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MARKELL – BANKRUPTCY, SPRING 2017

INDIVIDUALS
BUSINESSES

I. ALL CHAPTERS
a. Upfront
 Spouses. § 302(a). Required include even if filing as just one.
 Filing State.
 Case commencement
 Voluntary. Order for relief immediate.
 Involuntary. 7 & 11 only. Not an order for relief until court adjudication. §
303(h). If most debts being paid a come due and most creditors paid on time
might not be grounds for bankruptcy.
 Credit Counseling. § 109.
 Means Test
b. Best Interest’s Test
 Property of the Estate
 Avoiding Powers
a. Turnover of Repossessed Collateral
i. Adequate Protection
b. Fraudulent Transfers & Obligations
c. Preference Law
d. “Strong Arm” Powers
 Exemptions
 Executory Contracts
 Claims
 Defining
 Estimating
 Trading Claims
 Types
a. Future Claims
b. Secured Claims
c. Priority, Unsecured Claims
d. Unsecured Claims
e. Contingent Claims
f. Executory Contracts
 Proof of Claim
 Disallowance
c. Non-Dischargeable Debt (Individuals only)
 Debts incurred through fraud
 Taxes
d. Automatic Stay
 Reaffirmation
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 Exceptions
 Opt-Out
 Violations

II. INDIVIDUAL CHOICE OF CHAPTER

a. Chapter 7 Requirements
 Means Test.
 A “person” may file a Chapter 7. §§ 101(41)(b)
b. Chapter 13 Limits. § 109(e).
 An individual
 $1,184,200 in non-contingent, liquidated secured debt
 $394,725 in non-contingent, liquidated, unsecured debt
 Must have a regular source of income. § 101(30).

III. INDIVIDUAL CHAPTER 7

a. Upfront
 No absolute right to dismiss. § 707.
 Conversion. §§ 348, 706.
 Credit Counseling. § 109(h).
 Other requirements. 727(a).
b. Redemption. § 702. Only applies to: Chapter 7, property used “personally” (not commercially),
and dischargeable debt. Must pay secured claim “in full” at time of redemption.
c. Denial of Discharge
d. Discharge

IV. INDIVIDUAL CHAPTER 11

a. Upfront
 Watch for debtor that is a sole proprietor.
 Becomes Debtor in Possession. § 301.
 Upon filing voluntary petition of relief; or
 Order for relief, in involuntary case.
 No absolute right to dismiss. § 1112.
 Conversion. §§ 348, 1112.
 Confirmation treated as a contest matter.
b. The Plan
 Exclusivity
 Authorization to run Business
 Procedural Requirements
 Disclosure Statement
 Classification
 Voting
 Substantive Requirements
 Best Interest’s Test
 Good Faith
 Feasibility
 Administrative Claims
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 No Dissenting Impaired Classes

 Chapter 11 Cramdown
 No unfair discrimination
 Fair & Equitable
 Secured Claims
c. Discharge

V. INDIVIDUAL CHAPTER 13
a. Up-Front
 Conversion. §§ 348, 1307.
 Dismissal. § 1307(b).
 Only chapter absolute right to dismiss and applies to involuntary cases
 Creditors usually have standing to seek dismissal. Why? Believe will do better
under non-bankruptcy law.
b. Discharge. §§ 524, 1328(a).
 Received after completion of plan payments. But, until then automatic stay prevents
collection efforts. § 362(c)(2)(C).
 Hardship Discharge. § 1328(b). Requires:
 Debtor’s failure due to circumstances “for which debtor should not justly be
held accountable;
 Creditors received at least as much as would have if had been a liquidation
distribution as of confirmation
 Modification of plan not practicable
c. The Chapter 13 Plan
 Requirements
 Best Interest’s Test.
 Applicable Commitment Period. (Disposable Income).
 Feasibility
 Priority Debts
 Secured Creditors
 Chapter 13 Cramdown
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BUSINESSES
INDIVIDUALS

I. ALL CHAPTERS
a. Best Interest’s Test
i. Property of the Estate
1. Avoiding Powers
a. Turnover of Repossessed Collateral
b. Fraudulent Transfers & Obligations
c. Preference Law
d. “Strong Arm” Powers
2. Executory Contracts
ii. Claims
1. Types
a. Secured Claims
b. Priority, Unsecured Claims
c. Unsecured Claims
d. Contingent Claims
e. Executory Contracts
2. Proof of Claim
3. Disallowance

II. BUSINESS CHAPTER 7

a. Discharge.
III. BUSINESS CHAPTER 11
a. Upfront
i. Becomes Debtor in Possession. § 301.
1. Upon filing voluntary petition of relief; or
2. Order for relief, in involuntary case.
ii. No absolute right to dismiss. § 1112.
iii. Conversion. §§ 348, 1112.
iv. Confirmation treated as a contest matter.
b. Discharge
c. The Plan
i. Exclusivity
ii. Authorization to run Business
iii. Procedural Requirements
1. Disclosure Statement
2. Classification
3. Voting
iv. Substantive Requirements
1. Best Interest’s Test
2. Good Faith
3. Feasibility
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4. Administrative Claims
5. No Dissenting Impaired Classes
v. Chapter 11 Cramdown
1. No unfair discrimination
2. Fair & Equitable
3. Secured Claims
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MEANS TEST § 707(b)

INDIVIDUALS

 Upfront
o Determine whether individual eligible for Chapter 7
o Calculates “eligibility” not on basis of actual income and expenses, but imputed income
based solely on history, and expenses based on IRS tables
o Important for chapter 7 eligibility, but also as baseline for how to calculate payments in
Chapter 13 plans
o Any creditor, trustee, or court can force conversion of Chapter 7 to Chapter 13 or 11 (or
seek dismissal).

