bankruptcy (cecil) ws05

8/2/2019 Bankruptcy (Cecil) WS05

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Bankruptcy Outline (Cecil) Winter 2005

I. CONSUMER BANKRUPTCY

a. Introduction

I. PERSPECTIVES1. Creditor

a. Def: Any entity who has a provable claim against the estate -- 101(10)

i. Entity: Almost every kind of legal person -- 101(15)ii. Claim: Defined broadly to cover all legal or equitable rights

to payment -- 101(5)1. Including unliquidated, unmatured, contingent, or

disputedb. Get paid in one of three ways

i. Debtor pays creditor

ii. State law -- collect from D under state law procedures1. Race to who can get to Ds assets first2. Problem: Where are the assets?

iii. Federal bankruptcy law -- orderly collection and sale of Dsassets is in best long-run interest of all of the creditors

1. Benefits to creditors

a. Finding out where assets are D must listall assets on bankruptcy petition

b. Bankruptcy court (federal) has jurisdictionover all assets by operation of law, no matterwhere they are (even internationally)

i. If researching a bankruptcy issue,

start with federal law sometimes

state is important

2. POLICY: Fair distribution of the Ds assets for thebenefit of all creditors

2. Debtor-- 109a. Rights: FRESH START relieved of pre-petition debts and gets

to start life anew major reason Ds file for bankruptcyi. Examples

1. Right to exemptions2. Right to discharge

ii. POLICY (for fresh start) (2)1. If we dont give Ds fresh start, state will have to

support thema. Creditors lose v. government losing

creditors took the risk

2. Compassionb. Ds role

i. Ch. 7 debtor: Passive

1. Furnishing information2. Cooperating with TIB3. Surrendering property

ii. Ch. 13 debtor: Active

1. Works with TIB in formulating and consummatingthe plan

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2. Continues running business, if applicable, underTIBs oversight

c. Duty of D: General obligation to act in good faith not to abuse thespirit of the Code

i. POLICY: Dishonest Ds should not be allowed to pervert thegoals of the bankruptcy law

ii. Provisions1. 707: Permits dismissal of abusive Ch. 7 petition by

a consumer D2. 727, 523: Punish certain types of dishonest or

uncooperative behavior be allowing the court torefuse or restrict Ds discharge

3. 1129(a), 1125(a), 1325(a): Ds good faith is aprerequisite for plan confirmation

3. Trustee in bankruptcy (TIB)a. Bankruptcy and estate are managed by TIB represents the

collective interests of Cs

i. TIB is a private citizen who serves as a truseeii. Generally selected by a govt. official: US Trustee (UST)

appointed by AG for 5 year term) and serves under DOJ1. Can be elected by creditors, but rare

iii. Must post bond in amount set by US Trustee to guaranteefaithful performance of duties

b. Duties obligations to unsecured general creditorsi. Gather all Ds property

ii. Protect and maintain property (ensure it is insured)iii. Distribute proceeds to creditors per statutory prioritiesiv. Scrutinize claims and oppose those that may be invalidv. Challenge improper exemption claims by D

vi. Investigate Ds affairsvii. In Ch. 13: Obligation to force D to make payments --

1302(b)(5)c. TIB gets paid by how much it gets paid to Cs -- 326

II. TYPESOFCONSUMERBANKRUPTCY (2)1. CH. 7 LIQUIDATION (APPROX. 3 MOS.)

a. Trustee gathers Ds assetsb. D keep exempt assetsc. Remaining assets are soldd. Remaining debts are discharged (with some exceptions)

2. CH. 13 REHABILITATION (APPROX. 3-5 YEARS)

a. D keeps all assetsb. File plan with court

i. C gets disposable future wages

c. Push in Congress to force can pay Ds into Ch. 13 meanstesting policy: Cs get more in Ch. 13 than Ch. 7

3. [CH. 11 BUSINESS REORG. SC held consumers can also file this, butrare b/c expensive]

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III. ORGANIZATIONOF BANKRUPTCY CODE1. Ch. 1: Who can be a debtor?; Definitions2. Ch. 3: Governs powers & duties of bankruptcy trustee3. Ch. 5: Claims and distributions to creditors4. Ch. 7: Liquidation provisions governing bankruptcies applicable to corps.

and indivs. (corps. liquidate/dissolve under Ch. 7)5. Ch. 9: Municipalities beyond the scope of this course6. Ch. 11: Business reorgs. but indivs. can file7. Ch. 12: Family farmers most recent provision, added in 19868. Ch. 13: Rehabilitation procedures only applicable to individual Ds

b. Property of the Estate (POE) -- 541

i. UPONFILINGOFBANKRUPTCYPROCEEDING, BANKRUPTCYESTATEISCREATEDBYOPERATIONOFLAW -- 541(a)

1. Bankruptcy estate is a new legal entity separate from D2. True in voluntary and involuntary bankruptcies

a. Involuntary: Creditors force D into bankruptcy

i. D is trying to get property out of reach of creditorsii. Ds dont realize they need help (esp. mom & pop stores)

b. Voluntary: D files on its own

II. ALLOF DSPRE-PETITIONPROPERTYISPROPERTYOFTHEESTATE (POE)

1. General catch-all phrase: [A]ll legal or equitable interests of the D inproperty as of the commencement of the case is property of the estate unless one of the exceptions in 541 (b) and (c)(2) apply -- 541(a)(1)

a. Broadly construed to include all interests of value to the stateregardless of competing property interests

i. Taxes accrued before filing -- Segal, Kozaskaii. Vacation pay accrued for time worked before filing

2. Offspring of POE -- 541(a)(6)3. Proceeds from POE -- 541(a)(6)

III. EXCEPTIONS NOT POE

1. Services performedby D aftercommencement of case are NOT POE -- 541(a)(6)

a. Includes wages, commissions, etc.

b. Year end bonus Palmercasei. Facts:

1. D filed bankruptcy petition on 6/18 and receivedY/E bonus on 12/7;

2. ee manual: bonus is not a gift, not automatic, basedon contribution to co. for the year, measured bymerit rating on 4/30 and 10/31, must be FT workeron 12/6

ii. Issue: Is Ds bonus sufficiently rooted in Ds pre-bankruptcy pastto be considered POE? NO

1. Dependent on several factorsa. Continuous service; employed on 12/6b. Satisfactory job performance

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c. At CEOs discretiond. Plain language of ee manual: not a gift

sound business practice

2. Might be different is was entitled to it when filed(ex.accrued vacation), but D was not entitled to it untilseveral mos. later

c. Contributions to retirement account made post-petition

2. Assets held by custodian for another are NOT POE -- 541(b)

3. Ds post-petition assets are NOT POEa. Exception: Windfall clause -- 541(a)(5)

i. If would have been POE when petition filed, and D acquiresor becomes entitled to acquire within 180 days after filing

1. by bequest, devise, or inheritance;

a. issue: trust(not listed) courts split as towhether trust qualifies (policy arguments v.

strict interpretation of language)2. as a result of property settlement agreement with Dsspouse; or

3. as a beneficiary of a life insurance policy

4. Assets subj. to anti-alienation provision (cannot assign to or sell for thebenefit of creditors) -- 541(c)(2)

a. Spendthrift trust exception keeps retirement accounts out ofbankruptcy estates

i. Rules to qualify [In re Orkin (Mass. 1994), p. 185]1. Non-alienable ; and2. ERISA plan orstate exception applies

a. Case: n/a b/c er cannot be covered as eeunder ERISA

b. Case: D has power to amend or terminate

plan, so state exception does not apply and D

must be included as POE

ii. Two types of plans distinction is important1. ERISA pension plans (defined contribution and

defined benefit) not accessible until retire

a. Pension benefits subject to ERISAs anti-alienation provisions are excludedfrom

Ds bankruptcy estate (not POE)

Patterson v. Shumante (cites Cecils LRA)

i. Falls under 541(c)(2): Pensionbenefits are sitting in a trust;restriction on transfer enforceableunder non-bankruptcy law

b. Issue: Does 541(c)(2) apply to statespendthrift trust laws only or also to federalERISA laws split

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i. Legislative history: state spendthrifttrust law

ii. Statute: applicable nonbankruptcylaw includes ERISA

2. IRAs and 401(k)s accessible before retirement(with limitation and penalty)

a. Although governed by ERISA, notsubject tosame non-alienation provisionsPOE

i. Some cases have decided differentlybased on policy that if one appliesthat the other should, too SCruling on this issue will rule on thissoon

iii. POLICY: Does this make sense to exclude from estate? --Issues

1. If IRA goes into bankruptcy and are distributed tocreditors, creditor still has to pay taxes and penalties

for early withdrawl even though does not get themoney2. Although havent made payments to creditors, still

maxed out retirement3. What about fresh start policy of code?

a. Recall that many bankruptcies occur afterlife changing events

4. Who supports them if we take away their retirementplan? State same one who decided to take it away

5. Can intentionally put these funds outside the reachof creditors shirk the system

6. Distinguish between plans were D has control overassets and those where D does not have control

7. Distinguish based on age of D and ability to buildretirement after fresh start sliding scale

8. Changing times pensions are becoming obsolete sotaking away all retirement

b. Licenses

i. Rule: Licenses are POE if they are transferable-in-factii. Licenses can either be: (3)

1. Non-transferable not POE2. Expressly transferable POE3. Transferable-in-fact expressly says non-

transferable, but it is transferred (bought and sold)all the time POE

a. Even though transferring the business andnot actually transferring the license in theproblem, argue this one not transferable

b. Issue: Trustee may not be able to maximizethe value or if it does maximize the value, itmay be in violation of law (ex. Redskins

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tickets and scalping or non-transferabilitylaw)

iii. Examples: Brothel licenses are POE --In re Burgess1. Cited several cases where the issue was whether a

liquor license is property finding that a majority ofcourts have held that a liquor license is property

