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UNDERSTANDINGBANKRUPTCY
LexisNexis Law School PublishingAdvisory Board
William Araiza
Professor of Law
Brooklyn Law School
Ruth Colker
Distinguished University Professor & Heck-Faust Memorial Chair in Constitutional Law
Ohio State University Moritz College of Law
Olympia Duhart
Associate Professor of Law
Nova Southeastern University Shepard Broad Law School
Samuel Estreicher
Dwight D. Opperman Professor of Law
Director, Center for Labor and Employment Law
NYU School of Law
David Gamage
Assistant Professor of Law
UC Berkeley School of Law
Joan Heminway
College of Law Distinguished Professor of Law
University of Tennessee College of Law
Edward Imwinkelried
Edward L. Barrett, Jr. Professor of Law
UC Davis School of Law
Paul Marcus
Haynes Professor of Law
William and Mary Law School
Melissa Weresh
Director of Legal Writing and Professor of Law
Drake University Law School
UNDERSTANDINGBANKRUPTCY
Third Edition
Jeff FerriellProfessor of Law
Capital University Law School
Edward J. JangerDavid M. Barse Professor of Law
Brooklyn Law School
ISBN: 978–0–7698–5920–0
ISBN:978-0-3271-8286-3 (ebook)
Library of Congress Cataloging-in-Publication Data
Ferriell, Jeffrey Thomas, 1953-
Understanding bankruptcy / Jeff Ferriell, Professor of Law, Capital University Law School ; Edward J. Janger,
Professor of Law, Brooklyn Law School. -- Third edition.
pages cm.
Includes index.
ISBN 978-0-7698-5920-0
1. Bankruptcy--United States. I. Janger, Edward J. II. Title.
KF1524.F47 2013
346.7307’8--dc23
2012043384
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PREFACE
This book is designed to provide a basic introduction to bankruptcy and related state
debtor-creditor law. It will be useful for students taking an introductory course in
Creditors’ Rights that emphasizes bankruptcy, a course in Basic Bankruptcy, or an
advanced course in Chapter 11 Reorganization. It attempts to provide students with a
reasonably detailed discussion of the issues most likely to arise in these courses. It is as
up-to-date as possible, given the fast-changing nature of the law it examines. This edition
incorporates reported decisions interpreting the Bankruptcy Code through the end of
June, 2012.
The primary goal of this book is to bring order and clarity to a body of law for those
who are newcomers to bankruptcy law. In addition, it provides a basic explanation of
much of the commercial and debtor-creditor law that operates in the background of
bankruptcy cases.
We hope it provides a useful supplement to primary materials: the Bankruptcy Code,
the Bankruptcy Rules, and cases decided under them. Students using this book will still
need to study these fundamental materials in detail. In many situations they will find it
useful to put this book down, pick up the Bankruptcy Code, and read the relevant
statutory provision carefully. A full understanding requires facility with the Code, the
Rules, and the cases.
In the last three and a half decades, bankruptcy has evolved from a somewhat obscure
specialty to one of the dominant bodies of American law. Traditionally, the bankruptcy
bar was divided into two groups — the rather small group that did consumer and small
business bankruptcy, and the tiny group that worked on larger business reorganizations.
Many bankruptcy practitioners retain a degree of nostalgia for the days when insolvency
lawyers, if somewhat isolated from the profession as a whole, enjoyed (in much of the
country at least) the kind of camaraderie that is usually associated with lawyers in a small
town.
Much of this has changed. Bankruptcy has become a boom area of practice, one of
interest to a growing number of large firms. The annual rate of bankruptcy filings grew
rapidly in the late 1990s and early 2000s, reaching a peak of over 1.5 million. That
number declined after the Code was substantially amended in 2005, but rebounded to
well over one million in the wake of the financial crisis of 2008. The administrative and
judicial structure of bankruptcy has become elaborate and formalized; the scope of
bankruptcy has grown in unexpected directions. Bankruptcy is now a serious matter not
only for commercial and insolvency lawyers, but also for tax lawyers, domestic relations
lawyers, environmental lawyers, intellectual property lawyers, and labor lawyers, as well
as those involved in business and personal injury litigation generally.
There are many reasons for this transformation. On the consumer side some say the
change is attributable to the fact that bankruptcy no longer carries with it a stigma of
failure and dishonesty. Others attribute this shift to changes in the consumer credit
industry, especially the advent of subprime lending and lenders who can lend profitably
to much riskier borrowers. On the business side, some alternatives to bankruptcy,
especially state insolvency proceedings, have withered away or are ineffective in the face
of national and multinational business enterprises. The Bankruptcy Code itself is in part
iii
responsible; it contains a number of legal devices that permit people and companies to
achieve — or at least to try to achieve — goals that are simply not achievable under any
other body of law. For example, bankruptcy is practically the only method of dealing
with “mass torts” in a single consolidated proceeding.
Along with the explosion of bankruptcy litigation has come a parallel explosion of
academic interest in bankruptcy. Not long ago, most law schools had little more in their
curriculum than a single course in Creditor’s Rights, only part of which was taken up by
bankruptcy law. Today, many schools have several courses, covering not only basic
bankruptcy but reorganization bankruptcy, bankruptcy tax, partnership bankruptcy,
bankruptcy environmental law, and the like. Similarly, for many years there was only one
important secondary source — Collier on Bankruptcy — a venerable treatise first
published in 1898 (the 16th edition of which is still the leading authority).1 Now there are
many sources. Of special interest to the law school community are the multiple law
reviews that specialize in bankruptcy law, and the many articles on bankruptcy published
in non-specialist law journals. We have tried to include a fair sampling of these other
sources, to which students should turn for further discussion when they find themselves
excited by a particular topic.2
Bankruptcy has also become a hot topic among legal theorists. Nothing that touches so
large a part of the American economy and American society can exist for long without
triggering efforts to fit it within larger structures of economic and political thinking.
While this book is primarily aimed at giving a basic overview of bankruptcy, it also
introduces the reader to the most important theoretical perspectives. Bankruptcy is an
area in which there is often little separation between theory and practice, not least
because Congress is constantly returning to basic principles as it writes and rewrites the
Bankruptcy Code.
Bankruptcy law in this country is federal law. The substantive parts are found almost
entirely in the Bankruptcy Code (Title 11 of the United States Code). Procedural rules are
found mainly in the Federal Rules of Bankruptcy Procedure and in various parts of Title
28 of the United States Code (the “judicial code”). A few provisions are in Title 18 of the
United States Code (the federal criminal code”). Although some state law is directly
incorporated into the Code, and other state law indirectly affects rights in bankruptcy,
most of the conflicts between state law and bankruptcy law is resolved in favor of the
latter.
One of the features of federal law is the wealth of legislative history that underlies it.
Insofar as the Bankruptcy Code is concerned, the primary sources of that history are the
House and Senate Reports that accompanied its original enactment. There was also
extensive floor debate on some provisions; and most of the subsequent amendments to
the Code are supported by similar reports and debates. The weight to be given these
sources is today controversial. Several members of the Supreme Court, most noticeably
Justice Antonin Scalia, largely reject the use of legislative history in statutory
1 Not coincidentally, Collier’s is a Matthew Bender publication.
2 The suggestion that one might find bankruptcy law interesting and exciting brings to mind the
teenage daughter of one of your author’s friends. She found her father’s amateur radio hobby both
interesting and exciting, but when she passed her FCC amateur radio licensing exam, and thus
became a “ham radio” operator, she made her father (W8HI) and his law professor friend (K8ZDA),
promise not to tell any of her peers.
PREFACE
iv
interpretation and sometimes seems to use the bankruptcy code as a laboratory to test out
his theories of statutory interpretation.
We end by suggesting one final reason why we think you will find this one of the most
exciting courses you will take in law school. In a practical, if not technical legal sense,
bankruptcy is the court of last resort. In virtually every bankruptcy, there are far more
claims than there are assets. Not only is there no free lunch; there is not enough lunch to
feed everybody. In bankruptcy there is only so much to go around; it is not sufficient; yet
it is all there is or will ever be. This means that bankruptcy law must make choices that
are both unsatisfactory and final. How should the limited pool be divided up? How do we
and how should we decide between the claim of the mortgage holder to whom the debtor
owes money on a loan and the maimed victim of the debtor’s intentional tort? How do we
also fit in the tax collector, the utility company, the credit card company, the debtor’s
doctor and the debtor’s unpaid housekeeper? Bankruptcy law again and again forces us to
make the hard disagreeable choices that are otherwise too often ignored. You may agree
or disagree with the choices that have been made, but you should understand them; you
should also understand that a choice is unavoidable.
With all this said, we hope you will find your study of bankruptcy exciting and
intriguing. We hope as well you will find this book a helpful guide. Good luck!
Jeff Ferriell, Columbus, Ohio & Oak Bluffs, Massachusetts
Ted Janger, Brooklyn, New York & West Tisbury, Massachusetts
PREFACE
v
ACKNOWLEDGEMENTS
Our first debt of gratitude must be to Rev. Michael J. Herbert of the Roman Catholic
Diocese of Richmond, Virginia. Father Herbert provided the authors with no direct
spiritual assistance, at least none that we know of. Instead, he provided us with the benefit
of the considerable expertise in bankruptcy and related commercial law he acquired, prior
to his ordination, while he was a member of the University of Richmond Law School
faculty, and as the sole author of the first edition of this book. Although his ecclesiastical
duties made it necessary for him to decline to be named as a third co-author of
subsequent editions of Understanding Bankruptcy, its basic structure, format, and indeed
many of its passages reflect work he did in the early 1990’s. Without the benefit of his
earlier work, our task would have been much harder. Any mistakes, of course, are ours
alone.
Thanks are also owed to Deans Joan Wexler, Michael Gerber, and Nick Allard, the
Dean’s research fund at Brooklyn Law School, as well as to Capital University Law
School Deans Jack Guttenberg and Rich Simpson, and Capital University Law School
research funds. Our able research assistants on the second edition Mary Daugherty and
Carla Cheung, and Eric Coss, Erin Porta, Noam Weiss and Colleen Connelly, as well as
Keith Moore at Lexis-Nexis and Matthew Bender have provided necessary
encouragement and patient research and editorial work.
