chapter 16 creditor debtor relations and bankruptcy
Skip this Video
Download Presentation
Chapter 16: Creditor-Debtor Relations and Bankruptcy

Loading in 2 Seconds...

play fullscreen
1 / 45

Chapter 16: Creditor-Debtor Relations and Bankruptcy - PowerPoint PPT Presentation

  • Uploaded on

Chapter 16: Creditor-Debtor Relations and Bankruptcy. §1: Laws Assisting Creditors. Liens: Consensual; Statutory; or Judicial. Other Remedies: composition agreements, ABC’s. Suretyship. Liens [1]. Consensual Liens.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'Chapter 16: Creditor-Debtor Relations and Bankruptcy' - Patman

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
1 laws assisting creditors
§1: Laws Assisting Creditors
  • Liens:
    • Consensual;
    • Statutory; or
    • Judicial.
  • Other Remedies: composition agreements, ABC’s.
  • Suretyship.
liens 1
Liens [1]
  • Consensual Liens.
    • Personal property as collateral (UCC Art. 9 UCC Secured Transactions).
    • Real property as collateral (Mortgage).
  • Statutory Liens.
    • Mechanic’s Lien: Nonpossessory filed lien on real estate for labor/services.
    • Artisans’ Lien: Possessory lien on personal property for labor done to property.
    • Innkeeper’s Lien: Possessory lien on baggage for unpaid hotel charges.
liens 2
Liens [2]
  • Judicial Liens: Court-ordered seizure/sale of property.
  • Judicial Liens: Attachments, Writs of Execution, Garnishment:
    • Case 16.1: U.S. v Smith(1995).
mortgage foreclosure 1
Mortgage Foreclosure[1]
  • Mortgagor (Debtor-Borrower).
  • Mortgagee (Creditor-Lender).
  • Foreclosure: Mortgagor defaults; Mortgagee petitions court to have sheriff seize, advertise, and sell property.
    • Money goes to expenses of sale, creditors in descending order of priority, then debtor if any left.
mortgage foreclosure 2
Mortgage Foreclosure [2]
  • If there is still money owed to creditor after foreclosure there is a deficiency, and the debtor is still liable for this.
  • Equity of Redemption: Mortgagor can “redeem”: the property by paying full amount plus any penalties and taxes.
2 suretyship and guaranty
§2: Suretyship and Guaranty

When a 3rd party promises to pay a debt owed by a Debtor who doesn’t pay, either a suretyship or guaranty is created.




