Bankruptcy

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Bankruptcy

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Bankruptcy. Automatic Stay. Once bankruptcy petition filed, creditor cannot: Receive a security interest Perfect a security interest Enforce a security interest (repossess). Bankruptcy Trustee. Protects unsecured creditors. Enemy of the secured creditor. Status of judicial lien creditor. - PowerPoint PPT Presentation

Transcript of Bankruptcy

Page 1: Bankruptcy

Bankruptcy

Page 2: Bankruptcy

Automatic Stay

Once bankruptcy petition filed, creditor cannot: Receive a security interest Perfect a security interest Enforce a security interest

(repossess)

Page 3: Bankruptcy

Bankruptcy Trustee

Protects unsecured creditors.Enemy of the secured creditor.

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Status of judicial lien creditorBankruptcy trustee has status of

judicial lien creditor. Thus, will prevail over unperfected

security interests.

Problem 361 – p. 974

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Power to Raise Debtor’s DefensesBankruptcy trustee can raise any

defenses the debtor may have such as:

Statute of limitations Statute of frauds

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Power of any actual unsecured creditorMoore v. Bay – 1931 United

States Supreme Court

Trustee’s recovery is not limited to the amount of the unsecured creditor’s claim.

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Preferences

Debtor cannot prefer one creditor over another.

Creditors cannot be overly aggressive.

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Preferences

1. Transfer by debtor

Includes grant of security interest.

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Preferences

2. For preexisting debt

Not a new debt.

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Preferences

3. Within 90 days of filing the bankruptcy petition

One year if transfer is to an insider (e.g., relative, partner, corporate officer)

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Preferences

4. Increases the amount the creditor receives

Creditor is “better off” because of the transfer as compared to what the creditor would receive under a bankruptcy distribution.

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Preferences

5. Debtor insolvent at time of transfer

Presumed within 90 days before filing.

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Preferences -- Exceptions1. Contemporaneous exchange

New value given for item.

Perfection of new value within 30 days of attachment.

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Preferences -- Exceptions2. Ordinary course debt

payments

Utility bills Paying ordinary debts (even

secured ones)

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Preferences -- Exceptions3. PMSI

Perfected within 30 days of debtor receiving possession.

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Preferences

Problem 362 – p. 979

June 8$80,000 loan$100,000 collateral

July 18Perfection

July 19Bankruptcy filing

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Preferences

Problem 363 – p. 979

Nov. 1valueSecurity agreement

Nov. 15RightsAttachment

Dec. 6Bankruptcy filing

Dec. 5Filing

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Preferences

Problem 364 – p. 979

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Floating Liens

[amount unsecured 90 days before filing]

minus

[amount unsecured at time of filing]

equals

preference

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Floating Liens

Amount of

debt 90days before filing

Value ofcollateral90 daysbefore filing

Preference =

Amountof debtat timeof filing

Value ofcollateralat timeof filing

• Problem 365 – p. 981

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Fraudulent Conveyances

Under federal or state law.

Actual intent to defraud Debtor receives less than

reasonably equivalent value

Problem 366 – p. 989

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Judicial Liens

Judicial liens within 90 days of bankruptcy filing are preferences and trustee has priority.

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Statutory Liens

Statutory liens have priority over the bankruptcy trustee if under state law:

They would prevail against a BFP, and

Do not arise only because the debtor is insolvent.