Secured Transactions Assignment 7 Treatment of Secured Creditors in Bankruptcy 1 The Big Picture Chapter 1. Creditors’ Remedies Under State Law Chapter 2. Creditors’ Remedies in Bankruptcy Assignment 6: Bankruptcy and the Automatic Stay Assignment 7: Treatment of Secured Creditors in Bankruptcy 2 What secured creditors get in bankruptcy $6K $10K 3 What secured creditors get in bankruptcy 1. Bifurcation of claim §506(a) $6K $10K 4 What secured creditors get in bankruptcy 1. Bifurcation of claim §506(a) $6K $4K unsecured claim $6K $10K secured claim 5 What secured creditors get in bankruptcy 1. Bifurcation of claim §506(a) 2. Secured portion: payment in full $6K $4K unsecured claim $6K $10K secured claim 6 What secured creditors get in bankruptcy 1. Bifurcation of claim §506(a) 2. Secured portion: payment in full 3. Unsecured portion: prorata payment with other unsecured claims $6K $4K unsecured claim $6K $10K secured claim 7 What secured creditors get in Chapter 7 1. Bifurcation of claim §506(a) 2. Secured portion: payment in full 3. Unsecured portion: prorata payment with other unsecured claims Example: Debtor files Chapter 7; trustee sells the asset $6K $4K unsecured claim $6K $10K secured claim 8 What secured creditors get in Chapter 7 1. Bifurcation of claim §506(a) $4K unsecured claim 2. Secured portion: payment in full 3. Unsecured portion: prorata payment with other unsecured claims Example: Debtor files Chapter 7; trustee sells the asset $6K $6K $10K secured claim Secured creditor gets $6,000 from sale; $4,000 claim shares prorata in other assets, if any. 9 What secured creditors get in Chapter 13 §1325(a)(5). With respect to each allowed secured claim . . . $6K $4K unsecured claim $6K $10K secured claim 10 What secured creditors get in Chapter 13 §1325(a)(5). With respect to each allowed secured claim . . . (A) The holder of such claim has accepted the plan; $6K $4K unsecured claim $6K $10K secured claim 11 What secured creditors get in Chapter 13 §1325(a)(5). With respect to each allowed secured claim . . . (A) The holder of such claim has accepted the plan; (B)(i)(I) the plan provides that the holder of such claim retain the lien securing such claim $6K . . . and (ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim [$6K]. . . orowed amount of such claim; or (C) the debtor surrenders the property securing such claim to such holder $4K unsecured claim $6K $10K secured claim 12 What secured creditors get in Chapter 13 §1325(a)(5). With respect to each allowed secured claim . . . (A) The holder of such claim has accepted the plan; (B)(i)(I) the plan provides that the holder of such claim retain the lien securing such claim $6K . . . and (ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim [$6K]. . . or (C) the debtor surrenders the property securing such claim to such holder $4K unsecured claim $6K $10K secured claim 13 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 14 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 15 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest 16 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Pendency Post-confirmation Unsecured Undersecured Over secured 18 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Pendency Post-confirmation Unsecured Undersecured Yes, §502(b) Over secured 19 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Post-confirmation No, §502(b) Unsecured Undersecured Pendency Yes, §502(b) Over secured 20 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Over secured Post-confirmation No, §502(b) Unsecured Undersecured Pendency Yes, §502(b) Yes, §506(b) 21 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Over secured Post-confirmation No, §502(b) Unsecured Undersecured Pendency Yes, §502(b) No, Timbers Yes, §506(b) 22 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Over secured Post-confirmation No, §502(b) Unsecured Undersecured Pendency Yes, §502(b) No, Timbers Yes, §506(b) For $167 million, 30 years, at 6%, payment is $1 million per month 23 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Over secured Post-confirmation No, §502(b) Unsecured Undersecured Pendency Yes, §502(b) No, Timbers Yes, §506(b) For $167 million, 30 years, at 6%, payment is $1 million per month Timbers: In one-year bankruptcy, secured loses $10 million. 