We also owe a debt of gratitude to those who first introduced us to bankruptcy law,
Profs. Gary Neustadter and former Prof. Sheridan Downey of Santa Clara University,
former University of Illinois Prof. Jonathan Landers, and Prof. Douglas Baird of the
University of Chicago. This work also benefitted considerably from our past students
who suffered through many of our early efforts to explain bankruptcy law, and whose
puzzled looks and thoughtful questions are responsible for inducing us to develop many
of the better explanations that appear in this book.
Finally, thanks are also owed, in connection with both this work and every aspect of
our lives, to our parents, Merlin and Frances Ferriell and Inez and Allen Janger, as well to
our wives, Cheryl Hacker and Victoria Eastus.
vii
TABLE OF CONTENTS
Chapter 1 GENERAL PRINCIPLES UNDERLYING INSOLVENCY
LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
§ 1.01 THE NATURE OF INSOLVENCY LAW . . . . . . . . . . . . . . . . . . . . . . . . 1
[A] Introduction: Fresh Start for Individual Debtors & Fair Treatment of
Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
[B] Bankruptcy as a Debtor’s Remedy: Fresh Start for Honest Debtors . . . . . 2
[C] Business Bankruptcy — Breathing Room and Maximizing Value . . . . . . 4
[D] Bankruptcy as a Creditor’s Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
[1] Maximizing Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
[2] Equal Treatment of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
§ 1.02 MODERN THEORIES OF INSOLVENCY LAW . . . . . . . . . . . . . . . . . . 7
[A] “Proceduralist” Theories of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . 8
[B] “Traditionalist” Theories of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . 9
§ 1.03 INTERPRETATION OF THE BANKRUPTCY CODE . . . . . . . . . . . . . . 11
§ 1.04 CONSTITUTIONAL LIMITS ON BANKRUPTCY LAW . . . . . . . . . . . 12
Chapter 2 CREDITORS’ COLLECTION RIGHTS . . . . . . . . . . . . . . 13
§ 2.01 SOURCE OF CREDITORS’ COLLECTION RIGHTS . . . . . . . . . . . . . . 13
§ 2.02 CONSENSUAL LIENS; LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
[A] Real Estate Mortgages and Deeds of Trust . . . . . . . . . . . . . . . . . . . . . 15
[1] Basic Operation of Mortgages and Deeds of Trust . . . . . . . . . . . . . . 15
[a] Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
[b] Deeds of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
[c] Installment Land Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
[2] Two Step Process: Agreement and Recordation . . . . . . . . . . . . . . . . 17
[3] Priority of Mortgages and Deeds of Trust . . . . . . . . . . . . . . . . . . . . . 17
[B] Security Interests in Personal Property . . . . . . . . . . . . . . . . . . . . . . . . 18
[1] Article 9 of the Uniform Commercial Code . . . . . . . . . . . . . . . . . . . 18
[a] Scope of Article 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
[b] Attachment of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . 18
[c] Perfection of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 19
[d] Priority Rules under U.C.C. Article 9 . . . . . . . . . . . . . . . . . . . . . . 20
[e] Enforcement of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . 20
[2] Superseding Federal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
[C] Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
[1] Real Estate Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
[2] Personal Property Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
§ 2.03 JUDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ix
[A] Obtaining a Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
[1] Default Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
[2] Summary Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
[3] Consent Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
[4] Judgment by Confession (Cognovit Judgments) . . . . . . . . . . . . . . . . 24
[5] Judgment after Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
[B] Dormancy, Renewal, and Revival of Judgments . . . . . . . . . . . . . . . . . 26
[C] Enforcing Judgments from Other Jurisdictions . . . . . . . . . . . . . . . . . . . 27
[1] Judgments from Sister States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
[2] Foreign Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
§ 2.04 JUDICIAL LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
[A] Judgment Liens on Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
[B] Judicial Liens on Tangible Personal Property . . . . . . . . . . . . . . . . . . . 30
[C] Garnishment of Property Under the Control of Third Parties . . . . . . . . . 33
§ 2.05 STATUTORY, COMMON LAW, AND EQUITABLE LIENS . . . . . . . . 34
[A] Construction or “Mechanic’s” Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 35
[B] Repair or “Artisan’s” Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
[C] Common Law Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
[D] Equitable Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
[E] Seller’s Right of Reclamation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
[1] Reclamation in Credit Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
[2] Reclamation in Cash Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
[3] Priority of Right of Reclamation . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
[4] Bankruptcy Code Limits on Seller’s Right of Reclamation . . . . . . . . 40
[5] Seller’s Administrative Priority in Bankruptcy . . . . . . . . . . . . . . . . . 41
[F] Tax Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
[1] Federal Tax Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
[2] State and Local Tax Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
§ 2.06 SETOFF OF MUTUAL DEBTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
[A] Creditors’ Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
[1] Setoff Limited to Mutual Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
[2] Setoff of Matured Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
[3] Statutory Restrictions on Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
[B] Priority of Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
§ 2.07 FORECLOSURE PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
[A] Real Estate Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
[1] Judicial Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
[2] Private Foreclosure Under a Power of Sale . . . . . . . . . . . . . . . . . . . . 52
[3] Strict Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
[B] Self-Help Repossession of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
[C] Replevin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
TABLE OF CONTENTS
x
[D] Sales of Collateral under U.C.C. Article 9 . . . . . . . . . . . . . . . . . . . . . . 55
§ 2.08 PRE-JUDGMENT SEIZURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
[A] Pre-Judgment Seizure Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
[1] Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
[a] Grounds for Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
[b] Seizure of the Defendant’s Property . . . . . . . . . . . . . . . . . . . . . . . 59
[c] Release of the Property from Attachment . . . . . . . . . . . . . . . . . . . 59
[d] Liability for Wrongful Attachment . . . . . . . . . . . . . . . . . . . . . . . . 59
[2] Lis Pendens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
[B] Constitutional Limits on Pre-Judgment Seizure . . . . . . . . . . . . . . . . . . 61
§ 2.09 STATE INSOLVENCY PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . 66
[A] Assignments for Benefit of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . 66
[B] Equitable and Statutory Receiverships . . . . . . . . . . . . . . . . . . . . . . . . 67
[C] Regulatory Receiverships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
§ 2.10 COMPOSITIONS AND WORKOUTS . . . . . . . . . . . . . . . . . . . . . . . . . 68
§ 2.11 PROPERTY BEYOND THE REACH OF CREDITORS . . . . . . . . . . . . . 71
[A] Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
[1] Limitations on Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
[a] Exemption in Debtor’s Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
[b] Limited Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
[c] Value Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
[2] Homestead Exemptions on Residential Real Estate . . . . . . . . . . . . . . 76
[3] Personal Property Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
[4] Exemptions for Sources of Income . . . . . . . . . . . . . . . . . . . . . . . . . 78
[a] Federal Restrictions on Wage Garnishment . . . . . . . . . . . . . . . . . . 78
[b] State Restrictions on Wage Garnishment . . . . . . . . . . . . . . . . . . . 80
[c] Exemptions for Other Sources of Income . . . . . . . . . . . . . . . . . . . 81
[5] Tracing Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
[B] Other Property Immune from Creditors’ Claims . . . . . . . . . . . . . . . . . 83
[1] Spendthrift Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
[2] Tenancies by the Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
§ 2.12 SURETYSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
[A] Basic Suretyship Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
[B] Suretyship Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
[1] Surety’s Use of Principal’s Defenses . . . . . . . . . . . . . . . . . . . . . . . . 88
[2] Creditor’s Impairment of the Collateral . . . . . . . . . . . . . . . . . . . . . . 89
[3] Release of the Principal Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
[4] Time Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
[5] Other Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
[C] Suretyship Issues in Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
§ 2.13 SUPPLEMENTAL COLLECTION PROCEEDINGS . . . . . . . . . . . . . . . 92
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[A] Discovery: Examination of a Judgment Debtor . . . . . . . . . . . . . . . . . . 92
[B] Contempt Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
§ 2.14 COMMON LAW AND STATUTORY RESTRICTIONS ON CREDITORS’
COLLECTION EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
[A] Common Law Tort Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
[1] Invasion of Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
[2] Intentional Infliction of Emotional Distress . . . . . . . . . . . . . . . . . . . 96
[3] Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
[4] Intentional Interference with Contractual Relations. . . . . . . . . . . . . . 97
[5] Abuse of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
[6] Defamation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
[B] Lender Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
[C] Federal Fair Debt Collection Practices Act . . . . . . . . . . . . . . . . . . . . . 99
[1] Scope of the FDCPA: Debt Collectors . . . . . . . . . . . . . . . . . . . . . . 100
[2] Debt Collectors’ Communications with Debtor and Others . . . . . . . 101
[3] Harassment or Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
[4] False or Misleading Representations . . . . . . . . . . . . . . . . . . . . . . . 103
[5] Unfair Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
[6] Debt Validation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
[7] Bona Fide Error Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
[8] FDCPA Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
[D] Federal Fair Credit Reporting Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
[E] State Consumer Protection Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Chapter 3 A BRIEF HISTORY OF BANKRUPTCY . . . . . . . . . . . . 111
§ 3.01 THE BANKRUPTCY CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
§ 3.02 BANKRUPTCY LAW PRIOR TO 1898 . . . . . . . . . . . . . . . . . . . . . . . 111
§ 3.03 THE BANKRUPTCY ACT OF 1898 . . . . . . . . . . . . . . . . . . . . . . . . . . 112
§ 3.04 THE BANKRUPTCY CODE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Chapter 4 PARTIES AND OTHER PARTICIPANTS IN
BANKRUPTCY CASES . . . . . . . . . . . . . . . . . . . . . . . . . 119
§ 4.01 PARTIES AND OTHER PARTICIPANTS IN THE BANKRUPTCY
PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
§ 4.02 DEBTORS AND DEBTORS-IN-POSSESSION . . . . . . . . . . . . . . . . . . 120
[A] Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
[B] Debtor-in-Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
§ 4.03 THE ESTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