 Calculate median family income

 Imputed income = Average of six full months immediately before the month in which debtor
files.
 Current monthly income. § 101(10A)(A).
o Used even if debtor lost job in month six, or if debtor out of work for first 5 months,
gets job in sixth month

If Imputed Income is less than applicable state median income, means does not apply

 Calculate Allowed Expenses

o Housing is local by county
o Transport by region
o (iii) is monthly average of secured debt over five years
o (iv) is monthly average of priority claims

60 * (CMI – Allowed Expenses)

 If greater than or equal to $7700 ($128.33 a month), or 25% of debtor’s nonpriority

unsecured debts; or greater than or equal to § 12,850 ($214.17 per month), case presumed to
be an abuse
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BEST INTEREST’S TEST

INDIVIDUALS BUSINESSES Claims

I. PROPERTY OF THE ESTATE.

a. Defining
i. “All legal and equitable interest of the debtor in property as of commencement
of the case.” § 541.
ii. Includes some post-petition acquisitions (§ 541(a)(6)), but NOT income from
services for individual debtors not in 11 or 13 (fresh start)
iii. Some exclusions. § 541(b).
b. Avoiding Powers
i. Upfront
1. Goal of equal distribution of debtor’s assets.
2. File against transferee. Against transferor is debt collect. action.
3. Must establish elements of fraudulent transfer. If successful, set aside
transfer to extent necessary to satisfy claim. Transferee may have
defenses, but typically can’t preclude the avoidance.
4. Est. rep. may bring any action on behalf of estate that could have been
brought by unsecured creditor at time of filing. § 544(b).
a. Main use is state law on fraudulent transfers, but not only
b. Unlike state late, recovery not limited to creditor’s debt
c. State fraudulent transfer law typically has 4-year statute of
limitations. Six in New York.
d. Substantive elements of § 548 and UFTA/UVTA essentially same
ii. Turnover: Repossession an essential right of Article 9. But repossessed property
still property of estate, just in possession of someone else. Estate can require
turnover, but subject to adequate protection. § 542(a).
iii. Fraudulent Transfers & Obligations. §§ 548, 544(b).
1. Must be a “transfer of an interest in the debtor in property” or an
“obligation.” Transfer (§ 101(54)) means:
a. Creation of a lien. § 101(37).
b. Retention of a security interest. § 101(51).
c. Foreclosure of debtor’s equity of redemption
d. Covers voluntary and involuntary (levy of execution) transfers
e. Creation of liens, security interests, or mortgages
f. Obligations are primarily in area of secondary liability (i.e.,
guarantees, co-signing). Unless person who is secondarily liable
receives something in return, there is no reasonably equivalent
value, and thus the issue is financial state of debtor at time
incurred obligation.
2. Two Types
a. Actual: Made with actual intent “to hinder, delay, or defraud”
i. Transferor’s intent matters. Not recipient’s intent.
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ii. Recipient has defense to extent gave reasonably

equivalent value in good faith. § 548(c).
iii. Usually determined by circumstantial evidence. Badges
of fraud. 4(b)(11) or UFTA.
b. Constructive: Made for less than reasonable equivalent value at
time debtor was insolvent or nearly so.
i. Lack of reasonably equivalent value: Gifts, dividends
ii. Insolvency: Balance sheet basis. § 101(32). Or,
unreasonably small capital or assets
iv. Preference Law. § 547.
1. Six Elements
a. 5/12 rules of thumb

 A payment on an unsecured debt is almost always preferential

 A payment on a fully secured debt is almost always not a preference
 A payment on an undersecured debt is almost always preferential, unless payment is
made from proceeds as to which creditor was perfected
 A transfer of collateral to secure a pre-existing debt is almost always a preference
 A levy under a judicial lien is almost always a preference

b. Transfer (No oblgns.) of interest of debtor in prop. § 101(54).

c. To or for benefit of a creditor
i. Indirect preferences. X guaranties Y’s debt to Z. If Y
makes a payment to Z, there’s a transfer “to a creditor”
that is for X’s benefit.
d. Made because of an antecedent debt: Transactions that may
prefer existing creditors, not new instances of debt. With for
transfers created simultaneously with other obligations as there
is no antecedent debt.
e. Made while debtor is insolvent.
i. Insolvency presumed 90 days before bankrcy. § 547(f).
ii. Insolvency means sum of entity’s debts greater than all
of entity’s property, at a fair valuation, exclusive of:
property transferred, concealed, or removed with
intent to hinder, delay, or defraud such entity’s
creditors, and, property that made be exempted from
property of estate under section 522. § 101(32). Same
as fraudulent transfers.
f. Made within “preference period.”
i. Usually, 90 days. 1 year for insiders. § 101(31).
1. Relative to third degree of consanguinity
ii. When does period start?
1. Transfer occurs when state law would recognize
that a judicial lien creditor of the transferor
could no longer levy execution on property. §
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547(e)(1)(B). Usually when lien or security