5. Right to receive money in future corpus of trust is not part of POE -- 541(c)(2)

a. Key issue: Trust is not (technically) a bequest, devise, orinheritance -- 541(a) would not apply

i. Courts are split on whether a trust qualifies: Policyarguments v. strict interpretation of language

iv. POE ISSUES DETERMINING POE ONEXAM1. Is it property for purposes of 541?

a. License issue: If license is transferable-in-factit is POEi. Non-transferable

ii. Expressly transferableiii. Transferable-in-fact expressly says transferable, but it is

transferred (bought and sold) all the time1. Even though transferring the business and not

actually transferring the license in the problem,argue this one not transferable

2. Issue: Trustee may not be able to maximize thevalue or if it does maximize the value, it may be inviolation of law (ex. Redskins tickets and scalping ornon-transferability law)

2. What is Ds interest in the property?

a. 541(d): Mere legal title only legal title goes inb. 451(b): Holding property for another as bailee

3. Is it pre-petition property? (Did D have interest in property as of

commencement of the case?)

a. General rule : Only pre-petition property (property D had interest inas of filing) goes into estate

b. Exceptions

i. Windfall clause: Interest in inheritance w/in 180 days offiling is POE -- 542(a)(5)

1. Covers property received by a. Bequest;b. From property settlement; orc. As a life insurance beneficiary

ii. Profits from POE -- 541(a)(6)iii. It isso rooted in Ds pre-bankruptcy pastas to be POE

4. Is there a specific provision excluding the property from the estate?

a. 541(c)(2): Spendthrift trust and ERISA pension benefits provisioni. If property falls within this provision, it is considered

excluded from estate (never go into estate) distinguishfrom exemptions which go into estate, but are exempted byprovision of court

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b. 541(b): Even if D has an interest, it is only as bailor (holding foranother) no legal or equitable interest, so not part of the estate

c. Automatic stay -- 362

i. GENERALLY: D ISPROTECTEDBYAUTOMATICSTAY1. Automatic stay: Automatic injunction barring action against D or Ds POE

upon filing of bankruptcy petition

II. POLICY: (1) STAYISPARTOF DS FRESHSTART -- GIVES D BREATHINGROOM; (2) EVENTREATMENTOF CS

1. Other purposes (3)

a. Involuntary petition : Allows D time to contravert the petitioni. Procedure: Cs force D into bankruptcy; hearing approx. 30

days after filing contraverting the petition

b. Ch. 13 : Gives D time to prepare repayment plani. Procedure: D files; D develops plan to pay back Cs

ii. Note: Cannot force D into Ch. 13 bankruptcy 3 year

budget is considered involuntary servitudec. Ch. 7 : Gives trustee time to gather assets and prepare for sale

III. NATUREANDSCOPEOFSTAY1. Binding on all entities

a. Entities: Includes individuals, all types of corporate entities, andgovernmental units -- 101(15)

2. Durationa. Effective upon filing bankruptcy petitionb. Remains in effect for duration of case

3. Any action taken by creditor whether creditor had knowledge of bankruptcyor not violates automatic stay

a. Knowledge will go to damages, but not whether stay appliesb. Note: After filing, D lists Cs, clerk sends notice to all creditors listed

on petition irrelevant if C takes action before gets notice4. Applies in all forms of bankruptcy

a. But does not preclude actions in bankruptcy court itself

IV. RANGEOFSTAY

1. Activity included in stay -- 362(a)a. Activity against D: Prohibits all activity against D relating to the

collection of claims that arose before commencement of bankruptcycase -- 362(a)(1), (2), (6)-(8)

i. C cannot --

1. repossess Ds property;a. if property already repossessed, C cannot

sell2. send D letters;3. try to collect from D;4. enter into agreements with D

ii. Landlord cannot evict D unless holdover Tiii. Utility co. cannot alter service -- 366

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1. BUT can require adequate assurance (deposit) within20 days

b. Activity against property of D: Cannot create, perfect, or enforce alien against Ds property to secure a prepetition claim -- 362(a)(5)

i. POLICY: Cs cannot establish or enforce liens on what may bepart of Ds fresh start property, if applicable

ii. Note :Postpetition C has full rights of enforcement againstDs property

c. Activity against POE

I. POLICY1. Preservation of POE2. Evenhanded treatment of Cs

2. Activity excluded from the stay -- 362(b)a. CRIMINALACTIONS against D -- 362(b)(1)

i. POLICY: Otherwise abuse of bankruptcy system to protectcriminal action

ii. Exception: If charges will be dropped if make payment canbe stayed b/c attempt to collect1. MIN: Proceeds despite stay regardless of if would be

dropped if pay

b. COLLECTING, ESTABLISHING, ORMODIFYINGPOST-PETITIONALIMONY,maintenance, and support -- 362(b)(2)

i. Alimony claims are all pre-petition (when judge entereddivorce decree), but can be treated as post-petition claim andnot violate the stay:

1. 502(b)(5) allows us to treat as a post-petition claim-- unmatured alimony claims converts to post-petitionclaim

2. MAJ: 362(b)(2)(B) says not a violation of the stayto collect alimony

a. MIN: Dont need this b/c post-petition andthis applies only to pre-petition

ii. POLICY: If forced to wait until alimony goes through estate,may be financial hardship want to get money ASAP

c. PERFECTING SI within the grace period -- 362(b)(3)d. ASSESSINGATAX (note: recent development)

i. IRS can take steps to create a lien w/out violating the estate,but any lien that arises cannot attach to the estate (onlyattaches to Ds post-petition property) -- 362(b)(9)

1. POLICY: Would otherwise be inadvertently possible

for IRS to violate stay because 10 day notice is notlong enough to get records straight

2. Cecil: This provision inadvertently puts the govt infront of women and children as alimony/childsupport, like taxes, are not avoidable

e. FREEZEOFACCOUNTPENDINGASETOFFDETERMINATION --In re Strumpf(1986)

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i. Only applies where hold is temporary while C applies forrelief from automatic stay

1. Without right to freeze, right to setoff would bemeaningless

ii. Background: Creditors have right to setoff under 553 basically offers otherwise unsecured creditors to be secured

by the setoff amount1. Problem: Setoff violates automatic stay2. Solution: Can file motion in court to have stay lifted

banks were also freezing Ds account so Ds/trusteewould not take money

3. NOTE: PREV. POST-PETITIONCREDITORS

a. Post-petition C can go against post-petition property withoutviolating automatic stay -- 362

i. (a)(1)-(2): Prevents pre-petition creditors from getting POEii. (a)(3): Both

iii. (a)(4): Both cannot get possession or control of POE

iv. (a)(5): Pre-petition creditors -- cannot create a lien duringbankr. that applies to post-petition/exempt property(exception: IRS)

v. (a)(6): Pre-petition creditors can only go against POEvi. (a)(7): Pre-petition creditors cannot exercise setoff w/out

cts permission, even though allowed by state lawvii. (a)(8): Duplicative of (a)(1)

V. RELIEFFROMSTAY

1. Court mustgrant relief from stay after notice and hearing, if grounds forrelief are shown -- 362(d)

a. Party can file motion requesting relief from stay with the court

2. Grounds for relief (3)

a. INADEQUATEPROTECTIONexpressly mentioned(all others are forcause at courts discretion)-- 362(d)(1)

i. Adequate protection: Requiring TIB to maintain the value ofthe collateral relative to the debt

1. POLICY: Cs face risk that its collateral may decline invalue while the stay is in effect

a. Upon realization, Secured Cs will receive asmuch as they would have on foreclosure

2. Only applies to POE -- not available to unsecured Csii. Means of furnishing adequate protection

1. Cash payment (or periodic cash pmts. to C) -- 361(1)2. Providing additional collateral or replacement lien --

361(2)3. Grant of indubitable equivalent (most general

other relief) -- 361(3)a. Ex: Buying addtl insurance

iii. Failure to provide: Superpriority -- 507(b)

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1. If TIB provides adequate protection which turns outto be inadequate, the shortfall is treated as a toppriority admin. claim -- 507(b)

iv. Burden: Party opposing relief (D or TIB)

b. AGAINSTACTSAGAINSTPROPERTY2 requirementsi. NO equity in the property;AND -- 362(d)(2)(A)

ii. Property is not necessary for effective reorganization -- 362(d)(2)(B)

1. n/a in Ch. 7 (automatically met) no reorg.

c. [Single asset real estate cases -- 362(d)(3)]

VI. REMEDIES

1. Penalty for non-compliance with stay -- 362(h)a. Individualinjured by any willful violation of a stay shall recover:

i. actual damages,ii. costs and attorneys fees

iii. punitive damages, if appropriateb. Issue: Individual -- Must a natural person be damaged or can

corporation sue under this provision? SPLITi. MAJ: Strict statutory interpretation and majority: NO (incl.

8th Cir.) -- also def. of person includes corps. and indivs.which implies not

ii. MIN: Corps. can recover (3rd & 4th Cir)

2. Broad powers of the court -- 105a. Forced turnover powers: Can order turnover of the propertyb. Injunctive powers: Issue injunction telling creditor to stop

i. Issue: Can the assess damages under this provision? SPLIT1. Some cts. have held that can assess damages to

corps. under this provision

2. 8th Cir. has not allowed damages under thisprovision In re Just Brakes

c. Contempt powers: For violating automatic stay

i. Bankr. court does not have contempt power for violating astatute, only for violating their own orders In re JustBrakes

d. Subordinate debte. Issue: Does bankr. court have criminal contempt power? SPLIT

II. CHAPTER 7: LIQUIDATION BANKRUPTCYa. Eligibility

i. CURRENTLY: Anyone who may be a D, may be a Ch. 7 D -- 109ii. NEWBILL: Means testing may force Ds out of Ch. 7 and into Ch. 13

b. Exemptions

i. Generally: D allowed to remove from POE certain items that are necessary for freshstart generally considered necessities for living

1. Only available forindividual Ds

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a. If filing jointly: Each D gets exemptions, if Code providesi. Can probably split to maximize unused homestead rather

than use all on one D first

1. POLICY: Exemptions are to be construed broadly infavor of D

b. If one spouse files: Most federal exemptions are allowed fordependent of D which includes spouse per Code whether actuallydependent or not-- 522(a)(1)

2. Claimable in all cases but used most directly in Ch. 73. Can take exemption up to the value of the equityin property

a. LIENS COME BEFORE EXEMPTIONS!

i. Exception:Non-possessory, non-PMSIin specified collateral 522(f)(1)(B) [see below]

ii. General rule: Ds have choice between federal or state exemptions -- calculate whichgives D more exemptions

1. Types (2)

a. Federal-- 522(d); ORi. Homestead: $18,450ii. Vehicle: $ 2,950

iii. Household goods: $475 per item/$9,850 aggregateiv. Jewelry: $1,150v. Tools of trade: $1,850

vi. Wildcard: $975 + up to $9,250 of unused homestead

b. State (of residence)i. Calculation

1. State exemptions PLUS2. Federal non-bankr. exemptions PLUS

a. Exempt properties under federal but non-bankr. law do not change from state tostate (Ex: SS, Vets.)

