2.Priority (507) 3.Secured (506) 4.Unsecured (726) 5.Subordinated (510(c)) 6.Interest ___________________________ 7.DebtorSolvent Estate

Order of Claims Distribution Priority Secured Administrative Claims Administrative Claims Priority Claims Authority Secured Claims Timely Filed Unsecured Claims Late Filed Unsecured Claims Fines or Penalties Not Compensation for Actual Damages; Punitive Damages Subordinated Claims Postpetition Interest Debtor—Solvent Estate