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1) Barney Thornaby.

a) Involved in real estate and construction b) 2 years ago B buys rights to an automatic lawnmower thru an entity he owned i) Product failed, ate up a lot of his money and he wasn t making enough due to economic downturn ii) Bank is going to foreclose on him iii) Wants to commit suicide and needs to know if his insurance money goes to his family or his creditors 2) Definitions a) Nulla bona: No property was found b) Turnover orders primarily for intangible goods or when someone has possession but not ownership of something c) Judgment Lien a recorded lien against a property; procedure differs between counties (done at the county lien office) i) The faster the creditor is in getting the lien, the first in time prevail for liquidation of the asset. d) Voluntary Lien unsecured creditor goes from being unsecured to secured; usually written agreement b/t the creditor and debtor granting a security interest in an item i) Purchase Money Security Interest (PMSI): the money that is being leant is used as collateral for what is being financed (furniture and jewelry) e) Deficiency Judgment will arise when an item is sold but doesn t cover the entire debt f) Security Interest in Real Estate two step transaction. i) First, must have a security agreement b/t debtor and creditor (a mortgage and a note) and the lien is recorded for notice to the world of that security interest in the real estate g) Security Interest in personal property usually governed by the UCC (must have attachment then perfection giving notice to the world of the security interest in an item)

3) What a creditor may consider when faced with a debtor a) Leverage i) Fair Credit Reporting Act may help to compel a debtor to pay a debt by threatening to give a bad score on the credit report (1) To the extent that the law makes the credit records more accurate and more credible, it may increase the leverage they give a creditor (a) Two parts of the act (i) Giving creditor information about credit (ii) Proscribing procedures ii) If creditor negligently violates the law, it would not give rise to punitive damages but may result in actual damages, costs and attorneys fees. b) Disputed information have 60 days to either correct the error or make a note on the credit report explaining why the information is erroneous c) Non-judicial collection Problem 1.1 1) Lawyer wants to create a form so that clients can make a full disclosure of all the debtors assets and liabilities. A more particularized list may trigger more complete information from clients. The lawyer complies checklists of potential debts and assets for both consumer and business clients. What is on the list? a) First look at what assets the debtor has: (1) Home (2) Car (3) Bank Accounts/Stocks/Bonds (4) Real Estate/Property (5) Income/Wages (6) Business Capital/Accounts Recievable (7) Personal Property (8) Judgment from a different creditor

(9) Insurance Policies (10)Lottery b) Look at debts i) Mortgage ii) Credit Cards iii) Child support iv) Judgments from other creditors v) Personal loans to family members, friends vi) purchase money security interest (PMSI lien against an asset that you are purchasing. Ex furniture would have to sign a security agreement so they have security in that asset as collateral) c) As a creditor look at credit of person to make sure there are no judgments, etc. against the person Problem 1.2 2) Of the people on the list, who is the creditor most likely to pay? a) Who is Talis most likely to pay & Why? i) Debtors will pay secured debts first like a mortgage or a car and then will pay unsecured like gym membership and credit cards ii) Will pay debts that are important to the life of the person mortgage and car payments b) How can Security Bank try to improve its relative position? i) threaten to report on credit report any non-payment very cost efficient to leverage a debtor into paying a debt ii) telephone calls to the debtor can be persuasive (be aware of fair debt collection practices act) iii) Charging late fees iv) Filing a law suit going through the judicial process (creditor will weigh the chances of getting paid back, how much the debtor owes, etc.) 1) State law Debt Collection[alternative to bankruptcy which is a federal proceeding] Rights of a creditor to collect on his judgment/lien i) Talking about Tort creditors [you hit someone with your car, you become their creditor immediately], unsecured creditors [credit card company], any type of creditor that does not take a security interest in your property when they become your creditor b) Unsecured (General) Creditor someone who merely has a judgment against a debtor. This judgment does not entitle them to any of the debtor s property however i) However it does improve the creditors position as (1) the claim is now undisputable by the debtor = claim has become liquidated (2) Once they execute the judgment which then makes them a secured creditor c) Legal procedures that a Creditor may take after exhausting all non-judicial remedies i) rit (1) court order to look for non-exempt property of the debtor deals with personal property; (a) 1st writ is typically a writ of attachment; called a writ fi fa ( fi fay ) (i) After that writ is delivered to the sheriff, the sheriff goes out and levy against the personal property of the debtor. 1. If the property is too big to be taken at the time, the sheriff will tag it with a notice of sale. (ii) If real property is to be levied against then notice is posted and the sale will take place at a later date (b) Court orders the writ then the sheriff goes out (this process is called execution) (2) The creditor becomes a Judicial Lien Creditor of the Property (that creditor now has a higher priority of getting paid and adds to leveraging) (a) Public Sale of the property given to the highest bidder (3) Proceeds (a) if the proceeds are not sufficient to pay the claim, then the creditor may decide to go after more property and obtain more judgment; (b) if the property is more than owed, then it must go back to the debtor.

ii) Garnishment gives third party . iii) Turn over Orders (1) Modern type of writ which allows creditor to go after property that debtor possesses no matter the location. (a) The violation of a turnover order results in debtor being found in contempt of court and then punished w/ jail. (i) Once the is show to own the property, they then bear the burden of proving that they are no longer in possession of the property i.e. that they no longer have control over the property (ii) Turnover Statutes typically call for a hearing at which assets of the are identified, followed by the being ordered to turn over the discovered assets 2) Voluntary Liens a) Creditor can do this instead of the process where a sheriff goes out (this can be done before deciding to sue the debtor) i) Creditor becomes secured by obtaining the lien (1) In general a consensual lien assures the creditor that if the debt is not paid, the lienholder may force the sale of the collateral and use the proceeds to repay its outstanding loan (a) Usually restricts the s disposition of the property, so that the creditor can count on its being available at the time of default. (b) Further, it gives the secured creditor some ability to fence off the property covered by the lien from collection efforts by other creditors. (2) Either a mortgage against real property or a secured interest in personal property [third type is statutory liens suchs as mechanics leins and artisans leins that are provided for by statute] ii) Mortgage or Secured interest gives you (1) Right to foreclose and recover (2) Priority interest over others b) Requires a writing that establishes the collateral and then recordation is usually required for notice. i) This is before suing the debtor c) If personal property this may be called a PMSI(purchase-money leins); if its something the debtor already owns then it s a non purchase money security interest i) Also used for real property (1) Home mortgages are used to purchase homes (2) Car loans are used to buy cats ii) NOTE: Non-PMSI loan = taking out a loan on property already owned to finance some other transaction. (1) 2nd mortgage on a home (2) Home equity line of credit (3) Pledge of stock d) Commercial Setting lenders extend operating capitol to a company only after taking a consensual lien on all the equipment and other assets the company already owns, i) Instead of limiting themselves only to an interest in the new peoperty to be acquired w/ the new funds. (1) These dominant security interests (blanket liens) also give the lenders a degree of control over the biz in the meantime ii) Blanket liens sometimes structured to cover assets acquired in the future (1) i.e. all my equipment, current and after acquired (2) then when the acquires another piece of equipment the lien automatically attaches to the newly acquired property e) Consensual Liens require a writing in which the debtor grants the lien and describes the property covered,[i.e. secured creditor] i) To protect 3rd parties who may have dealings w/ the (1) Consensual liens are given legal effect against third parties only if the secured party gives public notice of its interest, usually by some form of recordation in a government office. ii) Recordation procedures most states have procedures so that the whole execution process does not have to be done (1) Can tie up the debtors property for a small fee and it gives that creditor priority

(2) If the creditor is secured by a judgment (can become secured by getting a default judgment if the debtor never responds to the law suit) better if the debtor files for bankruptcy because they are a secured creditor (a) This can give the creditor more leverage b/c the debtor will likely settle voluntarily so that they do not have a lien on their property (i) Also a secured creditor is allowed to avail themselves of self-help repossession for personal property although it is typically only used in the instance of automobile repossession (b) A creditor can garnish the wages of a debtor to get money (child support, family law, student loans must comply with state statutes for this) f) In the most general types of situations, Property on which grants a lien is then referred to as collateral. i) After filing notice of the lein in the particular recordation system, the security interest is considered perfected. g) For some types of collateral notice is given when the creditor takes possession of the property i) i.e. a certificate of deposit or a piece of jewelry can be achieved by taking possession h) Other tpes of collateral have a specialized notice system i) i.e. a lien on a car can be perfected only by entering it on the certificate of title for that car i) Policy systems of filing/recordation to achieve the notice necessary to perfect the security interest are supposed to: i) Provide an inexpensive and uniform way to inform others who may deal w/ the debtor about the interest of the creditor who took the consensual lien. j) NOTE: A creditor w/ a security interest can in personal property has two ways to satisfy the outstanding dent that are not available to the judicial lien creditor i) Article 9 creditor can (1) Seize the property without any help from the sheriff (a) i.e. self-help repossession (2) can offer to keep the property in satisfaction of the debt without any sale (a) i.e. retain in satisfaction k) Deficiency Judgment i) If the sale of the foreclosed upon secured property does not satisfy the debt owed to the creditor (1) Creditor must then sue for a judgment to satisfy the deficiency (a) This places them in the position of the judgment lien holder requiring them to scramble and find property that the sherrif can sell just like every other asshole out there l) How an unsecured creditor gets paid i) Hypo: Chase credit cardholder is months and months behind. How does chase get paid? (1) First Chase has to take you to court. (a) And win a judgment (2) Second Chase then needs to find property it can get ahold of to sell and satisfy debt discovery (a) Judgment proof having no assets that a judgment creditor can get (i) i.e. even if you own a house, it is likely encumbered by a mortgage that has priority over any subsequent interest if it is recorded properly (3) Third Creditor gets a writ of execution (4) Fourth Sheriff take possession of the property (a) Then Creditor has a judgment lien against the property 3) Creditor Priority a) First in time first in right is the general rule i) The first creditor to levy on a particular pices of property will have the right to be paid in full from the sale proceeds of that property before any other creditor gets even a single dollar from the sale. b) Determined generally by which creditor achieved perfection first i) Perfection = state of grace a creditor reaches when its interest in the debtor s property in the d s property will prevail over subsequent interests. ii) B/t two judgment creditors

(1) The 1st to levy on a particular piece of property is the first to win as to the particular piece of property that has been levied upon (2) Note: the date of the levy is not always the controlling date for determining priorities (a) In many states (i) Priority depends upon the date on which the judgment creditor initiated the execution process by delivering the writ to the sheriff iii) B/t a secured creditor and an unsecured creditor (1) First to perfect wins. (a) Critical issue is what constiututes perfection for the secured creditor (i) General rule secured creditor perfects when it records its consensual lien according to the statutory prescription (ii) i.e. unsecured wins only if they levy before the secured interest on the property is recorded through the appropriate filing system (2) c) B/t Judgment/Secured Creditors and Buyers i) A subsequent buyer who purchases before perfection is achieved wins. d) B/t Unsecured Judgment Creidtors/Secured Party vs. the Trustee in Bankruptcy i) Trustee in bankruptcy proceeding is the Most dangerous foe to someone who has perfected their interest. (1) Judgment Liens holders are often left S.O.L. e) Pre-Judgment Remedies i) Two Categories (1) Traditional protection under state law by means of special requirements that a creditor must satisfy before being able to get a remedy prior to obtaining a judgment (a) Typically require (i) Showing of need 1. i.e. that the putatice is decamping w/ its assets 2. a bond often in twice the amount of the value of the piece of property 3. which provides a fund for the s damages if the pre-judgment remedy turns out to have been wrongfully employed (2) Procedural requirements in the pre-judgment process that the Supreme Court has found to be necessary to ensure the enjoys the due process of law (a) s property may not be seized w/out an order issued by a judicial officer (not a clerk) upon a factual showing of need, (b) Once it has been seized must be diven a hearing and a chance to get the property back very quickly Problem Set 2 [she skipped the cases entirely and focused on the following 2 problems] Problem 2.1: Relation/Relation Back, Perfection 4) Three creditors each got a judgment but Cratchett seized (perfect execution) the property first. i) All 3 creditors have a judgment for 100k. Value is = 150k. b) Who will get the proceeds from the sale? i) Cratchett because they are the only secured creditor, they have priority b/c they perfected their interest through execution by seizing the property. (1) Got the judgment (2) Got & delivered Writ (3) Sheriff executed the Writ at the time sheriff executes Cratchett achieves a lien and perfection simultaneously. (a) Gives notice to the whole world of the creditors interest in the property through the taking of possession. (i) Notice is almost always essential for priority c) Getting a judgment is not enough and will not improve position as a creditor.

i) Must also get the writ and seize the property. d) Whoever becomes secured first, get paid first (first in time, first in right). i) Here there is 50k left over from the sale. (1) The two other creditors receive nothing and the surplus goes back to the debtor b/c the other two creditors have not perfected (a) This means that they have no interest at all in the property. you must have the interest in the property before you can have a right to the proceeds of the sale of the property. (b) Their interest is created when perfection is achieved e) Since property is already in sheriffs possession the other creditors could call the sheriffs office and ask them to levy upon the same property for you as well. i) This does not give you priority over Cratchett, but it gives you right to the surplus [no relation back jdx] (1) In a no-relation back JDX priority date is established (a) on day of execution/perfection/taking of possession. ii) JDX w/ relation back rewards creditors who act first [doesn t protect against a subsequent BFP, secured creditor is considered BFP] (1) Since Blake delivered his writ to the sheriff before Cratchett, then in a relation back JDX Blake would get paid the 100k (a) with Cratchett receiving the 50k surplus (2) Relation back key is the date the writ is delivered to the sheriff (3) NOTE: Here in a relation back, Blake would still have to levy against the property before it is sold to achieve perfection which is still required f) Remember all a judgment does is establish your right to a debt 5) Alternatives when real estate is involved. a) Say chase notices that you own land free and clear from county land record i) Then they can record their judgment lien against the property (1) (normally only with real property, only 3 states allow judgment lien recordation on personal property) b) Effect of judgment lien by recordation i) Prop can t be transferred until the judgment lien is paid off c) Some types of property do not work well with certain types of property 6) Gerdes v. Kennamer: Gerdes is a judgment debtor. Court issues three turnover orders (court orders the debtor to turn over the property instead of having the sheriff seize the property). The property was a Mexican entity. i) s Gerdes argued they did not have the actual documents but court found there was enough evidence to establish that the Gerdes owned interest in the company. (1) The documents they said didn t exist were attached in the appendix to their own court filing (2) The husband claimed he could not force his wife to sign over the stock. (a) But he did not present evidence that he was not in fact in control of his wifes 50% interest in the company. he could have produced the certificates with only his signature. b) Courts will issue turnover orders (the debtor must turn over the property instead of seizure) primarily for intangible assets. i) Here the turnover statute required that the creditor must show that the property could not be attached readily or levied on by ordinary legal process. (1) Here creditor shows that the corporate stock is held in the hands of third parties out of the state. c) here owns 50% interest in the company that owns the valuable tract of land in Mexico i) Intangible assets are normally considered to be in the place of the owner, whether physically there or not d) Impediments here i) Property is owned by an entity that only owns 50% (1) Here the court ordered the to issue stock and then make his wife sign over her interest (a) i.e. had to create the documents necessary to create the papers to allow the entities interest to be used to satisfy the judgment ii) Property owned by entity is in another country (Mexico) iii) What constitutes possession? (1) Some states grabbing the actual shares of stock will establish possession (2) Here its not as big of a deal b/c Texas as a turnover order statute (form of injunction)

(a) Forces to do everything reasonable to turn over the asset 7) Judgments do not last forever Time limitations a) Dormancy occurs when creditor does not take regular steps to enforce the judgment i) Or S.O.L. might run Problem 2.2 Priority/Perfection Problems . What is a levy? 1) K was an executing creditor. The sheriff went into the shoe store and said that he was seizing all of the shoes pursuant to K s judgment for (50k). SBC s lawyer said that he had come up with a plan to pay back all the creditors and asked for K to hold off on the seizure until he had a chance to hear the plan. a) SBC agreed to pay each creditor so much a month in exchange for the creditor s agreement to free collection efforts. i) All creditors went along with the plan instead of executing against the debtor. b) Then SBC granted a security interest in the inventory of the store to Solid State Bank for $200,000 for operating capitol. i) Store then went out of business.The remaining shoes at the store would sell for about $200,000. c) How would the proceeds be divided? i) First check whether the state requires physical seizure or tagging to complete the levy. (1) Whether execution process was done in bad faith or for an unreasonable amount of time (a) could continue the collection process and win but if not then the secured creditor can perfect execution in time and win ii) Creditors should have gotten a security interest at the meeting and checked the financing records; (1) alternatively they could have asked more questions about how the business would be in the future and they could have refused to go forward. (2) Client gets to sign a voluntary security interest in the inventory which you can then file with the secretary of state. (a) This allows you to maintain your priority interest, while allowing the debtor the opportunity to satisfy the debt. iii) Here the Bank perfects its secured interest when it records their interest [by filing with secretary of state]. (1) They have priority over a creditor w/out a perfected interest in the property (a) First in time of perfection (2) Here Bank Perfected on 12/5 (a) Big question is when was levy for judgment lien holder perfected 2) Credit Bureau of Broken Bow v. Moninger Before the bank got its security interest in the property, a sheriff for a different creditor (County of Custer) went to the property, grabbed a hold of the pickup and stated, I execute on the pickup for the County of Custer. a) Credit Bureau of Broken Bow starts as an unsecured voluntary creditor i) Bank becomes a secured creditor when the bank the modified his note for money borrowed with them. (1) Question is did the sheriffs act of placing his hands on the truck and making a statement = a levy?? (a) This matters b/c the bank perfected through filing after the sheriffs actions b) The bank did not record their lien (to become secure) before the sheriff for the unsecured creditor executed its judgment lien on the property. i) An unsecured creditor must first get a judgment and then execute or levy on that judgment in order to get an interest in a piece of property belonging to the judgment debtor. (1) The levy perfects the judgment lien on that property. (2) Thus, as between two judgment creditors, the first to levy will win as to the property levied upon. c) Court here is determing what is an effective levy i) Rule: it not necessary to take physical possession to be considered a levy. (1) A manual interference with chattels is not essential to a valid levy. ii) Rule: It is sufficient if the property is present and subject for the time to the control of the officer holding the writ, and that he in express terms asserts his dominion over it by virtue of such writ. 3) The preceeding section was all about how a judgment creditor gets $ from unsecured debtor 1) Collection and Enforcement of Claims Garnishment