3. T/E or J/T property ifimmune from process underapplicable non-bankr. law (usually state law)

a. MO: Not immune from joint property

i. But individual creditor is generallynotentitled to take property in bothspouses names look to state law

b. State law on tenancy by the entirety and jointtenancy: If only one of the parties whoowns the property files for bankr., property

will not become POE -- 522(b)(2)(B)

2. Exceptionsa. If state has opted out of federal bankrupcy scheme must use

state exemptions -- 522(b)(1) [note: 39 states have opted out]

i. MO: OPT OUT STATE only get MO exemptions (samecategories as federal, but mostly stingier)

1. Homestead: 15k

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a. Compare home in full provisions of someother states where entire property is exempt,without limitation (not passed in MO)

2. Personal: 1k no per item cap3. Tool of trade: 2k (only place where more expansive

than federal)

4. Alimony, child support recipient: 500/mo.

b. Must have lived in state 180 days to use that states exemptionscheme-- 522(b)(2)(A)

i. POLICY: Prevents forum shopping

iii. Misc. 522(d) issues

1. Dependents: Most exemptions are also available for dependent of D spouseis per se dependent under 522(a)(1)

2. Wild card: $975 in any property; plus if chose not to use homestead or donthave enough equity to use it all, you can use 1/2 of homestead for wild card

-- 522(d)(5)a. TOTALMAXIMUMWILDCARD = 10,225 [(975 W/C )+ 9,250 (1/2HOMESTEAD)]

b. Note : Wild card has always been half of the homestead probablysupposed to be 9,225 instead of 9,250

3. Household furnishings: Ds int. not to exceed 475/item or 9,850/aggregate inhousehold furnishings -- 522(d)(3) BUT or = and

a. Even though statute says or or = and (clear in legislativehistory and as determined by the courts)

i. Some cts. have gotten around the per item cap by countingevery item separately (each piece of silverware, etc.)

4. Tools of trade: Does not have to be Ds main source of income (part-timework okay) only thatsome income comes from TOT

5. D can exempt stock bonus, pensions, IRAs, 401(k)s, etc. ifusing for support-- 522(d)(10)(E)

a. Note : These are includedin POE, butexempted

iv. Property is exempt if D claims it as exempt and Cs do not object -- 522(l)1. Cs must object w/in 30 days of 1st creditors meeting (341 meeting) -- BR

4003(b)

a. Note : 341 meeting is only time D must show up to meeting; Cs can

show up, but generally dont2. Burden on objector to prove exemption was improperly claimed-- BR

4003(c)

3. No good faith requirement in declaring exemptions -- Taylor v. Freeland &Kronz(1992), p. 209

a. Held: If objection not filed w/in 30 day window, right to object isbarred and exemption stands even if D had no colorable basis forclaiming it

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b. Alternatives: Court may use its 105 powers to raise the issue suasponte SC gave courts away around its holding that bad faithexemption declarations are valid if not challenged by creditors (openissue)

v. Exemption stacking construed broadly to let D maximize their exemptions1. Stacking multiple exemptions on a single piece of property

a. Federal wildcard [ 522(d)(5)] + any other exemptions OK

b. HH goods [ 522(d)(3)] + TOT [ 526(d)(6)]notok mutuallyexclusive

c. Car [522(d)(2)] + tool of trade (522(d)(6)] unsure -- but asking forbecause exemptions are to be construed broadly

2. Joint Ds (e.g., spouses) cannot use different state and federal exemptions onthe same property to maximize exemptions 522(b), 302

a. Exception: Possible if Ds filed separately at different times so not ajoint case

b. Note: Spouses may be joined under Bankr. Rule 1015

vi. Lien avoidance

1. Issue 1: Is the lien a type that can be avoided? 2 types of liens to avoida. Judicial lien 522(f)(1)(A)

i. Exception: Alimony, maintenance, or supportb. Non-possessory, non-PMSIin specified collateral 522(f)(1)(B)

i. Collateral primary categories subject to lien avoidance (3)1. Household goods

2. Tools of the trade (TOT)

a. Limitation/cap on lien avoidance for TOT:$5,000 522(f)(3)

b. Requirements (2):

i. Lien avoidance exemption;ANDii. State has unlimitedTOT exemption

3. Professionally prescribed health aids

ii. Requirements (3)

1. SP must have notperfected by taking possession ofcollateral;

2. Credit must nothave been provided to enable the Dto acquire the collateral; and

3. Impaired exemption must relate to one of the threetypes of property specified

iii. Limitation: D may not avoid fixing lien on nonpossessory

non-PMSI in TOT where state law so states -- 522(f)(3)(B)

iv. NOTE: Exception to general rule that consensual liens takepriority over an exemption in the collateral

2. Issue 2: Amount of lien avoidance: To the extent it impairs 522(f)(2)a. Lien impairs exemption if:

i. sum of lien to be avoidedPLUSii. all other liens on propertyPLUS

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iii. amt. of exemption D could claim if there were no liens onthe propertyLESS

1. Note: This language goes in favor of stacking b/c if

no liens, could stack, so implies can stack for lien

avoidance purposes

2. Stacking exemptions for lien avoidance: Probablyallowed b/c exemptions are construed broadly infavor of D, butgoes against spirit of the Code [seestacking rules above]

iv. fmv of property

b. Example: Multiple liensi. Facts: Homestead worth 50k subj. to 40k 1st mort. and 20k

junior judicial lien; D would be entitled to a 10k homesteadexemption under his states exemption laws

ii. Issue: How much of second judicial lien can be avoidedunder 522(f)(1)(A)?ALL (if only 10k, D gets nothing)

1. Impairs: 20ka. lien (20k) +b. other liens (40k) +c. amt. of exemption in absence of liens (10k) -d. fmv (50k)

iii. Entire second judicial lien of 20k can be avoided even ifjudicial lien came first

3. EFFECT:Avoidable amount becomes an unsecuredliena. If Ds equity exceeds the exemption, lien remains secured

vii. Pre-bankruptcy exemption planning1. 2 opinions

a. Prudent: Relying on legislative history to 522i. Almost always allowed to sell non-exempt assets to increase

equity in homestead

b. Fraud on the creditors: Denial of discharge by courts under 727

viii. Valuation of property for exemption purposes1. Generally: D would like valuation as low as possible to protect more

property with their exemptions

c. Claims and distributions

i. Claim: Defined broadly to include any secured or unsecured right to payment

arising in law or equity -- 101(5)

1. If debt gives rise to a payment, it is a claim against the estatea. Need not be fixed, settled, and due at time of petitionb. May be unliquidated, contingent, unmatured, or disputed

i. Unliquidated: Amount is not fixed and certain, and cannot becalculated from known data

ii. Contingent: If Ds liability is conditional upon a certainfuture event happening

iii. Unmatured: Time for payment has not come about

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iv. Disputed: D is challenging the existence or extent of theliability

ii. Distinguish between secured and unsecured claims

1. SECURED

a. Def: An allowed claim that is secured by a lien on property which

the estate has an interest, or an allowed claim that is subject to setoffunder 533 -- 506(a)

i. Secured up to the value of collateral any deficiency isunsecured

1. Undersecured claim is split into secured + unsecured

2. Lien stripping is not allowed in Ch. 7: D cannotfix the amount of the secured claim so it cannotincrease if the fmv of the property increases

a. Exception: Redemption, infraii. Lien survives the discharge

1. Lien: Broadly defined to include all encumbrances,whether consensual or not -- 101(37)

b. Interest and attys feesSECUREDCREDITORS Pre-petition Post-petition

Interest Yes (if provided in K) Up to value of collateral (K rate)

Attys Fees Yes (if provided in K) Up to value of collateral (reas. test)

c. Trustees fees

i. Trustees fees come off the top to the extent of any benefit tothe holder of secured claim -- 506(c)

1. MAJ: Most cases would allow trustees fees (at leastequal to the cost) to reduce creditors secured claim

a. Example when courts would not allow: 5kproperty, 3k expense to sell is unreasonableb/c does not benefit holder of claim anycourt would reduce expenses to 2,500 sosecured creditor gets amount equal to the fee

2. MIN: Reasonableness if secured creditor couldhave incurred less expense, may reduce expenseseven if MAJ does not apply

3. OTHER (raised by legislative history): Trustee canonly recoverafterD paid TIB would not get tocollect if undersecured -- Court has abandoned thislanguage!

a. Makes sense b/c trustee should abandon theproperty if undersecured rather than sell it

ii. Only TIB can collect 506(c) fees1. 506(c) converts TIB from unsecured to secured

creditor b/c TIBs expenses get paid in full

2. UNSECURED

a. Remainder is unsecured -- 502

b. Interest and attys feesUN/UNDER-SECUREDCREDITORS Pre-petition Post-petition

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Interest Yes (if provided in K) No -- 502(b)(2)

