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Bankruptcy Outline1

Bankruptcy Outline1

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Published by: Nicmarie1809 on Jul 10, 2009
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Bankruptcy Outline
I.Debtor/Creditor Relationships
A.Generally1.Debtor/creditor law seeks to balance the creditor’s right to payment again the needto protect the debtor from unduly harsh or aggressive creditor conduct2.Creditors must ask themselves before entering any transactiona.Is the prospective borrower likely to perform its obligations reliably?b.If the borrower does not pay, does the structure of the transaction and itscontract terms protect me, or avoid or mitigate any of my loss?B.UCC Article 91.Rule of law over transactions between buyer and seller for tangible or intangiblegoodsC.Credit process1.Credit reporting can influence provider of goods and services to withhold futurecredit from a nonpaying debtor, the unpaid creditor has far greater leverage to puta debtor to repay2.“credit worthy”- which debtors are most likely to repay their debts3.Interest rates are now deregulateda.Only law- usury laws- if a creditor charged more than a pre-determined rate of interest, the loan would be deemed usurious, and the interest, and undersome statutes the principal itself, are deemed uncollectiblei.Consider Fair Debt Collection Practices Act- page 15 in bookD.
Debt collection remedies
1.Remember that when the debtor files for bankruptcy, all collection efforts arestayed2.Self-helpa.Attempts to collect the money without judicial interventionb.Most common typec.Threats to report to credit agencies or threat to take judicial action is common3.Pre-judgment remediesa.Forms of relief available to an eligible litigant during the period between thecommencement of suit and the final judgment in the caseb.Designed to enhance the plaintiff-creditor’s chances of collecting on theultimate judgmentc.Have two characteristics:i.Ancillary in nature- underlying suit has to have already commenced andrelief cannot be sought if the underlying suite has been dismissed orterminatedii.Are provisional and temporary in nature- designed only to last until thedisposition of the underlying case on its meritsd.Requires the plaintiff to make a substantive application showing reasonableprospects of success on the merits, have met procedural safeguards, bondingrequirements, and plaintiff liability for misuse of the process.e.Due process requirementsi.14
amendment requires that a defendant receives1.proper notice and2.meaningful hearing4.Judgmenta.When a creditor pursues collection through the court system, the first step isto establish in court that the debt is owed1
b.Judgment gives the successful plaintiff (aka “judgment creditor”) no interestand no priority in any of the debtor’s property or income and remains anunsecured creditor until executionc.Improvement in the judgment creditor’s position because the owing of thedebt is not indisputable by the debtor, it has become “liquidated”d.Judicial Liensi.Make up a small portion of actual collection remedies and usually only forreal propertyii.Judicial liens arise out of the court proceedings initiated by the creditorfor recovery of the debt, both secured and unsecurediii.After judgment, to prefect the lien, must properly record or docket in theappropriate recording office in the county where the property is locatediv.The judgment creates a lien on all of the debtor’s real property within thecounty1.The property need not have been involved in the suit oridentified in advancev.The lien is subject to any preexisting 3
party interest recorded in theproperty, such as prior recorded mortgages and liensvi.When the lien is enforced, the lienholder follows a foreclosure procedure(execution) to sell the property and realize its proceeds5.Executiona.Unsecured claims are not identified with any particular property, but theirenforcement is dependent on property of the debtor being found and realizedi.Debtor must have property that can be applied to payment of the debt1.Must consider state law and whether there is a state statute thatmakes the property immune from execution2.Public policy plays a role to prevent execution on property thatthe debtor values but has little inherent value to the creditorb.Execution Processi.Begins with a “writ” which is simply a court order- “execution writ” or writfi fa or writ of attachment1.Writ is issued by the court clerk upon request of the judgmentcreditor and is delivered to the sheriff for “execution”2.The writ will specify that the sheriff must levy on specific,identified property3.Debtor can apply for a stay of execution pending appeal, butmust usually furnish bondii.Sheriff will take physical possession of any property (aka “levy”)identified by the judgment creditor1.If it cannot be seized immediately, the sheriff may tag it withnotice of seizure2.Real property is always seized by posting notice of seizure and alater sale3.Because the sheriff could be liable for tort damages, the plaintiff-creditor must provide an indemnity when delivering the writiii.After levy, the sheriff will advertise the property for public sale and sell itto the highest bidder1.Value of property is usually depressed2.Proceeds are realized and less the costs of execution, areremitted to the creditor3.May allow for redemption where the debtor reaquires theproperty at the depressed price if they can raise the necessaryfunds6.Turnover orders2
a.The judgment debtor is ordered to turn over property he possesses to thesheriff b.Debtor risks imprisonment for contempt if he does not complyc.Examination under oath of the debtor so that assets are found
a.Used to levy on personal property of the debtor in the possession of someoneelse, or on an intangible obligation due to the debtorb.The debtor’s rights of due process requires that he is given notice of thegarnishment that sets out his exemption rights, and must also have anopportunity to challenge the garnishmentc.The 3
party who owes something to the debtor is obligated to answer thewrit and must surrender the property or state grounds for not doing sod.Upon payment to the court or sheriff, funds are sent to the creditor8.Assignment for the benefit of creditorsa.Voluntary transfer of property in trust by the debtor to another person withinstructions to liquidate the property and to distribute its proceeds to thosecreditors who have elected to participateb.Does not operate as a dischargec.Cannot reserve some rights in the property or continue to use the propertyd.Cannot grant preferential treatment to a particular creditore.Cannot stipulate that the participating creditors must discharge the unpaidbalance of their claimsf.Cannot include less than all of the debtor’s executable propertyII.
Secured Debt under Nonbankruptcy Law
A.Generally1.Security agreements effective under 9-2012.The personal obligation of the debtor to pay the debt is reinforced by a right in remacquired by the creditor in certain property of the debtor.a.The debt is a personal claim against the debtor, the lien is a right in thepropertyb.Property is defined as “goods” in 9-102(44) (must be movable)c.Once secured, the property is considered “collateral” defined in UCC 9-102(12)3.In a much strong position than an unsecured creditor, it has both a right of actionagainst the debtor for the debt and a claim to property of the debtor to back up thatright.4.Only when the debtor defaults on the debt that the creditor becomes entitled totake action to terminate the debtor’s ownership and to sell the property or taketransfer of it5.Lien rights can be created in almost every kind of property, real or personal,tangible or intangible.a.A lien can be created in a piece of class of property before that property hascome into existence or before the debtor has acquired rights in it.B.
Purchase Money Security Interests (PMSI)
1.Governed by UCC 9-1032.When a loan or credit is given to the debtor for the express purpose of enabling thedebtor to acquire particular property and the property is itself used as collateral tosecure the debt3.Purchase money obligation is an obligation incurred by the debtor as all or part of the price of the collateral to enable the debtor to acquire rights in or use thecollateral.a.Example: Loan to buy a car, if debtor defaults, bank can repossess carC.Attachment and Perfections1.Attachment- when a lien is valid against both the debtor and 3

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