24 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Over secured Post-confirmation No, §502(b) Unsecured Undersecured Pendency Yes, §502(b) No, Timbers Yes, §506(b) Yes §1129(b)(2) 25 Interest on claims Interest on claims is important: Example: 30-year loan at 6% 1. Over half of all payments will be interest 2. In first year, 83% of payments will be interest Is a creditor entitled to interest on its claim? Prepetition Over secured Post-confirmation No, §502(b) Unsecured Undersecured Pendency Yes, §502(b) No, Timbers Yes, §506(b) Yes §1129(b)(2) §1325(a)(5): “[T]he value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is 26 not less than the allowed amount of such claim.” Sale “subject to lien” v. “free and clear” $100K $80K What seller has 27 Sale “subject to lien” v. “free and clear” $100K Price: $20K 1. Lien goes with the property $80K 2. Buyer is not liable for any deficiency unless buyer “assumes and agrees to pay” What seller has 28 Sale “subject to lien” v. “free and clear” $100K Price: $20K $100K 1. Lien goes with the property $80K What seller has 2. Buyer is not liable for any deficiency unless buyer “assumes and agrees to pay” $80K What buyer gets 29 Sale “subject to lien” v. “free and clear” $100K $80K What seller has 30 Sale “subject to lien” v. “free and clear” $100K $80K Price: $100K $80K lien is transferred to the proceeds What seller has 31 Sale “subject to lien” v. “free and clear” $100K $100K $80K What seller has Price: $100K $80K lien is transferred to the proceeds What buyer gets 32 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 33 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal Interest Feb 15 – Mar 15? 34 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. 35 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. Interest Mar 15 – Sep 15? 36 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. Interest Mar 15 – Sep 15. Rate? 37 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. $2,700 Interest Mar 15 – Sep 15. Rate? 18% 38 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. $2,700 Interest Mar 15 – Sep 15. Rate? 18% Interest Sep 15 – Dec 15, §502(b)(2)? 39 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. $2,700 Interest Mar 15 – Sep 15. Rate? 18% 0 Interest Sep 15 – Dec 15, §502(b)(2) 40 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. $2,700 Interest Mar 15 – Sep 15. Rate? 18% 0 Interest Sep 15 – Dec 15, §502(b)(2) Attorneys fees for work in August? 41 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. $2,700 Interest Mar 15 – Sep 15. Rate? 18% 0 Interest Sep 15 – Dec 15, §502(b)(2) 0 Attorneys fees for work in August 42 Problem 7.1, page 128 Feb Mar 15 15 Work Bill done sent Sep 15 Dec 15 Bankruptcy Now What items are included in CompuSoft’s claim? $30,000 Principal 0 Interest Feb 15 – Mar 15. $2,700 Interest Mar 15 – Sep 15. Rate? 18% 0 Interest Sep 15 – Dec 15, §502(b)(2) 0 Attorneys fees for work in August $32,700 Amount of the unsecured claim 43 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 44 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 Prorata distribution: Each creditor will get the same percentage of its claim 45 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 Prorata distribution: Each creditor will get the same percentage of its claim What percentage will that be? 46 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 Prorata distribution: Each creditor will get the same percentage of its claim What percentage will that be? All distributions $59,575 All claims $1,191,500 47 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 Prorata distribution: Each creditor will get the same percentage of its claim What percentage will that be? All distributions $59,575 All claims $1,191,500 48 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 Prorata distribution: Each creditor will get the same percentage of its claim What percentage will that be? All distributions $59,575 = .05 = All claims $1,191,500 49 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 Prorata distribution: Each creditor will get the same percentage of its claim What percentage will that be? All distributions $59,575 = .05 = CompuSoft distribution All claims $1,191,500 CompuSoft claim 50 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 Prorata distribution: Each creditor will get the same percentage of its claim What percentage will that be? All distributions $59,575 = .05 = CompuSoft distribution All claims $1,191,500 CompuSoft claim = $1,635 $32,700 51 Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575 Prorata distribution: Each creditor will get the same percentage of its claim What percentage will that be? All distributions $59,575 = .05 = CompuSoft