I.
In ANY bankruptcy case:
a. Must select venue
i. §1408 allows debtor to file where it has a domicile, residence, or PPB, or where its
assets were located 180 days before filing
ii. Creditor can change venue in interest of justice or convenience of the parties - 1412
b. Automatic stay goes into effect as soon as the petition is filed - §362
i. Sweeping injunction against any attempts to collect, assess, or recover a claim on
property of the estate
1. Only applies to prepetition claims – claim is defined broadly §101(5)
2. Property of the estate is also broad – §541
ii. Exceptions for criminal proceedings, police and regulatory actions, and family law
proceedings
1. Different rules for small businesses – 362(n)
2. Serial filers and individual c. 7 debtors who fail 521(a)(2) do not benefit from
the stay – 362(c)(3)
3. 30-day grace period for perfecting a lien – 362(b)(3), §547(e)(2)(A), or under
§546(b)
iii. Any party in interest can ask the court to lift the automatic stay – 362(d)
1. Can lift for cause, such as a lack of adequate protection
2. Can lift if debtor does not have equity in the property or property is not
necessary to an effective reorganization
iv. Debtor injured by willful violation of the automatic stay can recover damages and
attorney’s fees – 362(k)
c. Is there an avoidable preference? §547(b)
i. (1) Transfer of the debtor’s interest in property (2) made to or for the benefit of a
creditor (3) concerning an antecedent debt (4) made at a time when the debtor was
insolvent
1. Presumption of insolvency – 547(f)
ii. Must have been made within 90 days prior to the filing of the bankruptcy petition or
one year if the creditor was an insider
iii. Must result in creditor receiving a larger share than it would under chapter 7
1. Generally means a transfer to an unsecured creditor will be avoidable, while a
transfer to a secured transfer will remain
iv. Trustee pockets the avoided preference for the benefit of the estate
v. Exceptions – 547(c)
1. Substantially contemporaneous exchange for new value
a. Need intent by the parties and exchange must have been for new
value to the debtor
2. Transfer in the ordinary course of business
a. Must be consistent with past business or financial practices of the
debtor and creditor – subjective
b. Transfer must have been made according to ordinary business terms of
the relevant industry – objective
3. PMSI securing new value – creditor gave debtor money to purchase collateral
a. Creditor must perfect within 30 days of debtor taking possession of
collateral
4. Subsequent advance of new value – the “new value” exception
a. Does not apply if the creditor has an enforceable security interest
b. Offsets any preferential transfer preceding provision of new value
5. Perfected security interests that did not improve the creditor’s position to the
prejudice of the estate 90 days prior to petition – “floating lien” exception
6. Statutory liens
7. Payments of domestic support obligations
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d.
e.
f.
g.
h.
8. Transfer of property by consumer with an aggregate value of less than $600
9. Transfer by business debtor of property with aggregate value of less than
$6,825
10. Nonprofit budget/counseling office
vi. ** Note that the debtor itself does not need to make the transfer; can be by a creditor
for benefit of another creditor
Does the creditor have a right of setoff?
i. Creditor sets off debt he owes to the debtor against a claim he holds against the
debtor, if both arose prior to filing – right to setoff must exist at state law
1. Automatic stay prevents creditor from setting off prepetition debt, must
obtain relief under §553
ii. Can only setoff an allowed claim
iii. Can be avoided as a preference if within 90 days
Is there a lien?