Attys Fees Yes (if provided in K) Split

iii. Procedural issues Proof of claim (POC)1. Who files? C files proof of claim form in Ch. 7 or 13 -- whether secured or

unsecured creditor -- even if listedon Ds schedule of creditors

a. Exception: In Ch. 11, C does not have to file proof of claim if is alisted creditor and is listed properly as creditors on Ds schedule ofcreditors

i. However, best to file proof of claim in case D refiles anddoes not list you as a C which puts you lower on the list thanyou should be

2. Timing. Must file POC within 90 days of proof of creditors meeting3. Objection. Claim is allowed unless interest party objects

a. Parties in interest (incl. D, TIB and other Cs) can object

iv. Substantive issues

1. Acceleration. When D files bankr. petition, it accelerates all debtsa. Unmatured claims are claims in bankr. proceedingi. becomes prepetition creditor b/c owed before bankruptcy

ii. accelerates debt so entire amount of debt becomes owingright now

2. Amount of claim.

a. KNOWNi. C files claim on

1. Outstanding principal;PLUS2. Pre-petition interest (if provided for in K); PLUS3. Post-petition attorneys fees (if provided for in K)

a. Exception: If jurisdiction has ruled not

allowed filing would be frivolous claimb. UNKNOWN

i. If amount of claim not established at time of POC, 3possible ways to determine amount of claim

1. Ask bankr. judge that stay be lifted to pursue claimin state/federal court

2. Bankr. judge can decide merits of claim, with fewexceptions (problem: prevailing view is that bankr.judges are pro-D)

3. Bankr. judge can hear min. evidence and estimateamount of claim for purposes of bankr. proceeding -- 502(c)

a. BUT once estimated, claim is discharged inbankr. unless exempt

b. Note : In practice, 502(c) is not used todetermine value of claim for payoutpurposes use in Ch. 11 proceeding toestimate claims for voting purposes

3. Issue: Class action. Can a group of claimants in a class action file a classproof of claim in Ds bankruptcy (to effectively limit the size of the class byrequiring each member of a class to file a separate claim)?

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a. Spliti. 1st, 7th, 11th Cirs: Upheld filing of class proof of claim

ii. 10th Cir: Denied

v. Ways C gets claim paid (4)

1. Lift stay and sell property -- not likely b/c value for unsecured creditors

2. TIB will sell property, pay secured creditor, keep remainder in estate forunsecured creditors

3. TIB could abandon the property to the secured creditora. If TIB abandons property to D, S/C will foreclose after bankruptcy

4. Property will stay in estate and after bankr. is over, S/C will foreclose onproperty (lien/security interest continues through bankr.)

5. Other possibility: D can reaffirm the debt

d. Priorities -- 507

i. Assume allowed secured claims have been taken care of now, unsecured creditors

get paid

1. Recall policy of bankruptcy code: Fair and equitable distribution to creditors

ii. Priorities in bankruptcy deal only with unsecuredclaims 5071. 9 priorities in bankruptcy each group gets paid in full before moving to the

next category; if not enough money to pay a class if full, their claims are paidpro rata based on amount of claim

a. (1) Administrative expenses -- 507(a)(1)i. Expenses incurred by the estate in preserving the property of

the estate in selling and(assume) disposing of the property including insurance, taxes, trustees fee, atty. hired by TIB

1. Issue: Atty. fees of TIB -- SPLITa. Maj: Allow TIB to recover fees as attyb. Min: Do not allow recovery of fees as atty

2. Note: Atty. fees for representing D in bankr.NOTallowed in Ch. 7 or 11 --Laynee v. Trustee

a. Code says allowed in Ch. 12 or 13 --330(a)(4)(B) (up to Congress to change Code)

ii. POLICY: Estate has to pay for itself; want TIB to maximizevalue for creditors which may require TIB to incur moreexpenses

iii. Note: Unlike other claims, admin. expenses are incurredafterpetition has been filed

b. (2) Involuntary gap creditors -- 507(a)(2)i. Def: Ordinary course of business expenses in gap periodbetween filing and order for relief, in involuntary cases

ii. POLICY: Second chance

c. (3) Employee wages -- 507(a)(3)i. Broadly construed to include independent contractors

ii. Limits remainder is a general unsecured claim1. Cap: $4,925

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2. Earned within 90 days before date of filing [orthedate Ds business ceases]

III. POLICY1. For the priority

a. So ees stay and work for the debtorb. One bankruptcy might lead to several more

if ees dont get paid, the cycle continues2. For the cap limit

a. ees probably partly responsible for co. goingunder

3. For 90 day limitation

a. Becomes more like a creditori. Can absorb the hit

ii. More like a loan

iv. ISSUE: TRUSTFUNDTAXES ***SEE HANDOUT***1. Note: er withholds SS and taxes from paycheck

distinguish b/t er and ees portion

2. Taxes on ees portion of withholding probablygiven 3rd priority (v. 8th priority -- for ersportion) not in Code, but legislative history andpolicy support

a. Note: Courts have also ignored the cap ontax portion of wages altogether

d. (4) Pension plan payments: Payments to retirement plans of ees n/a for this class

e. (5) Claims for farmers and fishermen n/a for this class

f. (6) Downpayments and deposits for consumer goods and services-- 507(a)(6)

i. Cap: $1,800ii. Examples

1. Downpayment on neighbors lawnmower2. Layaway3. Prepayment of services (health club dues, dance

lessons)

g. (7) Alimony, maintenance, and support -- 507(a)(7)i. Requirements

1. Must be due to a spouse, former spouse, or child;2. Arising out of separation or settlement agreement ora court order;

3. Must actually be for maintenance, support, oralimony, not simply a debt labeled as such

a. Court will look beyond languageii. Property settlements have NO priority

1. Note : Alimony is always nondischargeable, butproperty settlements are sometimes dischargeable

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h. (8) Taxes -- 507(a)(8) ***SEE HANDOUT***i. Includes related penalties -- 507(a)(8)(G)

ii. POLICY: Govt wrote the law and is protecting itself notallowed to withhold services, so want to ensure there are

sufficient funds (taxes, etc.) to pay for the services

iii. Types

1. Income tax: (1) Taxable year must end on or beforedate of filing of petition [Note: Tax year is calendaryear, unless on fiscal year (which can end at end ofany month)]; AND (2)Tax return is last due withextensions after three years before filing bankruptcypetition [Note: Generally due Apr. 15 of followingyear, but can get an automatic extension until Aug.]-- 507(a)(8)(A)

a. Example: Assumed filed on March 1, 1995i. 1995: NOT PRIORITY -- Tax year

ends 12/31/95 not before date offiling(meets 2nd requirement)

BUT 1398(d): Indiv. D in bankr.can make election to truncate tax year; if do, taxyear is split in two from beg. of year to date offiling (1st tax year); 2nd tax year starts on dateof filing and goes until end of year

Here: 1 = Jan. 1 Feb. 28, 1995; 2:

Mar. 1 Dec. 31, 1995 short year beforefiling becomes a priority; second tax year is nota priority b/c tax year does not end before filing--Post-petition taxes are paid in full by D

Why make this election? D nevergets any of POE; to the extent he can get non-dischargeable debts or post-petition debts, hewill be responsible for less later on to theextent that can get estate to pay for as much ascan, D pay less later on this election allowshim to do this

ii. 1994: PRIORITY -- Tax year ends12/31/94 (before date of filing of3/1/95) and due 4/15/95 (due anytime after three years before filing 3/1/92) same thru 1991

iii. 1990: NOT PRIORITY Tax yearends 12/31/90 (before filing) anddue 4/15/91 (not after 3/1/92)

2. Property tax: (1) assessed before filing of banrk.case and(2) last due w/out penalty after 1 yearbefore filing -- 507(a)(8)(B)

a. POLICY for SOL: If govt doesnt try tocollect on older taxes, creditors do not knowthis and may loan to D based on property

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Cs may not be able to fully asses the Dssituation if govt is not timely

b. Example: Assumed filed on March 1, 1995i. 1995 taxes: assessed Jan. 1, 1995

(before filing), due Feb. 1, 1996(after 1 year before filing) priority

[note: if 1995 taxes assessed at endof year, not priority]

ii. 1994 taxes: assessed Jan. 1, 1994(before filing), due Feb. 1, 1995(after 1 year before filing) --priority

iii. 1993 taxes: not priority3. ers portion of 3rd priority trust fund taxes

iv. Nondischargeable under 523(a) D remains liable for anyunpaid balance

i. (9) FDIC claims -- 507(a)(9)

2. Any otherallowed unsecured claim of a creditor is ageneral unsecured claim

iii. Misc. provisions

1. 350(h): Case can be opened by a court to administer assets (more assetshave come in); afford relief to D (to reexamine issue in light of change ofcircumstances); or for cause (fraud discovered after the fact)

2. 727(d), (e): Trustee or creditor can seek revocation of discharge within oneyear after discharge (again, in case of fraud)

e. Discharge --Major issue in bankruptcy b/c interferes w/ Ds fresh starti. Def: Statutory forgiveness of the balance of debts that are not paid in full in the

1. Only debts are discharged liens on Ds property remain (collectable up tovalue of collateral)a. Discharge of debts eliminates all Ds personal liability

b. Debts: Defined broadly to mean liability on a claim -- 101(12i. Some prepetition obligations are not claims and are not

covered by discharge2. Discharge covers all prepetition debts as well as postpetition claims treated

as prepetition debts by 502 -- 727(b)a. Discharged whether they were proved or allowed

3. Right to discharge is qualified by 523 and 727

ii. Non-dischargeable debts -- 523(a): 18 categories of non-dischargeable debts inbankruptcy APPLIESTOALLBANKRUPTCIES [Note: * = requires filing proof of intent]

1. Taxes -- 523(a)(1) CAN BE COLLECTED OUT OF EXEMPT ASSETSa. POLICY: Govt still continues to provide benefits, so you must pay for

themb. Issue: State sovereign immunity when state taxes are dischargeable

under 523, but state goes after D post-bankr.i. Code has express waiver of SI

1. Split SI in a state of flux: (1) Determine ifjurisdiction says 106 is unconstitutional (yes

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dischargeable; no rely on one of three exceptionsto SI)

ii. Provision is unconstitutional state can proceed against D(some exceptions)