interest attaches and is perfected.
2. A transfer occurs at time of attachment, if
perfected within 30 days. § 547(e)(2)(A).
3. In no event is there a transfer until debtor has
rights in property. § 547(e)(3).
g. Essence of it: If kept, would permit creditor to receive more on
account of transfer than if debtor had filed a Chapter 7. Means
must take into account priority of claim and whether secured.
2. Defenses
a. Burden of estate to establish elements. § 547(g). But, burden of
proving defenses is creditors. § 547(c).
b. Substantially Contemporaneous Exchange . § 547(c)(1).
i. Intended to be substantially contemporaneous
ii. Was in fact substantially contemporaneous
iii. Ex: Granting security for new debt day before filing. Fills
gap between delivering funds to debtor and take takes
to file documents with agencies.
c. Transfers made in Ordinary Course of Business . § 547(c)(2).
i. Transfer in debt payment where debt incurred in
ordinary course of business of both debtor and
transferee; and
ii. Debt was paid in ordinary course of business or both; or
iii. Debt was made according to ordinary business terms.
d. Enabling Loan. § 547(c)(3).
i. To extent such security interest secures new value that
was:
1. Given at or after signing of security agreement
that contains a description of such property as
collateral
2. Given by or on behalf of secured party under
such agreement
3. Given to enable the debtor to acquire such
property
4. In fact used by debtor to acquire such property
5. And, perfected on or before 30 days after
debtor receives possession of such property
e. Net Improvement Test. § 547(c)(4) or (5)
i. Only applies to inventory and accounts
ii. Plays on notion that in 90-day period prior to
bankruptcy, lots of inventory will be bought, and many
new accounts created.
iii. Each new item of inventory and each new account is a
preference, if lender has after-acquired property clause.
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iv. Calculating.
1. Is there a deficiency? (debt exceeds value of
collateral) on beginning of preference period
2. Deficiency at filing?
3. If deficiency decreases, lender is better off.
Preference is to extent of betterment.
v. “Strong Arm” Powers
1. Upfront
a. Policy is that credits are prohibited from exercising remedies
because of automatic stay, so trustee as lien creditor can set
aside transaction for benefit of other credits
b. Important that successful action may avoid the transfer against
a transferee, but it preserves that against all other credits. So,
avoiding a lien does not move up all other creditors in priority. §
551.
c. Personal Property. § 544(a)(1). Gives est. rep. status of
hypothetical judicial lien creditor without knowledge. Can then
avoid anything a judicial lien creditor could under applicable
state law.
d. Real Property. § 544(a)(3). Gives est. rep. status of bona fide
purchaser of real estate. Diff. is that some state law gives
priority to unrecorded mortgages over judicial liens.
e. Status disregards actual notice to any person.
2. Standing
a. DIP has all powers of trustee. § 1107(a).
b. Can also transfer claim of relief to creditor representative under
plan of reorganization to prosecute for a defined class of
creditors. § 1123(b)(3)(B).
3. How do they work?
a. Est. rep. establishes right to “avoid.” That is, must show all
substantive requirements under applicable statute (fraudulent
transfer under § 548, preference under § 547, etc.)
b. To extent it benefits estate, can recovery property, or, if so
court so orders, its value. § 550(a).
4. Can recover from:
a. Initial transferee of such transfer or the entity for whose benefit
such transfer was made; or
b. Any immediate or meditate transferee of such initial transferee
c. Initial transferee, § 550(a)(1), even if transferred property to
another; or
i. “the entity for whose benefit such transfer was made”
ii. Usually, but not always, guarantors or co-obligors of
debt
d. Subsequent transfers. § 550(a)(2).
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5. Defenses of “mediate” or subsequent transfers . §550(b).

a. If “takes for value, including satisfaction of a present or
antecedent debt, in good bfaith, and without knowledge of the
voidability of the transfer avoided; or
b. Any immediate or mediate good faith transferee of such
transferee
c. Shelter Rule. Any transferee from a subsequent transferee that
has a defense also has a defense. § 550(b)(2).

c. Exemptions (INDIVIDUALS Only)

i. Upfront
1. Rule 4003(b).
2. Become part of estate, but then ushered out.
3. Still subject to certain claims. § 522(c).
a. Tax claims
b. Domestic Support Claims
c. Non-Avoided Claims (most important)
4. Can choose federal law, § 522(d) or state law.
5. Federal Law applies unless state opts out. § 522(b)(2).
6. Joint debtors must use same list. If can’t agree then federal exemption
apply unless state has opted out. § 522(b).
7. May still lose exempt property if exemption has dollar limit.
8. Matters for reorgs. to determine what creditors would receive
ii. Types
1. Residency. § 522(b)(3)
a. Debtor’s domicile has been located for 730 days immediately
preceding date of filing or petition; or
b. If not located for 730 days, the place in which the debtor’s
domicile was located for 180 days immediately preceding the
730 day period or for a longer portion of such 180-day period
than in any other place.
2. Retirement Assets. Capped at § 1,283,025. § 522(n)
3. Wildcard of $11,850. § 522(d)(5).
iii. Lien Avoidance and § 522(f).
1. Can avoid judgment lien on property that impairs an exemption
2. Scope: Judicial liens are non-possessory, non-purchase money security
interests in certain consumer goods. § 101(36).
3. Impaired if sum of lien being attacked, all other liens on property
(including consensual liens), and the exemption, exceeds debtor’s
interest in property if there were no liens on the property. § 522(f)(2).