§ 4.04 CREDITORS AND CREDITORS’ COMMITTEES . . . . . . . . . . . . . . . 123
[A] Role of Creditors in Bankruptcy Cases . . . . . . . . . . . . . . . . . . . . . . . 123
[B] Creditors’ Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
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§ 4.05 TRUSTEES AND EXAMINERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
[A] Case Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
[1] Case Trustee in Chapter 7 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . 125
[2] Trustee in Chapter 11 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
[3] Standing Trustees in Chapter 12 and 13 Cases . . . . . . . . . . . . . . . . 126
[4] Eligibility, Qualification, and Role of Standing and Case Trustees . . 127
[B] Examiners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
[C] The United States Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
§ 4.06 BANKRUPTCY COURTS AND BANKRUPTCY JUDGES . . . . . . . . . 130
§ 4.07 LAWYERS AND OTHER PROFESSIONALS . . . . . . . . . . . . . . . . . . . 131
Chapter 5 BANKRUPTCY PROCEDURE, JURISDICTION, AND
VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
§ 5.01 PROCEDURE IN BANKRUPTCY CASES . . . . . . . . . . . . . . . . . . . . . 133
[A] Rules of Bankruptcy Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
[B] Trial Process in Bankruptcy Litigation . . . . . . . . . . . . . . . . . . . . . . . 135
[C] Appellate Process in Bankruptcy Litigation . . . . . . . . . . . . . . . . . . . . 136
§ 5.02 BANKRUPTCY JURISDICTION OF FEDERAL COURTS . . . . . . . . . 137
[A] Article I Status of Bankruptcy Judges . . . . . . . . . . . . . . . . . . . . . . . . 137
[B] History of Bankruptcy Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . 138
[C] Bankruptcy Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
[1] Bankruptcy Jurisdiction of the District Court . . . . . . . . . . . . . . . . . 139
[2] Referral of Jurisdiction to the Bankruptcy Court . . . . . . . . . . . . . . . 140
[3] Bankruptcy Court Authority Over “Bankruptcy Cases” and “Core
Proceedings” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
[a] Personal Injury & Wrongful Death Claims Excluded . . . . . . . . . . 142
[b] Counterclaims Against Creditors . . . . . . . . . . . . . . . . . . . . . . . . 142
[4] Non-Core Proceedings — Civil Proceedings “Related to” a Bankruptcy
Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
[5] Disputes Beyond the Court’s Statutory Jurisdiction . . . . . . . . . . . . . 145
[a] Disputes Not “Related To” a Bankruptcy Case . . . . . . . . . . . . . . 145
[b] Probate Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
[6] Jurisdiction over Jurisdictional Determinations . . . . . . . . . . . . . . . . 146
[D] Abstention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
[1] Permissive Abstention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
[2] Mandatory Abstention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
[3] Appeal of Abstention Determinations . . . . . . . . . . . . . . . . . . . . . . 149
[E] Jury Trials in Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
§ 5.03 BANKRUPTCY VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
[A] Venue of Bankruptcy Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
[B] Venue of Civil Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
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§ 5.04 NATIONWIDE SERVICE OF PROCESS IN BANKRUPTCY . . . . . . . 153
§ 5.05 SOVEREIGN IMMUNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
§ 5.06 ARBITRATION CLAUSES IN BANKRUPTCY . . . . . . . . . . . . . . . . . 157
Chapter 6 COMMENCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
§ 6.01 COMMENCEMENT OF BANKRUPTCY CASES . . . . . . . . . . . . . . . . 159
[A] Voluntary Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
[B] Involuntary Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
§ 6.02 COMMENCEMENT OF A VOLUNTARY CASE . . . . . . . . . . . . . . . . 160
[A] Filing a Voluntary Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
[B] Debtors’ Eligibility for Voluntary Bankruptcy . . . . . . . . . . . . . . . . . . 161
[1] General Restrictions on Eligibility for Bankruptcy Relief . . . . . . . . . 161
[a] Connection to the United States . . . . . . . . . . . . . . . . . . . . . . . . . 161
[b] Abusive Repetitive Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
[c] Mandatory Credit Counseling Briefing . . . . . . . . . . . . . . . . . . . . 163
[d] Abstention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
[2] Eligibility for Relief Under Chapter 7 — Liquidation . . . . . . . . . . . 165
[3] Eligibility for Relief under Chapter 9 — Municipalities . . . . . . . . . . 166
[4] Eligibility for Relief Under Chapter 11 — Reorganization . . . . . . . . 166
[5] Eligibility for Relief Under Chapter 12 — Family Farmers and Family
Fishermen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
[a] Stable and Regular Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
[b] Family Farmer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
[i] Farming Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
[ii] Debt Limit for Family Farmers . . . . . . . . . . . . . . . . . . . . . . . . 168
[iii] Source of Family Farmers Debts . . . . . . . . . . . . . . . . . . . . . . . 168
[iv] Source of Family Farmers’ Income . . . . . . . . . . . . . . . . . . . . . 169
[v] Corporate Family Farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
[c] Family Fisherman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
[i] Commercial Fishing Operation . . . . . . . . . . . . . . . . . . . . . . . . 170
[ii] Debt Limit for Family Fishermen . . . . . . . . . . . . . . . . . . . . . . 170
[iii] Source of Family Fishermens’ Debts . . . . . . . . . . . . . . . . . . . . 170
[iv] Source of Family Fishermens’ Income . . . . . . . . . . . . . . . . . . 170
[v] Corporate Family Fishermen . . . . . . . . . . . . . . . . . . . . . . . . . 171
[6] Eligibility for Relief Under Chapter 13 — Individuals with Regular
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
[a] Individual or Individual and Spouse . . . . . . . . . . . . . . . . . . . . . . 171
[b] Regular Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
[c] Chapter 13 Debt Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
[i] Non-Contingent Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
[ii] Liquidated Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
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[iii] Secured Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
[C] Petition, Lists, Schedules, Statements, Certificates and Disclosures . . . 175
[1] Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
[2] Schedules of Debts and Assets; Statement of Affairs . . . . . . . . . . . . 176
[3] Additional Documents for Individual Consumer Debtors . . . . . . . . . 177
[D] Joint Petitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
[E] Filing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
[F] Attorneys’ Obligations Regarding Debtor’s Schedules . . . . . . . . . . . . 180
§ 6.03 COMMENCEMENT OF INVOLUNTARY CASES . . . . . . . . . . . . . . . 182
[A] Purpose of Involuntary Petitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
[B] Chapters Under Which Involuntary Petition are Permitted . . . . . . . . . . 183
[C] Persons Against Whom an Involuntary Petition May Be Filed . . . . . . . 183
[D] Petitioning Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
[1] Three Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
[2] Determining Whether the Debtor Has Twelve Creditors . . . . . . . . . 186
[3] Aggregate Minimum of Unsecured Claims . . . . . . . . . . . . . . . . . . . 187
[4] Special Involuntary Petition Rules for Certain Debtors . . . . . . . . . . 188
[E] Grounds for Entering an “Order for Relief” . . . . . . . . . . . . . . . . . . . . 188
[1] Petition Not Controverted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
[2] Debtor Generally Not Paying Debts as They Become Due . . . . . . . . 189
[3] Appointment of a “Custodian” of the Debtor’s Property . . . . . . . . . 190
[F] Dismissal of an Involuntary Petition . . . . . . . . . . . . . . . . . . . . . . . . . 191
[G] Penalties for Unsubstantiated Petitions . . . . . . . . . . . . . . . . . . . . . . . 191
[H] Transactions During the “Gap Period” . . . . . . . . . . . . . . . . . . . . . . . 192
[1] Control of the Debtor During the Involuntary Gap . . . . . . . . . . . . . 193
[2] Effect of the Automatic Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
[3] Transfers of Estate Property During the Involuntary Gap . . . . . . . . . 193
[4] Priority for Involuntary Gap Creditors . . . . . . . . . . . . . . . . . . . . . . 195
§ 6.04 CLOSING BANKRUPTCY CASES . . . . . . . . . . . . . . . . . . . . . . . . . . 196
[A] Closing a Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
[B] Reopening a Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
Chapter 7 PROPERTY OF THE ESTATE . . . . . . . . . . . . . . . . . . . . 197
§ 7.01 CREATION OF THE DEBTOR’S ESTATE . . . . . . . . . . . . . . . . . . . . 197
§ 7.02 PROPERTY INCLUDED IN THE ESTATE . . . . . . . . . . . . . . . . . . . . 198
[A] Debtor’s Interests in Property at Commencement of the Case . . . . . . . 199
[1] Debtor’s Property Included in the Estate . . . . . . . . . . . . . . . . . . . . 199
[2] Relationship Between Bankruptcy Law and State Property Law . . . . 201
[B] Community Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
[C] Property Recovered under Avoiding Powers . . . . . . . . . . . . . . . . . . . 203
[D] Property Preserved for the Benefit of the Estate . . . . . . . . . . . . . . . . . 203
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[E] Certain Post-Petition Property Acquired Within 180 Days of the
Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
[F] Post-Petition Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
[1] Proceeds, Products, Offspring, Rents and Profits from Property of the
Estate Included . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
[2] Earnings from Individual Debtor’s Post-Petition Services Excluded . 207
[G] Post-Petition Property Acquired by the Estate . . . . . . . . . . . . . . . . . . 210
§ 7.03 EFFECT OF RESTRICTIONS ON TRANSFER OF DEBTOR’S
PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
[A] Ipso-Facto Clauses Ineffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
[B] Transfer Restrictions Ineffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
[C] Restrictions on Transferability of Governmental Licenses Ineffective . . 213
§ 7.04 PROPERTY EXCLUDED FROM THE DEBTOR’S ESTATE . . . . . . . 214
[A] Property Held by Debtor for the Benefit of a Third Person . . . . . . . . . 214
[B] Expired Leases of Non-Residential Real Estate . . . . . . . . . . . . . . . . . 215
[C] Debtor’s Right to Participate in Educational Program; Accreditation . . 217
[D] Specific Oil Industry Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
[E] Proceeds of Money Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
[F] Spendthrift Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
[1] Meaning of “Spendthrift Trust” . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
[2] Enforceability of Spendthrift Trusts in Bankruptcy . . . . . . . . . . . . . 219
[3] Offshore Asset Protection Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . 220
[4] Employee Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
[G] Debtor’s Right as Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
[H] Education IRAs and Tuition Credits . . . . . . . . . . . . . . . . . . . . . . . . . 225
[I] Pawned Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
[J] Social Security Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
§ 7.05 SECURITIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
§ 7.06 EXPANDED ESTATE IN REORGANIZATION CASES UNDER
CHAPTERS 11, 12, AND 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
[A] Expanded Estate in Chapter 11 Cases . . . . . . . . . . . . . . . . . . . . . . . . 229
[B] Expanded Estate in Chapter 12 Cases . . . . . . . . . . . . . . . . . . . . . . . . 229
[C] Expanded Estate in Chapter 13 Cases . . . . . . . . . . . . . . . . . . . . . . . . 230
Chapter 8 THE AUTOMATIC STAY . . . . . . . . . . . . . . . . . . . . . . . 231
§ 8.01 PURPOSE OF THE AUTOMATIC STAY . . . . . . . . . . . . . . . . . . . . . . 231
§ 8.02 SCOPE OF THE AUTOMATIC STAY . . . . . . . . . . . . . . . . . . . . . . . . 231
[A] Judicial and Administrative Proceedings . . . . . . . . . . . . . . . . . . . . . . 232
[B] Enforcement of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
