1. Chapter 32 Bankruptcy and Reorganization McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. The Bankruptcy Act And Its Goals Provide debtors with opportunity to realize a “fresh financial start” Provide debtors with opportunity to realize a “fresh financial start” Offer protection to creditors Offer protection to creditors 32-2

3. Bankruptcy Law Is A Matter Of Federal Jurisdiction United States Constitution Article I, Section 8: “Congress shall have the power…To establish…uniform laws on the subject of bankruptcies throughout the United States” 32-3

4. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) Most comprehensive change to bankruptcy law in over 25 years Most comprehensive change to bankruptcy law in over 25 years BAPCPA Effect: More difficult for individual debtor to qualify for Chapter 7 (Liquidation) bankruptcy BAPCPA Effect: More difficult for individual debtor to qualify for Chapter 7 (Liquidation) bankruptcy 32-4

5. Reasons Cited For The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Increased number of bankruptcy filings Increased number of bankruptcy filings Significant creditor losses associated with bankruptcy filings Significant creditor losses associated with bankruptcy filings Debtor abuse of bankruptcy protection rights Debtor abuse of bankruptcy protection rights Debtor ability to repay Debtor ability to repay 32-5

6. Exhibit 32-1: Types of Bankruptcy Relief by Chapter Chapter 7 Bankruptcy: Sale of non-exempt assets, and distribution of money to creditors Chapter 7 Bankruptcy: Sale of non-exempt assets, and distribution of money to creditors Chapter 9 Bankruptcy: Adjustment of municipalities’ debts Chapter 9 Bankruptcy: Adjustment of municipalities’ debts Chapter 11 Bankruptcy: Reorganization of debtor’s financial affairs under supervision of bankruptcy court Chapter 11 Bankruptcy: Reorganization of debtor’s financial affairs under supervision of bankruptcy court Chapter 12 Bankruptcy: Reorganization of family farmers’ debts Chapter 12 Bankruptcy: Reorganization of family farmers’ debts Chapter 13 Bankruptcy: Reorganization of individual’s debts Chapter 13 Bankruptcy: Reorganization of individual’s debts Chapter 15 Bankruptcy: Recognition of insolvency proceedings pending in foreign country, and relief for foreign debtors Chapter 15 Bankruptcy: Recognition of insolvency proceedings pending in foreign country, and relief for foreign debtors 32-6

7. Exhibit 32-2: Bankruptcy Filing Statistics, Calendar Year 2009 Total Filings- Total Filings- Consumer Filings- Consumer Filings- Business Filings- Business Filings- Chapter 7- Chapter 7- Chapter 11- Chapter 11- Chapter 12- Chapter 12- Chapter 13- Chapter 13- 1, 473,675 1,412,838 60,837 1,050,832 15,189 544 406,962 32-7

8. Attributes of Bankruptcy Cases Procedural rules for bankruptcy cases set forth in Federal Bankruptcy Rules Procedural rules for bankruptcy cases set forth in Federal Bankruptcy Rules Cases filed in federal district courts and referred to bankruptcy judges Cases filed in federal district courts and referred to bankruptcy judges Bankruptcy judges appointed and serve 14-year terms; judges make decisions regarding administration of bankruptcy proceedings Bankruptcy judges appointed and serve 14-year terms; judges make decisions regarding administration of bankruptcy proceedings Bankruptcy appeals proceed to federal district court judge Bankruptcy appeals proceed to federal district court judge 32-8

9. Bankruptcy Proceedings Bankruptcy petition filed Bankruptcy petition filed Court grants automatic stay, “freezing” creditor actions outside bankruptcy court against debtor’s estate Court grants automatic stay, “freezing” creditor actions outside bankruptcy court against debtor’s estate Court determines whether order of relief should be granted Court determines whether order of relief should be granted Creditors meet with debtor Creditors meet with debtor Payment plan created and approved, usually by creditors and court Payment plan created and approved, usually by creditors and court Payment plan carried out through actions of trustee and debtor Payment plan carried out through actions of trustee and debtor Debts remaining after plan executed usually discharged Debts remaining after plan executed usually discharged 32-9