d. Executory Contracts
i. Upfront
1. What are they?
a. Yes: leases, long-term supply contracts, employment contracts
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b. No: loans not paid (lender fully performed), contracts where

one side completely performed, like prepaid contracts (if
anything, these are claims).
c. If performance still due then mixed asset and liability
d. Traditional test: each side has underperformed duties which, if
not performed or excused, would constitute material breach
under general contract law.
2. Goals of Option Choice
a. 7: act to maximize creditor returns
b. 11: which will best allow reorganization
c. 13: Not much issue given consumer nature of most debt
3. Options
a. Assume: Non-debtor must perform or will be in breach. Estate’s
liability after assumption is administrative. § 365(g)(2).
b. Assign: Non-debtor must perform, estate keeps consideration,
estate is relieved from liability on assigned contract. § 365(k).
c. Reject: Damages are pre-petition, regardless of when election is
made. § 365(g)(1). Estate liability determined under § 502.
4. If in Default, Can Still Assume or Assign. § 365(b)
5. Limits on Estates
a. If in Default, can Still Assume or assign, § 365(b), if:
i. Cure default with such mods. as in § 365(b)(1) – (3).
ii. Estate compensates non-debtor for consequences of
default. Exs: interest on unpaid amounts, attorney fees
if in contract.
iii. must cure, compensate, and provide adequate
assurance to non-debtor party before can assume or
assign. § 365(b).
iv. Provides adequate assurance of future performance.
v. Much like non-impairment under § 1124(2).
b. Can’t assume pers. servs. contracts or contracts to make loans.
c. Time limits on when and how election can be made. § 365(d).
Can also be built into plan of reorganization. § 1123(b)(2).
6. Limits on non-Debtors
a. Can’t rely on “bankruptcy default,” or ipso facto, clauses. §§
365(b)(2), 365(e).
b. Can’t rely on anti-assignment clauses. § 365(f)(1).
c. Functional, rather than formal approach taken.
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II. CLAIMS

INDIVIDUALS BUSINESSES Property of Estate

a. Defining
i. A claim is a 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; or
ii. Right to an equitable remedy for a breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, blah blah. . . § 101(5).
iii. Not all obligations are claims under bankruptcy code
1. NOT: pure equitable relief, injunctive actions (specific performance in
contracts), direct orders from courts.
2. Kovacs. (1985). Not all statutory duties are debts, but if state moves to
seize assets in lieu of other means of forcing compliance, it converts the
obligation into a monetary claim.
b. Estimating Claims
i. Can estimate for purpose of allowance any contingent or unliquidated claim, the
fixing of which would cause undue delay in case. § 502(c)(1).
ii. To make estimate, a mini-trial with strict limits is often heard. Other times, the
court makes temporary estimates, with full determination reserved.
c. Trading Claims
i. Creditors able to realize immediate cash and avoid uncertainties of bankruptcy
ii. Price and when to sell depends on markets and expectations that debtor’s plan
will be successful
iii. Investors may realize significant profits, and if they collect enough debt, may be
able to veto unfavorable reorganization plan
d. Types of Claims
i. Future Claims
1. Claims can be discharged when they arose prior to bankruptcy. § 502(b).
2. Must be relationship between debtor and claimant pre-bankruptcy.
3. Conduct test: Claim arises when acts giving rise to liability are
performed, not when harm manifests.
4. Asbestos: Future claimants must seek recovery from a Health Trust
established during reorganization. Not immediately applicable to other
tort claims. § 524(g).
ii. Secured Claims
1. Valuation determined in light of purpose of valuation and of proposed
disposition of the property. § 506(a)(1).
2. Receives first proceeds of their collateral. § 724(a)(1).
3. How to value collateral
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a. Individual Chapter 7/12 value of personal property is

determined as replacement value at date of filing. In case of
property acquired for “personal, family, or household
purposes,” this value is the “price a merchant would charge for
property of that kind considering the age and condition of the
property at time value is determined.” § 506(a)(2).
4. When to value collateral
a. Plan confirmation date
b. Plan effective date
c. Date of valuation hearing
d. Petition date
5. Lien Stripping
a. To extent a lien secures a claim that is not an allowed secured
claim, that lien is void. § 506(d).
b. Chapter 11/13: Liens that are under secured will be “stripped
down,” into a secure claim for the value of the collateral and an
unsecured claim for the remainder. Liens where the collateral
has no value are completely “stripped off” into unsecured
claims.
c. Chapter 7: Undersecured claims cannot be stripped down.
Dewsnup. Courts divided whether this means there can be no
strip off.
iii. Unsecured Priority Claims. § 507
a. Chapter 7: Paid in order in § 507. See §726(a)(1)
b. Chapter 11 and 13 same but might be stretched over time.