[C] Acts to Obtain Possession or Control of Estate Property . . . . . . . . . . . 234
[D] Acts to Create, Perfect, or Enforce Liens . . . . . . . . . . . . . . . . . . . . . . 234
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[E] Acts to Collect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
[F] Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
[G] Tax Court Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
§ 8.03 EXCEPTIONS TO THE AUTOMATIC STAY . . . . . . . . . . . . . . . . . . 238
[A] Private Rights Exceptions to the Stay . . . . . . . . . . . . . . . . . . . . . . . . 238
[1] Family and Domestic Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 239
[2] Perfection of Certain Pre-Petition Property Interests . . . . . . . . . . . . 240
[3] Commercial Real Estate Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
[4] Presentment of Negotiable Instruments . . . . . . . . . . . . . . . . . . . . . 241
[5] Other Private Rights Exceptions to the Automatic Stay . . . . . . . . . . 241
[B] Public Rights Exceptions to the Stay — Governmental Action
Permitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
[1] Criminal Prosecutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
[2] Regulatory Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
[3] Specific Governmental Pecuniary Interests . . . . . . . . . . . . . . . . . . . 244
§ 8.04 CO-DEBTOR STAYS IN CHAPTERS 12 AND 13 . . . . . . . . . . . . . . . 245
§ 8.05 DISCRETIONARY STAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
§ 8.06 RELIEF FROM THE AUTOMATIC STAY; DURATION AND
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
[A] Automatic Termination of the Stay . . . . . . . . . . . . . . . . . . . . . . . . . . 249
[1] Property No Longer in the Estate . . . . . . . . . . . . . . . . . . . . . . . . . . 250
[2] Conclusion of the Bankruptcy Case . . . . . . . . . . . . . . . . . . . . . . . . 250
[3] Automatic Termination — Prior Petition Within One Year . . . . . . . 250
[4] Automatic Termination — Multiple Prior Petitions Within One
Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
[5] Individual Debtor’s Failure to File Statement of Intention . . . . . . . . 253
[B] Relief from Stay Upon Request of a Party . . . . . . . . . . . . . . . . . . . . . 253
[1] For Cause: Lack of Adequate Protection . . . . . . . . . . . . . . . . . . . . 254
[2] For Cause: Other Than for Lack of Adequate Protection . . . . . . . . . 260
[3] No Equity and Property Not Necessary for Reorganization . . . . . . . 261
[a] No Equity in the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
[b] Property Not Necessary for Effective Reorganization . . . . . . . . . . 262
[4] Single-Asset Real Estate Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
[5] Foreclosure in Cases Filed to Delay, Hinder or Defraud Creditors . . 265
[6] Enforceability of Pre-Petition Waivers . . . . . . . . . . . . . . . . . . . . . . 266
[7] Creditor Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
[C] Form of Relief from the Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
[D] Procedure for Obtaining Relief from the Stay . . . . . . . . . . . . . . . . . . 268
§ 8.07 ENFORCEMENT OF THE STAY . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
[A] Actions in Violation of the Stay are Void . . . . . . . . . . . . . . . . . . . . . 269
[B] Damages for Violating the Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
[C] Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
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Chapter 9 OPERATING THE DEBTOR . . . . . . . . . . . . . . . . . . . . . 275
§ 9.01 RESPONSIBILITY FOR OPERATION OF THE DEBTOR . . . . . . . . . 275
§ 9.02 SUPERVISION OF THE DEBTOR’S BUSINESS . . . . . . . . . . . . . . . . 276
§ 9.03 USE, SALE, OR LEASE OF ESTATE PROPERTY . . . . . . . . . . . . . . . 277
[A] Use, Sale, or Lease In the Ordinary Course . . . . . . . . . . . . . . . . . . . . 277
[B] Use of Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
[C] Use, Sale, or Lease Outside the Ordinary Course . . . . . . . . . . . . . . . . 281
[D] Adequate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
[E] Continuation of Liens and Other Interests; Sales Free and Clear . . . . . 285
[1] “Interests” that May be Removed by a Sale Free and Clear . . . . . . . 285
[2] Circumstances Permitting Sale Free and Clear . . . . . . . . . . . . . . . . 286
[a] Nonbankruptcy Law Permits Property to be Sold Free and Clear . . 287
[b] Creditor Consents to Sale Free and Clear . . . . . . . . . . . . . . . . . . 287
[c] Price Exceeds Aggregate Value of All Liens . . . . . . . . . . . . . . . . 287
[d] Lien Subject to a Bona Fide Dispute . . . . . . . . . . . . . . . . . . . . . . 288
[e] Legal or Equitable Right to Compel Acceptance of Money
Substitute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
[3] Right to Adequate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
[4] Additional Special Protections for Joint Owners . . . . . . . . . . . . . . . 289
[a] Protection of Dower and Curtesy Interests . . . . . . . . . . . . . . . . . 289
[b] Protection of Joint Tenants, Tenants in Common and Tenants by the
Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
[5] Effect of Sale Free and Clear . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
[F] Ipso Facto Clauses Ineffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
[G] Rigged Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
[H] Burdens of Proof Regarding Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 292
[I] Appeals from Orders Approving Sales of Estate Property . . . . . . . . . . 292
[J] Transfer of Customers’ Personal Identifiable Information . . . . . . . . . . 293
§ 9.04 UTILITY SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
§ 9.05 OBTAINING CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
[A] Unsecured Credit In the Ordinary Course . . . . . . . . . . . . . . . . . . . . . 296
[B] Unsecured Credit Outside the Ordinary Course . . . . . . . . . . . . . . . . . 297
[1] Administrative Expense Priority . . . . . . . . . . . . . . . . . . . . . . . . . . 298
[2] Super-Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298
[C] Secured Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
[1] Granting a Lien on Unencumbered Equity . . . . . . . . . . . . . . . . . . . 299
[2] Granting an Equal or Priority Lien . . . . . . . . . . . . . . . . . . . . . . . . . 300
[3] Cross-Collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
[4] Emergency Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
[5] Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . 304
[D] Appeals of Orders Authorizing Post-Petition Credit . . . . . . . . . . . . . . 305
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§ 9.06 ABANDONMENT OF ESTATE PROPERTY . . . . . . . . . . . . . . . . . . . 306
§ 9.07 HEALTH CARE PROVIDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
Chapter 10 CLAIMS AND INTERESTS . . . . . . . . . . . . . . . . . . . . . . 309
§ 10.01 MEANING OF CLAIMS AND INTERESTS; PRIORITY . . . . . . . . . . . 309
§ 10.02 CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
[A] Definition of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
[B] Proof of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313
[C] Allowance of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
[1] Contingent and Unliquidated Claims . . . . . . . . . . . . . . . . . . . . . . . 316
[2] Future Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
[3] Debtor’s Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
[4] Interest on Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319
[5] Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
[a] Pre-Petition Costs and Attorneys Fees . . . . . . . . . . . . . . . . . . . . 321
[b] Post-Petition Costs and Attorneys’ Fees for Fully Secured Claims . 322
[c] Post-Petition Costs and Attorneys’ Fees for Unsecured and Partially
Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
[6] Disallowance of Claims of Recipients of Avoidable Transfers . . . . . 324
[D] Limits on Allowance of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
[1] Limits on Claims for Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
[2] Limit on Claims for Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
[3] Limits on Property Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
[4] Limits on Claims of Insiders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
[5] Unmatured Support Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
[6] Disallowance of Late Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
[7] Unsecured Consumer Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
[E] Estimation of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330
§ 10.03 SECURED CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331
[A] Creditors with Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
[B] Effect of Bankruptcy on Secured Claims . . . . . . . . . . . . . . . . . . . . . . 333
[1] Foreclosure Delayed or Restrained . . . . . . . . . . . . . . . . . . . . . . . . 333
[2] Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
[3] Post-Petition Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
[4] After-Acquired Collateral and Proceeds . . . . . . . . . . . . . . . . . . . . . 335
[C] Allowance of Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
[1] Valuation of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
[2] Enforceability of Lien or Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
[3] Post-Petition Interest on Secured Claims . . . . . . . . . . . . . . . . . . . . 341
[D] Surcharge of Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344
§ 10.04 UNSECURED CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
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[A] Priority Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
[1] Support Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
[2] Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
[3] Involuntary Gap Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
[4] Wage Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
[5] Employee Benefit Plan Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
[6] Certain Claims of Farmers and Fisherman . . . . . . . . . . . . . . . . . . . 351
[7] Consumer Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
[8] Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
[9] Claims of Insured Depositary Institutions . . . . . . . . . . . . . . . . . . . . 353
[10] Civil Liability for Driving While Intoxicated . . . . . . . . . . . . . . . . . 353
[B] Super-Priority Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
[1] Claims for Inadequate “Adequate Protection” . . . . . . . . . . . . . . . . . 353
[2] Post-Petition Credit Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
[3] Post-Conversion Liquidation Expenses . . . . . . . . . . . . . . . . . . . . . 354
[C] General Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
§ 10.05 SUBORDINATED CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
[A] Contractual Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
[B] Equitable Subordination and Recharacterization . . . . . . . . . . . . . . . . . 357
[1] Equitable Subordination and Recharacterization Compared . . . . . . . 357
[2] Equitable Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
[3] Recharacterization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
[C] Statutory Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362
§ 10.06 INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
[A] Meaning of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
[B] Allowance of Owners’ Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
[C] Priority of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
[D] Subordinated Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
§ 10.07 CO-OWNERSHIP OF ESTATE PROPERTY . . . . . . . . . . . . . . . . . . . 365
[A] Joint Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
[B] Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
§ 10.08 ANOMALOUS RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
§ 10.09 SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
[A] Setoff Under Non-Bankruptcy Law . . . . . . . . . . . . . . . . . . . . . . . . . . 367
[B] Setoff Limited to Pre-Petition Claims . . . . . . . . . . . . . . . . . . . . . . . . 368
[C] No Setoff of Disallowed Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368
[1] Transfer of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