i. No levy, no lien
ii. Trustee/DIP can avoid an unperfected lien: §544
1. Judicial lien has priority over an unperfected security interest – UCC 9-317(a)
a. Doesn’t apply if nonbankruptcy law allows retroactive perfection –
546(b), e.g. UCC 9-317(e)
2. Trustee has status of a bona fide purchaser
a. If state law prevents a BFP from taking priority by constructive notice,
trustee cannot avoid the lien if it should have had notice
3. If there is an actual unsecured creditor who can avoid a transfer under
nonbankruptcy law (like the UFTA), the trustee can avoid – 544(b)
a. Doesn’t apply to charitable contributions
iii. Liens on after-acquired property are wiped by 552
Is there a fraudulent/voidable transfer? §548, UVTA
i. The trustee can avoid under 548(a)
1. Transfer must have been made within 2 years of filing
2. Made with actual intent to defraud, delay, or hinder OR for which debtor
received less than reasonably equivalent value while insolvent or on verge of
insolvency
3. Good faith purchaser who purchased for value retains a lien or can otherwise
enforce their interest
ii. A creditor can avoid under the UVTA
1. Present or future creditor can avoid if made with actual intent (§4(a)) or for <REV
while near insolvency (§4(b))
a. Badges of fraud
2. Present creditor can avoid if debtor exchanged for <REV while insolvent or
became insolvent as a result - §5(a)
a. Can avoid if made to an insider if for an antecedent debt while insolvent
and insider should have known debtor was insolvent - §5(b)
iii. Leveraged buyouts might be fraudulent – depends on case law
When trustee/DIP avoids a transfer, it keeps the property itself or its value for the benefit of the
estate – §551
i. Can recover from the initial transferee, the entity that the initial transfer was designed
to benefit, or any future transferee after the first transfer – 550(a)
1. Initial transferee must actually have control over the acquired assets
2. Cannot recover against a future transferee who took in good faith without
knowledge that it was voidable and gave value in exchange – 550(b)
3. Special rule for insiders – 550(c)
Is there an executory contract or unexpired lease? §365
i. Executory definition:
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II.
1. Obligations so far unperformed that failure to perform would constitute
material breach excusing further performance; not executory if payment is only
remaining obligation – Countryman test
2. Assumption or rejection would ultimately benefit the estate and its creditors,
regardless of either party’s outstanding material obligations – functional
approach
ii. Is the debtor in default?
1. If not, it can assume and assign
2. If yes, the trustee must cure or provide adequate assurances for nonmonetary
obligations - §365(b)(1)(A)
a. Exceptions for breach relating to insolvency or penalty arising from
nonmonetary obligations – 365(b)(2)
3. If yes, trustee must compensate or provide adequate assurances for pecuniary
losses – 365(b)(1)(B)
4. Special rules for shopping center leases – 365(b)(3)
iii. Lease cannot restrict right of assignment in bankruptcy – 365(f)(2)
1. Exception if nonbankruptcy law excuses nondebtor party from accepting
performance from another nondebtor, unless the nondebtor consents
iv. Rejection constitutes breach, not rescission – Mission Products
Individual debtor? – Personal Bankruptcy
a. Few or no assets? Chapter 7 is favored option.
i. Petition must be filed in good faith - 707(b)(3)
ii. Must satisfy means test (SEE PPT)
1. Calculate income (monthly net income x 60); if below median, you can file
chapter 7; if at or above, must satisfy means test – §707(b)
2. Disposable income must be at or below $8,175 to pass means test: (b)(2)(A)(i),
(ii)
a. If greater than or equal to $13,650, fail means test; if below, can file
chapter 7 only if disposable income will pay 25% of unsecured debts
b. Certain expenses are excluded from the calculation: (b)(2)(A)(ii)(I)
3. Failing the means test raises presumption of abuse
a. Can be rebutted by showing of special circumstances – (b)(2)(B)(iv)
iii. Debtor loses everything in a chapter 7, except for what he can exempt
1. Bankruptcy code allows states to opt in or opt out of federal exemption laws §522(b)(2)
a. A state opting out means debtors can only avail themselves of state
exemptions; opting in means they can take federal or state
b. Can remove involuntary liens: 522(f)(1)
i. Might not be able to under state law – (f)(1)(B) unclear
c. Exemptions of state apply in which debtor lived during 730 days before
filing; if did not live in one state, go 180 days before the 730 day mark
and that state applies – §522(b)(3)
i. 1,215 day limit for property exceeding $170,350 - §522(p)
d. Trusts can be exempt – 541(c)(2), but 10-year lookback for actual
intent to hinder, delay, or defraud – 548(e)
iv. Can do a §722 redemption: pay creditor the full amount of the loan or the full value of
the collateral, whichever is less, in exchange for wiping creditor’s claim
1. Can only redeem personal property for personal, family, or household use
2. Property must be abandoned
v. Debtor can’t get another chapter 7 discharge within 8 years of the last discharge; 6
years if the previous discharge was chapter 13.