Definitions (1) Garnishee: third party that holds the property of the debtor (typically a bank) (2) Garnishor: people who the obligation is owed to (usually the same as the judgment creditor) (3) Judgment Debtor: person that owes the money to the judgment creditor (4) Garnishor (creditor) collects the money owed to them by the judgment debtor from the 3rd party garnishee, who holds property for the debtor (a) NOTE: this is an action against the 3rd party and NOT the debtor themselves ii) Procedure (1) After getting a judgment court order, then must get a writ of garnishment (2) Writ of garnishment second proceeding after the main lawsuit that determines liability (3) Garnishment is made up of two parts (a) summons (a set of questions) that goes out to determine whether or not there is property being held by a third party (garnishee); make sure they are actually holding something the judgment creditor can get (b) a command to the garnishee to withhold payment or return of the debtor s property pending further order of the court. (i) if the garnishee answers the questions falsely or disobeys the command to withhold payment or delivery, it may be liable to the judgment creditor. b) Typical Garnishment hypo: Brad asks Jennifer for a loan. Brad is going to have an upcoming movie and he promises to pay Jennifer back. Jenn and Angie decide to have a pie eating contest and the loser will have to pay 300 dollars. Angie gets mad that Jenn doesn t eat any and demands the money which Jen says she is not going to pay. Angie files suit against Jen who is out of the country. There is a default judgment entered against Jen and there is a 300 dollar judgment plus costs against her. 1. Garnishee: Brad Pitt 2. Judgment Creditor/Garnishor: Angie 3. Judgment Debtor: Jennifer a. is there any way that he could resist paying her i. to not pay he would have to have a security interest in the money. ii. if he refuses to pay he may end up being liable for more money than Jen was. 4. Why collect this way? a. Easier to collect from Brad and know that he will have a lot of money soon. i. First send a summons to Brad to see if he owns any property of Jennifer. ii. Brad could resist payment b/c he hasn t gotten paid for the movie yet? 5. How will Angelina know that Jennifer may have assets with third parties? a. Discovery, Interrogatories to get information, web sites that have the information 1) Webb v. Erickson:[when can someone get out of a garnishment writ default] excusable neglect a) Webb obtained a default judgment against Erickson. Erickson was a real estate agent and sold a house to Bates. i) Webb garnished Erickson s wages through Bates but when Bates got the papers to garnish Erickson s wages he was going through emotional and physical problems. b) Court held that they would set aside the judgment against Bates because he did not understand the process, he had just got out of the hospital, he was a third party. (1) NOTE: Sometimes a garnishee who defaults on the writ of garnishment, can then be held liable for the total amount owed by the judgment debtor to the creditor rather than just what the garnishee owes the judgment debtor [the case here took place in Arizona which did have this rule in their statute] (a) A bank or a large corporation would not normally be able to avail themselves to this defense of excusable neglect c) Temporal Net i) From the time the writ of garnishment is served up until the time the answer is filed in court all the money deposited into the account will be put in the temporal net so that creditors can later get them (advise client to get rid of direct deposit). d) Exception:

i)

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security interest will take priority over a garnishment order (if he owes the bank money for some sort of loan then it will take priority over the garnishment order) (1) may advise client to close an account and not deposit any funds and open a new one with a bank where they do not owe any money will temporarily give them relief.

2) Restrictions on Wage Garnishment a) Restrictions in place so that people are not being discouraged from working. b) Commonwealth Edison v. Dennison: [problem here is that one employee already had a support garnishment in place that Caterpillar was honoring, & the s want the company to cover what can t be collected from the Employee due to federal restrictions] i) Caterpillar s employees owed to judgments and the judgment creditors attempted to garnish wages from Caterpillar. (1) Caterpillar refused to pay the entire amount of money because there are restrictions placed on the amount that can be collected by garnishing wages. ii) States can limit the amount of the employee s wages that can be garnished. (1) If 25% or more of an individual s disposable earnings were withheld pursuant to a garnishment for support, and the support garnishment has priority in accordance with State law, (2) The Consumer Credit Protection Act does not permit the withholding of any additional amounts pursuant to an ordinary garnishment which is subject to the restrictions of section 1637. iii) States can set up priorities for garnishing wages (1) for example support orders may come first before a judgment creditor iv) Do support orders count towards the cap? (1) Yes, ultimately if the support order takes up the maximum allowed to be collected then judgment creditor is shit out of luck with their garnishment c) HYPO: i) D works for PA Pride Foods. (1) D owes 10k from an unsecured loan to friendly bank (2) Creditor gets judgment against debtor (3) D makes $800/wk, which goes into the bank via direct deposit ii) Can C get money from .(roughly how much can they get) (1) Employer (a) Shit, b/c PA law exempts wages while in the hands of the employer (i) Here we use the PA law b/c it is more protective (2) Bank (a) Here, we use the Federal Law b/c PA is silent (b) Bank can get 25% of disposable earnings 3) Creative Garnishment a) Network Solutions v. Umbro: i) Umbro gets a judgment against a Canadian company for using its name as a domain. (1) So Umbro then goes after the domain registrat NSI. Umbro sued originally for trademark infringement. (a) They get their name back ii) Umbro named NSI in a garnishment summons as the garnishee and sought to garnish domain names that the judgment debtor had registered with NSI. (1) There must be some sort of property that can be garnished, not just a service. (a) Here Umbro argued unsuccessfully that iii) Domain names were found to be intangible asset because they are considered to be a service. This was a contract right for services, not for property. (1) Courts are split on this. 4) Consumer Credit Protection Act: gives restrictions on wage garnishment.

a) 1672. Definitions For the purposes of this title [15 USCS 1671 et seq.]: (a) The term "earnings" means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program. (b) The term "disposable earnings" means that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld. (c) The term "garnishment" means any legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of any debt. b) 15 USCS 1673 i) 1673. Restriction on garnishment (a) Maximum allowable garnishment. Except as provided in subsection (b) and in section 305, the maximum part of the aggregate disposable earnings of an individual for any workweek which is subject to garnishment may not exceed (1) 25 per centum of his disposable earnings for that week, or (2) the amount by which his disposable earnings for that week exceed thirty times the Federal minimum hourly wage prescribed by section 6(a)(1) of the Fair Labor Standards Act of 1938 in effect at the time the earnings are payable, whichever is less. In the case of earnings for any pay period other than a week, the Secretary of Labor shall by regulation prescribe a multiple of the Federal minimum hourly wage equivalent in effect to that set forth in paragraph (2). (b) Exceptions. (1) The restrictions of subsection (a) do not apply in the case of-(A) any order for the support (child support, alimony) of any person issued by a court of competent jurisdiction or in accordance with an administrative procedure, which is established by State law, which affords substantial due process, and which is subject to judicial review. (B) any order of any court of the United States having jurisdiction over cases under chapter 13 (payment plan may elect to have a voluntary garnishment) of title 11 of the United States Code a. (C) any debt due for any State or Federal tax. (2) The maximum part of the aggregate disposable earnings of an individual for any workweek which is subject to garnishment to enforce any order for the support of any person shall not exceed-(A) where such individual is supporting his spouse or dependent child (other than a spouse or child with respect to whose support such order is used), 50 per centum of such individual's disposable earnings for that week; and (B) where such individual is not supporting such a spouse or dependent child described in clause (A), 60 per centum of such individual's disposable earnings for that week; except that, with respect to the disposable earnings of any individual for any workweek, the 50 per centum specified in clause (A) shall be deemed to be 55 per centum and the 60 per centum specified in clause (B) shall be deemed to be 65 per centum, if and to the extent that such earnings are subject to garnishment to enforce a support order with respect to a period which is prior to the twelve-week period which ends with the beginning of such workweek. (c) Execution or enforcement of garnishment order or process prohibited. No court of the United States or any State, and no State (or officer or agency thereof), may make, execute, or enforce any order or process in violation of this section c) 15 USCS 1674

i)

1674. Restriction on discharge from employment by reason of garnishment (a) Termination of employment. No employer may discharge any employee by reason of the fact that his earnings have been subject to garnishment for any one indebtedness. (1) -For more than one garnishment, the employer can terminate employment. (a) No motivation to work; the employer has to keep track of so many garnishments and calculations and must stay in compliance with the federal law too much liability) (b) Penalties. Whoever willfully violates subsection (a) of this section shall be fined not more than $ 1,000, or imprisoned not more than one year, or both.

(b) D) Exemptions differ by state (2) In bankruptcy law there are federal and state exemptions (in PA have the choice b/t federal or state exemptions but some states do not provide this option; no homestead exemption in PA) (3) Homestead Exemption: no homestead in PA unless holding as tenancy in entirety then I don t know what. (4) Exempt property cannot be garnished but can be seized by a lien holder/secured creditor (5) PA: can have exemptions in clothing, bibles, school books, sewing machines, uniforms, retirement accounts, pensions, annuities, social security benefits, workers compensation 1) Problem 3.1: A: On Feb. 1 First Finance Co. obtained a $3,000 judgment against Wayne Smettle and delivered a writ of garnishment to the sheriff for service on Amos State Bank, where Wayne had his checking account. On that date the account was overdrawn by $10. On Feb. 5, Wayne deposited $5,000 in the account. On Feb 7 Second Finance Co. obtained a judgment against Wayne for $3,500 and delivered a writ of garnishment to the sheriff, also for service on ASB. As it happened, the sheriff served both writs on the bank at the same time on February 9. You are ASB's junior counsel, a new attorney from out of state. When ASB calls for advice and explains the facts, what is your preliminary analysis under the general principles discussed so far. (a) -Wayne is the judgment debtor (b) -Amos bank is the garnishee (c) -First Financial is the garnishor & Second Finance Co. is as well. (d) -After the 10 dollars is set off - the money owed to the bank by the debtor for the overdraft (bank can collect their money before the other creditors), $4,990 is left. The first financer gets the $3000 because they were first in time getting the judgment and the second financer will get the rest of the amount. ii) Rule: Generally, first in time is the first to serve the writ of garnishment, however, if they are both served at the same time, then revert back to the first to get the judgment will prevail. b) B: As so frequently happens, before you can develop an answer for your client, additional facts emerge. It seems that Wayne didn t know about the garnishment and wrote a $500 check to the telephone company the day of the service of the writs, February 9. The bank paid the check by mistake on February 10. Still ignorant of the garnishment, Wayne deposited $200 in the account on February 11. The bank answers the garnishment writ on February 15, five days before the answer was due under local rules. The day after the bank's answer was filed, February 16, Wayne's employer made an automatic electronic deposit to the account of Wayne's weekly wages, $300. What does your list of issues look like now as you head for the library. i) What does the temporal net cover? Does not cut short just because someone filed early. (1) Rule: The temporal net will go when the bank gets the order up until the local rules say the answer is due (not when the actual answer is filed). (2) The bank will be liable for the $500 because they wrongly wrote the check and they must give the $200 that was deposited by Wayne. (3) The $300 direct deposit will go to the second finance company (warn clients to beware of what they are putting in their accounts). c) 3.2. On Oct 15, Judgment Collections, Inc. delivered to the marshal a garnishment writ addressed to N. N answered the writ on Nov 4, saying he had in his possession office equipment belong to B, the judgment debtor. N stated that he has leased the equipment from B on October 1 for one year and attached a copy of the lease. Doyle is a neighbor of both B and N.

i)

Doyle says the equipment was just being kept for B by N, as a favor. Doyle also says she was present when the lease was executed on October 20, although it was dated October 1. (1) By what process will the matter be resolved? Depending on Doyle s credibility, who is entitled to the office equipment? (a) First determine the actual fact using a fact finder typically will be a judge not a jury in bankruptcy cases (b) If a valid lease is found, judge will probably order turnover and the lease payments will go to Judgment Collections, Inc. in the mean time. If the judge believes Doyle then will order N to turnover.

2) Problem 3.3: NCP employs a sales staff of 18 to 22 people to market their new homes. (only problem assigned) a) The employees are salaried, and work with individual homebuyers to help them purchase the homes. i) They work with the homebuyer's family budgets, mortgage and tax rates, etc. ii) Valdez is the supervisor and monitors his employees closely for image factors that might reflect on NCP. b) He fires employees who are not productive enough in sales or whose appearance or sales tactics are not approved by the company. i) Valdez consults you on a new matter. (1) He has just received a notification of a garnishment of the wages of one of the sales employees. (a) Valdez would like to fire the employee, what are the possible consequences? (i) Per 15USCA 1674 No employer may discharge any employee by reason of the fact that his earnings have been subjected to garnishment for any one indebtedness 1. (but then they could fire for 2 garnishments???) (b) Are there any risks besides an employee suit. (i) Fine of no more than $1000 & imprisonment of 1year or less 3) 15 U.S.C. 1674 (a) Termination of employment. No employer may discharge any employee by reason of the fact that his earnings have been subject to garnishment for any one indebtedness. (b) Penalties. Whoever willfully violates subsection (a) of this section shall be fined not more than $ 1,000, or imprisoned not more than one year, or both. 4) Hypos from Class A. Under what circumstances can wages be garnished in PA a. only specific instances (i) judgment for child or spousal, (ii) final divorce, (iii) student loans from PHEA, (iv) certain types of taxes. 5) B. What might someone do if some other creditor is threatening to garnish wages a. claim under fair creditor act C. What if they say they are going to garnish a bank a. have the bank take your money out b/c the creditor is not restricted to the same limitations as they are i) with wages, with banks. Can you be arrested a. not really, unless it is child or spousal support. 6) Uniform Fraudulent Transfers Act Two different types (1) Intentional Fraudulent Transfer (2) Constructive Fraudulent Transfer occurs when giving away for less than equivalent value; is in solvent or becomes insolvent b/c of the transfer ii) The plaintiff will be either the trustee or the creditor. i)

(1) Bankruptcy - Trustee will get the value of the property and transfer to creditors (in bankruptcy). (2) Non-bankruptcy - creditors iii) Badges of Fraud: Intent to defraud is often difficult to prove so the courts have come up with badges of fraud 7) Twyne s Case (See Section 4(b)) a) Guy owes money to a lot of people. So he pays Twyne in full via secret conveyance of all his property. But he kept some chattels and the sheep which he branded and sheered himself. b) Here the real problem is the secrecy of the trx. Also looks like it wasn t a transfer as he marked the sheep and kept control of them. c) Problems i) Made in secret ii) Transferred all of his property iii) Remained in possession of the goods so it looks like it wasn t a transfer at all. d) The rule here is designed to allow creditors to reach other property they normally could not get at to satisfy the debt e) Look for i) Secretly transferring assets ii) Conveyance made while a suit is against the person iii) Close relationship b/t the parties to the transaction iv) Inadequacy of consideration v) Transferor s knowledge of creditor s claim and his inability to pay it. f) Note: Fradulant transfer Law is State Law that is intertwined into the Bankruptcy Code 1) For a Fraudulent Transfer Claim a) Creditor must have a claim does not have to be secured or unsecured, liquidated, unliquidated (if event has not occurred yet sale is coming through and the creditor will have a claim for the money). b) Debtor made transfer with respect to an asset (make sure the asset is not exempt) c) Creditor must demonstrate it was fraudulent (look to section 4) i) **Can be other badges of fraud not in this statute 2) SECTION 4. TRANSFERS FRAUDULENT AS TO PRESENT AND FUTURE CREDITORS. a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: i) with actual intent to hinder, delay, or defraud any creditor of the debtor; or ii) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: constructive fraud (1) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (2) intended to incur, or believed or reasonably should have believed that he [or she] would incur, debts beyond his [or her] ability to pay as they became due. b) In determining actual intent under subsection (a)(1), consideration may be given, among other factors, to whether: i) the transfer or obligation was to an insider; ii) the debtor retained possession or control of the property transferred after the transfer; iii) the transfer or obligation was disclosed or concealed; iv) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; v) the transfer was of substantially all the debtor s assets; vi) the debtor absconded; vii) the debtor removed or concealed assets; viii) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

ix) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; x) the transfer occurred shortly before or shortly after a substantial debt was incurred; and xi) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. 3) SECTION 5. TRANSFERS FRAUDULENT AS TO PRESENT CREDITORS. a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. b) A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent. 4) Case Example: ACLI v. Rhoades: judgment against Rhoades issued. Rhoades transferred his interest in the property he co-owned with his sister to her before the judgment could be collected. a) Rhoades claimed he was repaying his sister for treasury bonds that she leant to him. He conveyed property to her for only a dollar. i) Rhoades had only small assets not worth much left after conveying the property. (1) Court found this was fraudulent. (a) Here, Daniel and Norma were siblings who had practiced law together, the conveyance was secret, there was little consideration, and Daniel knew he could not pay the judgment. (i) Will be heightened scrutiny when there is an insider (partner in law firm and sister) b) Creditor had to prove that i) the transfer was made without any or nominal consideration ii) Must appear that the debtor is insolvent (usually burden on the P brining the action) iii) Must show fraudulent intent (here there were multiple badges of fraud) 5) SECTION 2. INSOLVENCY. (add up debtor s debts along with assets; if the assets outweigh the debts then they are not insolvent) a) A debtor is insolvent if the sum of the debtor s debts is greater than all of the debtor s assets, at a fair valuation. 6) SECTION 8. DEFENSES, LIABILITY, AND PROTECTION OF TRANSFEREE. a) A transfer or obligation is not voidable under Section 4(a)(1) against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee. b) Except as otherwise provided in this section, to the extent a transfer is voidable in an action by a creditor under Section 7(a)(1), the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection (c), or the amount necessary to satisfy the creditor s claim, whichever is less. The judgment may be entered against: i) the first transferee of the asset or the person for whose benefit the transfer was made; or ii) any subsequent transferee other than a good-faith transferee or obligee who took for value or from any subsequent transferee or obligee. c) If the judgment under subsection (b) is based upon the value of the asset transferred, the judgment must be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require. d) Notwithstanding voidability of a transfer or an obligation under this [Act], a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to i) a lien on or a right to retain any interest in the asset transferred; ii) enforcement of any obligation incurred; or iii) a reduction in the amount of the liability on the judgment. e) A transfer is not voidable under Section 4(a)(2) or Section 5 if the transfer results from:

f)

termination of a lease upon default by the debtor when the termination is pursuant to the lease and applicable law; or ii) enforcement of a security interest in compliance with Article 9 of the Uniform Commercial Code. A transfer is not voidable under Section 5(b): i) to the extent the insider gave new value to or for the benefit of the debtor after the transfer was made unless the new value was secured by a valid lien; ii) if made in the ordinary course of business or financial affairs of the debtor and the insider; or iii) if made pursuant to a good-faith effort to rehabilitate the debtor and the transfer secured present value given for that purpose as well as an antecedent debt of the debtor.