distribution All claims $1,191,500 CompuSoft claim = $1,635 $32,700 52 Problem 7.3.a, page 129 6 months interest unpaid 3 months Bankruptcy Now $400K What is in the claim? $340,000 Principal $340K Lien 53 Problem 7.3.a, page 129 6 months interest unpaid 3 months Bankruptcy Now $400K What is in the claim? $340,000 Principal 6 months interest? $20.4K $340K Lien 54 Problem 7.3.a, page 129 6 months interest unpaid 3 months Bankruptcy Now $400K What is in the claim? $340,000 Principal $20,400 6 months interest $20.4K $340K Lien 55 Problem 7.3.a, page 129 6 months interest unpaid 3 months Bankruptcy Now $400K What is in the claim? $340,000 Principal $20,400 6 months interest $10.8K $20.4K 3 months interest? $340K Lien 56 Problem 7.3.a, page 129 6 months Interest unpaid 3 months Bankruptcy Now $400K What is in the claim? $340,000 Principal $20,400 6 months interest $10.8K $20.4K $10,812 3 months interest $340K Lien 57 Problem 7.3.a, page 129 6 months Interest unpaid 3 months Bankruptcy Now $400K What is in the claim? $340,000 Principal $20,400 6 months interest $10.8K $20.4K $10,812 3 months interest $340K Lien $371,212 Claim (secured) 58 Problem 7.3.b, page 129 6 months interest unpaid 3 months Bankruptcy If market rate 12% and plan confirmed today, how much? Now $400K What is in the claim? $340,000 Principal $20,400 6 months interest $10.8K $20.4K $10,812 3 months interest $340K Lien $371,212 Claim (secured) 59 Problem 7.3.b, page 129 6 months interest unpaid 3 months Bankruptcy If market rate 12% and plan confirmed today, how much? $371,212 plus interest Now $400K What is in the claim? $340,000 Principal $20,400 6 months interest $10.8K $20.4K $10,812 3 months interest $340K Lien $371,212 Claim (secured) 60 Problem 7.3.c, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now $400K $43.2K Confirmation If plan not confirmed for year? $340,000 Principal $20,400 6 months interest $10.8K $20.4K $10,812 3 months interest 12 months interest? $340K Lien 61 Problem 7.3.c, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now If plan not confirmed for year? $340,000 Principal $20,400 6 months interest $400K $14.4K Confirmation $28.8K $10.8K $20.4K $10,812 3 months interest $28,788 12 months interest $340K Lien 62 Problem 7.3.c, page 129 6 months Interest unpaid 3 months Bankruptcy 12 months Now If plan not confirmed for year? $340,000 Principal $20,400 6 months interest $400K $14.4K Confirmation $28.8K $10.8K $20.4K $10,812 3 months interest $28,788 12 months interest $400,000 Claim (secured) $340K Lien 63 Problem 7.3.c, page 129 6 months Interest unpaid 3 months Bankruptcy 12 months Now If plan not confirmed for year? $340,000 Principal $20,400 6 months interest $400K $14.4K Confirmation $28.8K $10.8K $20.4K $10,812 3 months interest $28,788 12 months interest $400,000 Claim (secured) $340K Lien Claim (unsecured)? 64 Problem 7.3.c, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now If plan not confirmed for year? $340,000 Principal $20,400 6 months interest Confirmation $400K $28.8K $10.8K $20.4K $10,812 3 months interest $28,788 12 months interest $400,000 Claim (secured) $340K Lien 0 Claim (unsecured) 65 Problem 7.4, page 129 6 months Interest unpaid 3 months Bankruptcy 12 months Now $43.2K Confirmation a. What is in the claim? If the $10.8K value is $20.4K only $325K? Secured claim ? $340K Lien 66 Problem 7.4, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now $43.2K Confirmation a. What is in the claim? $325,000 Principal (secured) $325,000 Secured claim If the $10.8K value is $20.4K only $325K? $15.0K $325K Lien 67 Problem 7.4, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now $43.2K Confirmation a. What is in the claim? $325,000 Principal (secured) $325,000 Secured claim If the $10.8K value is $20.4K only $325K? $15.0K $325K Lien Unsecured claim? 68 Problem 7.4, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now $43.2K Confirmation a. What is in the claim? $325,000 Principal (secured) $15,000 Principal (unsecured) $20,400 6 mo. interest (unsec) If the $10.8K value is $20.4K only $325K? $15.0K 0 3 mo. interest $325,000 Secured claim $325K Lien $35,400 Unsecured claim 69 Problem 7.5, page 129 6 months interest unpaid No security agreement exists 3 months Bankruptcy 12 months Now $43.2K Confirmation a. What is in the claim? $10.8K $20.4K Unsecured claim? $340K 70 Problem 7.5, page 129 6 months interest unpaid No security agreement exists 3 months Bankruptcy 12 months Now $43.2K Confirmation a. What is in the claim? $340,000 