b. Some or substantial assets? File chapter 13.
i. Chapter 13 could be favorable because it allows debtor to keep their assets - §1303
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1. Plan must be made in good faith - 1325(a)(3)
2. Must have regular income with consumer debt
a. Unsecured debt of $419,275 or less, and secured debts of $1,257,850
or less - §109(e)
3. Debtor creates a plan: §§1322-1325
a. Plan can cut the payment on undersecured claims to the value of the
collateral and leave nonpriority unsecured creditors with nothing –
cramdown. §1325(a)(5)
i. PMSIs (car loans and ‘anything of value’) can only be
bifurcated if they were taken out at least 910 days before filing
– “hanging paragraph”
ii. Cannot cramdown mortgage loans on debtor’s principal
residence – 1322(b)(2)
iii. Debtor needs to pay secured creditors present value of the
allowed secured claim over the course of the 3-5 year plan
under 1325(a)(5)(B)(ii)
1. Till: prime plus 1-3%
4. C13 trustee can make wage garnishments, assist the debtor, and object to
creditor claims and make distributions to creditors (1302(b)(1), (4), 1326).
5. Certain unsecured creditors get priority – 507(a)
a. Claims are given administrative priority
b. Unsecured priority creditor in a C13 must receive at least as much as it
would in a chapter 7 – 1325(a)(4), must be paid in full (a)(2) – value as
of the effective date of the plan, (a)(4), (5)
c. Tax claims: debtor has 3-5 years to pay backtaxes while the automatic
stay keeps the IRS away; can pay in nominal dollars
6. Debtor must pay their disposable income, can deduct permitted expenses –
1325(b)(1)(B)
c. Once bankruptcy is complete, debtor is given a discharge
i. Nondischargeable debts – 523(a) – main ones are student debt, domestic support, and
taxes
1. Student debt might be dischargeable through showing of undue hardship –
(a)(8)
2. Luxury goods purchased within 60 days of filing are not dischargeable
3. No discharge for judgments arising from willful and malicious acts
ii. Post-discharge options:
1. If can’t get redemption, do a reaffirmation: §524(c), (d), (k), (l), (m) – parties
agree to remain bound to the debt but on new terms
a. Agreement must be made before discharge
b. Contract must be legal under applicable nonbankruptcy law
c. Creditor must provide debtor with disclosure
d. Debtor’s lawyer can rescind any time before discharge or within 60
days of agreement being filed with the court; must declare that he
explained the agreement to the debtor
e. Presumption of undue hardship where scheduled payments exceed
debtor’s disposable monthly income – 524(m)
i. Can rebut by showing other sources of income
ii. Credit unions can get reaffirmation even if debtor cannot pay
2. Other option is a ride through – debtor keeps the collateral and keeps paying
creditor without changing the agreement
a. Some circuits say that ride through is only possible for real property
because §§ 362(h) and 521(a)(6) seem to prohibit it for personal
property (BAPCPA)
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III.