 Cases with trustees have priority. § 507(a)(1)(C).

o “Actual and necessary costs of preserving the estate.” § 503(b)(1)(A).
 Broad enough to cover operating expenses for business that file Chapter 11
 Statutory examples: wages and salaries for services rendered during case,
taxes incurred in operating estate
o Professional fees. § 507(b)(2).
 Domestic Support Obligations. § 507(a)(1)(A) – (B).
 Administrative expenses specific in § 503(b) not listed in § 507(a)(1)(C).
 Employee wages up to 12,850 for each worker, incurred during 180 days before bankruptcy
 Claims for death or personal injury for a motor vehicle that occurred while debtor was legally
intoxicated. § 507(a)(10).
 Unsecured claims for recent taxes. § 507(a)(8).
o Tax on or measured by income or gross receipts for a taxable year ending on or befoe
date of filing of petition for which a return, if required, is last due, including
extentions, after three years before date of filing of petition.
o Tax retuns generally due Apr. 15 year after.
o Go back three years, pick next april 15 after that, tax year that relates to that deadline
is earlier priority year.
 Priority by contract. Subordination. § 510(a).
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o Equitable Subordination requires:

 Claimant engages in some type of inequitable conduct, (b) misconduct caused
injury to creditors or conferred unfair advantage on claimant, and (c)
equitable subordination or claim consistent with bankruptcy law

iv. Unsecured Claims

v. Contingent Claims: Require some act or occurrence to become fixed. I.e.,
guaranty, product warrant, attorney’s fees. Claims subject to litigation usually
considered unliquidated.
vi. Executory Contracts
1. Assumed. Now administrative. § 365(g)(2).
2. Rejected. Damages are pre-petition. § 365(g)(1). Estate liability
determined under § 502.
3. If already performed, maybe.
e. Proof of Claim
i. Debtor responsible for filing list of creditors + amount. § 521(a)(1)(A).
ii. Creditors must file proof of claim. § 501. Exception: Chapter 11 debtor
schedules a debt as liquidated, undisputed and non-contingent. § 1111(a).
1. 7 & 13: Must be filed within 90 days of data first scheduled for first
meeting of creditors under §341(a). Meeting must be between 21 and
40 days after filing a chapter 7 or 11 case. Bankr. R. 2003(a).
2. 11: Court sets date. Aka the “bar date.”
f. Disallowance: Claims presumed valid and allowed at amount, but if objection court will
determine what claim will be. § 502(b).
i. Resolution separate from discharge process. I.e., possible for debtor to receive
discharge long before claims paid.
ii. Disallowance means claim does not receive a distribution from estate. However,
disallowance does not impact discharge.
iii. Non-Bankruptcy Reasons: Can be disallowed for reason recognized by state late
like acts do not constitute a breach of contract claim or action barred by
applicable state of limitations.
iv. Bankruptcy Reasons
1. Contingent and unliquidated claims estimated if not doing so would
unduly delay administration of case. § 502(c).
2. Unmatured interest. § 502(b)(2). Exception for oversecured claims.
Mention make whole premiums.
3. Future lease claims. § 502(b)(6).
a. Fewer than 80 months left, cap is one year’s rent;
b. if between 80 months and 240months, 15% of remaining rent
c. more than 240 months, three years of rent.
4. Other: unreasonable professional and insider fees, unmatured & non-
dischargeable domestic support obligations, certain golden parachutes,
and lite filed claims.
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AUTOMATIC STAY
 INDIVIDUALS BUSINESSES

 Upfront
o Arises
o All entities effected. § 362(a). Entity is . . . . § 101(15).
o Notice required
o Claims covered
 Claims arising before and after commencement
 Claims against debtor and claims against estate, claims brought by debtor
o Lasts Until. § 362(d).
 Property: as long as it is property of the estate.
 All Other Actions: Stay terminates when case is closed, dismissed, or in case of
individual Chapter 7 debtor, when discharge granted.
o Does not protect third parties. But See § 105(a). Court may issue any order, process, or
judgment that is necessary or appropriate to carry out provisions of the title.
o Co-Debtor Stay. § 1301.
 Creditor may not pursue action to collect consumer debt of debtor from any individual
liable unless such individual became liable in ordinary course of such individual’s
business or the case is closed, dismissed, or converted to 7 or 11.
o
 Reaffirmation
o Not limited to Chapter 7 or individuals. But, overwhelmingly happen here.
o Select debts not subject to discharge pursuant to agreement filed with court before
granting of discharge. Must affirm before discharge granted
o Attorney must attest or (if debtor unrepresented) court must find :
 Will not cause an undue hardship; and
 Is in debtor’s best interest
o To extent debt to be reaffirmed is collateral for some debt, must state intention to
surrender, reaffirm or redeem in statements and schedules. §§ 522(a)(2) / (6).
o If debtor does not comply, or does not act on intention, stay is terminated. § 362(h).
o Property is no longer property of estate. § 362(h). (What about over encumbered?)
 Exceptions. § 362(b)(1) – (28).
o Criminal proceedings, Domestic Support Matters, Certain Govt. Actions Under Govt.
Police Powers. (E.g., health and safety regs.)
 Opt-Out
o Unsecured Creditors Rarely Obtain Relief
o Secured Creditors. Obtain Relief if :
 ”Cause,” including property interest threatened, is diminished, or
 If collateral is under secured and is not necessary for reorganization. § 362(d).
 Cause broadly defined but with deference to bankruptcy court’s control of
proceeding and debtor’s need for relief. Upon showing of “cause” court has
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discretion to issue order, “terminating, annulling, modifying, or conditioning”