1. Exceptionsa. State can waive by filing proof of claim in

bankruptcyb. Anything done by motion is okay

(effectively DJ) not violating SI bybringing state into an action

c. Ex parte young doctrine rather than suingstate, bring action against state officialsindividually seeking declaratory relief forviolating state law

d. SC said court is exercising its in remjurisdiction in this type of case Tenn.Student Assistance Corp. v. Hood

iii. Constitutional distinguished falling under P&I of 14th Am1. But most scholars believe this is unconstitutional

based on Seminole Tribe case

2. * Debt based on fraud -- 523(a)(2)

a. Fraud 523(a)(2)(A)b. Use of a statement in writing -- 523(a)(2)(B)

i. (1) that is materially false;1. Construed narrowly -- issue is not that you lied at

all, but that you did so to deceive the creditorii. (2) about Ds or insiders (generally relatives see 101)

financial condition;

iii. (3) which C reasonably relied to extend credit; andiv. (4) that D intended to deceive

c. Consumer debts owed to a single C aggregating more than $1,225for luxury goods or services incurred w/in 60 days of relief -- 523(a)(2)(C)

i. Section C is a statutory presumption of fraud

1. If doesnt fall under (C), can still try for dischargeunder (A) which is not as narrow

ii. Consumer debts: Not business expenses

3. Non-scheduled debts (where creditor did not know of bankruptcy) -- 523(a)(3)

a. POLICY: Want to encourage filing up front

4. * Embezzlement and larceny debts -- 523(a)(4)

5. Child support and alimony -- 523(a)(5) CAN BE COLLECTED OUTOF EXEMPT ASSETS

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a. Must be designated or in the nature of alimony, nature, or support --523(a)(5)(b)

i. Some of the provision in decree may be deemed propertysettlements disguised as alimony

1. Ex: Monthly payment seem in nature of alimony andsupport

a. But if decrease in payment over time nottied to childrens age not like alimony

b. If decrease is tied to young childrens age soW can work when kids are at school morelike alimony

2. Ex: Lump sum -- more like a property settlementa. Initial burden on C to file petition seeking to

have debt not to discharge; claim is non-dischargeable unless can show one of twothings:

i. (1) D cannot pay; or

ii. (2) benefit to D outweighsdetrimental consequence to C ofhaving debt discharged [note: mostcourts use balancing test] -- 523(a)(15)

b. If found to be property settlement, W mustfile claim, then balancing test ensues

ii. Note : If found to be a property settlement based on divorcedecree made pre-bankruptcy first goes thru POE(as non-priority creditor)

1. Not eligible for proceeds from exempt assets (as isalimony)

b. POLICY: Protect innocent spouse so they dont end up in bankr. or onwelfare

6. * Willful and malicious injury debts -- 523(a)(6)

a. Debts arising from negligence or reckless disregard dont fall withinthe willful and malicious injury exception --Kawaauhau v. Geiger(Held: Med. mal. claim was held dischargeable in bankruptcybecause no intent to cause the harm)

b. POLICY: Imposed for bad behavior; dont want to encourage

7. Govt fines and penalties -- 523(a)(7)

a. POLICY: Imposed for bad behavior; dont want to encourage

8. Student loans -- 523(a)(8)

a. POLICY: Dont want to encourage high wage earners from discharginglarge debts see problem

9. Death or personal injury related to DUI (alcohol or drugs) -- 523(a)(9)a. POLICY: Imposed for bad behavior; dont want to encourage not

intentional tort, but rises to that level

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b. Issues

i. Whether a boat is a motor vehicle falling under DUIexception is split among the circuits explicitly included innew bill

ii. Does notcover property damage

10. Debts not discharged from a previous bankruptcy filing -- 523(a)(10)

11. Very specific -- not raised in class12. Very specific -- not raised in class

13. Restitution debts to govt or private individual -- 523(a)(13)a. Punitive damages awarded against D for fraud is non-dischargeable

if the underlying debt is non-dischargeable -- Cohen v. de la Cruz(Held: Ts were entitled to treble damages when landlord wascharging excess rent in violation of NJ consumer fraud act -- held notdischargeable in bankruptcy)

14. Debts incurred to pay nondischargable tax (Ex: Any loan or cc payment topay other debt) -- 523(a)(14)

a. POLICY: Insuing debt should also be non-dischargeable

15. * Property settlements -- 523(a)(15)

a. POLICY: Public policy in favor of settlement agreementsb. Balancing test not always dischargeable

i. Look to underlying cause of action that gives rise tosettlement agreement and if underlying cause of action isnon-dischargeable, so is the settlement --Archer v. Warner

1. Issue: When tortfeaser later goes into bankruptcy b/c

based on intentional injury or is this a K claim that isdischargeable?

16. N/A

17. Court fees -- 523(a)(16)

a. POLICY: Protect court system

18. Child support owed to state that is enforceable by Soc. Sec. Assoc. --

523(a)(17)

a. Query: Is this duplicative from (5)?

iii. Denial of discharge -- 727(a): 10 categories of actions that result inglobal denial

of discharge ofallDs debts APPLIESONLYTOCH. 7 BANKR. (usually involveswrongdoing by D)

1. (1) D is a non-individual

a. POLICY: If corp. goes into ch. 7, it is liquidating

2. (2) D fraudulently transfers or conceals property

a. POLICY: Took something creditors were entitled to but put it outsideof reach from exempt creditors

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b. Note : Unsure if can file past 60 days if find this out later

3. (3) Failure to provide required financial records (usually egregious as incase)

4. (4) Fraud in connection with bankruptcy case

5. (5) Failure to explain the loss of assets

6. (6) Failure to cooperate in bankruptcy (Ex: Dont show up for meeting,failure to produce docs, etc.)

7. (7) n/a

8. (8) D granted discharge in Ch. 7 or Ch. 11 case within 6 years of date of

current filing

a. Gofrom filing date to filing date cannot get a discharge if wasdischarged in a case that was commenced in a case where there was adischarge within six years of current filing

b. Note : Myth that can file for bankruptcy once every 7 years canonly get discharge every 7 years

i. Even if not eligible for discharge, can still file for protectionof automatic stay

9. (9) Discharge in ch. 13 case under certain circumstances within 6 years

of date of current filing

a. Unless payments under plan totalled

i. 100% of allowed unsecured claims; orii. 70% of unsecured claims AND plan was proposed in good

faith AND was Ds best effort -- 727(a)(9)10. (10) n/a

iv. Effect of 523 non-discharge

1. What is unpaid from bankruptcy, you can still collect after bankruptcy

a. Exceptfrom Ds exempt propertyi. Unless it is for taxes and alimony, maintenance, and child

support [ 522(a)(2)(B)]

1. Note : can still collect from post-petition property2. Those falling under 2, 4, 6, 15 must file adversarial action in bankruptcy

proceeding to have debts be not dischargeable within 60 days after 341meeting (first meeting with creditor) -- all other non-dischargeable debts are

self executing-- 523(c)a. POLICY: Element of intent that must be determined by court or

balancing test court must decide

3. Even if debt is non-dischargeable, you can still avoid a lien securing that debtunder 522 --In re Walters (3rd Cir) NOTE: CITE LIEN AVOIDANCEON EXAM

a. POLICY: Separate provisions although non-dischargeable, a separateprovision allows lien avoidance (might be able to collect otherwise,but not dischargeable)

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v. Note: Cs prefer 523 to 727 if all claims are denied under 727, less likely thattheir claim will get paid, but if only their claim is denied under 523, better chancethat D will have money to pay them

f. Ds post-bankruptcy position

i. General rule: Secured portion of a claim (lien) survives bankruptcy -- debts aredischarged, but liens survive (C can take property back

ii. Exceptions: REDEMPTION, REAFFIRMATION & RETENTION (Ride through)

D can keep property

1. Redemption -- 722a. Def: Lump sum payment to a secured creditorin the amount of

the allowed secured claim

i. Redemptions can be forced on an unwilling creditor secured claim is satisfied, but unsecured claim is still there

ii. Limitations1. Only applicable to secured debts2. Only applies in Ch. 7

a. Recall: D keeps all property in Ch. 13, son/a

iii. Problem: D likely does not money to pay the redemptionamount

1. Installment redemption judicial remedy not inCode

a. MAJ: Not allowedb. MIN: Allowed

b. Requirementsi. Property must be tangible personal property for personal or

household use

1. Redemptions can be forced on an unwilling creditorsecured claim is satisfied, but unsecured claim isstill there

ii. Property must be abandonedby trustee orexempt1. Abandonment: Worth nothing to the estate or of little

consequential value

2. Exempt: Property of the type subject to exemption not that the property is fully exempt

iii. Debtor must pay creditor his allowed secured claim lesserof value of property of lien

1. Ex: 10k lien on car worth 5k C has 5k allowedsecured claim (up to value of collateral) + 5kunsecured claim; here, allowed secured claim = 5k(lesser of value of collateral or amount of securedlien)

iv. Note: Undue hardship is NOT a requirement

c. Redemption value: Liquidation valuei. D wants liquidation value

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1. Key: Lower the value, less D has to pay

2. C wants replacement (Rash) valuea. Every recent case has distinguishedRash as

a Ch. 13 valuation and has used liquidationvalue with one exception

b. POLICY: Must value item higher in Ch. 13 tocompensate creditor for the risk of propertyfluctuating in value

d. Procedure -- 521(2)i. D must file statement of intention within 30 days of the

petition indicating whether or not the property will beredeemed

ii. Redemption must be affected within 45 days of the statementof intention

e. Types of redemption not in Code (judicial remedies)i. Double redemption: Redeem secured C and remaining

unsecured Cs on the property1. Not in Code, but a practice that has evolved

a. Courts have consistently allowed thepractice

b. BUT it is completely up to the TIB to agreeon behalf of the Cs if they will engage in adouble redemption not required to do so

2. Ex: 6k fmv; 2k lien; 2,950 exemptiona. 1,050 equity in property if pay off secured

creditor TIB will take for POEb. Can redeem secured creditor and redeem

remaining unsecured creditors on theproperty

ii. Installment redemption -- MIN1. Used to be a practice called installment

redemption not authorized by the Code, butallowed by some courts (incl. 8th Cir.)