i)

Problem 4.1 1) AL is insolvent. She owes $50,000 to Family Finance. In order to raise money so she can make her rent payments and eat, she sells her grand piano. Although the piano is valued at $40,000, she runs a want ad asking $20,000. When offered $15,000, Adrienne accepts. Can Family Finance successfully claim a fraudulent conveyance. See UFTA 4, 5, 8. i) Red Flag In this Problem (1) Selling for less than FMV ii) Here since we have a good faith transferee we would place a lien on the piano in favor of the the person who paid $15k for the piano from AL. Then after returning the property to family finance they would get paid back their $15k out of the sale price that Family Finance is able to achieve at a sale. b) SECTION 5. TRANSFERS FRAUDULENT AS TO PRESENT CREDITORS. i) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor (1) whose claim arose before the transfer was made or (2) the obligation was incurred if the debtor made the transfer or (3) incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation (4) and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. ii) -Why Section 5 should be used instead of section 4: (a) -Go to section 5 rather than 4 because it is easier for a present creditor to prove fraudulence b/c there is no intent requirement (unless there are numerous badges of fraud) 1. -Purchaser is the one that is going to be sued (not the debtor); (b) -Would have to prove good faith under Section 8 of the UFTA but under section 5 the debtor cannot use the defense of good faith Section 8 only applies to 4(a)(1). 1. -Purchaser must show that he took in good faith (8(a)) Problem 4.2 2) BH is insolvent, and she feels the tightening web of creditors. She decides to sell her coin collection to her cousin, Susan. Although the collection would bring $75,000 if she sold it to a dealer Bonney sells it to Susan for $5,000 so that it will stay in the family. Bonney also knows that Susan has no real interest in the collection and will undoubtedly be willing to sell it back when Bonney's financial troubles are over. The day after her conveyance to Susan, Bonney uses her American Express card to purchase $25,000 in new furnishing. Can American Express successfully claim a fraudulent conveyance. See UFTA 4, 5. a) Here American Express is a future creditor i) This means that constructive fraud is out as an option for their recovery ii) American Express s Arguments (1) Quasi-Constructive 1st show no reasonably equivalent value; 2nd either prong (i) or (ii) must apply (a) 4(a)(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation & (i) 4(a)(2)(ii) intended to incur, or believed or reasonably should have believed that he would incur, debt beyond their ability to pay as they became due 1. Here, you would argue that the $25k spent on furniture was not an impulse buy. So you would say that she intended to purchase the furniture the next day.

a. But this is hard to prove iii) Better Argument (1) 4(a)(1) w/ actual intent to hinder, delay or defraud any creditor of the debtor (2) Then include the badges of fraud present b) Section 4 (have to use this section b/c it is not a present creditor) i) with actual intent to hinder, delay, or defraud any creditor of the debtor; or ii) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (1) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (2) intended to incur, or believed or reasonably should have believed that he [or she] would incur, debts beyond his [or her] ability to pay as they became due. c) -timing will weigh against the debtor, it is to an insider so fraudulence won t be hard to prove. i) -Analyze factors under 4(b): insolvent, sold to an insider, etc. Problem 4.3 3) Jeremiah Stoke owns a homestead free and clear worth $200,000. His other assets total $55,000; his debts, all unsecured, total $75,000. He knows that under state exemption law his homestead is safe from his creditors. He has made a mess of his own affairs, but his favorite son has just married, and Jeremiah would like to do just one thing right. So he conveys the homestead to his son as a gift and settles down to await the battles with his creditors over his debts. Can Jeremiah's current creditors reach the homestead conveyed to the son? UFTA 1, 2, 5 a) -No because the homestead in this jurisdiction is exempt so no asset was really transferred. i) Sect.1 (2) Asset & Sect.1(12) Transfer transfer includes Gift so we are good there; Est. the transfer 1st (1) Asset Sec.1(2)(ii) property to the extent it Is generally exempt under nonbankruptcy law b) -If property that is sold is exempt property (cannot be taken and sold by creditor or trustee), then there can be no claim under the Uniform Fraudulent Transfers Act. Problem 4.4: 4) S.R. Wilson is insolvent. His chief creditor is Lo-Cost Credit Union, to which he owes $100,000. Wilson sells his mobile home, valued at approximately $160,000, to his neighbor Sam for $80,000 cash. Sam moves into the home, cleans it up, spends $10,000 for repairs, and enhances the value of the mobile home by 20 percent. Lo-Cost successfully claims that the conveyance was fraudulent. What can Lo-Cost recover for Sam? UFTA 8. i) -8(b) Except as otherwise provided in this section, to the extent a transfer is voidable in an action by a creditor under Section 7(a)(1), the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection (c), or the amount necessary to satisfy the creditor s claim, whichever is less. The judgment may be entered against: (1) the first transferee of the asset or the person for whose benefit the transfer was made; or (2) any subsequent transferee other than a good-faith transferee or obligee who took for value or from any subsequent transferee or obligee. ii) --If it goes to sheriff s sale then Sam will get the $80,000 - or Lo-Cost or Wilson will have to repay the 80,000 - Sam has an equitable lien on the improvements and he may be able to retain the increased value of the house or he could argue an equitable lien. 5) Process a) Creditor against transferee b) Know badges of Fraud c) Know Constructive Fraud d) Know Good Faith Exemption allowing transferee to be reimbursed. Barney s Problem Part 1 First issue is the potential conflict of interest o Barney has already come to see you [remember we started w/ Barney the first day]  If we represent barney in his potential bankruptcy this leads to problems

If we represent the bank our duty is to maximize their interest BUT our duty to Barney would be to protect his assets through bankruptcy as best as possible o Would likely require informed consent by both the Bank and Barney y Banks Position As to other creditors [remember to separate b/t Whipsnade & Whipsnade Inc.] o Likely that ASB will get the ranch b/c Deed of Trust allows for non-judicial foreclosure. y Identify Other Issues that need to be researched o Does Whipsnade live on the ranch (homestead exemption)? [won t matter for foreclosure] o Make sure the deed of trust to the ranch is recorded. o Need to see all the individual security agreements so you can see how default is defined  [is their a prescribed right to cure or notice requirements that need to be satisfied]  Default could include anything that could negatively affect the value of the collateral or negatively impact the debtors ability to repay you (the judgment liens already acquired by 3rd Parties Accomplishes this)  y Identify other information that you need to get from the bank *All 3 Underlined Claims of Bank have had final judgment obtained for them Whipsnade s Assets Whipsnade Debts/Judg. Whip inc. Assets Whip Inc. Judg/Debts 100k in loans secured by a 50k in open accounts to deed of trust on his ranch local merchants that have been pledged to ABS -4 other debt actions 100k Loan from ABS. secured by lien on all its against him. assets and guaranteed by Whipsnade personally -2 for 10k each before ABS note that the guaranty is unsecured -1 for 10k after ABS y -1 for 12.5k, that the lawyer has obtained a prejudgment garnishment against Whipsnade s personal account at ABS -50k debt to our boy Barney secured by a lien against the front loaders (not reflected on the certificate of title)

1) Read Cases, Intro to bankruptcy, Problem Set 5 2) Bankruptcy a) Court System i) Bankruptcy Court ii) Bankruptcy Appellate Court (Pa does not have these) (1) BAPs bankruptcy appellate panels

(a) an appeal to a BAP sidesteps the d/c that otherwise would have heard it. However, panel jurisdiction is consensual, b/c any party can insist that the appeal be heard by the d/c. (2) BAPS have been adopted in the 1,6,8,9,10 Circs. iii) District Court decision is only binding upon your case and that issue; not binding on all other bankruptcy courts in that district (1) In states where you don t have BAP you would go to district court; in some state you can have direct appeal and go directly to the 3rd Cir. iv) Third Circuit binding case law on all bankruptcy courts in the 3rd Circuit b) Chapters i) Chapters 1,3,5 are federal provisions that are applicable in all proceedings in bankruptcy unless explicitly made inapplicable in a specific context. (1) General chapters that are applicable in all types of bankruptcy cases (a) Chapter 1 General Provisions (i) 101 Definitions (ii) 109 Who can be a debtor 1. Chp 13 is available only to certain individuals whose debts are within stated limits (109(e)) 2. Individuals must attend credit conseling before filing for bankruptcy (109(h)) 3. Some entities are not eligible for Bankruptcy Code protection at all a. Deposit taking banks i. Bank holding companies however may file b. Insurance Companies (b) Chapter 3 case Administration (i) How a case is commenced (ii) Who can serve as a trustee (c) Chapter 5 Creditors, Debtors and the Estate (i) What property goes into bankruptcy estate 1. The common pool available to pay creditors (ii) What property is exempt (iii) How claims against the debtor are determined 1. The code speaks of claims and not debts (iv) What debts are dischargeable ii) Chapter 7: pure liquidation bankruptcy (business or consumers can file for this kind of bankruptcy); Trustee is appointed and will sell non-exempt assets for creditors (1) Most common type. (2) Debtor gives up all non-exempt assets to satisfy debts (3) Future earnings are not part of the estate (4) After completion individual is discharged (5) Corporation must dissolve at completion of chp. 7 no matter what (6) Procedure (a) All cases commenced by filing a petition w/ bankruptcy court (b) 301 Voluntary Petition (i) Overwhelming majority of cases are voluntary (ii) Order for relief = individuals are now in bankruptcy established with filing the petition (c) 302 Joint Petition (i) Filed by a husband and wife who are filing jointly (d) 303 Involuntary Petition (i) Used primarily in biz cases (e) To see form of petition see (i) http://www.Uscourts.gov/uscourts/rulesandpolicies/rules/BK_Forms_Current/B_001.pdf iii) Upon Filing (1) An estate is created 541 (2) The automatic stay goes into effect (a) 362

(3) A trustee is appointed (a) (in all chp. 7 & 13) (b) (in chp. 11 debtor in possession has duties of trustee) (c) Trustee is a local lawyer who is appointed from a panel of trustee lawyers (d) 704 Trustees duties (i) Collect & Sell the estate property (ii) Investigate the debtor s financial affairs (iii) Examine claims and object to any that appear improper 1. Has avoiding powers a. 544 strong arm power i. To set aside unperfected claims b. 547 power to avoid preferential transfers c. 548 power to avoid fraudulent transfers (iv) How does the trustee get paid for all of this? 1. 326 Paid a percentage of what is distributed from estate a. This is an administrative expense (v) Also runs the Creditors Meeting 1. Statutory Authority 341 a. Debtor meets the trustee who explains i. The consequences of filing for bankruptcy ii. The effect of receiving a discharge iii. b. . (4) Liquidation stage (a) What happens to property once it goes into the estate (i) Trustee may use, sell or lease the property 1. 363 (ii) Debtor can claim it as exempt 1. 522 2. Does this on schedule C to petition 3. Trustee can abandon property of inconsequential value and benefit to the estate a. 554 4. Happens in 2 contexts a. Property like family photos b. Or property that is completely encumbered by a security interest i. i.e. a car is worth 25k but debtor owes 30k on the car ii. so trustee will abandon the car to the debtor so the secured creditor can foreclose on the vehicle (5) Distribution of proceeds (a) How does trustee know to whom to distribute property (i) 501 Creditors file proofs of claim 1. See http://www.Uscourts.gov/uscourts/rulesandpolicies/rules/BK_Forms_Current/B_010.pdf (ii) Not all claims are allowed 1. 502 grounds for disallowance (iii) Order of distribution 1. 725 Property subject to liens is distributed to lienholders 2. General Order 726 3. Priority of Claims 507 a. Administrative fees pay the trustee b. Family Law claims coming in second 4. General Unsecured claims are paid after all priority claims are paid (6) Discharge

(a) This concept gives the individual debtor her fresh start (i) 727 Not all debtors are discharged (ii) 523 Not all claims are discharged 1. Tax, Student Loans, Family Law (iii) Effect of a discharge 524 1. No one can try to collect a prepetion claim from the debtor (iv) 525 Debtors are protected iv) Means Test (1) A case involving an individual may be dismissed or converted to a Chp. 11 & 13 case is under 707(b). (a) Definition The court finds that the debtor has sufficient income to pay a portion of her debts v) Chapter 9: municipalities (1) Only voluntary vi) Chapter 11: Reorganization for large business or consumers individuals with large debts and large income (1) Primarily used by biz entities (2) Keep assets but promise to pay out of future earnings vii) Chapter 13: payment plan (1) 2nd most popular (2) Individual reorganization individual must have regular income and must have non-contingent liquidated unsecured debt . (3) Keep assets but promise to pay out of future earnings (4) Only voluntary viii) Chapter 12: reorganization for farmers (1) Very similar to 13 c) Advantages over State Law i) Creditors (1) No longer have to locate property to execute on (2) They get the benefit of the common pool of assets (3) Equitable treatment of creditors (a) In bankrupty law classes of creditors share in the pool of debtor s assets pro-rata ii) Debtors (1) Forces all claims against them by unsecured creditors into one single action (2) Only bankruptcy law can force creditors to take less than what is owed by the debtors (a) They have to lice with what they are paid out of the proceedings with regards to the satisfaction of their debts d) Sterns v. marshall has thrown the jdx of bankruptcy courts into doubt due to a shortsighted opinion by the supreme court e) Structure of the code

3) Consumer Versus Business Bankruptcy. a) Consumer Bankruptcy when the person filing for bankruptcy incurred debt primarily for a person, family, or household purpose b) Business Bankruptcy when a person filing for bankruptcy incurred debt primarily through his or her business expenses. 4) Chapter 7 Bankruptcy i) Chapter 7 players (1) Debtor/Debtor in possession (term of art) (2) Counsel for the debtor or pro se debtor (most pro se cases get dismissed early on) (3) Trustee collecting and liquidating non-exempt property, investigate financial affairs of debtor, furnish information to creditors, makes a final report to the court and to the U.S. Trustee (whether there are any non-exempt assets, whether a no-asset case occurs when a debtor has no property that is nonexempt, nothing for the trustee to sell and disperse to creditors; majority of Ch 7 are no assets)

(a) attorney that practices and specializes in bankruptcy (b) The code permits creditors to elect a trustee, in the overwhelming majority of cases, the interim trustee appointed by the court at the outset of the case and is selected from an available panel of private trustees in the district in which the case is filed, and serves as the trustee for the duration of the case. (4) U.S. Trustee: arm of the Department of Justice and look over the whole bankruptcy process (a) look over the debtor s affairs and make sure trustee is acting according to his duties, they can appear at hearings, file complaints (5) Parties in interest anyone that is affected by the bankruptcy (creditors, co-signers, someone that received assets prior to bankruptcy being filed) (6) bankruptcy court judge, (7) bankruptcy clerk s office, (8) court administrator appointed to each bankruptcy case. ii) Bankruptcy Code Amendment 2005 to prevent debtor fraud and bankruptcy abuse b) Debtor s counsel must sign that they have made a reasonable investigation and sanctions are authorized under the amendment if the investigation was not performed. i) Process (1) Must have your client obtain credit counseling before filing the petition for bankruptcy (a) The briefing may be obtained any time during the 180 day period preceding the date of filing of the petition. (b) If the client has exigent circumstances they can petition the court for a waiver (c) 109(h)(3)(i) exigent circumstances

5) Types Of Property a) Schedule A: any real estate owned list the address, how it s owned (jointly, entireties, sole ownership), fair market value, any secured claims against the real estate i) Make a reasonably inquiry into the clients real estate. b) Schedule B: Personal property; list of questions to ask debtor i) example: Material misrepresentation: over or understating income c) Schedule C: Property Claimed as Exempt: 11 U.S.C. 522 i) Can choose whether to use federal or state exemptions d) Schedule D: Creditors Holding Secured Claims i) Can surrender the property or (1) can decide to keep it and continue the payments (so long as you are not behind on a secured obligation if you are behind, it won t help to stop them from foreclosure, you would want to file a Chapter 13) e) Schedule E: Creditors Holding Unsecured Priority Claims i) Look to 11 U.S.C. 507 to find priority claims (1) taxes, support, administrative expense (debtor s counsel); ii) administrative priority is paid before any other claims, then secured claims, then priority claims, then unsecured claims may share pro rata in whatever is left. f) Schedule F: Creditors Holding Unsecured NonPriority Claims i) students loans (these are non-dischargeable and are not affected by a bankruptcy) ii) Unsecured claims refers to a claim in a bankruptcy case for which there is no available collateral. A claim may be unsecured either b/c the creditor does not have a lien on any of the debtor s assets, OR because the value of the assets that serve as the collateral for the claim will be exhausted before they can be used to satisfy the claim in question. (1) student loans (2) medical accounts (3) collections (4) credit cards iii) e certain unsecured creditors are not going to be effected by bankruptcy (1) Education loans