the stay to address the source of cause.
 Adequate Protection. § 361. Periodic payments, additional collateral, additional
obligors, keep collateral insured and licensed. If Jr lien then keep senior debt
current. Many states provide that taxes like real property taxes “prime” or
subordinate all other liens.
o How to Obtain
 Sought by motion as contested matter.
 Hearing on relatively short notice (30 days and must be decided within 30 days
of hearing.) § 362(e).
 Party seeking relief has burden of proof on debtor’s equity in property. “Equity”
is difference between property’s value and the debt encumbering it. § 362(g)(1).
Party opposing has burden on all other matters. § 362(g)(2).
o Other
 Time limits (typically 30 days) on how long cout can wait before holding a
hearing on a request for relief. § 362€
 To protect against irreparable damage to interest in property no hearing
necessary if harm will manifest prior to hearing. § 362(f).
 Violations of Stay
o Individuals injured by actions in violation shall recover actual damages, including costs
and attorneys’ fees, and may recover punitive damages (unclear how this impacts non-
natural persons). § 362(k)(1).
o Violations can also be punished through contempt of court. In that case, sanctions at
discretion of court, unlike aboeve
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NON-DISCHARGEABLE DEBT (INDIVIDUALS ONLY)

 Objections to discharge are universal, but exceptions to discharge are specific to
creditor/claim
 Any court (including state court) can determine, unless a “bad act.” Include (2), (4), and
(6).
 Must be brought no later than time for general discharge. Rule. 4007.
 Not-Dischargeable
o Debts incurred through fraud.
 False pretenses or actual fraud, other than a statement respecting
debtor’s or an insider’s financial condition. § 523(a)(1)
 Use of a statement in writing, § 523(a)(2), that is:
 Materially false
 Respecting debtor’s or an insider’s financial condition
 On which creditor to whom debtor is liable to such money,
property, services, or credit reasonable relied, and
 Debtor caused to be made or published with intent to deceive.
 Consumers only: Luxury Goods. § 523(a)(2)(C).
 Consumer debts owed to single creditor and aggregating more
than $650 for luxury goods or services incurred by individual
debtor under this title presumed to be nondischargeable; and
 Cash advances aggregating more than 925 that are extensions
of consumer credit under an open end credit plan obtained by
an individual debtor on or within 70 days before the order for
relief under this title, presumed to be nondischargeable.
o Unscheduled debts. § 523(a)(3). Split in courts for “no-asset” cases as creditors
told not to file claims
o Debt from breach of fiduciary duty, embezzling, or larceny. § 523(a)(4).
o Domestic support obligations. § 523(a)(5)
o Willful and malicious injury. § 523(a)(6)
o Student loans. §523(a)(8). Only exception is hardship , subject to Brunner test.
 Prong 1: “cannot maintain, based on current income and expenses, a
‘minimal’ standard of living. . .if forced to replace the loan.”
 Prong 2: “illness, disability, a lack of usable job skills, or the existence of
a large number of dependents.”
 Prong 3: “made good faith efforts to repay loans.” This includes good
faith efforts, “to obtain employment, maximize income, and minimize
expenses.”
o Taxes: same test as used to determine whether tax was priority. § 523(a)(1)
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DENIAL OF DISCHARGE

