1. Bankruptcy Federal and state jurisdictions
Case turned over to trustee when a company or individual can no longer make debt payments (simplified case)
Company filing the bankruptcy is debtor (they owe)
Companies owed money are creditors
Trustee marshals and/or liquidates non-exempt assets to pay off creditors

2. Bankruptcy Types of bankruptcy Chapter 7- debt liquidation
Unsecured debts discharged (creditor- no security)
Law is specific about what debts can be discharged
If business files Ch 7, debts are never discharged
Ch. 7 usually means the company is going out of business
Secured debts- underlying asset can be sold to make good on the debt (or a portion thereof)
Exempt assets ate listed in law (Appendix A)
DCT example

3. Bankruptcy Chapter 11- business reorganization
Create breathing room to allow company to get back on its feet
Debtor continues to operate as debtor-in-possession
Can be forced into involuntary chapter 7 if they fall behind reorganization plan for credit
K-Mart example

4. Bankruptcy Chapter 13- individual reorganization
Individual chooses to pay only a portion of unsecured debts and discharge balance
Complicated process for determination
No adverse affect on credit rating & availability
Credit card companies don’t like it

5. Bankruptcy
Automatic stay- creditors cannot attempt to collect or harm the debtor (refuse to sell)
Failure to abide by a stay is contemptible act with fines and imprisonment
Mechanic’s liens- perfection of lien is allowed, but not enforcement
Executory contracts- parties continue to have duties and obligations to each other in spite of bankruptcy. Construction contracts are usually considered executory

6. Bankruptcy
Fraudulent transfer and preference- trustee can nullify money transfers made up to one year prior to filing
Transfers off-shore or to family members can be fraudulent
Preferential payment can be nullified as well
Payment for which additional value is not received are deemed preferential (did not need to pay, or paid earlier than necessary)

7. Bankruptcy Construction bankruptcy actions
Forced return of payment if fraudulent or preferential
Liens may be filed
Contract enforcement shifts to trustee of creditor group, no longer dealing with owner
Retainage becomes an asset of bankruptcy- contractor must “stand-in-line” with other creditors

8. Bankruptcy
Involuntary bankruptcy- person or business forced to declare chapter 7 or 11.
Involuntary declaration in an attempt to control debtor actions by creditors
Usually used when assets are being moved between companies
DCT example

9. Dispute Resolution
Staying out of court should be the ultimate goal- use alternative dispute resolution
Avoidance- ignore the conflict, don’t talk to other party; usually leads to bigger problem
Intimidation- threaten the other party- don’t take the bait (illegal in many situations)
Negotiation- non-legal, or before a lawsuit ahs been filed; interaction aimed at copmpromise or win-win. Best Alternative to a Negotiated Agreement is basis for judgement

10. Dispute Resolution
Attorney assisted negotiation- legal rights and best interests are different things; lawyer income based on prolonging the dispute
Mediation- 3rd party listens and facilitates dialogue; Mediator does not decide; each side tells its story
Use I statements
Don’t be defensive
De-personalize the situation

11. Dispute Resolution
Arbitration- both sides tell their story and arbitrator decides. Arbitrators are privately employed, 3rd party (impartial) judges. Much faster and cheaper than litigation, usually binding (no appeals)
Litigation- use of government run court system. Everything becomes public.

12. Dispute Resolution Negotiation/mediation
Focus on issues, not positions
Have decision-makers in the room
Keep emotions out of the discussion
Listen well
Don’t change mind after agreeing to the deal
Keep overall agreement give-and-take in mind
Do you homework- know what is reasonable