(a) it is a not dischargeable debt g) Schedule G: Executory Contracts and Unexpired Leases (whether the debtor is a lessee or a lessor and to whom) i) landlords, cars, etc. ii) put reject if you want to get out of h) Schedule H: list co-signors i) Schedule I: Current income of individual debtor(s) i) wages, trusts, social security, etc. j) Schedule J: Expenses of the individual at the time of filing i) -Subtract the expenses from the income 6) Statement of Financial Affairs a) tax return information (must be provided to any creditors that request it) i) Payments made to creditors in the last 90 days ii) Other transfers must be listed (looking for fraudulent transfers) (1) PA look at the last four years and whether there was consideration 7) Statement of Intention a) redeem the property i) refers to a debtor s right to recover collateral that secures a debt by paying the creditor a lump sum in satisfaction of all or part of the unsecured debt. ii) reaffirming the debt (1) debtors enter into reaffirmation agreements so that they can keep the collateral that secures the underlying debt. Although bankruptcy discharges secured debts, it does not usually impair creditors security interest in property supplied as collateral for these debts. Thus, even though the debt is discharged the creditor may repossess the collateral. If the debtor wishes to keep the property he must usually enter into a reaffirmation agreement. iii) Reaffirmation agreements usually call for the debtor to make regular monthly installments payments, over a period of time, in full satisfaction of the debt owed to the creditor, even if the collateral is worth less than the amount owed. (1) Class shit: Reaffirming a debt do not usually recommend this b/c you take personal liability (if you ever stop making payments you agree that the discharge doesn t affect that debt) (a) Creditors will persuade debtors to sign these agreements by threatening to not report on your credit that you have been making payments surrender collateral back to the creditor. 8) Disclosure of Compensation of how much attorney is getting in fees (11 U.S.C. 329 and BR 2016(B). If attorney fails to disclose this the U.S. Attorney can order disgorgement and propose sanctions; disbarring 9) Means Test Calculation calculation created when the code was revised in 2005 a) Looks at income, expenses, 6 months prior to filing and add in standard deductions that may or may not apply to the facts of your case. Means test is supposed to calculate whether debtor has disposable income and can tell whether a Chapter 7 or Chapter 13 should be filed. b) Will come up with an annualized monthly income i) General Timing and Filing a Chapter 7 Bankruptcy ii) Time frames for filing Chapter 7 Section 727 If they have had a prior filing in the last 8 years they will not be eligible for a filing again. iii) Look at transfers that have occurred in the last 4 years in PA (1) Cash advances from credit cards presumption that it is non-dischargeable 1. Usually intent required not automatically presumed to be non-dischargeable (2) Luxury goods 1. within 90 days of filing if they cost more than 500$ there is a presumption that the debt should be non dischargeable. 2. Intent say there isn t a presumption you still have to prove that there was no intention for this bankruptcy iv) Credit Counseling v) Filing a Petition

vi) Fifteen days after petition must have the schedules filed vii) 2-3 weeks after bankruptcy court will send notice to all creditors giving information about hearings, deadlines, and deadlines for filing proof of claim (none will be filed if its non-asset case). If it is a case where the trustee is liquidating assets, then creditor must file a claim and state what type of creditor they are. viii) 341 Meeting of Creditors (2 to 3 months after filing) hearing required in every Chapter 7 and 13 case. The Trustee will examine the debtor, go over the petition, ask the debtor if everything is listed and accurate. Creditor could file a complaint or motion to dismiss case if any falsities. 1. -Creditors have 60 days to object to the discharge 2. No other hearings unless a complaint is filed, undoing a fraudulent transfer, etc. ix) If no objections, discharge order will be filed (some debts are non-dischargeable restitution, criminal fines, school loans) x) Why would you want or not want to file a Chapter 7? (a) a fresh start discharge most of unsecured debts, keep exempt property (b) will be negative on your credit report stays on for 10 years (Chapter13 7 years) (c) Benefits to a creditor: more organized way of liquidating assets; saves them fees and costs b/c they have one unified case (d) Will stop other creditors from collecting 10) Chapter 7 Bankruptcy Estate (541) a) Filing a bankruptcy petition results in the automatic creation of an estate. The debtor s estate acquires ownership of all legal or equitable interests of the debtor in property as of the commencement of the case. b) Virtually everything goes into the estate. It is then divided between the debtor and the creditors. c) exempt property begins as property of the estate, even though it is eventually handed back to the debtor. d) The debtors encumbered property is property of estate, even if it is certain to be abandoned into the hands of a secured creditor. 11) Earnings as Property of the Estate a) Rule 541(a)(6) Excludes earnings from services performed by an individual debtor after the commencement of the case from the debtors bankruptcy estate. b) Case Example: Sharp v. Dery i) Debtor filed a Chapter 7 petition on Dec. 21, 1998, thus creating a bankruptcy estate on that day. On Feb. 22 1999, Debtor s employer gave debtor bonus check based on a percentage of Debtor s salary. (1) The bonus plan under which Debtor received his bonus gave the employer complete discretion over whether to issue bonuses at all, when and to whom, but no discretion as to the amount of the bonus because it was based on a salary percentage. (a) To receive the bonus, Debtor had to be employed in good standing January 1 through December 31 of the bonus year. (2) When Debtor received his bonus in Feb, the Trustee of the bankruptcy estate claimed it was part of Debtor s pre-petition property b/c (D) was expecting the bonus as of the petition date. The trial court ordered Debtor to turn over the bonus funds to the Trustee to hold in escrow pending Debtor s appeal. ii) One of the considerations is going to be whether the debtor has any control over the property. The debtor may or may not eventually get the bonus. (1) Therefore, it was not an asset that the trustee could ask the debtor to hand over for the distribution to creditors. iii) Court held that a bonus was not property of the estate and the trustee could not liquidate the check. (1) The more likely the debtor has rights to the asset pre-petition, the more likely it will be included in the bankruptcy estate. iv) In this case, debtor here had to be employed in good standing (satisfactorily performing) and employer had discretion to issue the bonus or not. (1) Michigan law holds that employees forfeit bonus rights if they fail to fulfill a contractually mandated condition of bonus receipt. As of Dec. 21, Debtor still had to fulfill conditions of the bonus plan. It was a well established principle if Debtor s continued services were required, the bonus funds fall outside of the estate.

(2) Trustee s argument for pre- and post-petition apportionment fails b/c Debtor never had any legal or equitable interest in the property until post-petition. As Debtor had no interest in the property Trustee had no interest. c) (ii) Restriction Retirement Plans i) In re Orkin: debtor is the sole proprietor, employer, employee of his company and set up an individual retirement plan. The court looked to see if the plan fell under ERISA b/c then it would be excluded from the estate but under ERISA when they are functioning as the employer they cannot be included in ERISA; therefore it wasn t ERISA. Therefore, it was property of the estate. (1) Issue - Are employee retirement benefits under ERISA qualified pension plans excluded from a debtor s bankruptcy (2) Rule (3) Rule: 541(a) look to see if it falls within the state of bankruptcy - Employee retirement benefits under ERISA-qualified pension plans are excluded from a debtor s bankruptcy estate. Generally speaking if it is a retirement plan and he has no control over it then it won t be included in the estate the trustee won t be able to touch it b/c it won t be brought into the estate. (a) If it s not property of the state, he will not have to use any of the exemptions to exclude it. (i) Lottery Ticket bought before filing for bankruptcy the trustee would be able to get that money (4) KEY HERE: If beneficiary has control then the account is part of the estate (a) Even if retirement account is not ERISA qualified it may still be found to be exempt property later on the process d) Licenses: i) In re Burgess: (1) debtor operated a brothel then filed chapter 11 bankruptcy. The sheriff held a hearing b/c debtor had an association with the Hell s Angels. At the hearing, the debtor s brothel license was revoked. The court decided that the brothel was property of the estate. (a) Court looked at other cases to determine whether the license was property of the estate and compared it to liquor licenses, race track licenses, etc. (i) Not property compared it to attorney s license to practice law which was not property (b) Licenses issued by state agencies are property for bankruptcy purposes. (i) The license at issue in this case has enormous value to the estate; without it, there would be no business left to reorganize. (c) The congressional goal of encouraging reorganizations is met by a broad definition of property (d) Court will look at whether the debtor has control over it. 12) 541. Property of the estate (what is included in the estate) a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held: i) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case. ii) All interests of the debtor and the debtor s spouse in community property as of the commencement of the case that is (1) under the sole, equal, or joint management and control of the debtor; or (2) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor s spouse, to the extent that such interest is so liable. iii) Any interest in property that the trustee recovers under section 329 (b), 363 (n), 543, 550, 553, or 723 of this title. iv) Any interest in property preserved for the benefit of or ordered transferred to the estate under section 510 (c) or 551 of this title. v) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date (1) by bequest, devise, or inheritance;

(2) as a result of a property settlement agreement with the debtor s spouse, or of an interlocutory or final divorce decree; or (3) as a beneficiary of a life insurance policy or of a death benefit plan. vi) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case. (wages). vii) Any interest in property that the estate acquires after the commencement of the case. b) Property of the estate does not include i) any power that the debtor may exercise solely for the benefit of an entity other than the debtor; (1) -ex. trust fund ii) any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease before the commencement of the case under this title, and ceases to include any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease during the case; iii) any eligibility of the debtor to participate in programs authorized under the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.; 42 U.S.C. 2751 et seq.), or any accreditation status or State licensure of the debtor as an educational institution; iv) any interest of the debtor in liquid or gaseous hydrocarbons to the extent that v) (A) (1) the debtor has transferred or has agreed to transfer such interest pursuant to a farmout agreement or any written agreement directly related to a farmout agreement; and (2) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 544 (a)(3) of this title; or vi) (B) (1) the debtor has transferred such interest pursuant to a written conveyance of a production payment to an entity that does not participate in the operation of the property from which such production payment is transferred; and (2) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 542 of this title; (3) funds placed in an education individual or retirement account (as defined in section 530(b)(1) of the Internal Revenue Code of 1986) not later than 365 days before the date of the filing of the petition in a case under this title, but (a) only if the designated beneficiary of such account was a child, stepchild, grandchild, or stepgrandchild of the debtor for the taxable year for which funds were placed in such account; (b) only to the extent that such funds (i) are not pledged or promised to any entity in connection with any extension of credit; and (ii) are not excess contributions (as described in section 4973(e) of the Internal Revenue Code of 1986); and (iii) in the case of funds placed in all such accounts having the same designated beneficiary not earlier than 720 days nor later than 365 days before such date, only so much of such funds as does not exceed $5,000; (c) funds used to purchase a tuition credit or certificate or contributed to an account in accordance with section 529(b)(1)(A) of the Internal Revenue Code of 1986 under a qualified State tuition program (as defined in section 529(b)(1) of such Code) not later than 365 days before the date of the filing of the petition in a case under this title, but (i) only if the designated beneficiary of the amounts paid or contributed to such tuition program was a child, stepchild, grandchild, or stepgrandchild of the debtor for the taxable year for which funds were paid or contributed; (ii) with respect to the aggregate amount paid or contributed to such program having the same designated beneficiary, only so much of such amount as does not exceed the total contributions permitted under section 529(b)(7) of such Code with respect to such beneficiary, as adjusted beginning on the date of the filing of the petition in a case under this title by the annual increase or decrease (rounded to the nearest tenth of 1 percent) in the education expenditure category of the Consumer Price Index prepared by the Department of Labor; and

(iii) in the case of funds paid or contributed to such program having the same designated beneficiary not earlier than 720 days nor later than 365 days before such date, only so much of such funds as does not exceed $5,000; (4) any amount (a) withheld by an employer from the wages of employees for payment as contributions (i) to 1. an employee benefit plan that is subject to title I of the Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 414(d) of the Internal Revenue Code of 1986; 2. a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or 3. a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986; a. except that such amount under this subparagraph shall not constitute disposable income as defined in section 1325 (b)(2); or 4. to a health insurance plan regulated by State law whether or not subject to such title; or (ii) received by an employer from employees for payment as contributions 1. to a. an employee benefit plan that is subject to title I of the Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 414(d) of the Internal Revenue Code of 1986; 2. a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or 3. a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986; a. except that such amount under this subparagraph shall not constitute disposable income, as defined in section 1325 (b)(2); or 4. to a health insurance plan regulated by State law whether or not subject to such title; (5) subject to subchapter III of chapter 5, any interest of the debtor in property where the debtor pledged or sold tangible personal property (other than securities or written or printed evidences of indebtedness or title) as collateral for a loan or advance of money given by a person licensed under law to make such loans or advances, where (a) the tangible personal property is in the possession of the pledgee or transferee; (b) the debtor has no obligation to repay the money, redeem the collateral, or buy back the property at a stipulated price; and (c) neither the debtor nor the trustee have exercised any right to redeem provided under the contract or State law, in a timely manner as provided under State law and section 108 (b); or (6) any interest in cash or cash equivalents that constitute proceeds of a sale by the debtor of a money order that is made (a) on or after the date that is 14 days prior to the date on which the petition is filed; and (b) under an agreement with a money order issuer that prohibits the commingling of such proceeds with property of the debtor (notwithstanding that, contrary to the agreement, the proceeds may have been commingled with property of the debtor), (c) unless the money order issuer had not taken action, prior to the filing of the petition, to require compliance with the prohibition. (d) Paragraph (4) shall not be construed to exclude from the estate any consideration the debtor retains, receives, or is entitled to receive for transferring an interest in liquid or gaseous hydrocarbons pursuant to a farmout agreement. vii) (c) (1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law (2) that restricts or conditions transfer of such interest by the debtor; or (3) that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under this title, or on the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement, and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor s interest in property.

(4) A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title. viii) (d) (1) Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor s legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold. ix) (e) (1) In determining whether any of the relationships specified in paragraph (5)(A) or (6)(A) of subsection (b) exists, a legally adopted child of an individual (and a child who is a member of an individual s household, if placed with such individual by an authorized placement agency for legal adoption by such individual), or a foster child of an individual (if such child has as the child s principal place of abode the home of the debtor and is a member of the debtor s household) shall be treated as a child of such individual by blood. x) (f) (1) Notwithstanding any other provision of this title, property that is held by a debtor that is a corporation described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from tax under section 501(a) of such Code may be transferred to an entity that is not such a corporation, but only under the same conditions as would apply if the debtor had not filed a case under this title. 13) 5.1: You have just been appointed TIB for the state of Donald Lapman, whose flaky over worldliness has long charmed his friends and has now brought him into Chapter 7 bankruptcy. Donald had some connection with the following property on the day he filed his bankruptcy petition. What of the following would fall under 541 a) His parakeet i) all legal and equitable interests of the debtor at the commencement of the case (1) -this would come in as property b) A 2007 Toyota Camry he bought used, which is still subject to a purchase money security interest in an amount exceeding its value i) Yes, Even if something as no value to the debtor it can still come into the estate b/c he has a legal interest in the property (but it won t be sold b/c no value) c) Candid snapshots of hundreds of friends, some of them quite intimate i) No value but will come into the estate (1) yes but in the end the TIB will abandon this property b/c they will have no value d) Two tickets to an upcoming U2 concert i) Yes, generally personal property will come in the estate (then look to exemptions) the debtor still has a legal interest in them even though the concert is in the future. e) Household furniture, including dishes, pans, chairs, a couch and the like; i) -exempted from the estate but they still come in, even if they are given back to the debtor f) 25 shares of Monumental, Inc. left to him my his Uncle Rufus i) Yes, shares of biz entity are property. g) An undivided 3/48ths interest in a producing oil well, also left by Rufus i) Yes, it qualifies as a legal interest in the property at the commencement of the state ii) Need to ascertain how is he holding his interest in his oil well? (1) P/ship? LLC? Stock? Tenancy in common? h) 3,214 bubble gum baseball cards, some dating back to 1948; i) -yes i) An arrangement with his younger brother: When Donald left home for college years ago, he lent his brother his catcher's mitt, with the understanding Donald could get it back whenever he wanted it; i) No, there is no equitable interest in the property (but would need more facts look at state law to see if there is a property interest (adverse possession, sol)) (1) If there is a legal interest then it would come in (look at the property laws of the state)

j)

k)

l)

m)

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A bank account on which Donald is the named trustee for the benefit of his little niece Sherry, in the amount of $2,750 i) look at underlying trust information to determine but usually a trustee will not have access to use the funds however he wants, there will be restrictions. (1) It sounds like nieces asset, not his but still should list it on petition as holding someone else s asset. (a) 541(b)(1) His salary for the month prior to the petition, which he received just hours after filing; i) -had an interest in the money before and had an entitlement to it so it would become part of the estate 541(a)(1) His retirement account, which he cannot touch until he retires. i) See case law [prolly not part of the estate] depends on if it qualifies as an ERISA account and if it is compliant w/ IRC (1) 541(c)(2) spendthrift trust provision; under state law creditors can t get to a spendthrift trust b/c the beneficiary of the trust also cannot get it A month after the petition was filed, the parakeet unexpectedly laid two eggs, which have since become two little parakeets. i) yes under 541(a)(1) & (6) offspring are also property of the estate (1) any property acquired after Petition Date see if you can trace the after acquired property whose value comes from pre-petition property Seven months later, Donald received from Monumental an annual dividend in the amount of $225. i) -541(a)(7) - any interest in property that the estate acquires after the commencement of the case. (1) -if the property acquires interest during the estate, that is also part of the estate. (2) *** Morningiello says 541(a)(6) is more applicable Proceeds MAKE SURE TO ASK In addition, in the two months since the petition was filed Donald continued working and was paid his salary; his employer also made a contribution to his retirement fund. i) Post-Petition = Salary No (1) 541(a)(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case ii) Contribution to donald s retirement funds look to 541(b)(7)(A)(i)