[2] Intent to Create a Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . 370
[3] Setoff Resulting in Improvement in Position . . . . . . . . . . . . . . . . . . 370
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Chapter 11 EXECUTORY CONTRACTS AND UNEXPIRED
LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
§ 11.01 RIGHT TO ASSUME OR REJECT; ASSIGNMENT . . . . . . . . . . . . . . 371
§ 11.02 MEANING OF “EXECUTORY CONTRACT” AND “UNEXPIRED
LEASE” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
[A] “Executory Contract” Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
[B] “Unexpired Lease” or Security Interest . . . . . . . . . . . . . . . . . . . . . . . 375
§ 11.03 PROCEDURE FOR ASSUMPTION OR REJECTION . . . . . . . . . . . . . 376
[A] Timing of Assumption or Rejection . . . . . . . . . . . . . . . . . . . . . . . . . 376
[B] Court Approval of Assumption or Rejection . . . . . . . . . . . . . . . . . . . 377
[C] Performance Before Assumption or Rejection . . . . . . . . . . . . . . . . . . 377
[1] Debtor’s Duties to Perform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
[a] Commercial Real Estate Leases . . . . . . . . . . . . . . . . . . . . . . . . . 378
[b] Equipment Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
[c] Other Executory Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
[2] Non-Debtor’s Duties Before Assumption or Rejection . . . . . . . . . . . 379
§ 11.04 REJECTION OF EXECUTORY CONTRACTS . . . . . . . . . . . . . . . . . . 380
[A] Effect of Rejection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
[1] Pre-Petition Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
[2] Effect of Rejection on Non-Debtor’s Rights . . . . . . . . . . . . . . . . . . 381
[a] Land Sale Contracts and Timeshares . . . . . . . . . . . . . . . . . . . . . 381
[b] Real Estate Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381
[c] Intellectual Property Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 382
[d] Personal Property Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
[e] Covenants Not To Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
[3] Rejection (Breach) after Assumption . . . . . . . . . . . . . . . . . . . . . . . 384
[B] Employees’ Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
§ 11.05 ASSUMPTION OF EXECUTORY CONTRACTS . . . . . . . . . . . . . . . . 385
[A] Effect of Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385
[B] Cure of Defaults Required for Assumption . . . . . . . . . . . . . . . . . . . . 385
[1] Nonmonetary Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386
[2] Ipso Facto Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
[3] Penalty Rates & Penalty Provisions . . . . . . . . . . . . . . . . . . . . . . . . 388
[C] Restrictions on Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
[1] Pre-Petition Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
[2] Termination Under an Ipso Facto Clause . . . . . . . . . . . . . . . . . . . . 389
[3] Anti-Assignment Clauses Ineffective . . . . . . . . . . . . . . . . . . . . . . . 389
[4] Non-Delegable Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
[5] Contracts to Extend Credit or Issue Securities . . . . . . . . . . . . . . . . . 393
[D] Executory Contract Ride-Through . . . . . . . . . . . . . . . . . . . . . . . . . . 394
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§ 11.06 ASSIGNMENT OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394
[A] Effect of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394
[B] Restrictions on Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395
[1] Assumption Required for Assignment . . . . . . . . . . . . . . . . . . . . . . 395
[2] Assurance of Future Performance by the Assignee . . . . . . . . . . . . . 396
[3] Legal and Contractual Restrictions on Assignment . . . . . . . . . . . . . 396
[C] Appeals of Orders Permitting Assignment . . . . . . . . . . . . . . . . . . . . . 397
§ 11.07 SHOPPING CENTER LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398
Chapter 12 PRESERVING ASSETS: EXEMPTIONS &
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
§ 12.01 DEBTOR’S RETENTION OF ESTATE PROPERTY . . . . . . . . . . . . . . 401
§ 12.02 EXEMPTIONS IN BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . . 401
[A] Exemption Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402
[B] State or Federal Exemptions; Opt-Out . . . . . . . . . . . . . . . . . . . . . . . . 404
[C] Debtor’s Domicile Controls Exemptions . . . . . . . . . . . . . . . . . . . . . . 406
[D] Joint Debtors’ Exemption Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 408
[E] Exemption Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408
[1] Conversion of Assets to Exempt Status . . . . . . . . . . . . . . . . . . . . . 409
[2] Federal Limits on Certain Exemptions . . . . . . . . . . . . . . . . . . . . . . 413
[a] Limit on IRA Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413
[b] Limit on Homestead Exemptions . . . . . . . . . . . . . . . . . . . . . . . . 413
[F] Effect of Debtor’s Misconduct on Exemptions . . . . . . . . . . . . . . . . . . 415
§ 12.03 TYPES OF EXEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416
[A] Residential Property — Homestead Exemptions . . . . . . . . . . . . . . . . 416
[B] Wildcard Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418
[C] Exemptions for Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
[1] Categories of Exempt Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
[2] Categorization Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
[3] Regional Exemption Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
[4] Dollar Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
[D] Earnings and Other Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . 423
[1] Wage Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
[2] Wages Substitutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425
[3] Retirement Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
[E] Tracing Exemptions into Non-Exempt Property . . . . . . . . . . . . . . . . . 427
[F] Exemption Protections for a Debtor’s Dependents . . . . . . . . . . . . . . . 428
[G] Valuation of Exempt Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
§ 12.04 TENANCY BY THE ENTIRETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430
§ 12.05 LOSS OF EXEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
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[A] Exemption Waivers Unenforceable . . . . . . . . . . . . . . . . . . . . . . . . . . 431
[B] Liens on Exempt Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
[C] Debtor Misconduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
§ 12.06 PROCEDURES FOR CLAIMING AND OBJECTING TO
EXEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434
[A] What to File; Who May File; When to File . . . . . . . . . . . . . . . . . . . . 434
[B] Objections to Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435
§ 12.07 AVOIDING LIENS ON EXEMPT PROPERTY . . . . . . . . . . . . . . . . . . 436
[A] Avoiding Judicial Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437
[B] Avoiding Non-Possessory, Non-Purchase Money Security Interests . . . 439
§ 12.08 RETAINING COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441
[A] Lump-Sum Redemption by Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . 441
[B] Reaffirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
[1] Agreement with Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445
[2] Undue Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
[3] Best Interest of the Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
[4] Agreement Before Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
[5] Required Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
[6] Right to Rescind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
[7] Relationship to “Abuse” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
[C] Retention without Redemption or Reaffirmation — “Ride-Through” . . 449
[D] Debtor’s Statement of Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
[E] Chapter 7 Lien-Stripping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452
[F] Buying Non-Exempt Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
Chapter 13 DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
§ 13.01 THE NATURE OF DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
§ 13.02 DENIAL OF DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457
[A] Consequences of Denial of Discharge . . . . . . . . . . . . . . . . . . . . . . . . 458
[B] Denial of Discharge in Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
[1] Eligibility for Chapter 7 Discharge — Individual Debtors . . . . . . . . 459
[2] Fraudulent Transfers; Destruction or Concealment of Property . . . . . 460
[a] Transfers with Intent to Defraud . . . . . . . . . . . . . . . . . . . . . . . . 460
[b] Concealment of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461
[c] Conversion of Non-Exempt Property . . . . . . . . . . . . . . . . . . . . . 462
[d] Destruction, Mutilation or Concealment . . . . . . . . . . . . . . . . . . . 463
[e] Delayed Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463
[3] Failure to Maintain Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463
[4] Misconduct in the Debtor’s Bankruptcy Proceeding . . . . . . . . . . . . 465
[5] Misconduct in Prior or Concurrent Bankruptcy Proceedings . . . . . . . 467
[6] Repeat Filings — The 8-Year Bar . . . . . . . . . . . . . . . . . . . . . . . . . 468
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[a] Prior Chapter 7 or 11 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . 468
[b] Prior Chapter 12 or 13 Discharge . . . . . . . . . . . . . . . . . . . . . . . . 469
[7] Waiver of Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470
[8] Failure to Complete Credit Counseling Course . . . . . . . . . . . . . . . . 470
[9] Criminal Convictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472
[10] Failure to Supply Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472
[C] Denial of Discharge in Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 472
[D] Denial of Discharge in Chapters 12 and 13 . . . . . . . . . . . . . . . . . . . . 474
§ 13.03 NONDISCHARGEABLE DEBTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475
[A] Meaning of Nondischargeability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475
[B] Types of Nondischargeable Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . 476
[1] Tax Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476
[a] Priority Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476
[i] Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476
[ii] Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
[iii] Other Nondischargeable Priority Taxes . . . . . . . . . . . . . . . . . . 479
[iv] Tax Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479
[v] Involuntary Gap Period Taxes . . . . . . . . . . . . . . . . . . . . . . . . 479
[b] Taxes Owed on Unfiled or Late Filed Return . . . . . . . . . . . . . . . . 480
[c] Fraudulent Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480
[d] Debts Incurred to Pay Nondischargeable Taxes . . . . . . . . . . . . . . 481
[2] Debts Fraudulently Incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
[a] Actual Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482
[b] Luxury Goods or Services — Presumption of Fraud . . . . . . . . . . . 486
[c] Cash Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488
[d] False Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
[e] Securities Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491
[3] Unscheduled Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492
[4] Fraud or Defalcation in a Fiduciary Capacity; Embezzlement;
Larceny . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493
[5] Family Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495
[a] Domestic Support Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 495
[b] Other Obligations to a Spouse, Former Spouse, or Child . . . . . . . 497
[6] Willful and Malicious Injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
[a] Recklessness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
[b] Conversion of Secured Creditor’s Collateral . . . . . . . . . . . . . . . . 499
[7] Governmental Fines, Penalties, or Forfeitures . . . . . . . . . . . . . . . . . 500
[a] Non-Compensatory Fines and Penalties . . . . . . . . . . . . . . . . . . . 500
[b] Federal Election Law Fines . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
[c] Federal Criminal Restitution Orders . . . . . . . . . . . . . . . . . . . . . . 501