Surety /


  • Express contract between the surety and the creditor.
  • Creditor can demand payment from surety at any time after debt is due.
  • Creditor need not exhaust all legal remedies against the debtor before holding the surety responsible.
  • Secondarily liable, debtor must default, creditor has attempted to collect from the debtor.
  • Statute of Frauds requires guaranty to be in writing.
    • Case 16.2: Wilson Court Limited Partnership v. Tony Maroni’s (1998).
defenses of the surety guarantor 1
Defenses of the Surety & Guarantor [1]
  • Surety can use any of the Debtor’s defenses EXCEPT incapacity, bankruptcy, or statute of limitations.
  • Surety can use his own defenses, EXCEPT fraud between Debtor and Surety that is unknown by creditor.
defenses of the surety guarantor 2
Defenses of the Surety & Guarantor [2]
  • Material contract modification between Debtor and Creditor will release a gratuitous surety and a compensated surety to the extent he suffers a loss.
  • Surrender or impairment of the Debtor’s collateral releases surety to the extent he is damaged.
  • Release of a co-surety releases surety to the extent he is damaged.
rights of the surety guarantor
Rights of the Surety & Guarantor
  • Right of Subrogation.
  • Right of Reimbursement.
  • Right of Contribution from Co-sureties:
    • Sureties in equal amounts.
    • Sureties in equal amounts, one or more co-sureties missing or insolvent.
3 protection for debtors
§3: Protection for Debtors
  • Exemptions (Federal and State):
    • Homestead; and.
    • Personal property
  • Holder in Due Course does not work against consumers.
  • Consumer Credit Protection Act.
  • Truth-in-Lending Act.
4 bankruptcy and reorganization
§4: Bankruptcy and Reorganization
  • Article I, Section 8 of the U.S. Constitution. Federal jurisdiction.
  • Bankruptcy Reform Act of 1978, amended by Reform Act of 1994.
  • Federal court under U.S. district court, can appeal to district courts.
  • Secured vs. Unsecured creditors.
types of bankruptcy relief 1
Types of Bankruptcy Relief [1]
  • Bankruptcy code has 8 chapters.
  • 1,3, 5 - general definitional provisions and provisions covering administration, creditors, debtor and estate
  • Chapter 7 - liquidation proceedings.
  • Chapter 9 - adjustment of debts of a municipality.
types of bankruptcy relief 2
Types of Bankruptcy Relief [2]
  • Chapter 11 – reorganizations.
  • Chapter 12 - adjustment of debts of family farmers with regular incomes.
  • Chapter 13 - adjustment of debts of individuals with regular incomes.
chapter 7 liquidation
Chapter 7: Liquidation
  • Chapter 7: Ordinary or straight bankruptcy.
    • All assets are turned over to a trustee.
    • Trustee sells nonexempt property and distributes the proceeds to the creditors. Remaining debts are discharged.
    • Available for any person, individual, corporation, partnership.
    • Railroads, insurance companies, banks, savings and loan and investment companies licensed by the SBA, and credit unions cannot be debtors.
filing the chapter 7 petition
Filing the Chapter 7 Petition
  • Straight bankruptcy is commenced by the filing of a voluntary or involuntary petition in bankruptcy with the bankruptcy court.
  • Voluntary Petition.
  • Involuntary Petition.
voluntary petition 1
Voluntary Petition [1]
  • Petitioner must understand there are other chapters available.
  • Debtor does not have to be insolvent.
  • List secured and unsecured creditors and addresses and amount of money owed. List of all property owned including property claimed; current income and expenses.
  • Swear to these and sign. Federal crime to misrepresent.
voluntary petition 2
Voluntary Petition [2]
  • Court issues order of relief.
  • Clerk of court gives trustee and Creditors mailed notice of the order within 20 days.
  • Court will deny if “substantial abuse” of Chapter 7.
    • Case 16.3: In Re Lamanna(1998).
involuntary bankruptcy 1
Involuntary Bankruptcy [1]
  • Creditors force Debtor into bankruptcy proceedings, but not against a farmer or charitable institution.
  • If there are 12 or more creditors, need three or more with unsecured claims totaling at least $10,000 to join in petition.
involuntary bankruptcy 2
Involuntary Bankruptcy [2]
  • If there are less than 12 creditors, one or more having a claim of $10,000 may file.
  • Court will order relief if:
    • Debtor is generally not paying debts as they come due.
    • A general receiver, assignee, or custodian took possession of, or was appointed to take charge of, substantially all of debtor’s property within 120 days before filing.
  • Severe penalties for frivolous petitions against debtors, including Punitive damages.
automatic stay
Automatic Stay
  • Either voluntary or involuntary.
  • Creditors cannot commence or continue most legal actions.
  • Damages for violation of stay.
  • Creditors can get “adequate protection.”
    • periodic or one time cash payments or indubitable equivalent.
property of the estate 1
Property of the Estate [1]
  • Debtor’s Estate includes:
    • All Debtor’s legal and equitable interests in property presently held, including community property;
    • Property transferred in a “voidable” transaction; and
    • Property which Debtor becomes entitled within 180 days after filing.
property of the estate 2
Property of the Estate [2]
  • Estate includes (cont’d):
    • Proceeds and profits from the property of the estate; and
    • After-acquired property such as inheritances, property settlements, and life insurance death proceeds.
  • Case 16.4: In Re Andrews(1996).
creditor s meeting and claims 1
Creditor’s Meeting and Claims [1]
  • Ten to thirty days after filing, Court calls meeting of creditors. Debtor is examined under oath about his debts and assets.
  • Within 90 days, Creditors must file “proof of claim” with court clerk.
  • Leases cannot be for more than one year.
creditor s meeting and claims 2
Creditor’s Meeting and Claims [2]
  • Claims allowed unless disputed. If claim is disputed or unliquidated, court will decide value.
  • It is a crime to file a false claim.
  • Employment contracts and real estate.
  • See list in text pages 350-351.
  • States may pass law requiring Debtor use state exemptions.
  • In some states, Debtor may choose state or federal exemptions.
bankruptcy trustee
Bankruptcy Trustee
  • Court-appointed until first meeting of creditors.
  • Creditors elect permanent trustee
  • Administers estate.
  • Collects proceeds, liquidates assets and pay Creditors in order of priority.
trustee s powers
Trustee’s Powers
  • Trustee has rights to get Debtor’s property back from those Creditors that he can defeat by asserting the rights of:
    • Debtor against the creditors.
    • Lien creditors against the creditors.
    • Bona fide purchaser against the creditors.
    • Trustee still loses to the PMSI creditor who perfects within his “magic” 10-day period.
voidable rights
Voidable Rights