2. Most courts now disallow installment redemptions,but minority still allows

f. LIENSTRIPPING: Stripping creditors lien down to fmv of propertyi. Ex: 5k fmv, 10k lien artwork that has dropped in value and

C cannot get stay lifted

1. Creditor takes back property to satisfy the lien andproperty has climbed in value to 8ka. If Cs lien was stripped to 5k (amt. of

unsecured claim), then all C can take is 5kand other 3k would go back to D

b. If Cs lien is not stripped and stays at 10k,then C can take all 8k

ii. To the extent that a lien secures a claim against the D that isnot an allowed secured claim, such lien is void -- 506(d)

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1. Lien stripping is not allowed in Ch. 7 --Deusnup v.Timm(SC case) [Cs lien stays intact even ifundersecured]

a. POLICY: Would give D a windfall if allowedb. Dissent: Scalia dissented based on plain

meaning of Code -- most scholars agree with

Scaliac. Courts also think this case was wrongly

decided and narrowly apply it to its facts

2. Exception: Redemption [exception to general rulethat lien stripping is not allowed in Ch. 7]

2. Reaffirmation -- 524(c), (d)

a. Def: K between D and C (secured orunsecured) where D agreesto pay the debt that would otherwise be discharged in

bankruptcy

i. Available in any bankruptcy, but mostly used in Ch. 7

ii. NOTE: D can always voluntarily repay debt under 524(f),but it is notlegally enforceable reaffirmation rules do notapply for voluntary repayments

b. Requirements for valid reaffirmation agreement -- 524(c)i. Agreement made before discharge -- 524(c)(1)

1. POLICY: Many Cs coming after D post-bankruptcywhich interferes with fresh start gives atty andcourt some measure of control over Ds actions

ii. Agreement contains clear and conspicuous statementadvising D that: -- 524(c)(2)1. can be rescindedfor 60 days after filing agreement

with court or until the discharge, if later;AND Dmust give notice to claimholder of rescission -- 524(c)(2)(A)

a. Note : Allows to for up to 60 days afterdischarge depending on when you sign it

b. POLICY: Gives D the maximum amount ofpower to get out of the agreement whenthere is not the pressure that may haveoccurred when making the agreement

2. reaffirmation agreement is not required-- 524(c)(2)(C)

3. [Note: statement implies a writing requirement]

iii. Filed with bankruptcy court [Note: filed also implies mustbe in writing]

1. Includes affidavit of atty (if applic.) stating:

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a. Agreement is fully informed and enteredinto voluntary; AND

b. Does not impose undue hardship on D orDs dependents; AND

c. Atty has fully advised D of the legal effectsand consequences of reaffirmation,

including default

iv. D has not rescinded at any time according to limits of (c)(2)(see Code for full text)-- 524(c)(4)

v. Hearing if required by 524(d) -- 524(c)(5)1. General rule: May hold hearing

2. Exception: Shall hold hearing if D not represented byatty

vi. If agreement was not represented by atty, court shall holdhearing and find: -- 524(c)(6)(A)

1. No undue hardship; and2. Best interest of D3. [Note: Court would automatically reaffirm a home

mortgage debt no hearing required -- 524(c)(6)(B)]

c. POLICY: Protect D against itself Congress set requirements for D toreaffirm debt

i. If D is represented by atty, atty must sign affidavit thatreaffirmation would not be a hardship on the D putsburden on atty to say D will be able to afford reaffirmation in

bankruptcyii. If no atty, court must approve the affirmation to ensurewont be an undue hardship and in Ds best interest -- 524(d) [must prove more if go before court than if have atty]

iii. Note : Atty could recuse on hardship question forcing D tofile per se and make courts decide some courts will notallow this

d. Can be used for both secured and unsecured debtsi. Reaffirm secured debt b/c you get to keep the property

ii. Reasons to reaffirm unsecured debt (that would otherwise bedischarged)

1. C will extend more credit2. D needs that creditor in the future3. D feels obligated or grateful to a particular creditor

(ex. cancer doc)4. C is threatening to claim non-dischargability

e. Issues with reaffirmationi. Problems

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1. Cannot force on unwilling creditor (even ifeconomically in Cs best interest)

2. Creditor usually requires debtor to reaffirm theentire debt (or close to it)

3. Creditor can change terms from original obligationii. Advantages

1. Can pay over time dont have to come up withlump sum to keep property

2. Can use for property that does not fall within theredemption provisions (ex. reality, business useproperty)

3. Retention (ride through) impt. issue currently expressly disallowed innew Act

a. Def: D retains collateral under original K

b. Requirements (3)i. Secured loan

ii. D is and has always been current on the payments

iii. Jurisdiction allows it (split -- yes: 2, 4, 9, 10; no: 1, 5, 7, 11)1. YES: 521(2)(a): if applicable implies

availability of 4th option

a. Recall: Other three options are (1)Surrender, (2) Redemption, and (3)Reaffirmation all expressly provided for in 521(2)

2. POLICY: In Ds best interesta. Ignores acceleration provision Retention is

an exception to the acceleration clause in theCode or in K

c. Effect: Debt rides through bankruptcy keeps property and keepsmaking payments; Ds personal liability is discharged in bankruptcy

i. Assumes D will continue to make paymentsii. C would otherwise get a windfall

d. Problem: D has no incentive to maintain secured property

III. CHAPTER 13: REHABILITATION BANKRUPTCY

a. Overview

i. Generally: D keeps property and uses future income over a period of years to pay Csat least as much as (and hopefully more than) they would have received in Ch. 7

1. POLICY: Bankruptcy law favors Ch. 13a. Belief that Cs get more in Ch. 13 D is not shirking on his

obligation to payb. Main thrust behind means testing in new bankr. bill that kicks Ds

out of Ch. 7 leaving Ch. 13 as only option if requirements met2. Note: All provisions of Chs. 1, 3, and 5 apply, unless specifically excluded

ii. POE

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1. Property covered by 541 (POE); and2. All property acquired by D between commencement of case and its close

including postpetition earnings

iii. Exemptions (less applicable b/c Ch. 13 D keeps property)1. Relevance: Best interest test ensure that unsecured Cs get what they

would have in Ch. 7

iv. Automatic stay same as in Ch. 71. Begins when bankruptcy petition is filed (not when plan is approved)

a. Stay is extended to any individual co-debtor or surety of D on aconsumer debt -- 1306

2. Relief from staya. Inadequate protection

b. (1) No equity in property; and(2) not necessary for effectivereorganization

v. TIB: Appointed in all Ch. 13 cases

1. Principal duty: Collection an disbursement of payments under the plan2. Additionally, TIB must --

a. account for POEb. investigate Ds affairsc. examine and object to POCd. help D formulate the plane. participate in the confirmation and discharge hearings

vi. Length of plan: 3 years -- 1322(d)1. Up to five for cause

a. Cause: More than that Cs can get more moneyi. Ex: Meets best interest test with longer plan

b. Eligibility -- 109(e)

I. D MUSTBEANINDIVIDUAL

II. D MUSTHAVEREGULARINCOME1. Sufficiently stable and regular so D can make payments under Ch. 13 plan -- 101(30)

a. Interpreted broadly to take into account diverse and non-traditionalsources of income In re Baird(Bankr. M.D. Fla. 1999) [Held:Sons voluntary payments qualified as regular income for on nowdisabled fathers plan]

III. TOTALDEBT (ATTIMEOFFILING) MUSTNOTEXCEEDSTATUTORYLIMITS1. Limits

a. Unsecured debt: Must be below $307,675b. Secured debt: Must be below $922,975

2. POLICY: Keep sole props. out of Ch. 13 and into Ch. 11

3. Only non-contingent, liquidated debts go into debt limitsa. Unliquidated debt: Amount has not been set debt will not go into

debt limits

i. Exception: Some jurisdiction think that distinction b/tunliquidated debt and disputed debt is bad and will includethis

b. Contingent: Liability is dependent on condition that has not yet occuri. Ex: Guarantee

1. Dependent on default

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a. If loan is in default: Not contingent inlimits

b. If not yet defaulted: Contingent not inlimits

2. Distinguish conditional guarantee: Must be in defaultand C must have gotten primary J as unpaid beforegoing after guarantee J would trigger non-contingency

3. Note: Guarantee is not necessarily secured just b/cthere is a mortgage on the property

4. In practice: When drafting guarantees, make sureguaranty is secured by same collateral as underlyingloan

c. Overview of Ch. 13 plan

i. ONLY DCANFILEABANKRUPTCYPLAN -- 13211. Note: Ch. 13. is voluntary only Cs cannot petition for an involuntary Ch.

