Assignment 7

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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
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