Chapter Eighteen. Use, Sale, or Lease of Property - PowerPoint PPT Presentation

• After reading this chapter, you will be able to:
• Describe the details of the actual liquidation process and common methodologies of liquidation, private sales and public auctions
• Define the concept of cash collateral and the limits upon its use
• Understand a sale “free and clear of liens”
• Describe the sale of joint tenancy or tenancy in common property

• A capital asset is one that is used to operate the business, such as equipment or fixtures.
• A noncapital asset is, for example, the inventory of an operating business.

• Cash collateral is cash or, or its equivalent, in which a secured creditor may have an interest.
• Section 363(c) of the Bankruptcy Code restricts the use of cash collateral absent court approval.

• All Chapter 7 sales, except as in 18.1.2 &2
• Sales not in the ordinary course of business

• Chapter 9, 11, 12, or 13 sales in the ordinary course of business
• Chapter 7 sales in the ordinary course of business when a Chapter 7 trustee is authorized to operate

• Nonbankruptcy law permits
• Lienholders consent
• All liens will be paid in full
• Lien is in good-faith dispute
• Lienholder could be legally compelled to accept money satisfaction

• After reading this chapter, you will be able to:
• Define the term “executory contract” as a specialized form of asset
• Define the term “adequate assurance”
• Describe the procedure that is taken by a party seeking the assumption or rejection of an executory contract or unexpired lease
• List the deadlines contained in the Code to assume an executory contract or unexpired lease
• Describe the conditions when assumption of an executory contract or unexpired lease may not be assumed

• Contracts for which performance remains due to some extent on both sides.
• Franchise or license agreements are common executory contracts.
• Executory contracts are the subject of Bankruptcy Code Section 365.
• An executory contract may be assumed or rejected.

• The providing of adequate protection to a nondebtor party to an executory contract subject to Bankruptcy Code Section 365.
• A trustee or debtor-in-possession assuming an executory contract must provide the nondebtor party to the contract with adequate assurance of future performance.
• An assignee of an executory contract must also provide adequate assurance of future performance.
• Providing adequate assurance includes curing existing defaults and convincing the creditor and the court that future performance will be rendered by the debtor.

• After reading this chapter, you will be able to:
• List the restrictions placed upon a trustee’s use of an estate’s cash assets
• Describe the disposition of burdensome or valueless property through the abandonment procedure
• Understand some miscellaneous provisions concerning utility service and discrimination based upon one’s status as a bankruptcy debtor
• List the conditions under which a bankruptcy estate may obtain credit

• The act of a trustee to remove from property of the estate assets that are burdensome or of inconsequential value to the estate.
• An asset with no equity or a meritless personal injury claim are common examples.
• Abandonment is governed by Section 554 of the Bankruptcy Code.

• Abandonment simply returns the asset to its prepetition status and removes it from the bankruptcy process and the protection of the automatic stay.

• Section 364 regulates the obtaining of credit by a bankruptcy estate.
• A Chapter 7 estate will only make use of this provision if a trustee is authorized to operate a business or in extraordinary circumstances.
• A reorganization debtor will frequently make reference to or use of this provision.

• BAPCPA added provisions designed to account for the disposition of patient records and the transfer of patients from a closing facility in a health care business bankruptcy.
• The primary purpose of these provisions is to protect the privacy of the records and the safety of the patients.

• After reading this chapter, you will be able to:
• Describe the procedures and forms used in filing creditor claims in Bankruptcy proceedings
• List the various basic objections which a trustee may make to a creditor’s claim
• Define the various classifications given to creditor claims in bankruptcy estates: Secured, administrative, priority, unsecured, and subordinated
• Describe the Statement of Intention procedure applicable in consumer proceedings

• Remember that a ‘‘claim’’ is defined as ‘‘right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
• secured, or unsecured.’’ 11 U.S.C. 101(5).

• Deadline: By claims bar date set by Court or United States Trustee
• Documents:
• Proof of Claim: Official Form 10
• Evidence of Claim (such as promissory note; invoice)
• Evidence of perfection of security interest (such as recorded mortgage or UCC financing statement)

• Objection Documents:
• Notice of objection—30 day notice required
• Declarations, where necessary
• Points and authorities, where necessary

• Late filed claims
• Duplicate claims
• Claim lacks adequate supporting documentation

• A defense to the claim applicable under nonbankruptcy law (such as statute of limitations)
• Postpetition interest
• A property tax claim exceeding the property’s value
• Excessive or unreasonable insider atttorneys’ fee claims
• Postpetition alimony, support, or maintenance payments

Slide 1 of 2

• Future rent on a rejected lease limited to greater of one year’s rent or 15 percent of three years’ rent remaining under lease, plus actual unpaid rent
• One year’s compensation, plus any actual unpaid compensation due under a long-term employment contract
• Claim is subject to the trustee’s avoiding powers
• Unreasonable refusal to accept composition in consumer case

Slide 2 of 2

• Domestic support obligations
• Administrative claims
• “Gap Claims” incurred in involuntary proceeding
• Unpaid wages and benefits incurred within 90 days up to $10,000 per individual
• Pension plan contributions incurred within 180 days up to $10,000 per employee
• Farmers or fishermen with crops or catch in storage facility
• Deposits for consumer goods or services of up to $1,800
• Most tax claims
• Financial institution minimum capital
• Death or personal injury caused by substance abuse
• Secured administrative claim where collateral used without consent or prior court order

• Contents
• 1. Notice required to be given secured creditors of consumer debt, advising of intended disposition of collateral after a Chapter 7 filing
• 2. Methods of disposition
• a. reaffirm
• b. return collateral
• c. redeem collateral

• Time Limits
• 1. Notice must be given within 30 days of filing
• 2. Intention must be performed within 30 days of date first set for meeting of creditors
• 3. Stay relieved by operation of law at end of time period (11 U.S.C. §362(h)).

• After reading this chapter, you will be able to:
• List the order of distribution to classes of creditors
• Describe how to outline the entire bankruptcy administrative process, in terms of both steps and time

• 1. Administrative (503)
• 2. Priority (507)
• 3. Secured (506)
• 4. Unsecured (726)
• 5. Subordinated (510(c))
• 6. Interest
• ___________________________
• 7. Debtor Solvent

Estate

• Priority Secured Administrative Claims
• Administrative Claims
• Priority Claims Authority
• Secured Claims
• Timely Filed Unsecured Claims
• Late Filed Unsecured Claims
• Fines or Penalties Not Compensation for Actual Damages; Punitive Damages
• Subordinated Claims
• Postpetition Interest
• Debtor—Solvent Estate