[8] Student Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
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[a] Types of Nondischargeable Student Loans . . . . . . . . . . . . . . . . . 501
[b] Undue Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503
[c] Partial Discharge of Student Loans . . . . . . . . . . . . . . . . . . . . . . . 505
[d] Discharge Through Confirmation in Chapter 13 . . . . . . . . . . . . . . 505
[9] Liability for Personal Injuries while Driving Drunk . . . . . . . . . . . . . 506
[10] Debts Excluded from Discharge in Prior Bankruptcies . . . . . . . . . . 506
[11] Other Nondischargeable Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . 507
[C] Procedure for Determining Nondischargeability; Exclusive
Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507
[1] Jurisdiction over Dischargeability . . . . . . . . . . . . . . . . . . . . . . . . . 507
[2] Adversary Proceeding to Determine Dischargeability . . . . . . . . . . . 507
[D] Collateral Estoppel Effect of Earlier Judgments . . . . . . . . . . . . . . . . . 508
§ 13.04 CHAPTER 7 DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509
[A] Debtors Eligible for Chapter 7 Discharge . . . . . . . . . . . . . . . . . . . . . 509
[B] Timing of Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510
[C] Scope of Debtor’s Chapter 7 Discharge . . . . . . . . . . . . . . . . . . . . . . . 510
§ 13.05 CHAPTER 13 DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511
[A] Debtors Eligible for Chapter 13 Discharge . . . . . . . . . . . . . . . . . . . . 511
[B] Timing of Chapter 13 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511
[C] Scope of Chapter 13 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512
[1] Full-Compliance Chapter 13 Discharge . . . . . . . . . . . . . . . . . . . . . 512
[2] Chapter 13 Hardship Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
[a] Grounds for Hardship Discharge . . . . . . . . . . . . . . . . . . . . . . . . 514
[b] Scope of a Hardship Discharge . . . . . . . . . . . . . . . . . . . . . . . . . 516
§ 13.06 CHAPTER 11 DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516
[A] Persons Eligible for Chapter 11 Discharge . . . . . . . . . . . . . . . . . . . . . 516
[1] Corporations, Partnerships and other Organizations . . . . . . . . . . . . . 517
[2] Discharge of Individual Debtors in Chapter 11 . . . . . . . . . . . . . . . . 518
[B] Timing of Chapter 11 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518
[C] Scope of Chapter 11 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
§ 13.07 CHAPTER 12 DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
[A] Persons Eligible for Chapter 12 Discharge . . . . . . . . . . . . . . . . . . . . . 519
[B] Timing of Chapter 12 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519
[C] Scope of Chapter 12 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520
§ 13.08 REVOCATION OF DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . 520
[A] Revocation of Chapter 7 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . 520
[B] Revocation of Chapter 11 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . 521
[C] Revocation of Chapter 12 and 13 Discharge . . . . . . . . . . . . . . . . . . . 521
§ 13.09 EFFECT OF DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522
[A] Discharge Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522
[B] Enforcement of Liens Permitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524
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[C] Recovery from Co-Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525
[D] Discrimination Against Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525
[1] Governmental Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526
[2] Employment Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
[3] Credit Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
Chapter 14 GENERAL AVOIDING POWERS; LIMITATIONS ON
AVOIDING POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 529
§ 14.01 AVOIDANCE OF TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529
§ 14.02 STRONG-ARM POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530
[A] Trustee as Hypothetical Judicial Lien Creditor . . . . . . . . . . . . . . . . . . 530
[B] Trustee as Creditor Whose Attempted Execution is Returned
Unsatisfied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
[C] Trustee as Bona Fide Purchaser of Real Estate . . . . . . . . . . . . . . . . . . 534
§ 14.03 POWER TO USE RIGHTS OF ACTUAL UNSECURED CREDITORS . 536
§ 14.04 AVOIDANCE OF STATUTORY LIENS . . . . . . . . . . . . . . . . . . . . . . 537
§ 14.05 POST-PETITION TRANSFERS OF ESTATE PROPERTY . . . . . . . . . 539
[A] Unauthorized Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539
[B] Involuntary Gap Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540
§ 14.06 PRESERVATION OF AVOIDED TRANSFERS FOR THE BENEFIT OF
THE ESTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540
§ 14.07 RECOVERY OF AVOIDED TRANSFERS . . . . . . . . . . . . . . . . . . . . . 541
[A] Recovery of the Property or Its Value . . . . . . . . . . . . . . . . . . . . . . . . 542
[B] Recovery from Transferees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542
§ 14.08 GENERAL LIMITATIONS ON AVOIDING POWERS . . . . . . . . . . . . 543
[A] Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543
[B] Effect of Non-Bankruptcy Law Grace Periods . . . . . . . . . . . . . . . . . . 545
[C] Limits on Seller’s Reclamation Rights . . . . . . . . . . . . . . . . . . . . . . . 546
[D] Protection for Good Faith Transferees . . . . . . . . . . . . . . . . . . . . . . . . 546
[1] Remote Transferees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546
[2] Amounts Paid by a Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . . 547
[3] Improvements by a Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . . 548
Chapter 15 PREFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549
§ 15.01 PREFERENCE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549
§ 15.02 PREFERENCES DEFINED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
[A] Transfer of Property; Date of Transfer . . . . . . . . . . . . . . . . . . . . . . . 551
[1] Type of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
[2] Debtor’s Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552
[3] Time of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553
[B] To or For the Benefit of a Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . 558
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[C] Antecedent Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558
[D] Insolvent at the Time of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . 559
[E] Preference Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560
[F] Improvement in Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561
§ 15.03 EXCEPTIONS TO AVOIDANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563
[A] Substantially Contemporaneous Exchange for New Value . . . . . . . . . 563
[B] Ordinary Course of Business Transfers . . . . . . . . . . . . . . . . . . . . . . . 566
[C] Grace Period for Late Perfection of Purchase Money Interests . . . . . . . 568
[D] Advance of New Value Subsequent to Preference . . . . . . . . . . . . . . . 569
[E] Floating Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570
[F] Statutory Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
[G] Alimony, Maintenance, Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573
[H] Small Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574
[I] Payments Sanctioned by Credit Counseling Agency . . . . . . . . . . . . . . 575
[J] Substitution of Creditors — Earmarking . . . . . . . . . . . . . . . . . . . . . . 575
[K] Certain Payments by Repo, Swap, or Financial Participants . . . . . . . . 576
§ 15.04 INDIRECT PREFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 577
§ 15.05 PROCEDURAL ISSUES; THE EFFECT OF AVOIDANCE . . . . . . . . . 579
§ 15.06 SETOFF PREFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580
Chapter 16 FRAUDULENT TRANSFERS . . . . . . . . . . . . . . . . . . . . . 583
§ 16.01 PURPOSES AND SOURCES OF FRAUDULENT CONVEYANCE
LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583
[A] Fraudulent Conveyances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583
[B] Fraudulent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583
[C] Fraudulent Transfers Distinct from Preferences . . . . . . . . . . . . . . . . . 584
[D] Sources of Fraudulent Transfer Law . . . . . . . . . . . . . . . . . . . . . . . . . 584
§ 16.02 ACTUAL FRAUD: INTENT TO HINDER, DELAY, OR DEFRAUD
CREDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
§ 16.03 CONSTRUCTIVE FRAUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587
[A] Elements of Constructive Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587
[1] No Reasonably Equivalent Value . . . . . . . . . . . . . . . . . . . . . . . . . 588
[2] Debtor Insolvent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590
[B] Specific Transactions Involving Constructive Fraud . . . . . . . . . . . . . . 591
[1] Pre-Petition Foreclosure Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591
[2] Intercorporate Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
[3] Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
[4] Charitable Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
[5] Leveraged Buy-Outs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597
[6] Asset Securitization Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 599
[7] Ponzi Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
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[8] Financial Derivatives & Commodity Forward Agreements . . . . . . . 601
§ 16.04 TRANSFERS TO GENERAL PARTNERS . . . . . . . . . . . . . . . . . . . . . 601
§ 16.05 REACH-BACK PERIODS FOR FRAUDULENT TRANSFER . . . . . . . 602
[A] Bankruptcy Code’s Fraudulent Transfer Recovery Period . . . . . . . . . . 603
[B] State Law Fraudulent Transfer Recovery Period . . . . . . . . . . . . . . . . . 603
§ 16.06 LIABILITIES OF AND PROTECTIONS FOR BONA FIDE
PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605
Chapter 17 LIQUIDATION UNDER CHAPTER 7 . . . . . . . . . . . . . . 607
§ 17.01 DEBTOR LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607
§ 17.02 COMMENCEMENT OF A CHAPTER 7 LIQUIDATION CASE . . . . . 608
§ 17.03 DISMISSAL AND CONVERSION OF A CHAPTER 7 CASE . . . . . . . 610
[A] Dismissal For Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610
[B] Dismissal of Consumer Cases Due to Abuse . . . . . . . . . . . . . . . . . . . 611
[1] Consumer Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611
[2] Presumptive Abuse — Means Testing . . . . . . . . . . . . . . . . . . . . . . 612
[a] Current Monthly Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
[b] Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
[i] Expenses in IRS Financial Analysis Handbook . . . . . . . . . . . . 618
[ii] Other Statutory Living Expenses . . . . . . . . . . . . . . . . . . . . . . 620
[iii] Payments to Secured and Priority Creditors . . . . . . . . . . . . . . . 621
[iv] Deduction of Charitable Contributions . . . . . . . . . . . . . . . . . . 624
[v] Expenses Not Deducted From Income . . . . . . . . . . . . . . . . . . . 624
[c] Excess Surplus Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624
[d] Special Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625
[e] Safe Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627
[3] Abuse under the Discretionary Standard . . . . . . . . . . . . . . . . . . . . . 627
[a] Bad Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 628
[b] Totality of the Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . 629
[4] Attorney Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
[C] Conversion of Chapter 7 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631
[D] Conversion to Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632
§ 17.04 ROLE OF A CHAPTER 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . 633
[A] Selection of a Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633
[B] Duties of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634
§ 17.05 UNITED STATES TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636
§ 17.06 CREDITORS’ COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637
§ 17.07 PARTNERSHIP LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638
§ 17.08 DISTRIBUTION OF PROPERTY OF THE ESTATE . . . . . . . . . . . . . . 640
§ 17.09 LIQUIDATION TREATMENT OF CERTAIN LIENS . . . . . . . . . . . . . 641