Principal $20,400 6 mo. interest $10.8K $20.4K 0 3 mo. interest $360,400 Unsecured claim $340K 71 Problem 7.5, page 129 6 months interest unpaid No security agreement exists 3 months Bankruptcy 12 months Now $43.2K Confirmation b. How much do we get? $340,000 Principal $20,400 6 mo. interest $10.8K $20.4K 0 3 mo. interest $360,400 Unsecured claim At 10¢ on the dollar $340K 72 Problem 7.5, page 129 6 months interest unpaid No security agreement exists 3 months Bankruptcy 12 months Now $43.2K Confirmation b. How much do we get? $340,000 Principal $20,400 6 mo. interest $10.8K $20.4K 0 3 mo. interest $360,400 Unsecured claim $36,040 At 10¢ on the dollar $340K 73 Problem 7.6, page 129 Six months Now Sale for $1 million $1million a. How much to the estate? §541 $1,000,000 Sale proceeds 74 Problem 7.6, page 129 “Such estate is composed of . . . all legal and equitable interests of the debtor in property . . . Six months Now Sale for $1 million $1million a. How much to the estate? §541 $1,000,000 Sale proceeds 75 Problem 7.6, page 129 “Such estate is composed of . . . all legal and equitable interests of the debtor in property . . . Six months Now Sale for $1 million $1million a. How much to the estate? §541 $1,000,000 Sale proceeds $850,000 Secured claim $850,000 Mort 76 Problem 7.6, page 129 Six months Interest accrued Now Sale for $1 million “Such estate is composed of . . . all legal and equitable interests of the debtor in property . . . $1million a. How much to the estate? §541 $42,500 $1,000,000 Sale proceeds $850,000 Secured claim $42,500 Six months of interest $850,000 Mort 77 Problem 7.6, page 129 Six months Interest accrued Now Sale for $1 million “Such estate is composed of . . . all legal and equitable interests of the debtor in property . . . $1million a. How much to the estate? §541 $60,000 $42,500 $10K $1,000,000 Sale proceeds $850,000 Secured claim $42,500 Six months of interest $60,000 Broker $850,000 Mort $10,000 Costs, property taxes 78 Problem 7.6, page 129 Six months Interest accrued Now Sale for $1 million $1million a. How much to the estate? §541 $60,000 $42,500 $10K $1,000,000 Sale proceeds $850,000 Secured claim $42,500 Six months of interest $60,000 Broker $850,000 Mort $10,000 Costs, property taxes $37,500 Net to the estate 79 Problem 7.6, page 129 Six months Interest accrued Now Sale for $1 million Can trustee recover the costs of sale from the secured creditor’s share? $1million a. How much to the estate? §541 $60,000 $42,500 $10K $1,000,000 Sale proceeds $850,000 Secured claim $42,500 Six months of interest $60,000 Broker $850,000 Mort $10,000 Costs, property taxes $37,500 Net to the estate 80 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . a. How much to the estate? §541 $60,000 $42,500 $10K $1,000,000 Sale proceeds $850,000 Secured claim $42,500 Six months of interest $60,000 Broker $850,000 Mort $10,000 Costs, property taxes $37,500 Net to the estate 81 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . Does 1st Capital benefit from this sale? a. How much to the estate? §541 $60,000 $42,500 $10K $1,000,000 Sale proceeds $850,000 Secured claim $42,500 Six months of interest $60,000 Broker $850,000 Mort $10,000 Costs, property taxes $37,500 Net to the estate 82 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . Does 1st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1st Capital paid in full 1st Capital: Hires counsel $60,000 $42,500 $10K $850,000 Mort 83 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . Does 1st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1st Capital paid in full 1st Capital: Hires counsel $60,000 $42,500 $10K Lifts stay $850,000 Mort 84 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . Does 1st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1st Capital paid in full 1st Capital: Hires counsel $60,000 $42,500 $10K Lifts stay Forecloses in state court $850,000 Mort 85 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . Does 1st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1st Capital paid in full 1st Capital: Hires counsel $60,000 $42,500 $10K Lifts stay Forecloses in state court Buys property at sale? $850,000 Mort 86 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . Does 1st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1st Capital paid in full 1st Capital: Hires counsel $60,000 $42,500 $10K Lifts stay Forecloses in state court Buys property at sale? $850,000 Mort Hires broker 87 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . Does 