14) 5.3 On March 1 a local farmer, Frances Alleta, contracted to sell her winter wheat crop of 10,000 bushels to a local grain warehouse for the market price prevailing on May 1. Unable to make it financially, Frances filed a bankruptcy petition April 1. The immature wheat had no market value at that moment. On March 1 the market price for wheat was $10 a bushel, but a severe drought in Argentina raised world prices so that it was worth $15 a bushel on April 1 and $20 on May 1, when Frances harvested it. When the buyer pays the $200,000, who gets what? i) -Look at what she had to use to continue growing the crop, that would come off of the proceeds 541(a)(6) (1) -the easier an asset is to liquidate, the more the trustee will go after it ii) Whatever the trustee pays Frances it will be an administrative fee (1) Likely will be paid to Frances, as he is the best to Harvest (2) Will not get anywhere near the 200k paid at Market for the Wheat 15) 5.4 Your client is Bartholomew. He is broke and owes more than $100,000 to various creditors. His only income is $1,000 per month from a $250,000 trust that his mother established for him. He can get only the income from the trust until she dies, at which time he will get the corpus of the trust. The trust instrument says that his rights to the income and corpus are not assignable. His mother is quite ill. The doctors say she may last six months, but almost certainly not a year. What do you advise? a) -advise client that this could become property of the bankruptcy estate and he should delay filing. He would maybe be able to avoid bankruptcy if he waits for the money. b) -want to advise your client that this could become property of the bankruptcy estate. If the mother died 181 days then it wouldn t be an asset. If he gets the proceeds within 180 days then it becomes an asset. Under 541(a)(5)

16) 5.6 Yes the TIB can make a claim for the license of the liquor store. Given the high demand, low supply and low creation of new licenses levels; it is a very valuable asset. a) She wants the license b/c it is valuable property, but the state law says that the license is non-transferable i) But the brothel license was non-transferable (1) Similar to the brothel, a liquor store can t operate without its license and that would go against the purpose of bankruptcy to allow for an effective re-organization of the business ii) Law License of no value to a third person iii) PSL for steelers Property for the estate (1)

17) Automatic Stay i) *pre-petition debt collection efforts will be stayed not necessarily post-petition debts at the filing of the petition ii) 11 USC 362 Different prohibitions but not necessarily just property of the estate (1) The automatic stay protects three different things: (a) Property of the estate (b) Debtor (a)(1) (c) Debtor s property (d) Actions against 3rd parties is not stayed a personal guarantor on a debtor s does not receive the protection of the code and the creditor can then go against the guarantor\ (e) This section preserves the status quo while the debtor figures out its bizness (i) This protects the common pool, from which the general unsecured creditors will eventually be paid (f) Does not affect the substantive legal rights of the unsecured creditors iii) Also provides remedies for those who violate iv) 11 USC 105 gives the court some equitable powers, that allow them to stay actions against the 3rd parties when they would impede the reorganization v) Length of Stay = 362(c)(1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate 18) Andrews university v. Merchant a) Withholding her transcript was a collection effort that violated the stay b) School said they could do it b/c the loans would be found non-dischargeable i) Court says it doesn t matter, you gotta follow the rules or you pay the price. c) Take Away i) Even if the debt will eventually be found non-dischargeable, the creditor must still respect the rules of the automatic stay d) Creditors can petition for relief from the automatic stay under 362(d) i) Can be done for cause lack of adequate protection (1) Court can request or require that the debtor make additional payments to the creditor to protect their value, as things like cars depreciate substantially over time ii) If the property is meaningless to the estate 19) 362. Automatic stay (GET NOTES FROM KATIE DOCUMENT) a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of i) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; ii) -against the debtor (ex. suit against the debtor would have to stop)

(1) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title; iii) -debtor or the property of the estate (1) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; iv) generally property is included in the estate but some is not and this section will stop creditors from collecting on that property (1) any act to create, perfect, or enforce any lien against property of the estate; v) -property of the estate (1) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; vi) -property of the debtor (1) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title; vii) -the debtor (1) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and viii) -the debtor (1) the commencement or continuation of a proceeding before the United States Tax Court concerning a corporate debtor s tax liability for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title. ix) -the debtor (1) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay (a) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor; (2) under subsection (a) (a) of the commencement or continuation of a civil action or proceeding (i) for the establishment of paternity; (ii) for the establishment or modification of an order for domestic support obligations; (iii) concerning child custody or visitation; (iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or (v) regarding domestic violence; (vi) of the collection of a domestic support obligation from property that is not property of the estate; (vii) with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute; (viii) of the withholding, suspension, or restriction of a driver s license, a professional or occupational license, or a recreational license, under State law, as specified in section 466(a)(16) of the Social Security Act; (ix) of the reporting of overdue support owed by a parent to any consumer reporting agency as specified in section 466(a)(7) of the Social Security Act; (x) of the interception of a tax refund, as specified in sections 464 and 466(a)(3) of the Social Security Act or under an analogous State law; or (xi) of the enforcement of a medical obligation, as specified under title IV of the Social Security Act; 1. under subsection (a) of this section, of any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee s rights and powers are subject to such perfection under section 546 (b) of this title or to the extent that such act is accomplished within the period provided under section 547 (e)(2)(A) of this title;

2. under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the commencement or continuation of an action or proceeding by a governmental unit or any organization exercising authority under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, opened for signature on January 13, 1993, to enforce such governmental unit s or organization s police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit s or organization s police or regulatory power; x) [(5) Repealed. Pub. L. 105 277, div. I, title VI, 603(1), Oct. 21, 1998, 112 Stat. 2681 866;] i. under subsection (a) of this section, of the exercise by a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency of any contractual right (as defined in section 555 or 556) under any security agreement or arrangement or other credit enhancement forming a part of or related to any commodity contract, forward contract or securities contract, or of any contractual right (as defined in section 555 or 556) to offset or net out any termination value, payment amount, or other transfer obligation arising under or in connection with 1 or more such contracts, including any master agreement for such contracts; ii. under subsection (a) of this section, of the exercise by a repo participant or financial participant of any contractual right (as defined in section 559) under any security agreement or arrangement or other credit enhancement forming a part of or related to any repurchase agreement, or of any contractual right (as defined in section 559) to offset or net out any termination value, payment amount, or other transfer obligation arising under or in connection with 1 or more such agreements, including any master agreement for such agreements; iii. under subsection (a) of this section, of the commencement of any action by the Secretary of Housing and Urban Development to foreclose a mortgage or deed of trust in any case in which the mortgage or deed of trust held by the Secretary is insured or was formerly insured under the National Housing Act and covers property, or combinations of property, consisting of five or more living units; iv. under subsection (a), of (b) an audit by a governmental unit to determine tax liability; (c) the issuance to the debtor by a governmental unit of a notice of tax deficiency; (d) a demand for tax returns; or (e) the making of an assessment for any tax and issuance of a notice and demand for payment of such an assessment (but any tax lien that would otherwise attach to property of the estate by reason of such an assessment shall not take effect unless such tax is a debt of the debtor that will not be discharged in the case and such property or its proceeds are transferred out of the estate to, or otherwise revested in, the debtor). i. under subsection (a) of this section, of any act by a lessor to the debtor under a lease of nonresidential real property that has terminated by the expiration of the stated term of the lease before the commencement of or during a case under this title to obtain possession of such property; ii. under subsection (a) of this section, of the presentment of a negotiable instrument and the giving of notice of and protesting dishonor of such an instrument; iii. under subsection (a) of this section, after the date which is 90 days after the filing of such petition, of the commencement or continuation, and conclusion to the entry of final judgment, of an action which involves a debtor subject to reorganization pursuant to chapter 11 of this title and which was brought by the Secretary of Transportation under section 31325 of title 46 (including distribution of any proceeds of sale) to foreclose a preferred ship or fleet mortgage, or a security interest in or relating to a vessel or vessel under construction, held by the Secretary

of Transportation under chapter 537 of title 46 or section 109 (h) of title 49, or under applicable State law; iv. under subsection (a) of this section, after the date which is 90 days after the filing of such petition, of the commencement or continuation, and conclusion to the entry of final judgment, of an action which involves a debtor subject to reorganization pursuant to chapter 11 of this title and which was brought by the Secretary of Commerce under section 31325 of title 46 (including distribution of any proceeds of sale) to foreclose a preferred ship or fleet mortgage in a vessel or a mortgage, deed of trust, or other security interest in a fishing facility held by the Secretary of Commerce under chapter 537 of title 46; v. under subsection (a) of this section, of any action by an accrediting agency regarding the accreditation status of the debtor as an educational institution; vi. under subsection (a) of this section, of any action by a State licensing body regarding the licensure of the debtor as an educational institution; vii. under subsection (a) of this section, of any action by a guaranty agency, as defined in section 435(j) of the Higher Education Act of 1965 or the Secretary of Education regarding the eligibility of the debtor to participate in programs authorized under such Act; viii. under subsection (a) of this section, of the exercise by a swap participant or financial participant of any contractual right (as defined in section 560) under any security agreement or arrangement or other credit enhancement forming a part of or related to any swap agreement, or of any contractual right (as defined in section 560) to offset or net out any termination value, payment amount, or other transfer obligation arising under or in connection with 1 or more such agreements, including any master agreement for such agreements; ix. under subsection (a) of the creation or perfection of a statutory lien for an ad valorem property tax, or a special tax or special assessment on real property whether or not ad valorem, imposed by a governmental unit, if such tax or assessment comes due after the date of the filing of the petition; x. under subsection (a), of withholding of income from a debtor s wages and collection of amounts withheld, under the debtor s agreement authorizing that withholding and collection for the benefit of a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, that is sponsored by the employer of the debtor, or an affiliate, successor, or predecessor of such employer 20) to the extent that the amounts withheld and collected are used solely for payments relating to a loan from a plan under section 408(b)(1) of the Employee Retirement Income Security Act of 1974 or is subject to section 72(p) of the Internal Revenue Code of 1986; or 21) a loan from a thrift savings plan permitted under subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title; (a) but nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414 (d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under this title; i. under subsection (a), of any act to enforce any lien against or security interest in real property following entry of the order under subsection (d)(4) as to such real property in any prior case under this title, for a period of 2 years after the date of the entry of such an order, except that the debtor, in a subsequent case under this title, may move for relief from such order based upon changed circumstances or for other good cause shown, after notice and a hearing; ii. under subsection (a), of any act to enforce any lien against or security interest in real property 22) if the debtor is ineligible under section 109 (g) to be a debtor in a case under this title; or

23) if the case under this title was filed in violation of a bankruptcy court order in a prior case under this title prohibiting the debtor from being a debtor in another case under this title; i. subject to subsection (l), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor; ii. subject to subsection (m), under subsection (a)(3), of an eviction action that seeks possession of the residential property in which the debtor resides as a tenant under a lease or rental agreement based on endangerment of such property or the illegal use of controlled substances on such property, but only if the lessor files with the court, and serves upon the debtor, a certification under penalty of perjury that such an eviction action has been filed, or that the debtor, during the 30-day period preceding the date of the filing of the certification, has endangered property or illegally used or allowed to be used a controlled substance on the property; iii. under subsection (a), of any transfer that is not avoidable under section 544 and that is not avoidable under section 549; iv. under subsection (a), of 24) the commencement or continuation of an investigation or action by a securities self regulatory organization to enforce such organization s regulatory power; 25) the enforcement of an order or decision, other than for monetary sanctions, obtained in an action by such securities self regulatory organization to enforce such organization s regulatory power; or 26) any act taken by such securities self regulatory organization to delist, delete, or refuse to permit quotation of any stock that does not meet applicable regulatory requirements; i. under subsection (a), of the setoff under applicable nonbankruptcy law of an income tax refund, by a governmental unit, with respect to a taxable period that ended before the date of the order for relief against an income tax liability for a taxable period that also ended before the date of the order for relief, except that in any case in which the setoff of an income tax refund is not permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality of a tax liability, the governmental unit may hold the refund pending the resolution of the action, unless the court, on the motion of the trustee and after notice and a hearing, grants the taxing authority adequate protection (within the meaning of section 361) for the secured claim of such authority in the setoff under section 506 (a); ii. under subsection (a) of this section, of the exercise by a master netting agreement participant of any contractual right (as defined in section 555, 556, 559, or 560) under any security agreement or arrangement or other credit enhancement forming a part of or related to any master netting agreement, or of any contractual right (as defined in section 555, 556, 559, or 560) to offset or net out any termination value, payment amount, or other transfer obligation arising under or in connection with 1 or more such master netting agreements to the extent that such participant is eligible to exercise such rights under paragraph (6), (7), or (17) for each individual contract covered by the master netting agreement in issue; and iii. under subsection (a), of the exclusion by the Secretary of Health and Human Services of the debtor from participation in the medicare program or any other Federal health care program (as defined in section 1128B(f) of the Social Security Act pursuant to title XI or XVIII of such Act). ii) The provisions of paragraphs (12) and (13) of this subsection shall apply with respect to any such petition filed on or before December 31, 1989. 27) (c) Except as provided in subsections (d), (e), (f), and (h) of this section

28) 29) 30)

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32)

33)

(1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate; (2) the stay of any other act under subsection (a) of this section continues until the earliest of the time the case is closed; the time the case is dismissed; or if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied; (1) if a single or joint case is filed by or against debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707 (b) ???? may not grant an automatic stay if you are a serial filer the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case; on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed; and 1. -can extend the automatic stay but there will be a hearing to determine the exception. for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary) a) as to all creditors, if i) more than 1 previous case under any of chapters 7, 11, and 13 in which the individual was a debtor was pending within the preceding 1-year period; i. (II) a previous case under any of chapters 7, 11, and 13 in which the individual was a debtor was dismissed within such 1-year period, after the debtor failed to ii. (aa) file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be a substantial excuse unless the dismissal was caused by the negligence of the debtor s attorney); iii. (bb) provide adequate protection as ordered by the court; or iv. (cc) perform the terms of a plan confirmed by the court; or (b) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under chapter 7, 11, or 13 or any other reason to conclude that the later case will be concluded i. (aa) if a case under chapter 7, with a discharge; or ii. (bb) if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; and (ii) as to any creditor that commenced an action under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of such case, that action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to actions of such creditor; and ii) (4) iii) (A) (i) if a single or joint case is filed by or against a debtor who is an individual under this title, and if 2 or more single or joint cases of the debtor were pending within the previous year but were dismissed, other than a case refiled under section 707 (b), the stay under subsection (a) shall not go into effect upon the filing of the later case; and 1. -two cases of dismissal within the prior year no automatic stay. (ii) on request of a party in interest, the court shall promptly enter an order confirming that no stay is in effect; a. if, within 30 days after the filing of the later case, a party in interest requests the court may order the stay to take effect in the case as to any or all creditors (subject to such

conditions or limitations as the court may impose), after notice and a hearing, only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed; b. a stay imposed under subparagraph (B) shall be effective on the date of the entry of the order allowing the stay to go into effect; and c. for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary) 2. as to all creditors if iv) 2 or more previous cases under this title in which the individual was a debtor were pending within the 1year period; (a) (II) a previous case under this title in which the individual was a debtor was dismissed within the time period stated in this paragraph after the debtor failed to file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be substantial excuse unless the dismissal was caused by the negligence of the debtor s attorney), failed to provide adequate protection as ordered by the court, or failed to perform the terms of a plan confirmed by the court; or (b) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under this title, or any other reason to conclude that the later case will not be concluded, if a case under chapter 7, with a discharge, and if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; or 1. as to any creditor that commenced an action under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of such case, such action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to such action of such creditor. (c) (Rules for Relief from Stay) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay i. for cause, including the lack of adequate protection of an interest in property of such party in interest; (example: no insurance) (katie s notes - sometimes automatic stay will be lifted if the debtor is adequately insured with his house or car) ii. with respect to a stay of an act against property under subsection (a) of this section, if (ii) the debtor does not have an equity in such property; and (iii) such property is not necessary to an effective reorganization; (d) -if a creditor files a motion for relief in order to collect on the debt the automatic stay will stop the creditor from doing this but the stay can be lifted if the creditor can show that the property is not necessary for the debtor or was not properly issued, or not adequately protected. (2) with respect to a stay of an act against single asset real estate under subsection (a), by a creditor whose claim is secured by an interest in such real estate, unless, not later than the date that is 90 days after the entry of the order for relief (or such later date as the court may determine for cause by order entered within that 90-day period) or 30 days after the court determines that the debtor is subject to this paragraph, whichever is later 34) the debtor has filed a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time; or 35) the debtor has commenced monthly payments that (i) may, in the debtor s sole discretion, notwithstanding section 363 (c)(2), be made from rents or other income generated before, on, or after the date of the commencement of the case by or from the property to each creditor whose claim is secured by such real estate (other than a claim secured by a judgment lien or by an unmatured statutory lien); and (ii) are in an amount equal to interest at the then applicable nondefault contract rate of interest on the value of the creditor s interest in the real estate; or