 IndividualChapter7

o Exceptions
 Concealed property within one year of filing. § 727(a)(2).
 Concealed or destroyed financial records. § 727(a)(3).
 Lied during case, or withheld property or records from trustee. § 727(a)(4).
 Failed satisfactorily to explain loss of assets. § 727(a)(5).
 Received Chapter 7 or 11 discharge within 8 years of filing current case. § 727(a)
(8).
 Received 12 or 13 discharge within 6 years (unless paid at least 70% of all
unsecured creditors). § 727(a)(9).
 Failed to take financial management course. § 727(a)(11).
o Objecting
 Shall be filed no later than 60 days after first date set for meeting of creditors
under § 341(a). Bankruptcy Rule 4004.
 Creditor who misses deadline normally can’t object. Exceptions:
 Debtor doesn’t raise defense that objection was late.
 Creditor discovers grounds to revoke discharge.
 Time can be extended, but only if motion before time expires
o Debtor can waive after filing (with court approval) but not before filing. § 727(a)(10).
o Important to
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Discharge
 Upfront
o Discharge is an injunction on future action. Violation of discharge places actor in
contempt of court. § 524(a)(2).
o Govt cannot engage in almost any discriminatory behavior on basis of bankruptcy,
discharge, or failure to pay a dischargeable debt. Private employers may not terminate
or discriminate “with respect to employment” on those bases. § 525.
 Individuals
o Chapter 7
 Except as provided in section 523, discharges debtor from all debts that arose
before the date of the order for relief. §726(b).
 Objections must be filed no later than 60 days after first date set for meeting of
creditors, and creditors will be given at least 28 days’ notice of the fixed time for
objections. Bankr. R. 4004(a).
 When time for objections expires, court shall grant discharge. Bankr. R. 4004(c)
(1).
o Chapter 11
 No discharge until completion of plan. § 1141(d)(2). No time limit. Exceptions:
 Unless “cause” exists. But, undefined. § 1141(d)(5)(A).
 Hardship discharge. § 1141(d)(5)(B). Keyed to impracticability of
modifying a confirmed plan under §1127.
o Chapter 13
 “as soon as practicable after completion by debtor of all payments under plan”
court shall grant discharge. § 1328(a). Until then, automatic stay remains.
 Limited conditions under which discharge can be granted even without
completion of payments. § 1328(b).
 Businesses
o Chapter 7
 No discharge. § 727(a)(1).
o Chapter 11
 Discharge granted when plan is approved. § 1141(d)(1).
 Liquidation exception. Confirmation does not discharge, if:
 Plan provides for liquidation of all or substantially all of estate
 Debtor does not engage in business after consummation of plan
 Debtor would be denied a discharge under § 727(a) if Chapter 7.
 Upon confirmation, all participants bound and property of estate revested to
debtor, free and clear of all claims except as may be provided in plan itself. §
1141.
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CHAPTER 11 PLANS
IndividualChapter11 BusinessChapter11

I. Upfront
a. General
i. No mandatory Form. Suggested B25.
ii. Structure & content left to parties. Can do anything provided meet reqs.
iii. Think of as a mass novation of all debts
iv. Plan proponent has burden of proving all confirm. reqs. by preponderance.
b. Exclusivity.
i. Debtor has exclusive right to file plan for first 120 days. § 1121(b).
ii. Might be lengthened (usually) or shortened (rarely) for “cause”
iii. Automatically terminated if trustee appointment
iv. Absolute limit of 18 months. §1121(d).
c. Authorization to Run Business. § 1108.
i. Does not need court approval if “in ordinary course of business. § 363(c).
ii. Horizontal: How all similar businesses operate
iii. Vertical: How this particular debtor operated
iv. Key is creditor expectations
v. If not ordinary, need course approval after notice and hearing. § 363(b).
vi. Can’t use cash collateral, unless:
1. Consent. § 363(c)(2)(A); or
2. Court order. § 363(c)(2)(B). Requires adequate protection. § 363(e).
vii. Financing & Credit
1. Normal, ordinary credit given administrative expense status. § 364(a).
Need not be court approved, but might be. § 364(b).
2. If estate cannot obtain credit otherwise, then court may approve
creditor which is either priority or secured. § 364(c).
3. Possible to “prime” or subordinate existing liens if holder is given
adequate protection. § 364(d).
4. Required to disclose terms of loan, plus identification of provisions that
have proved troublesome in other cases. Bankr. R. 4001(c)(1)(B).
viii. Role of §552.
1. Article 9 of UCC allows borrowers to grant security interests in “after-
acquired property” without need to give additional consideration. If
such a clause is present, any asset meeting the description and acquired
by a debtor at any time Is immediately subject to security interest
d. Sale of Assets.
II. Procedural Requirement
a. Disclosure Statements
i. Plan proponent may not solicit votes until statement approved. Exceptions :
1. Court may order statement hearing at same time as confirmation. §
105(d)(2)(B)(vi). Special rules in small business cases. § 1125(f).
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2. Debtor may solicit votes before filing if solicitation complied with non-
bankruptcy law for such solicitation (usually security laws). § 1125(g).
ii. Court must approve statement as containing adequate info . § 1125(b).
1. Need not contain an appraisal
2. Adequate information means information of a kind, in sufficient detail,
as far as is reasonably practicable in light of nature and history of debtor
and the condition of debtor’s books and records. . .that would enable
such a hypothetical investor of relevant class to make informed
judgment about plan.
3. Hypo. Investor assumed to have “ability to obtain such information from
sources other than disclosure required by this section as holders of
claims or interest in such class general have.” § 1125(a)(2)(C).
b. Classification
i. Can be class of creditors or of interest holders.
ii. May be an administrative convenience class. § 1122(b).
iii. Plan must specific which classes are impaired and each classes’ treatment under
plan. § 1123(a)(2) - (3).
iv. Loose Standard: Only combine claims into class if “subst. similar.” §1122(a).
1. Nothing said about when can separately classify subst. similar claims.
2. Typically means cannot combined secured with unsecured or creditors
with equity.
3. Typically means secured creditor is it’s own class because secured
creditor’s claim to specific collateral is not same as any other creditor’s,
even those with security interests in same property.
v. Two Basic Reasons to Classify
1. Obtain accepting class (separate trade creditors from deficiency claims).
2. To give diff. treatment. (pay mass tort creditors over longer period than
trade claims)
c. Voting. § 1126.
i. Only allowed claims that are impaired can vote.
ii. If objection lodged, claim is not allowed and cannot vote.
iii. Presumptions
1. Non-impaired classes presumed to accept plan. § 1126(f).
2. Classes whose rights are eliminated by plan are presumed to vote
against. § 1126(g).
III. Main Substantive Requirements . (17 total).