Business debtor? – Chapter 11
a. First day motions
b. DIP financing aka DIP loans – good if you don’t want to cramdown
c. Retain professionals – check for conflicts
d. DIP proposes a plan for restructuring
i. Must specify classes of claims – 1123(a)
1. Claims can only be in a class together if they are substantially similar – 1122(a)
2. Debtor has to treat each claim in a class equally unless creditor consents, (a)(4)
ii. Plan must be confirmed
1. Each claimholder in an impaired class must accept the plan or receive, in
present value, not less than what it would receive in a c 7 liquidation –
1129(a)(7)(A)
a. Impairment presumed unless 1124 provides otherwise
b. To accept, creditors holding at least 2/3 in amount of allowed claims
and 1/2 in number of allowed claims must vote in favor of it -1126(a)
c. At least one impaired class must accept the plan – 1129(a)(10)
2. If not all impaired classes accept the plan, 1129(a)(8), the debtor must
cramdown the plan, 1129(b)
a. Remember that cramdown can screw the debtor if they have few
creditors because creditors could ditch them
b. Plan cannot unfairly discriminate against any dissenting impaired class
and must be fair and equitable to dissenting impaired classes.
i. Unfair discrimination not defined – courts consider any
disparate treatment and whether it can be justified under the
code
ii. Fair and equitable – 1129(b)(2)
1. Secured creditors receive f&e treatment if:
a. Retain their lien and receive deferred cash
payments
i. Must be paid a fair interest rate – Till
suggests prime plus 1-3%
b. Receives indubitable equivalent
i. Can include “dirt for debt”
c. 363 sale free and clear of lien where creditor’s
claim is satisfied
i. Must receive deferred cash payments
or indubitable equivalent
ii. Creditor has right to bid under 363(k)
2. Unsecured creditors receive f&e treatment if:
a. Receive property equal to allowed claim; OR
b. Senior classes are paid fully before junior
classes – “absolute priority” rule
i. If plan doesn’t pay unsecureds in full,
it cannot provide that equity holders
retain their interests
ii. Some courts say absolute priority does
not apply where equity holders invest
new capital in money or money’s
worth that is a substantial
contribution, reasonably equivalent to
interest received/retained, and
necessary for restructuring
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3. Undersecured creditors can do 1111(b) election –
voluntarily opt out of 506(a) deficiency claim in
exchange for having their full claim paid
a. Good option if collateral is undervalued or you
expect the plan to fail
IV.
V.
e. Can the debtor use cash collateral?
i. Property debtor pledges to a secured creditor
ii. Must get court approval under 363(c)(2) – adequate protection, 361
f. Does the debtor have property for a §363 sale?
i. 363(b) – debtor can sell property outside ordinary course of business
ii. Debtor can strip liens if nonbankruptcy law permits and creditors approve – 363(f)
iii. Creditors have bidding rights – 363(k)
1. Debtor picks a ‘stalking horse’ at auction – first bidder, establishes the starting
bid price; debtor must give max notice
g. Does the debtor have tort liabilities?
i. Trustee can create a trust and enjoin further claims – 524(g)
1. Although code specifies asbestos, courts allow it for other claims
2. Trust needs to be 50% funded
3. Trustee must provide notice to potential claimants
h. Does the debtor have a collective bargaining agreement?
i. Can reject – 1113(b)
ii. Some jurisdictions are friendlier to CBAs than others
i. Is the debtor a small business? (subchapter V – SBRA)
i. Debts must be $2,725,625 or less, at least half commercial – 101(51D)
ii. Can cramdown despite creditor objection – 1191(b)
iii. No absolute priority rule – 1181(a), 1191(c)
iv. Individual chapter 11 debtors can strip mortgage liens – 1190(3)
Municipal debtor? – chapter 9
a. 101(40) definition
b. Similar to chapter 11
Foreign debtor? – chapter 15
a. Foreign main proceeding is a bankruptcy proceeding where debtor has its main place of
operations – presumption; gets automatic stay in the US
i. Can be rebutted to make a foreign non-main proceeding
b. Operates functionally similar to US bankruptcy; foreign trustee applies for relief in US under
chapter 15;
c. US creditors should be careful about their conduct with the foreign jurisdiction
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