1st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1st Capital paid in full 1st Capital: Hires counsel $60,000 $42,500 $10K Lifts stay Forecloses in state court Buys property at sale? $850,000 Mort Hires broker Sells property 88 Problem 7.6, page 129 §506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . . Does 1st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1st Capital paid in full 1st Capital: Hires counsel $60,000 $42,500 $10K Lifts stay Forecloses in state court Buys property at sale? $850,000 Mort Hires broker Sells property Paid in full? 89 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against us $10K $60,000 c. Can First Capital prevent us from $42,500 selling? §554(b) $850,000 Mort 90 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against us $10K $60,000 c. Can First Capital prevent us from $42,500 selling? §554(b) $850,000 Mort 91 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against us $10K $60,000 c. Can First Capital prevent us from $42,500 selling? §554(b) $850,000 Mort 92 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month $10K $60,000 c. Can First Capital prevent us from $42,500 selling? §554(b) $850,000 Mort 93 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month $10K $60,000 c. Can First Capital prevent us from $42,500 trying to sell? §554(b). On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. $850,000 Mort 94 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month $10K $60,000 c. Can First Capital prevent us from $42,500 trying to sell? §362(d)(1). On request of a party in interest . . . the court shall grant relief from the stay . . . for cause, including the lack of adequate protection of an interest in property of such party in interest. $850,000 Mort 95 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month $10K $60,000 c. Can First Capital prevent us from $42,500 trying to sell? §362(d)(1). On request of a party in interest . . . the court shall grant relief from the stay . . . for cause, including the lack of adequate protection of an interest in property of such party in interest. 1st Capital must show risk of loss from collateral value decline $850,000 Mort 96 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month $10K $60,000 c. Can First Capital prevent us from $42,500 trying to sell? d. We are advising the trustee. Is selling the house the right thing to do? $850,000 Mort 97 Problem 7.6, page 129 a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500 b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month $10K $60,000 c. Can First Capital prevent us from $42,500 trying to sell? d. We are advising the trustee. Is selling the house the right thing to do? Harms the secured to help the unsecureds $850,000 Mort 98 Problem 7.7.a, page 130 If Friendly’s lien is on the Piper aircraft $214,000 Piper aircraft $150,000 Less Friendly Credit $64,000 $64,000 Net to the estate, aircraft $26,000 Coin collection $2,200 $92,200 Cash Total available for distribution 99 Problem 7.7.a, page 130 If Friendly’s lien is on the Piper aircraft $214,000 Piper aircraft $150,000 Less Friendly Credit $64,000 $64,000 Net to the estate, aircraft $26,000 Coin collection $2,200 $92,200 Cash Total available for distribution $300,000 General unsecured claims 100 Problem 7.7.a, page 130 If Friendly’s lien is on the Piper aircraft $214,000 Piper aircraft $150,000 Less Friendly Credit $64,000 $64,000 Net to the estate, aircraft $26,000 Coin collection $2,200 $92,200 .3073 Cash Total available for distribution $300,000 General unsecured claims Cents per dollar 101 Problem 7.7.b, page 130 If Friendly’s lien is on the coin collection $214,000 0 $2,200 $216,200 Piper aircraft $26,000 Coin collection $26,000 Less Friendly Credit secured 0 Net to the estate Cash Total available for distribution 102 Problem 7.7.b, page 130 If Friendly’s lien is on the coin collection $214,000 0 $2,200 $216,200 Piper aircraft $26,000 Coin collection $26,000 Less Friendly Credit secured 0 Net to the estate Cash Total available for distribution $300,000 General unsecured claims $124,000 Plus Friendly unsecured $424,000 Total unsecured claims 103 Problem 7.7.b, page 130 If Friendly’s lien is on the coin collection $214,000 0 $2,200 $216,200 Piper aircraft $26,000 Coin collection $26,000 Less Friendly Credit secured 0 Net to the estate Cash Total available for distribution $300,000 General unsecured claims $124,000 Plus Friendly unsecured $424,000 Total unsecured claims .5099 Cents per dollar 104