Trustee can stand in shoes of debtor and assert any lack of capacity or lack of assent.

preferential transfers 1
Preferential Transfers [1]
  • A Debtor is not permitted to transfer property or make a payment that favors—or gives a preference to—one creditor over another.
  • For a Trustee to recover preferential payment, Debtor must be insolvent and transferred property for pre-existing debt within previous 90 days.
preferential transfers 2
Preferential Transfers [2]
  • Trustee can use preferential payment to pay a real preexisting debt, not for current consideration.
  • Creditor gets more than he would in a Chapter 7.
  • Consumer can transfer up to $600 without constituting a preference.
liens on debtor s property
Liens on Debtor’s Property
  • Trustee can avoid statutory liens that became effective when bankruptcy petition filed, or when debtor became insolvent.
  • Can avoid liens which were unperfected on date of bankruptcy.
fraudulent transfers
Fraudulent Transfers
  • Trustee may avoid fraudulent transfers made within one year of filing of petition.
  • Trustee may proceed under state law for fraud with a 3 year statute of limitations.
distribution of secured property
Distribution of Secured Property
  • Consumer debtors:
    • Have 30 days from filing petition or before first meeting of creditors.
    • Debtor must tell what she intends to do with collateral-- keep or surrender.
    • Trustee must enforce within 45 days.
  • If Consumer surrenders: Creditor can keep or sell
    • If creditor keeps collateral the debt is fully satisfied.
    • If creditor sells the collateral, she can use extra for costs, or can become unsecured creditor for deficiency.
distribution of unsecured property
Distribution of Unsecured Property
  • Paid according to bankruptcy law.
  • All of one class must be paid before moving to next.
  • Creditor within last class receive proportionately if not enough:
    • See Priority List on page 353.
    • All creditors paid, trustee gives extra back to debtor.
  • Exceptions (p.354).
  • Objections to Discharge.
  • Effect of Discharge.
  • Revocation of Discharge.
  • Reaffirmation of a Debt.
exceptions to discharge list on p 354
Exceptions to Discharge(List on p.354)
  • Claims for back taxes.
  • Claims for amounts borrowed by Debtor to pay federal taxes.
  • Claims against property/money obtained by Debtor under false pretenses.
  • Claims by Creditors who did not know about bankruptcy.
    • Case 16.5: In Re Seixas (1999).
reaffirmation of debt
Reaffirmation of Debt
  • Debtor may wish to pay a debt notwithstanding the debt could be discharged in bankruptcy.
  • Agreement is filed with court.
  • Debtor can rescind agreement at any time.
  • Chapter 11—Corporations. Debtor and Creditors formulate a plan under which the Debtor pays a portion of its debts and is discharged of the rest.
  • Same debtors as are eligible under Chapter 7.
  • Creditors and debtors can settle private “workouts” outside of bankruptcy proceedings.
reorganizations 2
Reorganizations [2]
  • “Fast tract” Chapter 11 for small business debtors whose liabilities do no exceed $2 million and who do not own or manage real estate.
  • Debtor in Possession (DIP):
    • Trustee may be appointed.
    • DIP has same powers as trustee in Chapter 7.
      • Strong-arm clause
reorganizations 3
Reorganizations [3]
  • Collective Bargaining Agreements.
  • Creditors Committees.
  • The Reorganization Plan:
    • Designate classes of claims and assets.
    • Specify treatment of classes.
    • Provide adequate means of execution.
chapter 13 individual repayment plans
Chapter 13:Individual Repayment Plans
  • Chapter 13: For individuals with regular income who owe fixed unsecured debts of <$269,250 or fixed secured debts of <$807,750.
  • Not for partnerships, corporations.
law on the web
Law on the Web
  • U.S. Bankruptcy Code at Cornell U.
  • Creditor-Debtor relationships at Cornell U..
  • The Bankruptcy Law Finder.
  • The American Bankruptcy Institute.
  • Legal Research Exercises on the Web