13 bankruptcy (involuntary servitude)

2. Deadline: Plan must be filed (1) with petition or(2) within 15 days thereafterexceptfor good cause shown Bankr. Rule 3015 [Cecil: Most courts willextend deadline]

a. D must begin making payments within 30 days of filing the plan -- 1326(a)(1)

i. TIB holds payments until after confirmation and thendistributes to Cs -- 1326(a)(2)

ii. PLANMUSTMEET3 REQUIREMENTS -- 13221. Has to provide for all or part of Ds future income to be paid to trustee to be

distributed to unsecured creditors -- 1322(a)

2. Must provide for full payment of all priority claims have to pay priorityclaims in full (taxes, alimony, etc.) in order to have a valid plan (can be a lotof money -- 1322(b)

3. If classify Cs by groups, cant discriminate unfairly within the group -- 1322(c) see below

iii. CANMODIFYSOMEPAYMENTSTOSECUREDANDUNSECURED CS1. D can modify plan before confirmation without court approval -- 1323

a. POLICY: Enables D to respond to any objections informally beforeplan is submitted to court for confirmation

2. Certain payments to secured creditors must be paid, but others can bemodified based on change in Ds situation -- 1329

a. Issue: Someone owned duplex and lived in one and rented outanother can you modify secured lenders claim? [past examquestion]; Held: So long as in part Ds principal residence -- okay

3. Cannotmodify payment to home mortgage lender although can still curedefaults -- 1322(b)(2)

a. Must pay same payments as in original agreement over life of planb. Entire debt remains enforceable (non-dischargeable)c. Continues to pay after plan is over

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iv. IFDEFAULTONADEBT, CANCUREDEFAULT1. Can decelerate mortgage if in default2. Can pay arrears within reasonable time -- 1322(b)(5)

a. Generally held at least one year as reasonable

d. Classification of claims and the standards applicable to each classI. SECUREDCLAIMS

1. Ds alternatives (3)a. Payment of the claim. Secured Cs are entitled to (1) amount of

allowed secured claim (2) up to the value of the collateral (3) valuedas of the effective date of the plan (4) to be paid over the life of theplan -- 1325(a)(5)(B)

i. Payment= PV of claim + interest (to compensate C forwaiting)

1. Valuation: Replacement value (fmv) --Rash casea. Most courts have limited this to secured

claims in Ch. 13 cases but applies to all inNew Bankr. Actb. Replacement value is bad for Ds

i. Have to pay more in Ch. 13ii. Exemptions dont cover as much

b/c property value higheriii. Higher redemption value in Ch. 7

2. Interest ratea. Summary

Filing Between Filing and

Plan Effective Date

Plan Confirmation

(Effective Date)

Prepetition interest(@ K rate)

Oversecured Cs:Postpetiton interest(@ K rate oneffective date)Fully, un, and

undersecd Cs: $0

Secured Cs:Tillchanges post-effective dateinterest to prime +small risk (1 or 2

pts.)

b. Pre-petition interest: K rate

c. Post-petition interest (but before effectivedate):

i. Over secured Cs: Post-petitioninterest -- at K rate on effective dateup to collateral in property

ii.Fully secured, un, and undersecured

Cs: nothing!

d. Post-effective date: Prime rateplus somesmall assumption of the risk (profit) --Till v.SCS Credit, plurality (recent SC decision)[Thomas: No profit element at all, but inmajority b/c agreed to overturn decisionbelow]

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i. Note: Tillwas a secured claim courts may apply to unsecured Cs ormay give them higher rate

ii. Other options court wasconsidering: (1) Contract rate what D would have gotten if

continued to make payments; (2)Current K rate if D defaulted andyou took property and resold it, it is

what C would be getting; (3) Prime,treasury rate -- no element of profit,just to make creditor whole

3. Recall: Higher valuation benefits Cs

ii. Collateralremains subject to lien until claim is paid in full1. No lien stripping in Ch. 13 --In re Nobleman (SC

case) [focusing on rights language]

a. Holding: Undersecured portion of amortgage secured only by the Ds principalresidence cannot be modified under 1322(b)(2)

b. Analysis: Emphasis on 1322(b)(2) whichforbids not only the modification of a claimsecured by the mortgage, but to rights ofholders of secured claims

b. Surrender of collateral to C -- 1325(a)(5)(C)i. Disposing of secured claim freeing D of obligation to pay

ii. Any deficiency = Unsecured claim

c. Consensual treatment : C&D can agree to other way to handle theclaim -- 1325(a)(5)(A)

2. Modification of claimants pre-bankruptcy rights

a. General rule: Plan can modify rights of all claimants -- 1322(b)(2)i. Allows D to extend contractual installment periods that

would otherwise have ended before the proposed plan periodreduces the size of monthly payments

1. Most helpful when D wants to keep property subjectto a SI

ii. Limits: Unless C accepts the plan, D cannot modify asecurity agreement by 1325(a)(5)

1. canceling the lien;

2. substituting collateral; or

3. giving secured claimant less the amount of thesecured claim

b. Exception: Cannot modify future payments to the home mortgageholder-- 1322(b)(2)

i. POLICY: Not to discourage providing home financing toindividuals (b/c of threat that could be modified)

3. Cure of default

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a. Plan can provide for the cure or waiver of any default -- 1322(b)(3)i. Primary use: Secured debts in default so D can keep the

property (subj. to a SI)ii. Split of authority on whether applies to post-petition defaults

b. Cure is notconsidered a modification applicable to alldebts,including home mortgages

c. Timing

i. D can decelerate mortgage [or any loan] until the time of theforeclosure sale -- 1322(c)(1)

ii. After decelerate, can cure defaults/arrearages w/in areasonable time -- 1322(b)(5)

1. Most courts have held that one year was areasonable time

2. Some courts have give up to the size of the plan3. Depends on the size of the arrearages

d. Interest on the arrearages did not discuss in class and Cecil isunsure how courts may handle, but raise as issue on final!

i. Undersecured: D dont have to pay interest on arrearages --even though not provided in Ch. 13 (???)

ii. Oversecured: D must pay interest (???)1. Oversecured creditors are allowed for prepetition

interest that has accrued; and2. Postpetition interest up to the value of the collateral

II. PRIORITYCLAIMS

1. All 507 priority claims are to be paid in full under the plan unless holderagrees to different treatment-- 1322(a)(2)

a. Relevance of order of priority of 507

i. If class would have receivednothingin Ch. 7: Plan need only

provide for full payment of theface value of claims in thatclass

ii. If class would have been paid in full in Ch. 7: Best interesttest requires PV of Ch. 7 distribution = claim + interest

iii. If class would have been paidpro rata in Ch. 7, but not iffull: Best interest requires payment of what would havereceived in Ch. 7, including interest on pro rata share

III. UNSECUREDCLAIMS1. REQUIREMENTSFORPLANTOBECONFIRMED WAYSCCANOBJECT

a. BEST INTEREST TEST: Unsecured Cs are entitled to at least as muchas would have received in Ch. 7 liquidationplus interest post-plan

effective date (Till) 1325(a)(4)i. Objection: Unsecured C

ii. Most courts dont look at what is left afterbankruptcy (i.e.,claim that was not dischargeable in 7 is now in 13) only look towhat is paid out in bankruptcy

b. DISPOSABLE INCOME TEST: Ds must use allof their disposableincome to fund the plan over a 3yr. period -- 1325(b)(1)

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i. Disposable income: Amount above that which is reasonablynecessary for D or his dependents (and Ds business, ifapplicable) -- 1325(b)(2)

1. Issue: Inclusion of non-D spouses income courts spliton whether must be included in income

2. Charitable income not to exceed 15% can reduce

amount available for disposable income 1325(b)(2)(a) [new leaf n/a]

ii. Objection: Unsecured C or TIB1. Split on whether courts can raise DI test sua sponte

a. Greercase: Cts do not have the ability to raisethe disposable income issue sua sponte

b. Other cts: Disagree & use the broaddiscretionary powers under 105

c. GOOD FAITH: Plan must be proposed in good faith 1325(a)(3)i. Test: Totality of circumstances

ii. Objection: Can and willbe raised sua sponteiii. Examples of lack of good faith (cases)

1. Future earnings can be considered --In re Smith (medstudent case)

a. POLICY: Courts generally do not like to let Dr.sget off before they get their real job

2. Scummy debtor rule: Accumulated c/c debt before filing(looks like planning)

a. Ex: Recently sunk large amt of $ intoretirement acct; exaggerated expenses on bankr.

petition; supporting adult child while in college& gave him spending money and car [held:abusing bankr. system]

3. Multiple filings

a. Ex: Filed 6 chap 12 cases in 5 years abusingbankr. system (bankr. addict) [held: D couldnot file again for 2 more years]

4. Paying too littlea. Plan paying 4% not in good faith

i. Ex: Part of debt would have been non-disch. in chap 7; and D had not beenhonest about what kind of support hegot from wifes business

b. Plan paying 5% found good faithi. Ex: Had two prior filings; part of debt

would have been non-disch. in chap 7;50 mo. plan

5. Paying unsecured Cs nothing (even though meets bestinterest)

a. MAJ: One factor (in totality of circumstances)b. MIN: Determining factor

6. Only debt is one that is non-dischargeable in Ch. 7, butdischargeable in Ch. 13

a. When dont pay 100% of this debt in Ch. 13,court could deny plan for lack of good faith Handene

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b. Not bright line, just a factor

2. Classifying unsecured debt

a. Guidelines (3)

i. Claims in same class must be treated alike -- 1322(a)(3)ii. Plan must not discriminate unfairly against any class -- 1322(b)

(1)1. Can separately classify co-debtor debts dont want C

coming after co-signor so might want to pay more tothese Cs

a. Co-debtor stay in Ch. 13 (not available in Ch.7): After bankr. filing, Cs cannot go after co-debtors (automatic stay applies to co-debtors aswell) -- 1301

2. Depending on jurisdiction can separately classify andpay more on debts that are non-dischargeable (andprobably depends on type of debt)

3. Ch. 7 Cs that would be discharged in Ch. 13 may be

able to argue that should be separately classified and paymore on in Ch. 13 than in Ch. 7

iii. Claims can only be classed together if they are substantiallysimilar -- 1322(b)(1) + 1122

b. Reasons to classify unsecured Cs differently

i. Will use their services in the future (doctor)ii. Will extend more debt in the future

e. Discharge

i. 1328(a): D GETSDISCHARGEFORALLDEBTSWHENCOMPLETES CH. 13 PLAN1. Exceptions: Non-dischargeable debts where all payments made under Ch.