10. Chapter 7 Bankruptcy: “Voluntary” Versus “Involuntary” Petition Voluntary Petition: Debtor files Voluntary Petition: Debtor files Involuntary Petition: Creditor(s) file, forcing debtor into bankruptcy Involuntary Petition: Creditor(s) file, forcing debtor into bankruptcy Twelve or more creditors: Three or more creditors with unsecured claims totaling at least $12,300 must sign involuntary petition Twelve or more creditors: Three or more creditors with unsecured claims totaling at least $12,300 must sign involuntary petition Less than twelve creditors: Single creditor with claim totaling at least $12,300 can file involuntary petition Less than twelve creditors: Single creditor with claim totaling at least $12,300 can file involuntary petition 32-10

11. Exhibit 32-3: Required Schedules For Chapter 7 Liquidation (Debtor Required To File) Schedule A: All real property Schedule A: All real property Schedule B: All personal property Schedule B: All personal property Schedule C: Exempt property listed in Schedules A and B Schedule C: Exempt property listed in Schedules A and B Schedule D: Secured creditors and their addresses Schedule D: Secured creditors and their addresses Schedule E: Unsecured priority claims Schedule E: Unsecured priority claims Schedule F: Unsecured non-priority claims Schedule F: Unsecured non-priority claims Schedule G: Executory contracts and expired leases Schedule G: Executory contracts and expired leases Schedule H. List of co-debtors Schedule H. List of co-debtors Schedule I: Statement of debtor’s current income Schedule I: Statement of debtor’s current income Schedule J: Statement of current expenditures Schedule J: Statement of current expenditures 32-11

12. Exhibit 32-4: Federal Bankruptcy Exemptions Up to $20,200 for residence (“homestead” exemption) Up to $20,200 for residence (“homestead” exemption) Interest in motor vehicle up to $3,225 Interest in motor vehicle up to $3,225 Interest, up to $525 for particular item, in personal and household goods (aggregate total limited to $10,775) Interest, up to $525 for particular item, in personal and household goods (aggregate total limited to $10,775) Interest in jewelry up to $1,350 Interest in jewelry up to $1,350 $1,075 of any property debtor chooses (“wild-card” exemption) $1,075 of any property debtor chooses (“wild-card” exemption) 32-12

13. Exhibit 32-4: Federal Bankruptcy Exemptions (Continued) Up to $2,025 in “tools of trade” and professional books Up to $2,025 in “tools of trade” and professional books Any unmatured life insurance contract owned by debtor Any unmatured life insurance contract owned by debtor Professionally prescribed health aids Professionally prescribed health aids Interest in any other property up to $1,075, plus any unused part of homestead exemption up to $10,125 Interest in any other property up to $1,075, plus any unused part of homestead exemption up to $10,125 Right to receive certain personal injury awards up to $20,200 Right to receive certain personal injury awards up to $20,200 Retirement funds in IRA/SEP up to $1,095,000 per person Retirement funds in IRA/SEP up to $1,095,000 per person 32-13

14. Voidable Transfers Preferential Payments: Trustee can recover (and include in bankruptcy estate) payments made by insolvent debtor that give preferential treatment to one creditor over another, if debtor made such payments within 90 days of bankruptcy filing Preferential Payments: Trustee can recover (and include in bankruptcy estate) payments made by insolvent debtor that give preferential treatment to one creditor over another, if debtor made such payments within 90 days of bankruptcy filing Fraudulent Transfers: Trustee can recover (and include in bankruptcy estate) transfers made with intent to defraud creditors, if debtor made such transfers within two years of bankruptcy filing Fraudulent Transfers: Trustee can recover (and include in bankruptcy estate) transfers made with intent to defraud creditors, if debtor made such transfers within two years of bankruptcy filing 32-14