[A] Subordination of Liens Securing Non-Compensatory Penalties . . . . . . 642
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[B] Subordination of Secured Tax Claims. . . . . . . . . . . . . . . . . . . . . . . . 642
§ 17.10 SPECIAL LIQUIDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643
Chapter 18 REHABILITATION OF INDIVIDUALS WITH REGULAR
INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645
§ 18.01 GOALS OF REHABILITATION OF INDIVIDUALS WITH REGULAR
INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645
§ 18.02 ELIGIBILITY FOR RELIEF UNDER CHAPTER 13 . . . . . . . . . . . . . . 646
§ 18.03 FILING, CONVERSION, AND DISMISSAL OF CHAPTER 13
CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 647
[A] Filing Chapter 13 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 647
[B] Conversion or Dismissal of Chapter 13 Cases . . . . . . . . . . . . . . . . . . 648
§ 18.04 PROPERTY OF THE CHAPTER 13 ESTATE . . . . . . . . . . . . . . . . . . . 649
§ 18.05 PARTIES IN CHAPTER 13 CASES . . . . . . . . . . . . . . . . . . . . . . . . . . 650
[A] Role of a Chapter 13 Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650
[B] Role of Standing Chapter 13 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 651
[C] The United States Trustee in Chapter 13 . . . . . . . . . . . . . . . . . . . . . . 652
[D] Creditors in Chapter 13 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652
[1] Secured Creditors in Chapter 13 . . . . . . . . . . . . . . . . . . . . . . . . . . 652
[2] Unsecured Creditors in Chapter 13 . . . . . . . . . . . . . . . . . . . . . . . . 652
§ 18.06 THE CHAPTER 13 PLAN — REQUIRED PROVISIONS . . . . . . . . . . 653
[A] Submission of Sufficient Income to Fund the Plan . . . . . . . . . . . . . . . 653
[B] Full Payment of Priority Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653
[1] Priority Claims in Chapter 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653
[2] Domestic Support Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 654
§ 18.07 CHAPTER 13 PLAN — PERMISSIVE PROVISIONS . . . . . . . . . . . . . 655
[A] Classification of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655
[B] Modification of Creditors’ Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 658
[1] Modifying Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659
[2] Modifying Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659
[a] Residential Real Estate Mortgages . . . . . . . . . . . . . . . . . . . . . . . 660
[i] Cure and Reinstatement Permitted . . . . . . . . . . . . . . . . . . . . . 661
[ii] Short Term Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662
[iii] Other Procedural Adjustments . . . . . . . . . . . . . . . . . . . . . . . . 662
[iv] Due on Sale Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663
[b] Certain Purchase Money Loans . . . . . . . . . . . . . . . . . . . . . . . . . 663
[C] Cure & Waiver of Defaults; Reinstatement . . . . . . . . . . . . . . . . . . . . 663
[D] Concurrent or Sequential Payment of Claims . . . . . . . . . . . . . . . . . . . 665
[E] Payment of Post-Petition Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 666
[F] Assumption, Rejection or Assignment of Executory Contracts . . . . . . 666
[G] Payment of Claims from Estate Property or Property of the Debtor . . . 667
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[H] Vesting of Property of Estate in the Debtor or Another Entity . . . . . . . 667
[I] Payment of Interest on Nondischargeable Debts . . . . . . . . . . . . . . . . . 667
[J] Other Consistent Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668
§ 18.08 CONFIRMATION OF CHAPTER 13 PLANS . . . . . . . . . . . . . . . . . . . 668
[A] General Requirements for Confirmation . . . . . . . . . . . . . . . . . . . . . . 669
[1] Compliance with the Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . 669
[2] Filing Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669
[3] Payment of Fees and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669
[B] Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 670
[C] Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
[1] Good Faith Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
[2] No Legally Forbidden Means . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673
[3] Petition Filed in Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674
[D] Duration of the Plan — “Applicable Commitment Period” . . . . . . . . . 674
[E] Payments to Creditors with Unsecured Claims . . . . . . . . . . . . . . . . . . 676
[1] Best Interests of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677
[2] Debtor’s Projected Disposable Income . . . . . . . . . . . . . . . . . . . . . . 679
[a] Debtors with Income Above the State Median . . . . . . . . . . . . . . . 679
[i] Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680
[ii] Living Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681
[iii] Payments on Secured Debts . . . . . . . . . . . . . . . . . . . . . . . . . . 683
[iv] Charitable Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686
[v] Business Expenses of Debtors Engaged in Business . . . . . . . . . 687
[b] Disposable Income for Debtors with Income Below the State
Median . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 687
[c] Payment to “Unsecured Creditors” . . . . . . . . . . . . . . . . . . . . . . . 687
[F] Treatment of Secured Claims — Chapter 13 Secured Creditor
Cramdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688
[1] Surrender of the Collateral to the Creditor . . . . . . . . . . . . . . . . . . . 689
[2] Secured Creditor Acceptance of Plan . . . . . . . . . . . . . . . . . . . . . . . 689
[3] Cure & Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689
[4] Cramdown of Chapter 13 Plan over Secured Creditor’s Objection . . 691
[a] Retention of the Creditor’s Lien . . . . . . . . . . . . . . . . . . . . . . . . . 691
[b] Payments Equivalent to Amount of Secured Claim . . . . . . . . . . . 692
[c] Valuation of the Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693
[d] Equal Monthly Installment Payments . . . . . . . . . . . . . . . . . . . . . 694
[e] Adequate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695
[5] Residential Real Estate Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . 696
[6] Certain Purchase Money Security Interests . . . . . . . . . . . . . . . . . . . 698
[a] Preventing Strip-Down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698
[b] 910-Day Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700
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[c] Personal Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700
[d] Other Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701
[e] Purchase Money Security Interest . . . . . . . . . . . . . . . . . . . . . . . 701
[f] Effect of Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702
[7] Direct Payments “Outside the Plan” . . . . . . . . . . . . . . . . . . . . . . . 702
[G] Hearing on Confirmation of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
§ 18.09 EFFECT OF CONFIRMATION OF CHAPTER 13 PLAN . . . . . . . . . . 703
[A] General Effect of Chapter 13 Plan Confirmation . . . . . . . . . . . . . . . . . 703
[B] Payments Before Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704
§ 18.10 MODIFICATION OF CHAPTER 13 PLANS . . . . . . . . . . . . . . . . . . . . 704
[A] Pre-Confirmation Modification of Chapter 13 Plans . . . . . . . . . . . . . . 705
[B] Post-Confirmation Modification of Chapter 13 Plans . . . . . . . . . . . . . 705
§ 18.11 REVOCATION OF CONFIRMATION OF CHAPTER 13 PLANS . . . . 707
§ 18.12 “CHAPTER 20” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707
Chapter 19 REORGANIZATION UNDER CHAPTER 11 . . . . . . . . . 709
§ 19.01 DEVELOPMENT OF CHAPTER 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 709
§ 19.02 GOALS OF REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 711
§ 19.03 ROLES OF THE PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 712
[A] Role of Existing Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712
[B] Role of Creditors and Creditors’ Committees . . . . . . . . . . . . . . . . . . . 713
[1] Individual Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713
[2] Creditors’ Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714
[C] Role of Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716
[D] Appointment of Trustee or Examiner . . . . . . . . . . . . . . . . . . . . . . . . 718
[E] Role of the Securities and Exchange Commission . . . . . . . . . . . . . . . 720
[F] Role of the United States Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 721
[G] Role of Others; Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 721
§ 19.04 PROPERTY OF A CHAPTER 11 ESTATE . . . . . . . . . . . . . . . . . . . . . 722
§ 19.05 CONVERSION AND DISMISSAL OF CHAPTER 11 CASES . . . . . . . 723
[A] Voluntary Conversion or Dismissal . . . . . . . . . . . . . . . . . . . . . . . . . 723
[B] Involuntary Conversion or Dismissal . . . . . . . . . . . . . . . . . . . . . . . . 724
[1] Inability to Reorganize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725
[2] Failure to Comply with Code Requirements . . . . . . . . . . . . . . . . . . 727
[3] Bad Faith Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728
§ 19.06 POST-PETITION OPERATION OF THE DEBTOR’S BUSINESS . . . . 729
[A] Sale and Use of Estate Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730
[1] Sale and Use of Property in the Ordinary Course . . . . . . . . . . . . . . 730
[2] Use of Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730
[3] Sale or Use Outside the Ordinary Course . . . . . . . . . . . . . . . . . . . . 730
[B] Post-Petition Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 732
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[C] First-Day Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733
§ 19.07 TREATMENT OF CLAIMS AND INTERESTS IN CHAPTER 11 . . . . 734
[A] Priority of Claims and Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735
[B] Proof of Claims and Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735
[C] Chapter 11 Treatment of Partially Secured Claims . . . . . . . . . . . . . . . 736
[1] Treatment of Non-Recourse Claims . . . . . . . . . . . . . . . . . . . . . . . . 736
[2] The 1111(b) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737
§ 19.08 CONTENTS OF A CHAPTER 11 PLAN . . . . . . . . . . . . . . . . . . . . . . . 738
[A] Process of Negotiating the Plan’s Terms . . . . . . . . . . . . . . . . . . . . . . 739
[B] Who May File a Plan; The Exclusivity Period . . . . . . . . . . . . . . . . . . 739
[C] Mandatory and Optional Chapter 11 Plan Provisions . . . . . . . . . . . . . 741
[1] Mandatory Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741
[a] Designation of Classes of Claims and Interests . . . . . . . . . . . . . . 741
[b] Specification of Unimpaired Classes . . . . . . . . . . . . . . . . . . . . . . 741
[c] Specification of Treatment of Impaired Claims and Interests . . . . . 741
[d] Equal Treatment of Claims and Interests Within a Class . . . . . . . . 742
[e] Adequate Means for Implementing the Plan . . . . . . . . . . . . . . . . 742
[f] Protecting Shareholders’ Voting Rights . . . . . . . . . . . . . . . . . . . 743
[g] Provide for Payment of an Individual Debtor’s Personal Earnings . 743
[2] Optional Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 743
[D] Classification of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744
[1] Substantial Similarity of Claims in the Same Class . . . . . . . . . . . . . 745
[2] Separate Classification of Similar Claims . . . . . . . . . . . . . . . . . . . . 746
[a] Small Claims Classified for Administrative Convenience . . . . . . . 746
[b] Segregation of Substantially Similar Claims . . . . . . . . . . . . . . . . 747
[c] Classification in Single-Asset Real Estate Cases . . . . . . . . . . . . . 749
[3] Identical Treatment of Claims in the Same Class . . . . . . . . . . . . . . . 750
[E] Impairment of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
[1] Rights Unaltered by the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
[2] Defaults Cured and Rights Reinstated; De-Acceleration . . . . . . . . . 751
[3] Artificial Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752
[F] Treatment of General Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . 753
[G] Treatment of Priority Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . 754
[H] Treatment of Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755
[1] Mandatory Treatment of Secured Claims . . . . . . . . . . . . . . . . . . . . 756
