1. Essentials of the legal environment today, 5e
Roger leroy miller
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2. CREDITORS’ RIGHTS AND BANKRUPTCY
Chapter 15
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3. Learning Objectives
What is a prejudgment attachment? What is a writ of execution? How does a creditor use these remedies?
What is garnishment? When might a creditor undertake a garnishment proceeding?
In a bankruptcy proceeding, what constitutes the debtor’s estate in property? What property is exempt from the estate under federal bankruptcy law?
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4. LEARNING OBJECTIVES (CONT’D)
What is the difference between an exception to discharge and an objection to discharge?
In a Chapter 11 reorganization, what is the role of the debtor in possession?
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5. Laws Assisting Creditors
Liens
A claim against specific property to satisfy a debt
Mechanic’s liens
Artisan’s liens
Judicial liens
Attachment refers to a court-ordered seizure of property before a judgment is obtained; prejudgment remedy
Writ of attachment
Writ of execution
LO-1
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6. Laws Assisting Creditors
Garnishment
Permits a creditor to collect a debt by seizing property or wages of the debtor held by a third party
Procedures – can be a prejudgment remedy
Laws limiting the amount of wages subject to garnishment
LO-2
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7. Laws Assisting Creditors
Creditors’ Composition Agreements
Creditors take less than owed on a liquidated debt.
Binding on those who agree because consideration given by each depending on one another.
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8. Laws Assisting Creditors
Suretyship and Guaranty
Suretyship
Promise by a third person to be responsible for the debtor’s obligation to the creditor.
Suretyship is an express contract between the surety and the creditor.
Creditor can demand payment from surety at any time after debt is due.
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9. Exhibit 15.1
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10. Laws Assisting Creditors
Guaranty
Third person making the guaranty is secondarily liable.
Guarantor is liable only after the principal debtor defaults.
Actions that release the surety and the guarantor
Material modification
Surrender of property
Payment of tender of payment
Defenses of the surety and the guarantor
Incapacity
Statute of limitations
Fraud
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11. Laws Assisting Creditors
Rights of the surety and the guarantor
Right of subrogation
Right of reimbursement
Right of contribution
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12. mortgages Fixed-Rate Mortgages Adjustable-Rate Mortgages
Creditor Protection
Require mortgage insurance
Record the mortgage
Include contract provisions
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13. mortgages Mortgage Foreclosure Ways to avoid foreclosure
Forbearnace
Workout agreement
Short sale
Foreclosure procedure
Redemption rights
Debtor’s legal right to repurchase, or buy back, property before a foreclosure sale
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14. Protection for debtors
Exempted Real Property
Exempted Personal Property
Most often exempt:
Household furniture
Clothing and personal possessions
Vehicle for transportation
Certain classified animals
Equipment debtor uses in business or trade
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15. Bankruptcy Law
Bankruptcy proceedings are under authority of U.S. District Courts.
Types of Bankruptcy Relief
Chapter 7 provides for liquidation proceedings
Chapter 11 governs reorganizations
Chapters 12 and 13 provide for adjustment of debts by persons with regular incomes
Special Requirements for Consumer-Debtors
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16. Chapter 7—Liquidation Most familiar type of bankruptcy
Ordinary, or straight, bankruptcy
Debtor turns over all assets to a bankruptcy trustee.
Trustee sells nonexempt assets and distributes proceeds to creditors.
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17. Chapter 7—Liquidation Voluntary Bankruptcy
Prior to filing, debtor(s) must receive credit counseling within 180 days of filing, and submit certificate.
Consumer-debtor must confirm accuracy of contents; attorney must file affidavit informing debtor about other chapters.
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18. Chapter 7—Liquidation Chapter 7 schedules
A list of both secured and unsecured creditors, their addresses, and the amount of debt owed to each.
A statement of the financial affairs of the debtor.
A list of all property owned by the debtor, including property claimed by the debtor to be exempt.
A listing of current income and expenses.
A certificate of credit counseling (as discussed previously).
Proof of payments received from employers within sixty days prior to the filing of the petition.
A statement of the amount of monthly income, itemized to show how the amount is calculated.
A copy of the debtor’s federal income tax return for the most recent year ending immediately before the filing of the petition.
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19. Chapter 7—Liquidation Tax returns during bankruptcy
Substantial abuse and the means test
To determine whether debtor’s petition will be dismissed under Chapter 7
The Basic Formula
Applying the means test to future disposable income
Additional grounds for dismissal
Order for relief
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20. Chapter 7—Liquidation Involuntary Bankruptcy Automatic Stay
Occurs when creditors force debtor into bankruptcy proceedings
Automatic Stay
Suspension of all actions by creditors against the debtor or debtor’s property
Estate in Property
Community property
Property transferred in a transaction voidable by the trustee
Proceeds and profits from the property of the estate
LO-3
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21. Chapter 7—Liquidation The Bankruptcy Trustee Duties for means testing
To determine whether there is substantial abuse. Must file statement within 10 days after 1st meeting with creditors.
The trustee’s powers
Trustee has the right to ‘strong arm’ creditors to return debtor’s property to trustee.
Voidable rights
Preferences
Fraudulent transfers
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22. Chapter 7—liquidation Exemptions The Homestead Exemption
Debtor is entitled to exclude certain property from bankruptcy
States can pass legislation precluding debtors from using federal exemptions within the state.
The Homestead Exemption
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23. Chapter 7—liquidation Creditors’ Meeting Creditors’ Claims
Distribution of Property
Distribution to secured creditors
Distribution to unsecured creditors
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24. Exhibit 15.2
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25. Chapter 7—liquidation Discharge Exceptions to discharge LO-4
Claims for back taxes accruing within 2 years prior to bankruptcy
Claims for amounts that the debtor borrowed to pay federal or nondischargeable taxes
Certain government fines
Claims by creditors who were not notified of bankruptcy
Domestic-support obligations and property settlements made from separation or divorce
Claims that arose from a debtor’s driving while intoxicated
False representations and misuse of funds
LO-4
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26. Chapter 7—liquidation Objections to discharge
Court may deny discharge of debts based on debtor’s conduct
The debtor’s concealment or destruction of property with the intent to hinder, delay, or defraud a creditor
The debtor’s fraudulent concealment of destruction of financial records
The grant of a discharge to the debtor within 8 years before the petition was filed
The debtor’s failure to complete the required consumer education course
Proceedings in which the debtor could be found guilty of a felony
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27. Chapter 7—liquidation Reaffirmation of Debt
An agreement between a debtor and creditor in which the debtor voluntarily agrees to pay a debt dischargeable in bankruptcy
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28. Chapter 11—reorganization
Most commonly used by organizations
Creditors and debtor create a plan under which the debtor pays a portion of the debts and is discharged of the remainder.
Congress established “fast-track” Chapter 11 procedure
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29. Chapter 11—reorganization
Debtor in Possession
A debtor who is allowed to continue in possession of the estate in property (business) and to continue business operations
The Reorganization Plan
Filing the plan
Acceptance of the plan
Confirmation of the plan
Discharge
LO-5
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30. Bankruptcy relief under chapter 12 and chapter 13
Chapter 12—Family Farmers and Fishermen
Filing the petition
Content and confirmation of the plan
Chapter 13—Individuals’ Repayment Plans
Good faith requirement
The repayment plan
Discharge
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