(2) with respect to a stay of an act against real property under subsection (a), by a creditor whose claim is secured by an interest in such real property, if the court finds that the filing of the petition was part of a scheme to delay, hinder, and defraud creditors that involved either 36) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured creditor or court approval; or 37) multiple bankruptcy filings affecting such real property. (a) If recorded in compliance with applicable State laws governing notices of interests or liens in real property, an order entered under paragraph (4) shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such order by the court, except that a debtor in a subsequent case under this title may move for relief from such order based upon changed circumstances or for good cause shown, after notice and a hearing. Any Federal, State, or local governmental unit that accepts notices of interests or liens in real property shall accept any certified copy of an order described in this subsection for indexing and recording. 38) (e) (1) Thirty days after a request under subsection (d) of this section for relief from the stay of any act against property of the estate under subsection (a) of this section, such stay is terminated with respect to the party in interest making such request, unless the court, after notice and a hearing, orders such stay continued in effect pending the conclusion of, or as a result of, a final hearing and determination under subsection (d) of this section. A hearing under this subsection may be a preliminary hearing, or may be consolidated with the final hearing under subsection (d) of this section. The court shall order such stay continued in effect pending the conclusion of the final hearing under subsection (d) of this section if there is a reasonable likelihood that the party opposing relief from such stay will prevail at the conclusion of such final hearing. If the hearing under this subsection is a preliminary hearing, then such final hearing shall be concluded not later than thirty days after the conclusion of such preliminary hearing, unless the 30-day period is extended with the consent of the parties in interest or for a specific time which the court finds is required by compelling circumstances. (a) -motions for relief by a creditor are generally heard within 30 days (2) Notwithstanding paragraph (1), in a case under chapter 7, 11, or 13 in which the debtor is an individual, the stay under subsection (a) shall terminate on the date that is 60 days after a request is made by a party in interest under subsection (d), unless (a) (i)the automatic stay will lift within 60 days of the filing of petition 39) a final decision is rendered by the court during the 60-day period beginning on the date of the request; or 40) such 60-day period is extended (i) by agreement of all parties in interest; or (ii) by the court for such specific period of time as the court finds is required for good cause, as described in findings made by the court. 1. -can extend the automatic stay but there will be a hearing to determine the exception. 41) (f) Upon request of a party in interest, the court, with or without a hearing, shall grant such relief from the stay provided under subsection (a) of this section as is necessary to prevent irreparable damage to the interest of an entity in property, if such interest will suffer such damage before there is an opportunity for notice and a hearing under subsection (d) or (e) of this section. 42) (g) In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section (1) the party requesting such relief has the burden of proof on the issue of the debtor s equity in property; and (2) the party opposing such relief has the burden of proof on all other issues. 43) (h) (terminte the stay with respect to this property if the debtor does not file the statement of intention required by 521(a)(2) or take action required by (a)(6). (1) In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim, or

subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521 (a)(2) (a) -521(a)(2)The debtor shall: (2) if an individual debtor's schedule of assets and liabilities includes debts which are secured by property of the estate-b) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property; (a) -521(a)(6) in a case under chapter 7 of this title in which the debtor is an individual, not retain possession of personal property as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property unless the debtor, not later than 45 days after the first meeting of creditors under section 341(a), either-c) enters into an agreement with the creditor pursuant to section 524(c) with respect to the claim secured by such property; or 44) redeems such property from the security interest pursuant to section 722. a. 521(a)(6) presumably it 45 days (instead of 30 days) 2. (i)failure to redeem will automatically lift the stay with a creditor with a loud claim. 3. (i)doesn t state whether the motion extends while the hearing is pending (b) 521(a)(6) failure to redeem will automatically lift the stay but says that if a creditor has something 1. -Just because you file a motion to redeem, does not mean that it will continue that deadline might want to ask for an expedited hearing or a continuation of the automatic stay. a. to file timely any statement of intention required under section 521 (a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an agreement of the kind specified in section 524 (c) applicable to the debt secured by such personal property, or assume such unexpired lease pursuant to section 365 (p) if the trustee does not do so, as applicable; and b. to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies the debtor s intention to reaffirm such debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms. (2) Paragraph (1) does not apply if the court determines, on the motion of the trustee filed before the expiration of the applicable time set by section 521 (a)(2), after notice and a hearing, that such personal property is of consequential value or benefit to the estate, and orders appropriate adequate protection of the creditor s interest, and orders the debtor to deliver any collateral in the debtor s possession to the trustee. If the court does not so determine, the stay provided by subsection (a) shall terminate upon the conclusion of the hearing on the motion. (i) If a case commenced under chapter 7, 11, or 13 is dismissed due to the creation of a debt repayment plan, for purposes of subsection (c)(3), any subsequent case commenced by the debtor under any such chapter shall not be presumed to be filed not in good faith. 45) (j) On request of a party in interest, the court shall issue an order under subsection (c) confirming that the automatic stay has been terminated. i) -Wilful violation after they have notice of the Automatic Stay 46) (k)

(1) Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys fees, and, in appropriate circumstances, may recover punitive damages. (2) If such violation is based on an action taken by an entity in the good faith belief that subsection (h) applies to the debtor, the recovery under paragraph (1) of this subsection against such entity shall be limited to actual damages. ii) Nissan Motor Acceptance Corp. v. Baker: debtors filed for chapter 7 bankruptcy and listed a truck as an asset which they had arrears to Nissan. They wanted to keep the vehicle and reaffirm the debt on the truck. Nissan repossessed the truck, not knowing of the bankruptcy, and after notice, retained the truck. After having notice of the bankruptcy for six weeks, they filed a motion for relief and while the motion was pending, the debtors sold the truck. a. The Court found that there was a willful violation of the Automatic Stay and actual and punitive damages were awarded. b. Rule: Retaining possession, exercising control over property of the estate, in itself is a violation of the Automatic Stay. When Nissan retained the vehicle after having notice was their first violation. c. Court will look at iii) how egregious the behavior is iv) Willful (1) 3rd circuit says that willful does not need specific intent to violate the Stay but damages will be awarded if they knew of the automatic stay and if the actions of the person that violated the stay s acts were intentional

(a) No automatic stay for a co-debtor (co-signer) that hasn t filed for bankruptcy in a Chapter 7 (different for Chapter 13) (b) Automatic Stay is replaced by a Discharge Injunction (i) Stays creditors from trying to collect on debts that have been discharged. (524). (ii) File order for contempt in bankruptcy court if the creditor violates the discharge injunction. (iii) Can often get actual and punitive damages if creditor violates the stay (c) Liens generally are not affected by a bankruptcy (ex. Mortgage) but personal liability of the debtor will be lifted. (d) Deficiency judgment more is owed on something than what it is worth (e) -The creditor could go after the property (car) after repossession but there has to be a deficiency judgment. 1. -unless the debtor reaffirms the debt (so that there is no discharge of the in persona aspect of the debt). 47) Andrews University v. Merchant: Merchant got a loan from a bank and from the university. After graduating, Merchant defaulted on both the loans. Merchant then filed for a Chapter 7 bankruptcy. Merchant requested a copy of her transcript after filing and the University refused. Merchant claimed this was a violation of the Automatic Stay. a. Rule: Non-dischargeable debt does not mean that the creditor is not bound by the same rules of the Automatic Stay as other creditors. Therefore, the university would be in violation of the Automatic Stay.

1) Problem 6.1 a) Joe Weiner has come to see you about getting some help with his staggering debt burden. Joe makes about $34,000 per year as a meat cutter, but he hurt his arm last year and was out of work for nearly eight months.

His current wages are reduced by $100 per week because they have been garnished in an action by a finance company. ii) Joe owes about $68,000 in unsecured debt, including gasoline credit cards, medical bills, credit union loans, finances company loans, past due alimony and child support, store credit cards, and overdue utility bills. (1) He also owes $4,500 on his car loan and another $750 to an auto repair garage. Joe adds that he has been receiving dunning letters and phone calls, (a) his doctor's collection agency has threatened legal action if he doesn't come up with some money by tomorrow, (b) the utility company has sent a notice that service will be discontinued at mid-night, (c) and both the car lender and the garage have threatened repossession. iii) To try to hold things together, Joe takes each paycheck and makes small payments to each creditor. (1) When the car lender threatened to repossess his car, Joe wrote him a check for the balance due even though he had only 44.12 in the bank. (2) He has just received a summons from the district attorney to appear in court tomorrow morning on a bad check charge. (3) Joe is late on his rent again, and his landlord has threatened to evict him if he doesn't pay his past -due rent by Friday. (4) His credit counselor has run out of suggestions. b) Joe's assets consist of i) his car, clothing, kitchen utensils, and a few small pieces of furniture. ii) He will get paid tomorrow morning for the two week pay period that ended yesterday. iii) He has filled out all the necessary paperwork and produced the required documentation. iv) You have satisfied yourself that he is qualified for a Chapter 7, which he has asked you to file later today. Joe wants to know if he will get his full paycheck, undiminished by the garnishment, tomorrow and every two weeks thereafter. See 362(a), (b)(2), (b)(22), (b)(23), 366. 2) Answers a) The Automatic Stay will stop the garnishment of wages. 362(a)(1), (a)(2), (a)(3) the catchall b) Joe s paycheck: If Joe gets paid then he files, then it will become property for the trustee to give to unsecured creditors unless he is able to exempt it then maybe he can keep a portion of it. i) Any paychecks he gets after he would be able to keep. ii) 362(a)(6) catchall (1) Any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title (2) This works against phone calls and letters as well iii) 362(a)(2) keeps the garnishment in effect (1) The enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case c) The Automatic Stay will stop the eviction. i) Against the debtor & (b)(22) (1) the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained a judgment before the date of the filing of the bankruptcy petition. d) -The Automatic Stay will not stop the landlord for eviction if the eviction judgment is gotten BEFORE the filing of bankruptcy i) -B(23) If the tenant is doing drugs on the property, there will be no Stay. e) 362(b)(1) Automatic Stay does not stop a criminal action. i) (the bad check can be criminal); ii) if it is a civil action, then the automatic stay does stop collection. iii) Some courts will use 105 to stay any kind of fine from the bouncing of the check (1) Some will use 362 (2) Other courts use different approach (a) E.D. of NC creditor reported bad check after the petition was filed so the court tossed it out

i)

362(b)(2)(B) Automatic Stay does not stop domestic support (a garnishment for support) i) UNLESS the domestic support is property of the estate (1) Cannot initiate an action for past domestic support after the filing of bankruptcy (would be a violation of the Automatic stay) (2) best to file a motion for relief. (Or you can wait until after the discharge of debt b/c child support will not be discharge) g) Non-dischargeable debt wait until the discharge then go after the debtor (criminal restitution, school loans) Automatic stay is still applicable for non-dischargeable debt. h) Utility company cannot discontinue services to the debtor after filing i) -366 can after 20 days if no deposit is given to keep the continued services must pay the deposit within 20 days to keep the continuation of utilities. (1) It is an act to collect, but (2) 11 USC 366. Utility service (a) Except as provided in subsections (b) and (c) of this section, a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due. (b) Such utility may alter, refuse, or discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order for relief, furnishes adequate assurance of payment, in the form of a deposit or other security, for service after such date. On request of a party in interest and after notice and a hearing, the court may order reasonable modification of the amount of the deposit or other security necessary to provide adequate assurance of payment. i) Can they take Joe s Car tomorrow i) No, Under 362(a)(4) any act to create, perfect, or enforce any lien against property of the estate j) Commencement or continuance of government actions in furtherance of police or regulatory powers i) A biz polluting a stream and State EPA has sued the company to enjoin the company from polluting (1) The enforcement action can continue tell them to stop polluting or clean up the stream (a) But the state would likely have their monetary collection efforts stayed. Problem 6.2 3) Puja Seam arrives in your office in tears. She shows you a notice that her house has been posted for sale by foreclosure at noon tomorrow. a) She explains that she has been in the middle of a divorce, and that her ex-husband claimed that he was making mortgage payments when he was not. b) She had called him about earlier notices, but he had said that the notices were mistakes and he would straighten them out. c) For the past month she has been unable to find him, and she fears he has fled the state. She tried calling the mortgage company, but her loan had been sold from one servicer to another and she could never track down the holder of the note. d) Now the sheriff's department says the sale is going forward. You know that if it does, she and her children will lose their home. 4) Real Answer a) She can file the petition. Then she has 45 days to file her pay stubs. She must provide her tax returns w/in 7 days of the first creditors meeting [521 (e)(1)(2)(A)(i)] b) Only Individuals have to get credit counseling 109(h) can be done in 30-45 minutes over the phone c) Listing the car at $250 definitely raises some issues that a lawyer should investigate. Since the code mandates that a filing lawyer reasonably investigate and ascertaining the value of a car through a website like Kelly Blue Book, is easy and free, a prudent attorney would cover his ass. i) 707(b)(4)(C), ii) (D) attorney s sig. represents, that after completing an inquiry the attorney has determined that the petition is well rounded in fact

f)

Problem 6.3 5) Sydney has done her best to pay her bills, but the combination of medical problems and a cutback at work have left her in a deep financial hole. a) On Monday, Advanta Bank seized her car. She was desperate to get it back, so she cashed out the money in her retirement account, and she wrote a check to Advanta to pay off the car loan. b) The company said they would return the car when the check cleared. i) Recognizing that she was in a financial mess, Sydney decided on Tuesday to see a bankruptcy lawyer, who filed a petition that afternoon. c) On Wednesday, Advanta deposited Sydney's check. On Thursday, the check cleared, but Advanta has called you for advise before they return the car. What do you tell them? i) Section 362(a), (h); ii) 521(a)(2) iii) They have to give back the car (1) 362(a)(4) any act to create, perfect, or enforce any lien against property of the estate d) If creditor gets a check from the debtor, then the debtor files for bankruptcy, can the check be cashed after filing for Bankruptcy? i) No, Would be a violation of the automatic stay of the creditor to cash the check they are exercising control over property of the estate. (1) 362(b)(11) an exception to the rule (2) Retirement account: retirement funds are excluded as an asset from property of the estate but once you cash out of the retirement account then it becomes property of the estate. (3) Right of redemption: have to determine if it is property of the estate at the time b was filed so you have to determine whether the person still has a legal interes (a) -can get the car back even though it was repossessed pre-petition if bankruptcy is filed within 15 days (state law PA) (b) -some courts in PA have said that if you file in that 15 days then the bank will have to give the car back. If they don t they would be violating the automatic stay. (i) v) 521(a) if the debtor has stopped making payments (and therefore you are not being protected) then they could request a lift on the automatic stay (4) See if the debtor has followed 521(a) statement of intentions the automatic stay will lift if she doesn t file under 362(h) (a) -debtor must state intention with the secured debt reaffirm, redeem, continue making payments Automatic Stay automatically lifts if no stated intentions.

6) Liquidation Bankruptcy Chapter 7 (i) Before the Amendments a. Debtor could list actual expenses even if very large, allowing someone that makes six figures be able to file for bankruptcy (ii) BAPCPA: After the bankruptcy code was amended a. Expenses are based on IRS Standards Means Test b. 707(b)(3) new section allows Trustee to show abuse by bad faith by looking at the totality of the circumstances. (iii) Findings of Abuse 1. Two ways to determine abuse (iv) 707(b)(2)(A)(i) creates a presumption of abuse based upon a formula. The court shall presume abuse exists . Under the 2005 amendments the judges have their marching orders from Congress: Apply the formula to all Ch 7 filiers, then dismiss or convert the cases that the formula identifies as abusive.

(b) 707(b)(2)(A)(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor s current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv), and multiplied by 60 is not less than the lesser of ii) 25 percent of the debtor s nonpriority unsecured claims in the case, or $6,000, whichever is greater; or 1. (II) $10,000. depends on the debtor (not really sure what this shit is) 2. *See 707 for full rule (b) a. 707(b)(2)(B) Special Circumstances may justify adjustments to the calculations to (c) determine which debtors are presumed to have abused the bankruptcy system. To have any effect (d) on eligibility to file Ch 7, the special circumstances must have an effect on income or expenses (e) that can be quantified and extensively documents. 7) Even if the debtor passed the means test the could still be deemed an abuser under 707(b)(3) b/c the new standard for abuse rather than the earlier substantial abuse courts have concluded that they can import their reasoning from the earlier cases that found abuse and then work from there with a broader standard. The state ground for 707(b)(3) dismissal are bad faith and totality of the circumstances cat-all categories with no clear guidelines. Green Test In re Shaw: Shaw s filed for bankruptcy but had high expenses. The court looked at whether there was abuse in filing for bankruptcy. Court looked at the Green test to determine abuse. The found that the Shaw s were living way above their means and had unnecessary and unreasonable expenses. ii) -Test adopted by 4th Circuit for substantial abuse - requires the court to look at the totality of the circumstances. iii) -Under the Green test, an important factors to be considered: whether the debtor has the ability to repay the debt, including consideration of the relation of the debtor's future income to his future necessary expenses. (This was not actually a factor in the Green test but the court looked at it). Whether the debtor filed his bankruptcy petition because of sudden illness, calamity, disability, or unemployment Whether the debtor's schedules and statement of current income and expenses reasonably and accurately reflect his true financial condition This case, did not appear they were trying to hide anything. Example: working under the table to make extra money and not report it Whether the debtor incurred cash advances and made consumer purchases in excess of his ability to repay Trustee may look at whether the debtor is incurring a debt based on income; if it looks like they are running up credit cards and going on shopping spree before filing. expense schedule J for recreation the higher the number becomes the more likely going to fail Whether the debtor's proposed family budget is excessive or unreasonable What is reasonable? Whether the petition was filed in good faith. Targeting a specific creditor maybe that is not a good faith filing i) a) Means Test: 707(b)(2)(A)(i) i) (i) if the debtor s income is low enough, the debtor is exempt from the means test and therefore eligible for Ch. 7. (ii) the threshold test is whether the debtor s income exceeds the median income for similar families in the state where the debtor filed. (iii) if the debtors income is equal to or lower than the median, then the debtor has passed through the median-income screen and no presumption bars the way to Chapter 7.

8)

9) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19)

1. First determine the median income that will apply. ii) Means test household size (not family size) determines the applicable median income b) Courts are split in determining household size

c) some look at census definition whoever is sleeping at the house heads in beds ; d) others look at how often does the child reside there; is the custody 50/50 1. U.S. Trustee web site to determine household size e) Determine the state s median income and determine if you are higher or lower. If you are lower, you do not have to do the means test. If you are higher, then you must go through the means test. (is this monthly or annually??) 20) If your income is at or below the median income for your state, then you can apply for a Chapter 7 (unless fail Green test) and if its above, then it triggers a further step on the Means Test that must be completed. (a) a)Determine the current monthly income (101(10)(A)) a. The term current monthly income i. means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor s spouse receive) without regard to whether such income is taxable income, derived during the 6 month period ending on the last date of the calendar month immediately preceding the date of the commencement of the case. 6 months preceding month of filing (if you do not use that six month period prior to filing, then the debtor could ask the court to use a different six month period teacher never saw this) ii. -Then divide by 6 to determine monthly income iii. includes any amount paid by any entity other than the debtor on a regular basis for the household expenses of the debtor or the debtor s dependents, but excludes benefits received under Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments to victims of international terrorism on account of their status as victims of such terrorism. (2) Then divide by six and determine monthly income and compare to the median monthly income. If it is below, you can file for Chapter 7 and if you are above, must go through more steps to determine if you qualify for Chapter 7 21) Calculation: Take your current monthly income minus your living expenses (excluding payments on debts you are trying to discharge through bankruptcy) and multiply by 60 22) Is the result of the above calculation equal to 10,000 or more? a. If no, then go to next question. If yes, then you will have to file a Chapter 13 23) Is the result of the above calculation less than $6,000? a. If no, then go to next question, if yes then you MAY be able to file Chapter 7 (check Green Test) 24) Is the result of the above calculation equal to or greater than 25% of unsecured debt? a. If no, then you may be able to file Chapter 7. If yes, then you have to file Chapter 13.

