1. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1 Security Interests, Creditors’ Rights, and Bankruptcy Chapter 16 BUSINESS LAW TODAY Essentials 9 th Ed. Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A. Jentz - University of Texas at Austin, Emeritus

2. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2 Learning Objectives  What is a security interest? What is the most common method of perfecting security interest under Article 9?  What is garnishment? When might a creditor undertake a garnishment proceeding?  In a bankruptcy proceeding, what constitutes the debtor’s estate in property? What property is exempt under federal bankruptcy law?  What is the difference between an exception to discharge and objection to discharge?  In a Chapter 11 reorganization, what is the role of the debtor in possession?

3. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3 Security Interests: Terminology  Secured Party: creditor who has a security interest in debtor’s collateral.  Debtor: person who owes payment of a secured obligation.  Security Interest: interest in the collateral that secures the performance.  Security Agreement: agreement that creates or provides for a security interest.  Collateral: subject of the security interest.  Financing Statement: normally filed with public notice to third parties.

4. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4 Creating a Security Interest  Creating a Security Interest. Collateral in Possession of Creditor, or there must be a written agreement describing the collateral signed by Debtor. Collateral in Possession of Creditor, or there must be a written agreement describing the collateral signed by Debtor. Creditor must give something of value to Debtor. Creditor must give something of value to Debtor. Debtor must have “rights” in collateral. Debtor must have “rights” in collateral.

5. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5  Once these requirements are met, the creditor’s rights “ATTACH” to the collateral, giving the creditor an enforceable security interest.  Written or Authenticated Security Agreement. When collateral is NOT in possession of secured party. Document must contain description of property. When collateral is NOT in possession of secured party. Document must contain description of property. Creating a Security Interest

6. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6 Perfecting a Security Interest  Perfection is the legal process by which the secured party protects herself from third party claims against the same collateral, which is divided into two categories: Tangible: Consumer goods, equipment, farm products, inventory, accessions. Tangible: Consumer goods, equipment, farm products, inventory, accessions. Intangible: Chattel Paper, Instruments, Accounts, Deposit Accounts, General Intangibles. Intangible: Chattel Paper, Instruments, Accounts, Deposit Accounts, General Intangibles.

7. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7 Perfecting by Filing  File financing statement with proper state authority. Gives 3 rd parties notice. Lasts 5 years. Financing statement must provide: Proper Legal Name of Debtor, Secured Party, and description of Collateral. Proper Legal Name of Debtor, Secured Party, and description of Collateral. Improper filing reduces secured party’s claim in bankruptcy to an unsecured creditor. Improper filing reduces secured party’s claim in bankruptcy to an unsecured creditor.

8. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8

9. 9 Perfection Without Filing  Perfection by Possession: collateral is in the possession of the secured party.  Perfection by Attachment: Purchase Money Security Interest (PMSI) in consumer goods and seller/manufacturer provides financing. Purchase Money Security Interest (PMSI) in consumer goods and seller/manufacturer provides financing. Automatic Perfection: at the time of credit sale, unless certificate of title is required (automobile, mobile homes, tractors, etc). Automatic Perfection: at the time of credit sale, unless certificate of title is required (automobile, mobile homes, tractors, etc).

10. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10 Effective Time Duration of Perfection  Financing Statement is effective FIVE (5) years from date of filing. If continuation statement is filed six months prior to expiration, continues for another five years. If continuation statement is filed six months prior to expiration, continues for another five years. Can continue indefinitely. Can continue indefinitely.  If Financing Statement lapses, becomes unperfected. Purchaser for value can acquire the collateral as if the security interest had never been perfected. Purchaser for value can acquire the collateral as if the security interest had never been perfected.

11. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11 The Scope of a Security Interest  Proceeds: whatever received when collateral sold or disposed of.  After-Acquired Property. Security Agreement may provide for a security interest in property acquired after execution of security agreement. Security Agreement may provide for a security interest in property acquired after execution of security agreement.  Future Advances. Continuing line of credit. Continuing line of credit. Subject to security interest. Subject to security interest.  Floating Liens Security interest in proceeds in after-acquired property, or Security interest in proceeds in after-acquired property, or Collateral subject to future advances. Collateral subject to future advances.

12. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12 Priorities  General Rule is that a first-in-time perfected security interest has priority over: Unsecured creditors and unperfected security interests. Unsecured creditors and unperfected security interests. Conflicting perfected security interests. Conflicting perfected security interests. Conflicting unperfected security interests. Conflicting unperfected security interests.

13. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13 Priorities  Buyers in the Ordinary Course of Business: take goods free from any security interest, even if perfected and the buyer knows of its existence. Good faith, without notice. Good faith, without notice.  Exception to the First-in-Time Rule: PMSI in equipment that is not inventory.  Exception to First-in-Time Rule: security interests in inventory.  Buyers of the Collateral: may conflict with perfected interests on debtor’s default. 

14. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14 Priorities  Buyers of the Collateral. Conflicts with Perfected Secured Party. Conflicts with Perfected Secured Party. Buyers in the Ordinary Course of Business. Buyers in the Ordinary Course of Business. Buyers not in the Ordinary Course of Business of Consumer Goods. Buyers not in the Ordinary Course of Business of Consumer Goods. Buyers of Chattel Paper. Buyers of Chattel Paper. Buyers of Instruments, documents or securities. Buyers of Instruments, documents or securities. Buyers of Farm Products. Buyers of Farm Products.

15. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15 Default and Remedies  Not expressly defined by Article 9 but rather in the security agreement. Any breach can constitute default.  Basic Remedies are cumulative: Repossession of the Collateral (Self-Help). Repossession of the Collateral (Self-Help). Judicial Remedies: execution and levy. Judicial Remedies: execution and levy.

16. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16 Disposition of Collateral  Disposition of Collateral: Retention of Collateral by Secured Party (unless PMSI and debtor paid 60% or more). Notice Required. If objection, then Secured Party must sell property. Notice Required. If objection, then Secured Party must sell property.

17. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17 Disposition of Collateral  Disposition Procedures: Flexible but commercially reasonable manner. Flexible but commercially reasonable manner. Public or private sale with notice (unless perishable). Public or private sale with notice (unless perishable). Secured party may purchase collateral at a public (but not private) sale. Secured party may purchase collateral at a public (but not private) sale. “Satisfactory” price is only one factor: CASE 16.1 Hicklin v. Onyx Acceptance Co. (2009). Seller did not sell car in commercially reasonable manner.“Satisfactory” price is only one factor: CASE 16.1 Hicklin v. Onyx Acceptance Co. (2009). Seller did not sell car in commercially reasonable manner.

18. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18 Disposition of the Collateral  Distribution of Proceeds Expenses  balance of debt  junior liens  then balance to secured party. Expenses  balance of debt  junior liens  then balance to secured party.  Noncash Proceeds.  Deficiency Judgment. Debtor is liable for deficiency owing to the creditor. Debtor is liable for deficiency owing to the creditor.  Redemption Rights. Debtor can ‘redeem’ property by tendering performance of all obligations prior to sale or discharge. Debtor can ‘redeem’ property by tendering performance of all obligations prior to sale or discharge.

19. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19 Additional Laws Assisting Creditors  Liens: Mechanic’s Lien (real property). Mechanic’s Lien (real property). Artisan’ Lien (personal property). Artisan’ Lien (personal property). Innkeeper’s Lien (baggage of guests). Innkeeper’s Lien (baggage of guests). Judicial Lien: Judicial Lien: Attachment: court-ordered seizure of property.Attachment: court-ordered seizure of property. Writ of Execution: court-ordered sale.Writ of Execution: court-ordered sale.

20. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20 Garnishment  Garnishment. Creditor permitted to collect a debt by seizing property held by third party (usually wages held by debtor’s employer). Creditor permitted to collect a debt by seizing property held by third party (usually wages held by debtor’s employer).

21. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21  Creditor (mortgagee) has the right to foreclose on property upon debtor’s (mortgagor) default. Mortgage Foreclosure

22. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22  Third person promises to pay debt owed by another. Suretyship and Guaranty

23. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23  Third person promises to pay debt owed by another. Surety (3 rd person is primarily liable). Surety (3 rd person is primarily liable). Guaranty (3 rd person is secondarily liable). Guaranty (3 rd person is secondarily liable). Must be in writing unless the “main purpose” of the guaranty is to personally benefit the guarantor.Must be in writing unless the “main purpose” of the guaranty is to personally benefit the guarantor. CASE 16.2 Capital Color Printing, Inc. v. Ahern. (2008). Document satisfied Statute of Frauds, identified Quality Printing as the customer with a signed personal guaranty. CASE 16.2 Capital Color Printing, Inc. v. Ahern. (2008). Document satisfied Statute of Frauds, identified Quality Printing as the customer with a signed personal guaranty. Suretyship and Guaranty

24. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24  Actions that Release the Surety and Guarantor.  Defenses of Surety and Guarantor: Can assert any defense of principal debtor except debtor’s incapacity or bankruptcy (which are personal to debtor). Can assert any defense of principal debtor except debtor’s incapacity or bankruptcy (which are personal to debtor).  Rights of Surety and Guarantor: Subrogation. Subrogation. Reimbursement (from debtor). Reimbursement (from debtor). Contribution. Contribution. Suretyship and Guaranty

25. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25  Homestead Exemption. Family home free from claims of unsecured creditors or trustees in bankruptcy. Family home free from claims of unsecured creditors or trustees in bankruptcy.  Other Exemptions: Household furniture. Household furniture. Clothing and personal possessions. Clothing and personal possessions. Vehicle. Vehicle. Tools of the trade. Tools of the trade. Laws Assisting Debtors

26. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26  Article I, Section 8 of the U.S. Constitution. Federal jurisdiction.  Bankruptcy Reform Act of 2005 significant modified bankruptcy laws.  Federal Bankruptcy Courts under U.S. district courts, can appeal to district courts.  Federally appointed judges. Bankruptcy Proceedings

27. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27  Bankruptcy provides different relief: Chapter 7: Liquidation. Chapter 7: Liquidation. Chapter 11: Corporate Reorganizations. Chapter 11: Corporate Reorganizations. Chapter 12: Family Farmers. Chapter 12: Family Farmers. Chapter 13: Adjustment of Individuals’ Debts with a payment plan. Chapter 13: Adjustment of Individuals’ Debts with a payment plan.  Special Treatment of Consumer- Debtors: debts from consumer purchases. Types of Bankruptcy Relief

28. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28  Any person (including corporation) can file.  All debts are liquidated (discharged).  Begins with a voluntary or involuntary Filing of a Petition (Automatic Stay). Voluntary: filed by debtor. Voluntary: filed by debtor. Involuntary: creditors force debtor to file. Involuntary: creditors force debtor to file. 2005 Act: Debtors must go through counseling with approved nonprofit agency during the 180 days prior to filing. 2005 Act: Debtors must go through counseling with approved nonprofit agency during the 180 days prior to filing. Chapter 7 - Liquidation

29. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 29  2005 Act: Attorney must file affidavit explaining other chapters available to debtor.  2005 Act: Attorney must make reasonable attempt to verify accuracy of petition and schedules. Failure to do so could be perjury. List secured and unsecured creditors and addresses and amount of money owed on schedules. List of all property owned including property claimed; current income and expenses. List secured and unsecured creditors and addresses and amount of money owed on schedules. List of all property owned including property claimed; current income and expenses. Swear to these and sign. Federal crime to misrepresent. Swear to these and sign. Federal crime to misrepresent. Chapter 7

30. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 30  Under 2005 Act, Substantial Abuse WILL be Presumed If: Based on “Means Testing” debtor’s family income is greater than state median income. Based on “Means Testing” debtor’s family income is greater than state median income. Creditors have standing to dismiss petition. Creditors have standing to dismiss petition.  Substantial will NOT be Presumed If: Based on “Means Testing” debtor’s family income is less than state median income. Based on “Means Testing” debtor’s family income is less than state median income. But creditors have no standing to dismiss. But creditors have no standing to dismiss.  Order for Relief. ‘Substantial Abuse’

31. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 31  Occurs when debtor’s creditors force debtor into bankruptcy proceedings.  Can occur if: If debtor has twelve or more creditors, three or more with claims totaling $13,475, or If debtor has twelve or more creditors, three or more with claims totaling $13,475, or If debtor has twelve or more creditors, one has a claim totaling $13,475. If debtor has twelve or more creditors, one has a claim totaling $13,475. Involuntary Chapter 7

32. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 32 Automatic Stay  Automatic Stay upon Filing either Voluntary or Involuntary Petition.  Creditors cannot commence or continue most legal actions.  Damages for violation of stay.  CASE 16.3 In re Kuehn (2009). Kuehn owed $6,000 in tuition and filed bankruptcy. University’s refusal to provide transcript, unless she paid the tuition, violates automatic stay.

33. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33 Automatic Stay  Exceptions to Automatic Stay: Collection can continue for domestic-support obligations. Collection can continue for domestic-support obligations. Proceedings against debtor in divorce, domestic violence can continue. Proceedings against debtor in divorce, domestic violence can continue. Investigations by securities enforcement are not stayed. Investigations by securities enforcement are not stayed.  Limitations on Automatic Stay: Creditors can get “adequate protection.” Creditors can get “adequate protection.” Periodic or one time cash payments or equivalent. Periodic or one time cash payments or equivalent. Reaffirmation. Reaffirmation.

34. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 34 Property of the Estate  Debtor’s Estate includes: All Debtor’s legal and equitable interests in property presently held, including community property, All Debtor’s legal and equitable interests in property presently held, including community property, Property transferred in a “voidable” transaction, and Property transferred in a “voidable” transaction, and Property which Debtor becomes entitled within 180 days after filing. Property which Debtor becomes entitled within 180 days after filing.

35. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 35 Property of the Estate  Estate includes (cont’d): Proceeds and profits from the property of the estate. Proceeds and profits from the property of the estate. After-acquired property such as inheritances, property settlements, and life insurance death proceeds. After-acquired property such as inheritances, property settlements, and life insurance death proceeds.

36. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 36  Up to $20,200 in home equity.  Up to $3,225 in car.  Up to $10,775 in personal possessions (up to $525 per item).  Up to $1,350 in jewelry.  Up to $2,025 in tools.  Social security, alimony and support payments.  Up to $20,200 in personal injury awards.  2005 Act: Homestead Exemption. Debtor must have lived in state two years. Debtor must have lived in state two years. Up to $136,875 of equity. Up to $136,875 of equity. Exemptions

37. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 37 Trustee’s Powers  Court-appointed until first meeting of creditors.  Creditors elect permanent trustee  Administers estate.  Collects proceeds, liquidates assets and pay Creditors in order of priority.

38. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 38 Trustee Rights and Duties  New Duties under the 2005 Bankruptcy Reform Act: Promptly review all materials filed by debtor. Promptly review all materials filed by debtor. Not later than 40 days after filing, Trustee must file: a motion to dismiss the case, change to Chapter 13, or why motion would not be appropriate. Not later than 40 days after filing, Trustee must file: a motion to dismiss the case, change to Chapter 13, or why motion would not be appropriate. New duties to protect domestic-support obligations. New duties to protect domestic-support obligations.

39. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 39 Trustee Rights and Duties  Right to Possession of Debtor’s Property. Constructive Possession (change lock on door). Constructive Possession (change lock on door).  Avoidance Powers. Trustee can set aside a sale or transfer of debtor’s property (2005 Act: cannot avoid bona fide domestic support debt). Trustee can set aside a sale or transfer of debtor’s property (2005 Act: cannot avoid bona fide domestic support debt).  Voidable Rights. Trustee can stand in shoes of debtor and assert any lack of capacity or lack of assent. Trustee can stand in shoes of debtor and assert any lack of capacity or lack of assent.

40. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 40 Preferences  A Debtor is not permitted to transfer property or make a payment that favors—or gives a preference to—one creditor over another.  For a Trustee to recover preferential payment, Debtor must be insolvent and transferred property for pre-existing debt within previous 90 days.  2005 Act: permits consumer-debtor to transfer any property to creditor up to $5,475.

41. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 41 Preferences  Trustee can use preferential payment to pay a real preexisting debt, not for current consideration.  Creditor gets more than he would in a Chapter 7.  Consumer can transfer up to $5,000 without constituting a preference.  Domestic-support debts are not preferences.

42. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 42 Distribution of Property

43. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 43  If Secured Creditors: Consumer debtors. Consumer debtors. Have 30 days from filing petition or before first meeting of creditors.Have 30 days from filing petition or before first meeting of creditors. Debtor must tell what she intends to do with collateral-- keep or surrender.Debtor must tell what she intends to do with collateral-- keep or surrender. Trustee must enforce within 45 days.Trustee must enforce within 45 days. If surrenders: creditor can keep or sell. If surrenders: creditor can keep or sell. If creditor keeps = full satisfaction of debt.If creditor keeps = full satisfaction of debt. If creditor sells = can use extra for costs, or can become unsecured creditor for deficiency.If creditor sells = can use extra for costs, or can become unsecured creditor for deficiency. Distribution of Property

44. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 44  Unsecured property: Paid according to bankruptcy law. Paid according to bankruptcy law. All of one class must be paid before moving to next. All of one class must be paid before moving to next. Creditor within last class receive proportionately if not enough. Creditor within last class receive proportionately if not enough. See Priority List in text. See Priority List in text. All creditors paid, trustee gives extra back to debtor. All creditors paid, trustee gives extra back to debtor. Distribution to Unsecured Creditors

45. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 45 Chapter 7—Discharge  Exceptions.   Objections to Discharge.   Effect of Discharge.  Revocation of Discharge.  Reaffirmation of a Debt.

46. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 46  Claims for back taxes.  Claims for amounts borrowed by Debtor to pay federal taxes.  Claims against property/money obtained by Debtor under false pretenses.  Claims by Creditors who did not know about bankruptcy.  Student Loans. Chapter 7—Exceptions to Discharge

47. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 47  Bankruptcy may also deny the discharge of the debtor (not the debt): If debtor intentional concealment or destruction of property or financial records. If debtor intentional concealment or destruction of property or financial records. Granting of discharge within 8 years of previous bankruptcy discharge. Granting of discharge within 8 years of previous bankruptcy discharge. Debtor’s failure to complete credit counseling courses. Debtor’s failure to complete credit counseling courses. Debtor found guilty of felony. Debtor found guilty of felony.  Revocation of Discharge. Objections to Discharge

48. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 48  Debtor may wish to pay a debt notwithstanding the debt could be discharged in bankruptcy.  Agreement is filed with court.  Debtor can rescind agreement at any time before discharge. Reaffirmation of Debt

49. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 49  Debtor and Creditors formulate a plan under which the Debtor pays a portion of its debts and is discharged of the rest.  Same debtors as are eligible under Chapter 7.  Focus is on “Best Interests” of the Creditors. Chapter 11-Reorganization

50. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 50  “Fast track” Chapter 11 for small business debtors whose liabilities do no exceed $2 million and who do not own or manage real estate.  “Workouts” (private negotiated settlements). Chapter 11-Reorganization

51. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 51  Debtor in Possession (DIP). Trustee may be appointed. Trustee may be appointed. DIP has same powers as trustee in Chapter 7. DIP has same powers as trustee in Chapter 7. Strong-arm clause.Strong-arm clause.  Creditors’ Committees. Chapter 11-Reorganization

52. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 52 Chapter 11-Reorganization Plan  Acceptance and Confirmation of the Plan. (2005 Act: Confirmation does not discharge a debtor.) (2005 Act: Confirmation does not discharge a debtor.) Rehabilitates debtor and conserves estate. Rehabilitates debtor and conserves estate. Court may “cram down” plan on all creditors. Court may “cram down” plan on all creditors.  Plan must be equitable and: Designate classes of claims and interests. Designate classes of claims and interests. Specify treatment to be afforded the classes. Specify treatment to be afforded the classes. Provide adequate means for execution. Provide adequate means for execution.

53. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 53  Chapter 13: Individuals’ Repayment Plans.  For individuals with regular income who owe fixed unsecured debts of <$336,900 or fixed secured debts of <$1,010,650.  Not for partnerships or corporations. Chapter 13-Individuals’ Repayment Plan

54. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 54 Chapter 13-Individuals’ Repayment Plan  The Repayment Plan. For all or a portion of debts to be paid during a period not to exceed 3 years. For all or a portion of debts to be paid during a period not to exceed 3 years. Confirmation Hearing for the Plan. Confirmation Hearing for the Plan. Hearing for interested parties to object to plan.Hearing for interested parties to object to plan. Court will confirm (order) the plan after creditors approve.Court will confirm (order) the plan after creditors approve. Objections to the Plan. Objections to the Plan.  Discharge balance of debt (after completion of all payments in the plan).

55. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 55  Chapter 12: Family Farmer and (Fisherman, 2005) Plans. “Family Farmer” (Or Fisherman): 50% of gross income comes from farming (or fishing) and whose debts are 80% farm (commercial fishing) related. “Family Farmer” (Or Fisherman): 50% of gross income comes from farming (or fishing) and whose debts are 80% farm (commercial fishing) related. Procedure for filing. Procedure for filing. Content of plan. Content of plan. Court confirmation. Court confirmation. Chapter 12-Family Farmers and Fishermen