13 plan limited from 523(a) (as incentive to file for Ch. 13)

a. Long term debts (to be paid beyond the payment of the plan) contemplated in plan -- 1322(b)(5)

b. Alimonybut now a priority claim that will be paid in full over thelife of the plan

c. Student loans same non-dischargeability provisions as in Ch. 7 ifcan show undue hardship -- 1328(a)(2)

d. Criminal restitution

e. DUI debts (both drugs and alcohol)2. Recall: Taxes are dischargeable in Ch. 13

a. POLICY: They are priorities and priorities are paid in fullb. Problem: Looking to non-dischargeable taxes in 523 for taxes

that are not a priority but would still be non-dischargeable under Ch.

7 (over three years old that filed fraudulent or late return or didntfile) become non-priority and dischargeable fixed in new bankr. bill

i. Some courts say scrivners error and make non-dischargeable in Ch. 13

ii. Other courts say Congress needs to fix it and discharge it

ii. 1328(B): UNDUEHARDSHIP --Issue: What if D cannot complete plan?

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1. Hardship discharge allows court to grant D discharge even though has notcompleted plan if D can show undue hardship

a. Completely different standard of undue hardship than for studentloans generally less rigorous than for S/Ls (but S/L has becomemore lenient)

2. Test D must show three things (case law)

a. Ds failure to make payments under the plan are due tocircumstances beyond Ds control

b. Amount actually already paid to unsecured Cs is not less thanthey would have received in Ch. 7 must meet best interest testbefore can get undue hardship discharge

i. Note: Nothing to provide for secured Cs in 1328(b)c. Modification is not practicable

3. Note : Death is undue hardship liabilities do not pass on to estate;permanent disability has also found to be undue hardship

III. DIFFERENCESB/C(A) AND (B)

1. In (b), all Ch. 7 non-dischargable debts become non-dischargable under Ch.13 (pay a price under Ch. 13) not just the five above

a. Includes intentional torts, fraud, embezzlement, etc.

f. Effect on D of filing Ch. 13 as compared to Ch. 7

i. Advs. to D (3)

1. Ds get to keep their property even if non exempta. Still must calculate exemptions (3)

i. Exemptions are still important to determine how much topay under Ch. 13

ii. Cs cannot go after exempt property where cannot go afternon-dischargeable debts

2. Post-bankruptcy, Ds are left with fewer non-dischargeable debts (althoughmore and more are being added)

a. Ex: Fraud, property debts are dischargeable

b. POLICY: Encourages repayments of debts3. Appears to be less stigma associated with Ch. 13 than Ch. 7 making a good

faith attempt to pay debts rather than shirking responsibilitya. Premise of new bankruptcy forces many more Ds to file Ch. 13

rather than 7 via means testingii. Disad. to D

1. Post petition income is property of the estate it is what funds the plana. Recall: Can keep post petition wages in Ch. 7

IV. MODIFICATION, CONVERSION, OR DISMISSAL

a. Conversion: Convert to another section of bankruptcy Code

i. CH. 13

1. D: Can always convert from Ch. 13 to Ch. 7 -- 1307(a)a. Limitation: If any C has moved for relief from stay, cannot file for

180 daysi. Note: If C seeks dismissal instead, 180 limit n/a

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2. C or TIB: Can seek conversion of Ch. 13for cause after notice and hearing -- 1307(c)

a. Cause: 10 reasons for cause in Code (generally D is abusing thebankruptcy process)

ii. CH. 7

1. D: May convert from Ch. 7 to 13 at any time -- 706(a)a. Exceptions

i. Doesnt qualify for Ch. 13 -- 706(d); or1. 6th Cir: Regular income is measure at time of filing,

not modification/conversion, etc.a. Only court to rule on this, so others may

differ and look at income at time of changeii. Has already converted from Ch. 11, 12, or 13 to Ch. 7 --

706(a)iii. Practical effect of conversion

1. Theory: Cs are better on in Ch. 13 than Ch. 7 (and is encouraged by Code)2. Study found that:

a. Over 2/3 of Ch. 13 plans fail only 1/3 actually finishb. Ch. 13 Cs did not get anything different than Ch. 7 Csc. Ch. 7 and Ch. 13 D look alike in ability to repay income level and

debt amounts

3. Congress still believes Ch. 13 is better b/c new Code forces Ch. 7 can pay Dsinto Ch. 13 policy behind means testing in new bankruptcy law

b. Dismissal: Terminate the bankruptcy

i. CH. 13

1. D:Absolute rightto dismiss at any time under Ch. 13 -- 1307(b)a. Exception: Needs approval of court if previously converted to Ch. 13

from Ch. 7, 11, or 12 dismissal subject to courts discretion

2. C or TIB:a. Can seek dismissal of Ch. 13for cause after notice and hearing -- 1307(c): 10 reasons forcause in Code (generally D is abusing thebankruptcy process)

i. (1) unreasonable delay by D that is prejudicial to Csii. (2) nonpayment of any fees and charges under ch. 123 of

title 28

iii. (3) failure to file a timely plan under 13211. Payments must be made within 30 days of filing

plan -- 1326(a)(1)a. Could ask court for extension

iv. (4) failure to commence making timely payments under

1326v. (5) denial of confirmation of plan under 1325

vi. (6) material default by D of term of confirmed plan1. Not all defaults on plan are material defaults --In

re Faaland(Bankr. D.N.D. 1984): Mutuality ofinterest should cause D & C to want to cure thedefault rather than dismiss [Ds missed 2 paymentsdue to inclimate weathers effect on business]

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vii. (7) revocation of order of confirmation under 1330 anddenial of confirmation of modified plan under 1329

viii. (8) termination of a confirmed plan b/c of conditionspecified in plan

ix. (9) only on request of US trustee, failure to file w/in 15 daysor w/addtl. time information in 521(1)

x. (10) only on request of US trustee, failure to timely fileinformation in 521(2)

b. Can seek dismissal for Ds improper conduct-- 1307(c)(9)ii. CH. 7

1. D: Can get dismissal ifthere would be no undue prejudice to Cs or 3rd parties-- 707(a) for cause language, interpreted in case law

2. Court or TIB

a. Can seek dismissal forsubstantial abuse -- 707(b)i. Presumption in favor of granting reliefii. TEST

1. MAJ: TOTALITY OF CIRCUMSTANCES

2. MIN: Ds ability to pay a substantial portion of herdebts in Ch. 13 (can pay debtor) is enough byitself to find substantial abuse In re Walton

iii. Can only be raised by court (sua sponte) or by TIB

1. Issue: If other than court or TIB raises the issuea. Some courts say that even if C suggests to

TIB, court will no longer consider theargument (disqualified)

b. Other courts say that court or TIB can raisethe issue at the suggestion of a party ininterest (not disqualified) In re Clark(4thCir. 1991)

iv. Restricted to cases filed by an individualwhose debts areprimarily consumer debts

1. Consumer debts: Incurred by an individual primarilyfor personal, family, or household purposes -- 101(8)

2. Primarily: Focus on value of debts, but # is also afactor

v. Note: Open issue whether substantial abuse still applies if Ddoes not qualify for Ch. 13 and would have no bankruptcyremedy

1. One court: Cannot kick out of Ch. 7 b/c entitled tofile bankruptcy in one of the chapters

b. Can seek dismissal for cause -- 707(s)i. Issue: Bad faith filing as cause split

1. YES: Good faith required in entire Code (6th, 8th:Huckfieldcase)

2. NO: Congress didnt expressly put good faith in Ch.7 as it did in the other chapters

ii. Ds improper conduct-- 707(a)(3), 1307(c)(9)c. General equitable powers of the court -- 105(a)

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c. Modification of Ch. 13 plan

i. CH. 13

1. D, TIB, orunsecuredC can modify Ch. 13 plan already secured by court -- 1329 [Note: Secured Cs do not have right to receive modification]

a. D/TIB: Plan normally modified for change in Ds status usually b/cdebt is more onerous that originally anticipated

i. D cannot seek modification of a secured Cs claim in order tolower payment to secured C if property drops in value duringpendancy of plan --Meeks case

b. C: Unsecured Cs generally seek modification when D comes intomore money to bring more money into plan -- 1329(a)(1)

V. KEY CODE PROVISIONS PREVENTING DISCRIMINATION POST-BANKRUPTCY

a. CSAREENJOINEDFROMFURTHERCOLLECTIONPROCEEDINGSORACTIVITYTORECOVERTHEDEBT -- 524(a)i. Post-bankruptcy injunction replaces automatic stay which is lifted after the

bankruptcy case has endedii. Prevents creditors from harassing the debtor after discharge -- 524(c)B. WAIVEROFINJUNCTIONBY D

i. General rule : Invalid -- 524(a)(2)ii. Exception: Effective if executed in writing and approved by the court -- 727(a)(1),

1328(a)

c. PREVENTSDISCRIMINATIONBYTHEGOVERNMENTANDEMPLOYERSSOLELYONTHEBASISOFBANKRUPTCY -- 525

i. Prevents er, incl. the govt, from any sort of discrimination in employmentsolelybased on bankruptcy

1. Courts have construed literally er can point to any other reason for firing D2. Can probably still ask on employment application if have ever filed for

bankruptcyii. Prevents govt to refuse to issue, renew, etc. license based solely based on

bankruptcy solely language issue still present

1. Can beA reason, but not the SOLEreason not to get a bar licenseD. SOVEREIGNIMMUNITYISSUES

i. Issue: Sovereign in bankruptcy is state bound by bankruptcy determination or does it

violated SI b/c it is an action against the state?

1. Code has express waiver of SIa. Split SI in a state of flux: (1) Determine if jurisdiction says 106 is

unconstitutional (yes dischargeable; no rely on one of threeexceptions to SI)

i. Provision is unconstitutional state can proceed against D

1. Exceptionsa. State can waive by filing proof of claim in

bankruptcyb. Anything done by motion is okay

(effectively DJ) not violating SI bybringing state into an action

c. Ex parte young doctrine rather than suingstate, bring action against state officials

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individually seeking declaratory relief forviolating state law

i. SC

bankruptcy (cecil) ws05

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