15. Exhibit 32-5: Classes of Priority Claims Among Unsecured Creditors Class 1: Alimony/child support Class 1: Alimony/child support Class 2: Court costs, trustee fees, attorney, fees, other costs associated with administration of bankruptcy estate Class 2: Court costs, trustee fees, attorney, fees, other costs associated with administration of bankruptcy estate Class 3: Unsecured claims in involuntary bankruptcy that arise through debtor’s ordinary business expenses, from date of filing petition to date of trustee appointment Class 3: Unsecured claims in involuntary bankruptcy that arise through debtor’s ordinary business expenses, from date of filing petition to date of trustee appointment Class 4: Unsecured claims for unpaid wages, salaries, and commissions earned within 180 days of filing of petition Class 4: Unsecured claims for unpaid wages, salaries, and commissions earned within 180 days of filing of petition Class 5: Unsecured claims for contributions to employee retirement plans Class 5: Unsecured claims for contributions to employee retirement plans 32-15

16. Exhibit 32-5: Classes of Priority Claims Among Unsecured Creditors (Continued) Class 6: Unsecured claims by farmers and fishers against grain operators of grain storage facilities /fish storage/processing facilities Class 6: Unsecured claims by farmers and fishers against grain operators of grain storage facilities /fish storage/processing facilities Class 7: Claims for deposits given to debtor in connection with property/services never given Class 7: Claims for deposits given to debtor in connection with property/services never given Class 8: Certain taxes and penalties due government Class 8: Certain taxes and penalties due government Class 9: Claims in bankruptcies related to federal depository institutions Class 9: Claims in bankruptcies related to federal depository institutions Class 10: Unsecured claims for personal injuries and deaths caused by debtor’s operation of motor vehicle under influence of alcohol/drugs Class 10: Unsecured claims for personal injuries and deaths caused by debtor’s operation of motor vehicle under influence of alcohol/drugs 32-16

17. Exhibit 32-6: Non-Dischargeable Debts Under The Bankruptcy Code Claims for back taxes/government fines within 3 years of bankruptcy filing Claims for back taxes/government fines within 3 years of bankruptcy filing Claims for liabilities against debtor for his/her obtaining money/property under false pretenses, false representation, or fraud Claims for liabilities against debtor for his/her obtaining money/property under false pretenses, false representation, or fraud Claims by creditors not listed on schedule and who did not have notification of bankruptcy proceedings Claims by creditors not listed on schedule and who did not have notification of bankruptcy proceedings Claims based on fraud, embezzlement, and larceny by debtor while he/she acting in fiduciary capacity Claims based on fraud, embezzlement, and larceny by debtor while he/she acting in fiduciary capacity Alimony, child support, and certain property settlements Alimony, child support, and certain property settlements 32-17

18. Exhibit 32-6: Non-Dischargeable Debts Under The Bankruptcy Code (Continued) Claims of willful/malicious conduct by debtor that caused injury to another person/property Claims of willful/malicious conduct by debtor that caused injury to another person/property Specific student loans, unless payment of loans would impose “undue hardship” on debtor Specific student loans, unless payment of loans would impose “undue hardship” on debtor Judgments against debtor for claims resulting from debtor’s driving under the influence Judgments against debtor for claims resulting from debtor’s driving under the influence Debts not discharged in previous bankruptcies Debts not discharged in previous bankruptcies Claims for money borrowed to pay tax to federal government that would be non-dischargeable Claims for money borrowed to pay tax to federal government that would be non-dischargeable Cash advances on credit card Cash advances on credit card 32-18

19. Exhibit 32-7: Largest Corporate Bankruptcy Filings Company, Filing Date, and Pre-Bankruptcy Assets (In Billions) Lehman Brothers Holdings, Inc., 2008, $691 Lehman Brothers Holdings, Inc., 2008, $691 Washington Mutual, 2008, $327.9 Washington Mutual, 2008, $327.9 Worldcom, Inc., 2002, $103.9 Worldcom, Inc., 2002, $103.9 General Motors Corporation, 2009, $91 General Motors Corporation, 2009, $91 Enron Corp., 2001, $65.5 Enron Corp., 2001, $65.5 Conseco, Inc., 2002, $61.3 Conseco, Inc., 2002, $61.3 Chrysler, 2009, $39.3 Chrysler, 2009, $39.3 Thornburg Mortgage, Inc., 2009, $36.5 Thornburg Mortgage, Inc., 2009, $36.5 32-19