INDIVIDUALS BUSINESSES

a. Best Interest’s Test. § 1129(a)(7).

i. Return to impaired creditors at least what they would get in Chapter 7.
ii. Applies on individual creditor basis: each creditor receives at least as much as it
would receive in liquidation. So, disclosure statement typically has liquidation
analysis
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iii. Need to consider Chap. 7 admin. costs, and any avoidance power recoveries.
b. Good Faith. § 1129(a)(3).
i. Plan achieves consistent with rehabilitation of debtor
ii. Lack of good faith examples: competitor files plan to liquidate otherwise viable
business with intent to reduce competition, solvent debtor files to take
advantage of bankruptcy-only disallowance (rent cap).
c. Feasibility. § 1129(a)(11).
i. Show confirmation will not be followed by need for further reorganization
ii. Preponderance of evidence.
iii. Most disclosure statements thus contain prospective cash flow analysis
iv. Usually at least five years
d. All administrative claims paid in full. § 1129(a)(9).
e. Tax claims paid in full within 5 years at interest rate provided for by non-bankruptcy law.
§§1129(a)(9)(C) / (D).
f. No dissenting Impaired classes. § 1129(a)(8).
i. Each class must accept, or not be impaired
ii. Class still accepts and plan deemed consensual if minority of claims outvoted.
IV. Non-Consensual Confirmation (Cramdown). § 1129(b)(1).
a. Upfront
i. Usually reserved for when entire class dissents.
ii. All requirements of § 1129(a) met except voting. Including at least one impaired,
non-insider class.
b. No unfair discrimination. “Horizontal” Equity.
i. If dissenting class and accepting class have same non-bankruptcy priority (both
unsecured, for example), then plan may not unfairly discriminate against
dissenting class
ii. Typically, different percentage recovery or longer payouts
iii. Only unfair discrimination prohibited. Can be “fair discrimination.”
c. Fair & Equitable
i. Absolute Priority Rule: Debt paid in full before equity receives anything. §
1129(b)(2)(B). What about new money for equity of reorganized debtor? “New
value.” Concerns about asymmetric information as insiders know more about
the debtor.
ii. Unsecured claims are not junior to secured claims generally, but secured claims
do have priority as to proceeds of collateral securing such claims
iii. No claim may receive more than allowed amount
iv. Examples in § 1129(b)(2)(A) – (C).
d. Secured Claims. § 1129(b)(2)(A)(i).
i.
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INDIVIDUAL CHAPTER 13 PLANS

INDIVIDUALS

 Requirements
o Pass Best Interest’s Test
o Applicable Commitment Period: Disposable Income

Disposable Income = Current Monthly Income – Amounts Reasonable Necessary to be Expended

If CMI is below median income If CMI is above median income

 Plan is three years  Plan is five years

 ARNE =  ARNE determined in accordance with §
o For maintenance or support of 727(b)(12)(A) – (B).
debtor or dependent of debtor. §
1325(b)(2)(A)(i); and
o Charitable contributions, not to
exceed 15% of gross income. §
1325(b)(2)(A)(ii)

o Feasibility. § 1325(b)(6).
 Show by preponderance of evidence debtor can make all payments under and
comply with plan
 Usually backed by debtor budget showing disposable income as revenue
o Priority Claims.
 Pay all in full over life of plan, unless holder of claim agrees to different treatment
of such claim. § 1322(a)(2).
 Debtor paid all amounts required under domestic support obligations and that first
became payable after the date of the filing of the petition if debtor required by a
judicial or administrative order, or by statute, to pay such payments. § 1325(b)(8).
 If trustee or an unsecured creditor objects, cannot confirm plan unless pays all
“disposable income” to unsecured over applicable commit. period. § 1325(b).
o Secured Creditors.
 Consent. § 1325(a)(5)(A).
 Surrender. § 1325(a)(5)(C).
 Cramdown. § 1325(a)(5)(B).
 Chapter 13 Cram Down
o Requirements
 Creditor retains lien on property. § 1325(a)(5)(B)(i)
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 Payments be equal monthly amounts. § 1325(a)(5)(B)(iii)

 Present value of stream of payments equals allowed amounts of secured claims. §
1325(a)(5)((B)(ii).

Present Value = Pmt * ( 1 – ( 1 / 1 + i)^n) / i

What interest rate will make the present value of payments under note
equal to note’s face value? “If interest rate rapid is equivalent to discount
rate used, the present value and face future value will be identical.

o Fight with creditors over value of collateral, appropriate rate of interest.

 Exception: Residential mortgages. § 1322(b)(2).
 Plan may modify right so fholders of secureds claims, or of holders of unsecured
claims, or leave unaffected the rights of holders of any class of claims. § 1322(b)(3).
o For purchase money loans against cars made within 910 days of bankruptcy, section 506
does not apply. Also applies to secured loans used to acquire “any other thing of value”
within the year before filing bankruptcy. Hanging paragraph of § 1325.
 Intent to prevent strip down on cars (does not permit bifurcation of unsecured
claims). So secured creditor’s claim is amount of debt, not value of collateral. Can
still get interest rate reduction under Till.