[2] Optional Treatment of Secured Claims . . . . . . . . . . . . . . . . . . . . . 757
[3] Chapter 11 Lien Stripping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757
[4] Treatment of the § 1111(b) Election . . . . . . . . . . . . . . . . . . . . . . . 758
[I] Executory Contracts and Unexpired Leases in Chapter 11 . . . . . . . . . . 759
§ 19.09 ACCEPTANCE OF PLAN BY HOLDERS OF CLAIMS AND INTERESTS:
DISCLOSURE AND VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 759
[A] Consensual Chapter 11 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760
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[B] Disclosure and Solicitation of Ballots . . . . . . . . . . . . . . . . . . . . . . . . 760
[1] Court Approval of Disclosure Statement; Adequate Information . . . . 760
[2] Contents of Disclosure Statement . . . . . . . . . . . . . . . . . . . . . . . . . 761
[3] Soliciting Rejection of a Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763
[4] Exemption from Registration with the SEC . . . . . . . . . . . . . . . . . . 764
[5] Disclosure in Small Business Cases . . . . . . . . . . . . . . . . . . . . . . . . 764
[6] Pre-Petition Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765
[C] Voting by Classes of Claims and Interests . . . . . . . . . . . . . . . . . . . . . 765
[1] Voting by Classes of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765
[2] Voting by Classes of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766
[D] Disqualification (“Designation”) of Votes . . . . . . . . . . . . . . . . . . . . . 766
[1] Bad Faith Motive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 767
[2] Trading in Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 767
[E] Pre-Packaged Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768
§ 19.10 CONFIRMATION OF CHAPTER 11 PLANS . . . . . . . . . . . . . . . . . . . 769
[A] Compliance with the Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . 769
[B] Plan Proposed in Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770
[C] Court Approval of Previous Payments . . . . . . . . . . . . . . . . . . . . . . . 771
[D] Disclosure of Identity of Insiders and Affiliates of Debtor . . . . . . . . . . 771
[E] Regulatory Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 772
[F] Plan in the Best Interests of Creditors . . . . . . . . . . . . . . . . . . . . . . . . 772
[G] Acceptance by Impaired Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 774
[H] Full Payment of Priority Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775
[I] Acceptance by One Impaired Class . . . . . . . . . . . . . . . . . . . . . . . . . . 775
[J] Feasibility of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 776
[K] Payment of Bankruptcy Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777
[L] Continuation of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 777
[M] Individual Chapter 11 Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778
[N] Transfer of Property by Non-Profit Organization . . . . . . . . . . . . . . . . 779
§ 19.11 CONFIRMATION OVER OBJECTION OF AN IMPAIRED CLASS;
CRAMDOWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 779
[A] Acceptance by One Impaired Class . . . . . . . . . . . . . . . . . . . . . . . . . . 780
[B] Fair and Equitable — The Absolute Priority Rule . . . . . . . . . . . . . . . . 780
[1] Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782
[a] Lien Retention and Full Payment . . . . . . . . . . . . . . . . . . . . . . . . 782
[b] Sale of Property and Attachment of Lien to Proceeds . . . . . . . . . . 785
[c] Creditor Receives the “Indubitable Equivalent” of its Claims . . . . 786
[2] Unsecured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788
[a] Payment in Full . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788
[b] Eliminating Junior Claims and Interests . . . . . . . . . . . . . . . . . . . 789
[3] Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 791
[C] New Value Exception to Absolute Priority Rule . . . . . . . . . . . . . . . . . 792
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[D] Unfair Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794
[E] Valuation of the Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796
§ 19.12 MODIFICATION OF CHAPTER 11 PLANS . . . . . . . . . . . . . . . . . . . . 797
[A] Pre-Confirmation Modification of Chapter 11 Plan . . . . . . . . . . . . . . . 798
[B] Post-Confirmation Modification of Chapter 11 Plan . . . . . . . . . . . . . . 798
§ 19.13 POST-CONFORMATION ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . 799
[A] Effect of Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800
[B] Revocation of Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 801
[C] Implementation of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 801
[D] Bankruptcy Court Jurisdiction After Confirmation . . . . . . . . . . . . . . . 802
[E] Individual Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803
§ 19.14 SMALL BUSINESS DEBTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 804
[A] Small Business Debtor Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . 804
[B] Expedited and Simplified Procedures for Small Business Debtors . . . . 804
[C] Expanded Reporting in Small Business Cases . . . . . . . . . . . . . . . . . . 805
§ 19.15 RAILROAD REORGANIZATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 806
Chapter 20 FAMILY FARMERS AND FAMILY FISHERMEN
REORGANIZATION UNDER CHAPTER 12 . . . . . . . . . 809
§ 20.01 GOALS OF FAMILY FARMERS AND FAMILY FISHERMEN
REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 809
§ 20.02 FILING, CONVERSION, AND DISMISSAL OF CHAPTER 12
CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811
[A] Chapter 12 Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811
[B] Conversion and Dismissal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811
§ 20.03 ROLE OF THE PARTIES IN CHAPTER 12 . . . . . . . . . . . . . . . . . . . . 812
[A] Chapter 12 Debtor-in-Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . 812
[B] Chapter 12 Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 812
[C] Creditors in Chapter 12 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813
§ 20.04 PROPERTY OF THE CHAPTER 12 ESTATE . . . . . . . . . . . . . . . . . . . 814
§ 20.05 AUTOMATIC STAY — ADEQUATE PROTECTION . . . . . . . . . . . . . 814
[A] Adequate Protection in Chapter 12 . . . . . . . . . . . . . . . . . . . . . . . . . . 815
[B] Chapter 12 Co-Debtor Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816
§ 20.06 USE, SALE, AND LEASE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . 817
§ 20.07 CHAPTER 12 REORGANIZATION PLAN . . . . . . . . . . . . . . . . . . . . . 817
[A] Required Chapter 12 Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . 818
[B] Permissive Chapter 12 Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . 818
[C] Duration of Chapter 12 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 818
[D] Chapter 12 Treatment of Priority Claims . . . . . . . . . . . . . . . . . . . . . . 819
[E] Chapter 12 Treatment of Unsecured Claims . . . . . . . . . . . . . . . . . . . . 819
[1] Best Interests of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 819
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[2] Projected Disposable Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820
[F] Secured Claims in Chapter 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821
§ 20.08 CONFIRMATION OF CHAPTER 12 PLANS . . . . . . . . . . . . . . . . . . . 822
§ 20.09 EFFECT OF CONFIRMATION OF CHAPTER 12 PLAN . . . . . . . . . . 823
§ 20.10 MODIFICATION OF CHAPTER 12 PLANS . . . . . . . . . . . . . . . . . . . . 823
[A] Modification Prior to Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . 823
[B] Modification After Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . 824
§ 20.11 REVOCATION OF CHAPTER 12 PLAN CONFIRMATION . . . . . . . . 825
Chapter 21 ROLE OF PROFESSIONALS IN BANKRUPTCY
PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 827
§ 21.01 PROFESSIONALS IN BANKRUPTCY CASES . . . . . . . . . . . . . . . . . 827
§ 21.02 EMPLOYMENT OF PROFESSIONALS . . . . . . . . . . . . . . . . . . . . . . . 828
[A] Prior Court Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829
[1] Employment of Professionals Must be Reasonably Necessary . . . . . 829
[2] Nunc Pro Tunc Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830
[B] Meaning of “Professional Persons” . . . . . . . . . . . . . . . . . . . . . . . . . . 831
[C] Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 831
[D] Disclosure of Pre-Petition Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835
§ 21.03 PROFESSIONALS’ FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835
§ 21.04 KEY EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838
§ 21.05 REGULATION OF BANKRUPTCY LAWYERS AS “DEBT RELIEF
AGENCIES” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840
[A] Debt Relief Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840
[B] Restrictions on Debt Relief Agencies . . . . . . . . . . . . . . . . . . . . . . . . 841
§ 21.06 BANKRUPTCY PETITION PREPARERS . . . . . . . . . . . . . . . . . . . . . 843
Chapter 22 TRANSNATIONAL BANKRUPTCY . . . . . . . . . . . . . . . 845
§ 22.01 CROSS BORDER INSOLVENCY AND ITS THEORETICAL
SOLUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845
[A] Issues in Cross Border Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . 845
[B] Cooperative Territoriality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847
[C] Modified Universalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848
[D] Contractualism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850
[E] Universal Proceduralism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850
§ 22.02 ANCILLARY AND PARALLEL BANKRUPTCY PROCEEDINGS . . . 851
§ 22.03 CHAPTER 15 OF THE BANKRUPTCY CODE . . . . . . . . . . . . . . . . . . 852
[A] Foreign Bankruptcy Proceedings: Main and Nonmain Proceedings . . . 853
[1] Foreign Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853
[2] Main Proceedings and Nonmain Proceedings . . . . . . . . . . . . . . . . . 854
[3] Eligible Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 854
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[B] “Recognition” of Foreign Bankruptcy Proceedings . . . . . . . . . . . . . . . 855
[C] Effect of Recognition of Foreign Proceeding . . . . . . . . . . . . . . . . . . . 856
[1] Stay of Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 856
[2] Transfers of the Debtor’s Property . . . . . . . . . . . . . . . . . . . . . . . . . 857
[3] Authority to Operate the Debtor’s Business . . . . . . . . . . . . . . . . . . 857
[4] Distribution of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858
[5] Trustee’s Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858
[6] Additional Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858
[D] Rights of Foreign Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
[E] Commencement of a Parallel Proceeding . . . . . . . . . . . . . . . . . . . . . . 859
[F] Cooperation and Coordination with Foreign Courts and Foreign
Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 860
[G] Concurrent Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 861
Chapter 23 SPECIAL USES OF BANKRUPTCY . . . . . . . . . . . . . . . . 863
§ 23.01 SPECIAL USES OF BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . 863
§ 23.02 MASS TORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 863
[A] Future Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864
[B] Claims Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 866
[C] Estimation of Future Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 866
[D] Bankruptcy of Religious Organizations . . . . . . . . . . . . . . . . . . . . . . . 867
§ 23.03 EMPLOYEES’ RIGHTS: COLLECTIVE BARGAINING AGREEMENTS &
RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869
[A] Rejection of Collective Bargaining Agreements . . . . . . . . . . . . . . . . . 869
[B] Retired Employees’ Health Insurance Benefits . . . . . . . . . . . . . . . . . . 872
§ 23.04 “SINGLE ASSET” REAL ESTATE CASES . . . . . . . . . . . . . . . . . . . . 874
§ 23.05 CONSOLIDATION OF CASES OF RELATED DEBTORS . . . . . . . . . 877
[A] Joint Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878
[B] Substantive Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879
TABLE OF CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TC-1
TABLE OF STATUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TS-1
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
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