(b) In re Kimbro: 1. Issue: Whether a debtor may claim the "vehicle ownership expense" on the means test under 11 USC 707(b)(2)(A)(ii)(I) for a vehicle that is not encumbered by debt or subject to a lease? 2. Rule: A debtor may claim the vehicle ownership expense on the means test form under the means test of 11 U.S.C. 707(b)(2)(A)(ii)(I) for a vehicle that is not encumbered by debt or subject to a lease. (c) -This issue is split among courts 25) E.

26) Problem 7.1: MA comes into your office in Detroit to see you about filing for bankruptcy. She explains that when the accounting firm she worked for closed, she scraped by on $650/month for unemployment for nearly 6 months, running up a pile of bills. Four months ago, she found a good job. Her base pay is $4,100 a month, but she has worked every weekend and as many late nights as she could since she joined the company, bringing in overtime that adds another $2,000 per month. She is putting everything she can into catching up on her mortgage payments, and she is making good process. Even so, she is struggling with credit cards with 29.99 percent interest. She doesn t want to file for bankruptcy, but she isnt sure if she has any option. You ask her about her personal circumstances and she explains that she and her ex-husband share custody for their son and at dirvorce she was granted $1,000/month in child support. Hewr ex never paid, but he buys clothes for the boy and he has been paying the $3,000 a month each semester for tuition at the local Catholic school, so Marisa hasn't pushed for it. i) -Is Marisa eligible for Chapter 7? See 101(10A), 707(b)(6), (b)(7). a. Must look at the means test to determine this. b. Means test household size (not family size) determines the applicable median income b) See above for household size c) Determine the current monthly income (101(10)(A)) i) The term current monthly income i. means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor s spouse receive) without regard to whether such income is taxable income, derived during the 6 month period ending on . . . 6 months preceding month of filing ii. Marissa s monthly income: $1300 for unemployment; $4100 salary for four months; $8000 in overtime(25,700/6 months = 4,283.33 = CMI) iii. -Annual = 51,400 (CMI x 12) iv. -One person (43,611) Two person (52,620) v. includes any amount paid by any entity other than the debtor on a regular basis for the household expenses of the debtor of the debtor s dependents, but excludes benefits received under Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments to victims of international terrorism on account of their status as victims of such terrorism. vi. -would want to exclude the tuition because it s not benefiting the entire household. ii) -What advise do you give her at this point/ Marissa can barely scrape together your $800 standard fee; how aggressive can she afford for you to be? iii) -If she is going to file Chapter 7, she should file it now so that she can count the 2 months of unemployment. If she waits 2 months, she will have more salary and overtime which will put her over even the two person household median. iv) -Advising her to quit job may look like bad faith trying to get around the means test. v) -May want to forewarn her that she would be eligible for Chapter 13 plan vi) -Inviting people to live with you will look like bad faith. 27) Problem 7.3 You have worked through the numbers for Michale Negron, a competitive skateboarder who seems to have run up $30,000 in general unsecured debt after he broke his leg last year. Michael is really upset about his debts. He rents a modest apartment and he drives and old clunker. His income over the past six months puts him above the median for a one-earner family in his state, and after allowable expenses, Michael seems to have available about $150/month. His income has been very erratic as he tries to make a comeback, and he's not sure if the leg is OK. He is very reluctant to commit to a Chapter 13 plan. Do you have any advice to make him eligible for Chapter 7? 707(b)(2)(A)(iii); 707(b)(2)(B)(iv); 707(b)(1); 101(12A); 526(a)(4) i) -707(b)(2)(B)(iv) Presumption of Abuse (1) Abuse is presumed if (1) If the debt is greater than 26,300, and (a) the surplus is at least (i) 10,950 or

(ii)25% of the debt; OR (2) If the debt is 26,300 or less and the surplus is at least 6,575. ii) -if the surplus is less that 110 per month he passes if it is between 110 and 183 he passes if the surplus is less than 25 percent of his unsecured debt divided by 60. -If the surplus is great that 183 he flunks no matter how much he owes. 28) Problem 7.4 Ken Lyarre was a phenomenally successful CEO, twice features on the cover of Business Week. The first time was when his privately owned string of diet counseling centers took the health and fitness market by storm, and the second when he lost a class-action lawsuit against him for common law fraud and the jury returned a verdict of a nice, round 1 billion. Ken's lawyers are planning an appeal, but they can't seem to make eye contact with him when they discuss his chances of winning. Ken thinks he has a better strategy: Chatper 7 liquidation. He has about 1 million in assets that aren't already tied up in various spendthrift and offshore trusts, and he says he is glad to give that up. B.c of the trusts his income now and into the future will be about 2 million annually. Is Ken eligible for Chapter 7? i) -See 707(a), (b)(1), (b)(2). ii) -Court will look at what type of debt the debtor has if it is primarily business debt, he doesn t even have to do the means test. iii) -707(a) if he filled out schedules fraudulently or hid assets then the U.S. trustee could dismiss; if he is honest and gives up non-exempt property he should not have trouble with a Chapter 7 discharge. iv) -In a Chapter 13 still have to do the means test even if primarily have business debt. 29) Examples: 1. Joe and Sally Smith a. Look at credit report to make sure what they are telling you is accurate and check to make sure they are consumer debts and make an argument if it is primarily nonconsumer debts or if you have a number of creditors that are business creditors. (2) Rule If it s more than 50% business debt, then do not have to do the mean test. (3) Determine how many are in the household 4 (4) Applicable median income from DOJ website (5) Find their income in the last six months should not rely on their recollection. b) his profits from the ebay store and her law firm wages including the bonus (probably not big enough to sway the means test) c) Rule of Gifts: Gift from mother if a onetime gift, not necessarily income for purposes of the means test b/c it is not regular. (1) Line 2: married filing jointly (d) (2) Line 3: Gross wages, salary, tips, bonuses, overtime, commissions, etc. d) Husband gets a 0 and W gets $6,600 (1) Line 4: H s income goes here b/c he owns his own business 30) income subtracted by the business expenses (1) Total monthly income: Line 12: $8,600 (2) Annual = 103,200 Line 13 (3) Line 14: Applicable median family income - $77,860 (a) -going to have to move on b/c their income is above the median income ii) *End result: the end number is below $6,575 so there will be no presumption (the number was -10,840.20) (a) Example: 1. Single person household in TX, current monthly is 3500 and the expenses are 3,3500 and their unsecured debt = 25,000 TX median income from one person is 2,773 per month. a. Above the median income from TX so step 2 b. 3500-3200 = 150 150x60 = 9,000 9,000,< 10000 so go to 3 c. 9,000 exceeds 6,000 so go to step 4d. .25 x 25,000 this equals less than 9,000 so prob not going to be able to file a chapter

31) VXI. Exemptions

32) 11 U.S.C. 522(d) (a) Definitions 33) A. Exempt means that general creditors cannot seize it to satisfy their judgments. -Exceptions: Consensual agreements, such as mortgages on homes, security interests on cars, or pawnshop possession of jewelry, are not so constrained. As part of the granting of security interest, the debtor waives the exemptions as to these creditors. B. Non-exempt all property not listed as exempt is denominated non-exempt and will be sold by the trustee so that the proceeds can be distributed to the creditors. (i) Look to your state and determine whether you have the option of applying the federal or the state exemptions. In PA you have the choice to use the state or the federal but not all states allow this and others only allow you to use that state (you do not have a choice in the federal). (some states have less exemptions than the federal ones) a. some states have a wildcard exemption able to use for any property in the state; federal exemptions have a wildcard b) Under Federal $975 for any property a. Look at what the debtor is trying to exempt when choosing which exemptions to use b. 2005 Congress tried to discourage forum shopping moving before filing for bankruptcy ii) 522(b)(3)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or state or local law that is applicable on the date of the filing of that petition at the place in which the debtor s domicile has been located for 730 days immediately preceding the date of the filing of the petition or if the debtor s domicile had not been located at a single State for such 730 day period, the place in which the debtor s domicile was located 180 days immediately preceding the 730-day period or for a longer portion of such 180-day period than in any other place. c) You have to have lived in a state for two years to use their exemptions. If less than 2 years, then count back two years from date of filing, then look at 6 months prior to that 2 year period. Then determine where you lived the longest amount of time in that 6 month period, and then use that state s exemptions. 522(b)(3) d) Some states you can only use the exemption if you are living in that state. TX can only use homestead exemption if the homestead is in that state. If you can t use that state b/c you don t live there and the state does not allow you to choose federal, then you can use federal (to protect your property in another state). a) Look at what the debtor wants to protect and compare the state to the federal some states have more favorable (federal allow protection for 20,200 for homestead and some states have unlimited for the real estate) Sometimes State prohibits doubling state exemptions (for married couple you can double under federal and under some states.) If its joint property then you can combine those exemptions household furniture can double that exemptions. If it s one debtor s property, cannot use the other debtor s exemption (ex. H cannot take exemption for W s jewelry if she isn t filing as well) a) Secured creditor will trump the exemption (ex. House with mortgage, that secured debt is in first priority before the exemption.) must pay off the creditor before taking the exemption b) Partially exempt property trustee would probably sell the house and give you the money if the equity is much more than the exemption; however, if the equity and the exemption are about the same, the trustee will probably not sell the property b/c he will have little money to distribute to creditors a) Fully exempt property if statute provides no cap on the dollar amount (ex. Insurance proceeds are completely exempt) b) Judgment creditors: Debtor should avoid judgments

34) 35)

36) 37)

38)

c) Liens attach to assets of the debtor that debtor claims as exempt can be avoided to the extent that the lien impairs the exemption (ex. Creditor has judgment for $5,000 and debtor has 20,000 of equity if choose federal exemption which has $20,200 exempt can protect all equity in the house with that exemption). Judgment creditor can attach if it s not going to affect the exemption (if they had 26,000 in equity). i. *Exemption is priority over a judgment creditor ii) To be avoidable it must be a judgment lien or a non-possessory non-purchase money interest and household goods (non-PMSI when you use the goods as collateral for the loan). iii) Tax liens are not avoidable b/c they are statutory liens d) Can under certain circumstances in a Chapter 13 i) Once lien is voided in a bankruptcy case, it is forever void and creditor cannot come back and revive the judgment ii) Judgments by the district justice is not recorded and therefore can t be avoided, but they are going to be let go under bankruptcy. 1. vi). If you file a motion to avoid the judgment -propose an order that you want the judge to sign. -if you just get an order from the bankruptcy court you still have to get it certified by a. the prothonatory and have in recorded in the district that the judgment is in. Only by b. this will the judgment be avoided. iii) 522 of the bankruptcy code impairing the debtor s exemptions 39) Avoiding Judgment Liens 40) Handout Section 522(f) of the Bankruptcy Code Lien Avoidance i) Section 522(f) of the B-Code provides a method by which a debtor may avoid two types of liens (with certain exceptions) an non-possessory, non-purchase money liens in described personal property. A limitation on this avoidance power is that such a lien can be avoided only to the extent that the lien impairs an exemption claimed by the debtor on Schedule C. 1. Prepare Accurate Schedules a. Disclose all assets If a debtor claims on Schedule C an exemption in a particular item or piece of property, that property must be disclosed in Schedule A or Schedule B. b. List All Liens on Schedule D every lien creditor including holder and judicial liens. Find out the date which the judgment lien was obtained. c. Value the Property If the value of the exempted property shown in Schedule C is unknown it is impossible to determine whether a lien would impair the exemption, and hence a motion to avoid a lien on unvalued property will likely be denied. d. Obtain Accurate Values and Amounts Understanding the amount of debt as of the petition date may prevent the avoidance of a judgment lien that in fact would be avoided if the correct amount of debt had been stated. Sources of information about debt include the payoff that a lender can provide and proofs of claim filed in the current or prior case. e. Ownership and Liability If the lien is against one spouse only, that lien cannot attach to the property of the other spouse. f. 11 U.S.C. 522(d) Outlines Exemptions 2. Understand the Basic Concepts a. Analysis by Property Each type or perhaps even item of property must be analyzed separately. You do NOT add all the value of all personal property and compare that total to the sum of all exemptions. It is property by property. This is because every consensual lien might not attach to every item or piece of property. b. Key Date For purposes of section 522(f), the values of properties and amounts of debts are generally determined as of the petition date, although there may be some exemptions.

c. Debtor s Interest in Property The value of a debtor s interest in property is the vlue of the property multiplied by the debtor s percentage of ownership. If the debtor owns a undivided 50% interest, the value of his interest is one-half the total current value. d. Section 522(f) The only avoidable consensual liens are non-possessory, non purchase money security interest attaching to the following property: (I) household furnishings, household gods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry held primarily for personal, family, or household use of the debtor or a dependent of the debtor; (ii) implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor. 11 U.S.C. 522(f)(1)(B). Consensual liens on vehicles are not avoidable b/c vehicles are not listen in section 522(f)(1)(B). Tax liens, mechanic liens and other statutory liens are not avoidable, and if a judgment has been obtained on a statutory lien, it is not avoidable b/c it is still, practically speaking a statutory lien. Otherwise, a judicial lien against an individual is potentially avoidable, even if the debt evidenced by that judgment is not dischargeable. e. Obvious Lien Avoidances If the exemption amount is greater than or equal to the value of debtor s interest in a type or item of property, the judgment lien is always avoidable. Similarly if the debtor exempts a primary residence, and the value of the debtor s interest in the residence is less than or equal to the amount of unavoidable consensual and statutory liens against the debtors interest in that residence, the judicial lien is always avoidable. The result is the same if the sum of the maximum exemption and the debtor s share of unavoidable liens equals or exceeds the value of the debtor s interest in the residence. f. The Value of the Exemption : - Schedule C refers not to the amount of an exemption but to the value of the exemption. This terms does not appear in section 522 or the BRules. As a practical matter, this entry has often been treated as the claim of the amount of the exemption. **Use the exact value of the exemption** ii) Some read the term value of the exemption as the value the exemption would have if the property were sold, and list the value as zero if the amount of the consensual debt secured by the property in question is greater than the current value of the property. a. Legal Conclusions Not Admitted by Default Always state in the motion the amounts of consensual and statutory liens, the amount of the judgment liens to be avoided and the values of properties to which such liens attach. Don t just state the legal conclusion that a lien impairs the exemption. By not responding to the motion, the creditor admits only well-pleaded facts and not legal conclusions. Show that the lien impairs the exemption by stating the relevant facts or be prepared to prove it. b. No Need for Separate Motions Make it easy on yourself and the Court. Name all judgment lien holder as respondents in one motion. If any one of the judgment liens may not be avoided in its entirety, it is essential to state the dates on which the judgment liens were obtained. 2. The Arithmetic of Lien Avoidance Under Section 522(f) a. First a simple way of thinking about the problem. 3. A simple way to think about the process is to imagine a sale of property to which a judgment lien has attached and then imagine how the sales proceeds would be distributed. The property would be presumed to be sold for its current value. From the debtor s share of the sale proceeds, the debtor s share of the total amount of all unavoidable liens (mortgage liens, tax liens, other statutory liens) would be paid first. If there is nothing left over, all judgment liens are completely avoidable. If there is a balance left over after reserving or paying the amount of the exemption, that balance is allocated to the judgment liens in their order of priority, i.e., oldest first. iii) Basic Formula (1) Current Value of Debtor s Interest in Property minus- Exemption Amount = Amount available to pay judgment liens.

(2) If there is no amount available to pay judgment liens, all such liens are avoidable. (3) If there is an amount available to pay judgment liens, allocate that amount to the judgment liens in order of priority; any fully covered senior judicial lien is NOT avoidable. Liens that could be partially paid are not avoidable to that extent the amount that would pay part of the judgment; the balance of the judgment is avoidable. Liens that are completely out of the money are avoidable in their entirety. iv) Method prescribed in Section 522(f)(2) If there is more than one judicial lien, the computations must be repeated where there is one or more unavoidable liens. v) 522(f)(2) provides 1. (2)(A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of (ii) the lien; (iii) all other liens on the property; and (iv) the amount of the exemption that the debtor could claim if there were no liens on the property vi) In the case of property subject to more than one lien, a lien that has been avoided shall not be considered in making the calculation under subparagraph (A) with respect to other liens vii) This paragraph shall not apply with respect to a judgment arising out of a mortgage. viii) Section 522(f) refers to four separate values i. the amount of the lien sought to be avoided ii. the aggregate amount of all other liens on the property iii. the amount of the exemption claimed on the property iv. the value of the debtor s interest in property. (b) The computations asstated in the statute are as follows 1. Step 1 Determine the amount of the lien to be avoided. Start with the most senior judgment lien the one obtained at the earliest date (Junior judgment liens would be dealt with later, one at a time in order of seniority, after doing the calculations for more senior liens). 2. Step 2 Determine the debtor s share of all consensual liens and statutory liens against the debtor s interst in the property in question. i. Example: If the property in question is the residence, add up all the mortgage debt (evidenced by notes an secured by security deeds on the residence), tax debt secured by tax liens against the residence, ect. If all of those liens encumber the entire property and the debtor s interest is 50%, the debtor s share of the debt would be one half of the total. Also add in the amount of any judicial lien to the extent it is determine not to be avoidable. 3. Step 3 Determine the amount of the exemption to which the debtor would be entitled if there were no liens on the property 4. Step 4 add the amount of the judicial lien at issue, the amounts of unavoidable consensual and statutory liens, the amount of any senior judicial lien to the extent it is unavoidable and the amount of the exemption. 5. Step 5 Determine the value of the debtor s interest in a particular property. i. For example: if the property is a residence, the debtor s interest is the entire value if the debtor is the sole owner and is one-half the value if the debtor owns an undivided one half interest in the property 6. Step 6 A judicial lien impairs the exemption to the extent that the total of liens and exemptions computed in Step 4 is greater than the value of the debtor s interest in the property in Step 5. In other words, the difference is the portion of the lien that is avoidable. 7. Example: Judgment lien is 9,000, a mortgage debt of 151,000 and a exemption of 10,000 for a total of 170,000. Assume the value of the debtor s interest in the property is 165,000. Under these facts, the amount that is avoidable is 5,000.

i.

