Describe the basics of a Chapter 7 Liquidation bankruptcy.
A trustee is appointed.
For individuals, partnerships, or corporations.
The trustee collects the debtor’s assets, liquidates them and uses the proceeds to pay off creditors.
Individual is debtor: most debts are discharged (the debtor is relieved from personal liability)
Corporation is debtor: The debts are cleared but not dissolved (discharged).
Describe the basics of a Chapter 13 Adjustment of Debts of Individuals with Regular Income bankruptcy.
A trustee oversees the proceeding.
The debtor repays most of the debts over a 3-5 year period.
The debtor is relieved of any remaining debts
Describe the basics of a Chapter 11 Reorganization bankruptcy.
A trustee is not required, but may be appointed by the court
For individuals, partnerships, or corporations
The creditors must approve a plan of payment
The business continues and retains the assets
An individual consumer (not a corporation) is involved in a Chapter 7 Liquidation bankruptcy. What are the allowable expenses that can be deducted when uses the means test.
Food
Clothing
Shelter (as set by the IRS)
Health insurance premiums
Health savings plans
Health care costs for family members
Expenses for attending secondary education
Expenses related to keeping the debtor safe from family violence
The debtor may also pose special expenses that are deemed to create hardship
What are the 3 methods used to dismiss a Chapter 7 Liquidation bankruptcy for abuse of the creditors.
(1) If the debtor has monthly income greater than the state median income for a family of the same size
(2) If the creditors can show that the debtor has the means to pay (means test – see separate flashcard).
(3) General abuse test
What is the Means Test for Chp 7 Liquidation bankruptcy. How are the results used?
++ If the debtor’s monthly income less allowable expenses is <$7,700, he may continue as Chapter 7
++ if the debtor’s monthly income less allowable expenses is >$12,850 (almost $13k), there is abuse and the case is converted to Chapter 13 bankruptcy or dismissed.
++ If between $7,700 and $12,850 AND the income is at least 25% of the unsecured debt, there is abuse.
Who has the authority to dismiss a Chp 7 Liquidation bankruptcy for the General Abuse Test?
The court, trustee, or bankruptcy administrator
True / False: The creditor can request that a Chp 7 Liquidation bankruptcy be dismissed due to General Abuse.
False
Who is NOT entitled to file under Chapter 7 Liquidation
no R – I – B – S
Railroads
Insurance
Banks
Small Business Investment Companies
Who is NOT entitled to file under Chapter 11 Reorganization?
no B – I – B – S
Brokers
Insurance
Banks
Small Business Investment Companies
True / False: A railroad may file under Chapter 7 Liquidation, but not under Chapter 11 Reorganization bankruptcy.
False
It’s just the opposite. A railroad may file under Chapter 11 Reorg, but not Chapter 7 Liquidation
True / False: Credit Counseling is required is a debtor is in individual.
True
It must occur no more than 180 before filing the bankruptcy petition.
What information must be provided by the debtor within 45 days of when a bankruptcy petition is filed? What occurs on day 46 if this information is not provided?
A list of creditors and their addresses
A schedule of assets and liabilities
A schedule of current income and expenditures
A statement of the debtor’s financial affairs
Copies of pay stubs received within 60 days before filing
Copies of federal tax returns from the last tax year.
On day 46 the petition is dismissed.
True / False: Spouses may jointly file a Chp 7 petition to avoid duplicate fees.
True
[HIGHLY TESTED] On what grounds may creditors petition a debtor involuntarily into bankruptcy proceedings?
Generally not paying debts when due
If fewer than 12 creditors, you only have to owe one creditor (or more collectively) at least $15,775
If 12 or more credits, a combination of 3 or more creditors (collectively) must be owed at least $15,775 in unsecured, undisputed debt.
Who is exempt from an involuntary Chp 7 petition?
Farmers
Nonprofit charitable organizations
True / False: Creditors may petition a debtor involuntarily for Chp 13 Adjustment of Debts
False
Involuntary petition can only be used for Chp 7 or Chp 11.
Chapter 13 is the only bankruptcy that must be performed voluntarily.
True / False: An involuntary Chp 7 petition constitutes an order for relief.
False
This is automatic for a voluntary petition, but the debtor has 20 days to object before an order for relief takes effect for an involuntary petition.
What is the test for solvency?
Is the debtor generally paying debts when due.
True / False: The debtor must be insolvent to file for or be petitioned into bankruptcy.
False
What property is included within the bankruptcy estate? What is generally exempt?
INCLUDED
All real and personal property at the time of filing
Income generated from estate property received within 180 days of filing
Property received from divorce, inheritance, or insurance within 180 days of filing
Leases are determined by the trustee.
EXEMPT
Education funds or tuition programs
Generally things necessary to live.
True / False: The states can opt out of the federal exemption system for bankruptcy filings in favor of their own regarding what items are “generally necessary to live”.
True
The trustee becomes a lien creditor the instant the bankruptcy petition is filed and takes priority over most creditors. Which creditors retain their priority over the trustee?
Creditors with prior perfected security interests .
True / False: Income earned after the date of filing will be included in the bankruptcy estate.
False
The trustee can look how far back in time to determine if a fraudulent transfer occurred?
