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Bankruptcy

Bankruptcy. Automatic Stay. Once bankruptcy petition filed, creditor cannot: Receive a security interest Perfect a security interest Enforce a security interest (repossess). Bankruptcy Trustee. Protects unsecured creditors. Enemy of the secured creditor. Status of judicial lien creditor.

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Bankruptcy

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  1. Bankruptcy

  2. Automatic Stay • Once bankruptcy petition filed, creditor cannot: • Receive a security interest • Perfect a security interest • Enforce a security interest (repossess)

  3. Bankruptcy Trustee • Protects unsecured creditors. • Enemy of the secured creditor.

  4. Status of judicial lien creditor • Bankruptcy trustee has status of judicial lien creditor. • Thus, will prevail over unperfected security interests. • Problem 361 – p. 974

  5. Power to Raise Debtor’s Defenses • Bankruptcy trustee can raise any defenses the debtor may have such as: • Statute of limitations • Statute of frauds

  6. Power of any actual unsecured creditor • Moore v. Bay – 1931 United States Supreme Court • Trustee’s recovery is not limited to the amount of the unsecured creditor’s claim.

  7. Preferences • Debtor cannot prefer one creditor over another. • Creditors cannot be overly aggressive.

  8. Preferences • 1. Transfer by debtor • Includes grant of security interest.

  9. Preferences • 2. For preexisting debt • Not a new debt.

  10. Preferences • 3. Within 90 days of filing the bankruptcy petition • One year if transfer is to an insider (e.g., relative, partner, corporate officer)

  11. Preferences • 4. Increases the amount the creditor receives • Creditor is “better off” because of the transfer as compared to what the creditor would receive under a bankruptcy distribution.

  12. Preferences • 5. Debtor insolvent at time of transfer • Presumed within 90 days before filing.

  13. Preferences -- Exceptions • 1. Contemporaneous exchange • New value given for item. • Perfection of new value within 30 days of attachment.

  14. Preferences -- Exceptions • 2. Ordinary course debt payments • Utility bills • Paying ordinary debts (even secured ones)

  15. Preferences -- Exceptions • 3. PMSI • Perfected within 30 days of debtor receiving possession.

  16. Preferences • Problem 362 – p. 979 July 19Bankruptcy filing June 8$80,000 loan$100,000 collateral July 18Perfection

  17. Preferences • Problem 363 – p. 979 Nov. 1value Security agreement Nov. 15RightsAttachment Dec. 6Bankruptcy filing Dec. 5Filing

  18. Preferences • Problem 364 – p. 979

  19. Floating Liens [amount unsecured 90 days before filing] minus [amount unsecured at time of filing] equals preference

  20. Floating Liens Preference = Amountof debtat timeof filing Value ofcollateralat timeof filing Amount of debt 90days before filing Value ofcollateral90 daysbefore filing • Problem 365 – p. 981

  21. Fraudulent Conveyances • Under federal or state law. • Actual intent to defraud • Debtor receives less than reasonably equivalent value • Problem 366 – p. 989

  22. Judicial Liens • Judicial liens within 90 days of bankruptcy filing are preferences and trustee has priority.

  23. Statutory Liens • Statutory liens have priority over the bankruptcy trustee if under state law: • They would prevail against a BFP, and • Do not arise only because the debtor is insolvent.

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