-B/c the judgment lien is 9,000, it is unavoidable to the extent of 4,000. The 4,000 figure would be added to the mix in Step 4 when considering the next judicial lien in order of priority. In the example the sum of the consensual lien and the exemption was 161,000, so that adding the unavoided judicial lien in the amount of 4,000 produces a total of 165,000.

(2) In re Pizzi: Pizzi won the lottery and took annual payments instead of a lump sum. Conn purchased an annuity contract. Pizzi tried to claim this as an exemption. (a) Court held that this was not exempt and could be put into the bankruptcy estate because it was not considered to be an annuity contract. However, true annuity contracts would be exempt from the bankruptcy estate. b) If he would have been named the beneficiary of an annuity contract, then he would have been able to claim that it was an annuity contract. c) Normally this is for personal injury cases annuity contrats (1) In re Walsh: a debtor owes an auto which is sold under ordinary market conditions. Debtor claims the auto is exempt to the extent of 1200. If the court deems it worth 2000 through a theoretical fair market value, then the debtor may only bring 1200. No benefit to the estate is gained if the debtor s value is used. Defined fair market value as the price that the seller is willing to sell and the buyer is willing to trade and the judge says that the fair market value is the liquidation value. This is litigated b/c the price may determine whether it is exempt or not. Debtor usually wants liquidation or wholesale (fair market value) (what can get at auction) b/c it s a low value. Replacement value can be used which is a private party value. Retail will be the highest value which is what creditors will argue. i) Courts differ on what valuation standard to use. ii) 11 U.S.C. 522 (1) In re Mitchell: woman wanted to exempt her diamond ring b/c it was a typical household good. iii) Court used a estate value standard to find that the ring was worth 36,000 and the debtor s expert testified that it was 7,800. iv) Court can determine what value is going to apply. In this case, they determined that fair market value would apply. Court has some discretion (in this case the buyer seemed to be lowering the price than what it was really worth so the court used fair market value so that it wasn t exempt).

d) e) f) g) h)

i)

41) E. In re Palidora: Debtors had money in account and wanted to exempt it b/c it was from wages and child support so the bank account should be exempt. Court found that once deposited into the account it became non-exempt except the child support can be traced back. a) When you change the money from one form to another, you may lose the exemption (this would not include child support b/c you could trace this back). i. Make an argument if you think it could be traced back. (2) Objections to exemptions must be filed within 30 days of the creditors meeting or the filing of any amendment to the list of exemption property (3) Problems (i) Under TX and WY states: Problem 8.1 H and L live in Texas. They are unable to pay debts and they are worried about which of their assets may be vulnerable to creditor attachment. H was injured last year when his car was struck by a train and was disabled. He can likely settle with railroad for 250,000. What can H and L protect and creditors protect? This was just for a particular state, not federal exemptions

1. Most states don t have exemptions for bank accounts; 2. probably not Walt Disney shares 3. Car: can protect personal property two, three, or four wheeled motor vehicle for each member of the family who holds a driver s license or does not but has someone operate the vehicle for their benefit. 4. computer: Computer programmer arguably a tool of his trade and he needs it for his business; could argue that it would be a household furnishing 5. sailboat: some law says this is not athletic equipment. 6. Wheelchair: health aid exemption 42) Problem 8.4: 43) -In Texas this would be exempt under Personal Property for a four-wheeled motor vehicle for each member of a family 44) -Could also look under 522(d) if you choose the federal exemptions i) -(d)(2) not to exceed $3,225 For a motor vehicle ii) -Wyoming personal property - $2,400 for a motor vehicle (if used for work tool of the trade). 45) -Need to have the value of the truck ($4,000), under 522(d)(2) he can use vehicle exemption for 3225. He will have $775 left. The $6,500 is an avoidable debt. He will have to pay whatever part of the lien that is left unless it is completely unavoidable. He might be able to reaffirm or redeem the debt. i) **WHY ISNT THE TRUCK A PMSI?? ii) **DON T SECURED CLAIMS TAKE PRECEDENT OVER EXEMPTIONS??? 46) -DETERMINING WHICH STATE APPLIES 47) 522(b)(3)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or state or local law that is applicable on the date of the filing of that petition at the place in which the debtor s domicile has been located for 730 days immediately preceding the date of the filing of the petition or if the debtor s domicile had not been located at a single State for such 730 day period, the place in which the debtor s domicile was located 180 days immediately preceding the 730-day period or for a longer portion of such 180-day period than in any other place. 48) -522(b)(3) go back 2 years and look at the last 6 months of that period and see where the debtor spent the majority of the time during that 6 month window. -Savings provision: if you lived in another country then move to United States; that debtor is not denied any exemptions, they can choose the federal exemptions. ii) -If the state that applies is unavailable to a person living in PA (Florida may say that you have to have a property in Florida, then you cannot use Florida exemptions). In that case debtor can use federal even though florida doesn t allow federal. 49) -State exemptions might be able to use the tenants by the entireties as an exemption but only to the extent that it is applicable under the state law if the state doesn t have tenancy by the entireties, then cannot use this (522(b)(3)(B). (pa is tbe, and its for property and real estate) i) Restrictions that you might run into 522(p) and (o) and (q) with a homestead exemption if it is not a TBE exemption that you are claiming under state law? - 522(o)(4) reduces the homestead exemption ii) (o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in-(4) real or personal property that the debtor or a dependent of the debtor claims as a homestead; shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of i)

(a) Summary: Prevents the debtors from claiming an exemption in an otherwise exempt residence that debtor acquired any time during th ten years before his petition via the conversion of non-exempt property with intent to hinder, delay, or defraud a creditor. (b) -522(p)(1) limits the amount for the exemption of real property (c) (p) (1) Except as provided in paragraph (2) of this subsection and sections 544 and 548 [11USCS 544 and 548], as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $ 146,450 in value in-(A) real or personal property that the debtor or a dependent of the debtor uses as a residence; (d) Summary: prohibits debtors from exempting interests in what would otherwise be an exempt interest in a residence if the interest was acquired by the debtor during 1215 days (three years a four months) before his bankruptcy petition and exceeds 136,875 in value. 1. 522(q)(1) conviction of a felony (2) (q) (1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate $ 146,450 if-(A) the court determines, after notice and a hearing, that the debtor has been convicted of a felony (as defined in section 3156 of title 18 [18 USCS 3156]), which under the circumstances, demonstrates that the filing of the case was an abuse of the provisions of this title; or (B) the debtor owes a debt arising from-(i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 [15 USCS 78c(a)(47)]), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws; (ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 [15 USCS 78l or 78o(d)] or under section 6 of the Securities Act of 1933 [15 USCS 77f]; (iii) any civil remedy under section 1964 of title 18; or (iv) any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years.

iii) **-Some property never comes into the bankruptcy estate so don t have to worry about exempting it retirement accounts, 529 plans 50) XI. Exemption Planning which may lead to discharge: 1. In re Reed: -Prior to bankruptcy filing, Reed sold items of his personal property for 50% of their value. He applied the profit from the sale to the lien on his home, essentially converting the value of nonexempt property into exempt property. The trustee objected to this and sued that the sale was fraudulent. ii) He also had a business that went under and they found that he had been hiding money in another bank account. The court that appealed it found that he actually intended to defraud his creditors and denied the discharge. (i) 727(a)(2) court will grant a discharge unless a debtor, with the intent to defraud, delay, (ii) (a) The court shall grant the debtor a discharge, unless-(1) the debtor is not an individual; (2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed--

(A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition; b) This would not affect a spouse if they can show that they did not partake in the wrongdoing but it is questionable in this case b/c she seemed to know but the court held that her behavior wasn t as egregious and allowed her to get the discharge. 51) Problem 9.1: K has been battling with angry former partners in a real estate business scheme, and it appears they are closing in. Last week they got a $10 million judgement in a contract law action against him. K is a law school grad who never wanted to settle down and practice, as a penthouse in Chicago, and not much else. He has lived there for five years, except for a period of 2 years ago when he rented an apt in Florida for 91 days and a period last year where he moved to Wisconsin for a couple of months. In both Florida and Wisconsin he applied for dirvers license, registered to vote, changed address, etc. K came to you about a petition for file for chapter 7. Can he keep his condo (Ill. Permits a debtor to protect $15,000 in a homestead). Does he face any obvious problems? i) -Look at the time frame 2 years back in that time frame in this case Florida would be the home state and he would be able to choose those exemptions. ii) -As a debtor, what problems may he have if he chooses Florida? (a) -creditors may argue that he didn t have a domicile or residence in Florida bankruptcy code does not define what a domicile is. You would have to look at state law to see what a domicile is in that state (he got his mail there and driver license which would go toward that he is domiciled there) 1. -707(b) if it would be abuse under this chapter- this wouldn t apply b/c he has mainly business debt here. (b) -creditors may also argue abuse 1. -707(a) abuse could argue abuse that he was moving around to get better exemptions i. -no discharge if abuse 2. WW ran a stock scam that was so tangled that it took years for his investors to figure it out. The SEC stil can t explain it well enough to get an indictment, but a civil jury just awarded some victims 25 million. Woody and his fourth wife Ingrid just bought a home in PA, for 10 million cash. Woody and Ingrid are current on their bills, and Woody is ready to file for bankruptcy to deal with the big judgment. He tells you with confidence, that he plans to keep the house. Can he? (c) -522(b)(3)(B) The home could be exempt b/c PA has tenancy by the entireties and the house was bought before he filed for bankruptcy. The creditor cannot go after it because the underlying debt is only against him (not the wife), so the creditor cannot attack property held as tenancy by the entirety. 52) VIX. Claims and Distributions 1. Proof of Claim: 53) In re Lanza i) Rule: Proof of claim executed and filed in accordance with these rules hall constitute prima facie evidence of the validity and amount of the claim. 300(f). It follows that the burden of going forward with the proof is on the objecting party, not the claimant. That burden is not merely satisfied with the filing of an objection. (i) definition of a Debt: liability on a claim (ii) Claims arise when all transactions for liability occur (iii) 501 who can file a claim; either the creditor (or creditor s attorney); another entity that is liable along with the creditor may file a claim; if no one files a claim then the debtor may file a claim 1. A debtor may file a claim (if creditor misses the deadline, the debtor gets additional time 30 days- if the debtor files a claim then the creditor files, it is untimely creditor can object to the debtor s filing but cannot amend their complaint). ii) D. What if the creditor forgets to file a claim ? won t get paid.

(a) -going to depend on type of claim a. secured claim pass through bankruptcy unaffected b) If a mortgage company doesn t file a claim it might not be that big of a deal b/c they will still have a lien at the end of the bankruptcy. 1. b. unsecured claim court might let you file a late claim depending on the situation, but if you just forgot then as an attorney you are responsible for losing your clients claim. c) PA 3rd Cir: If you have a no asset Chapter 7, if you are a creditor even if you didn t get notice of the bankruptcy case, if you are unsecured, your debts will be discharged. (i) Allowance a proof of claim is allowed unless objected to will be treated in the bankruptcy case unless the objection wins. Trustee may object on behalf of the debtor if its filed late; but most of the time will be the debtor or the debtor s attorney. (ii) Priority debts: generally not discharged in a bankruptcy if your client holds a priority debt make sure to put it in the priority section. (iii) Bankruptcy will send a notice to all creditors and will include a form and will set forth the deadlines for filing a proof of claim and will tell them what other deadlines are (objecting to discharge for a debt) ii) Claims must be filed within 90 days after the first date set for the meeting of creditors. iii) Will not change if the meeting of creditors is changed d) Governmental claim have 180 days after the date that the petition is filed. (i) Secured creditors do not have to file a proof of claim b/c there claim will survive the bankruptcy (ii) Everything must be electronically filed. If filed wrong, you will be sanctioned

(2) Post-Petiton Claims 54) Problem set 10 55) 10.1- Zeppo lost her job last month and filed a Chapter 7 liquidation bankruptcy this month. One creditor, Miller Plumbing Co., claimed 3,000, plus (a) $200 in past due interest accrued prior to bankruptcy and (b) another $100 in interest accrued since the bankruptcy began. Interest was calculated for the pre-bankruptcy period according to the contract b/t Z and M and according to the state law judgment rate for the pos-bankruptcy period. M however, had no security interest in any of Corinne s property. What is the amount of M s allowed unsecured claim in bankruptcy. See 502(a) and (b). (1) -502(b)(2) 3,200 post petition interest would not be allowed as part of the claim ii) 502(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that-(1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured; (2) such claim is for unmatured interest; a. Interest If you are an unsecured creditor and someone objects, the unsecured creditor will be denied the opportunity to collect any interest on its unsecured claim after the filing and while the bankruptcy is pending 2. this is called unmatured interest

56) 10.2 Corinne had only two non-exempt assets: her car, worth $10,000, and 1,000 shares of MacroSoft stock, worth 15,000. At the time of filing, she owed the bank $8,000 on the car and the bank had a valid and enforceable security interest in the car to secure its loan. In additions to the $8,000 principal, the bank claimed (a) past due

interest that accrued prior to bankruptcy of $500; (b) interest since the bankruptcy was filed of 400, and (c) attorneys fees of $1,000 expended in trying to collect. The bank was entitled to collect all these amounts under its loan and security agreement and under state law. What is the amount of the bank s allowed secured claim in bankruptcy this is a secured creditor so you are going to looking at 2 different sections of the b code 502 and 506. (1) 502 analysis (i) -Principal amount allowed under 502 (ii) -pre-petition amount allowed under 502 (2) 506 analysis ii) 506(b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose. iii) (c) The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property. Trustee gets their fees first for securing the property (i) -post-petition interest allowed under 506(b) (ii) -attorney s fees allowed under 506(b) (b) Attorneys fees If the attorneys fees were pre-petition, then they would be allowed under 502; but if the attorneys fees are post-petition, then look to see if the creditor is secured, and check to see if they can claim the fees pursuant to 506(b). (c) o 506(b) allows for post-petition claims if the creditor is over-secured. A creditor is over-secured if their CLAIM (the money they want) is less than the value of the COLLATERAL. A creditor is under-secured if their CLAIM is more than the value of the COLLATERAL. o Factors for Attorneys Fees Three factors: Claim is less than the value of the collateral; if the underlying contract allows for recovery; and finally, if the fees are reasonable. 57) 10.3 If, contrary to the pre-sale estimates, the car had brought only $5,000 when it was sold, how would the bank stand? i) -The bank would not be entitled to the post-petition debt b/c they are undersecured so they would only be entitled to the pre-petition 58) 10.4 Ten other creditors of Corinne are owed a total of 20,000, but none of them are claiming any interest. If you were appointed TIB in Corinne s bankruptcy and collected $5,000 for the car and $15,000 for the stock, how should you distribute the money (ignoring other expenses, including your own cut as TIB). 1. 5,000 for the car the creditors that might get proceeds from this are: a creditor with a security interest (i.e. the bank) (2) -15,000 from the sale of the stock pro rata distribution of the 15,000

(i) Priority Claims and Order of Distribution of Claims 59) 507. Priorities (a) The following expenses and claims have priority in the following order: (1) First: (A) Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in a case under this title, are owed to or recoverable by a spouse, former spouse, or child of the debtor, or such child's parent, legal guardian, or responsible relative, without regard to whether the claim is filed by such person or is filed

by a governmental unit on behalf of such person, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition shall be applied and distributed in accordance with applicable nonbankruptcy law. (B) Subject to claims under subparagraph (A), allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition, are assigned by a spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by a governmental unit under applicable nonbankruptcy law, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition be applied and distributed in accordance with applicable nonbankruptcy law. (C) If a trustee is appointed or elected under section 701, 702, 703, 1104, 1202, or 1302 [ 548(d)(4 548(d)(3)11 USCS 548(d)(4)11 USCS 548(d)(3)11 USCS 1325(b)11 USCS 1122title [11 USCS 362title [11 USCS 701title [11 USCS 1301title [11 USCS 1301title [11 USCS 130111 USCS 1301title [11 USCS 50211 USCS 1322(b)(5)11 USCS 507(a)(8)(C)11 USCS 523(a)title [11 USCS 6020(b)title [11 USCS 6020(a)section 6020(b) of the Internal Revenue Code of 198626 USCS 78c(a)(47)section 6020(a) of the Internal Revenue Code of 198626 USCS 403(b)15 USCS 414(d)26 USCS 8433(g)26 USCS 8431title [5 USCS 72(p)5 USCS 1108(b)(1)section 72(p) of the Internal Revenue Code of 198626 USCS 401403408408A414457501(c)29 USCS 1915(h)section 401403408408A414457501(c) of the Internal Revenue Code of 198626 USCS 191528 USCS 727(a)(2)28 USCS 221(d)(1)title [11 USCS 521(1)section 221(d)(1) of the Internal Revenue Code of 198626 USCS 1602title [11 USCS 507(a)(2)507(a)(8)15 USCS 72711411228(a)1228(b)1328(b)title [11 USCS 586(f)title [11 USCS 586(f)28 USCS 50228 USCS 501title [11 USCS 502title [11 USCS 701title [11 USCS 52311 USCS 522(q)(1)(B)title [11 USCS 522(q)(1)(A)11 USCS 522(q)(1)11 USCS 109(h)(4)11 USCS 11111 USCS 70111 USCS 1060106111 USCS 1228132811 USCS 1141title [11 USCS 503(b)title [11 USCS 503(b)28 USCS 1911title [11 USCS 503(b)28 USCS 1911title [11 USCS 70170270311041202130211 USCS 191111 USCS 503(b)28 USCS 364(d)title [11 USCS 523(a)(1)(B)523(a)(1)(C)title [11 USCS 363title [11 USCS 362title [11 USCS 362363364title [11 USCS 523(a)(1)(B)523(a)(1)(C)title [11 USCS 557(b)title [11 USCS 557(b)title [11 USCS 502(f)title [11 USCS 1911title [11 USCS 503(b)28 USCS 503(b)title [11 USCS 70170270311041202130211 USCS 11 USCS

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