Chapter Ten. Trustees, Official
Creditor Committees, and Examiners
 After reading this chapter, you will be able to:
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Describe the role and basic duties of the
bankruptcy trustee.
Define the role of the debtor-in-possession in
Chapter 11 proceedings
Identify the United States Trustee
Describe the Official Creditors Committee
Identify the Examiner
Trustees
 Section 321 provides that a competent
individual who has an office or resides in the
district or in an adjacent district where the
proceeding is pending may be a trustee in a
Chapter 7, 12, or 13 case.
Practice Pointer
 Remember, a ‘‘disinterested person’’ is a
defined term under the Bankruptcy Code. It
includes a person who is not a creditor, an
insider, or someone who holds ‘‘an interest
materially adverse to the interest of the
estate.’’ 11 U.S.C. §101(14).
Practice Pointer
 Remember, once the debtor files for
bankruptcy, all legal interests or actions that
the debtor could have maintained prepetition
now belong to the bankruptcy estate.
 Once appointed, the trustee represents the
estate and may pursue those actions on
behalf of the estate.
Office of the United States Trustee
 The Office of the United States Trustee is
charged with monitoring the progress of all
cases, regardless of Chapter, and to act
appropriately to ‘‘prevent undue delay.”
Debtor-in-Possession
 The debtor-in-possession is the fiduciary
entity created by a debtor filing a Chapter 11
reorganization proceeding.
 The debtor acts as its own trustee.
Official Creditors Committee
 The official creditors committee is an entity
created in a Chapter 11 proceeding to act on
the collective behalf of unsecured creditors.
Examiner
 An examiner is an individual appointed in a
Chapter 11 proceeding to conduct an
independent investigation of some or all of a
debtor’s financial affairs.
Ombudsmen
 An ombudsman may be appointed in two discrete
situations.
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First, where an asset sale involves the sale of
personally identifiable information, then the court shall
order the appointment of an ombudsman to review the
seller’s privacy policy and report on the potential losses
or gains to consumers and the estate by the proposed
sale.
Second, in a health care business bankruptcy, the
court shall order an ombudsman to represent the
interests of patients where necessary to regularly
report to the court on the quality of patient care.
Chapter Eleven. Preparing a
Proceeding for a Trustee
 After reading this chapter, you will be able to:
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Understand the number of simple actions
which can be taken to greatly ease the
handling of any bankruptcy proceeding
Provide a specific checklist of acts which can
be taken in an asset proceeding to enhance
the likelihood of creditor dividends
List questions commonly posed by individual
consumer debtors
Prefiling Checklist
 Value Assets
 Obtain Documents of Title (Such as Vehicle Ownership
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Documents) and Keys to All Vehicles
Obtain Name and Address of Landlord(s)
Obtain Itemized Inventory and Equipment List, with
Values, if Possible
Obtain Bank Records
Compile Accounts Receivable Data
Return Leased Equipment to Lessors
Maintain Security
Obtain Prior Years’ Tax Returns
Postfiling (Asset Case) Checklist
 Learn identity of trustee
 Communicate with trustee
 Close bank accounts and obtain cashier’s
check for trustee
 Encourage insider cooperation with trustee
Chapter Twelve. The Automatic
Stay—11 U.S.C 362
 After reading this chapter, you will be able to:
 Describe litigation that occurs in the bankruptcy
system
 Understand the concept of the automatic stay as
an element of debtor relief
 List creditor activities subject to the automatic stay
 List creditor activities not subject to the automatic
stay
 Understand the procedures utilized by creditors to
obtain relief from the stay
Adversary Proceedings
 When an issue is brought before the court in
the form of a motion and is opposed, it is
considered a contested matter.
 A contested matter is treated as an adversary
proceeding pursuant to Federal Rule of
Bankruptcy Procedure 9014.
Automatic Stay
 Automatic stay is a statutory bar to the
conducting of any collection activity by
creditors after a bankruptcy petition has been
filed.
Activity Subject to the Automatic Stay
 Section 362(a)(1) prohibits the
commencement or continuation of any
judicial, administrative, or other proceeding
against the debtor that was or could have
been commenced before the filing of the
petition to recover a prepetition claim.
Actions Subject to Automatic Stay
 Civil actions or administrative legal proceedings.
 Enforcement of judgments
 Acts to obtain possession or control of property of the
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estate
Acts to perfect liens upon property of the estate.
Acts to perfect liens upon property of the debtor
Any act to collect a prepetition claim
The making of setoffs (the common law right of a
creditor to balance mutual debts with a debtor)
Proceedings before the United States Tax Court
Common Actions Excepted from the
Automatic Stay
 Criminal prosecutions
 Collection of alimony, maintenance or support from
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other than property of the estate
Lien perfection within statutory grace period
Governmental proceedings to enforce police or
regulatory powers other than enforcement of money
judgments
Limited setoffs in commodity broker or stockbroker
proceedings
HUD foreclosures subject to National Housing Act
Slide 1 of 2
Common Actions Excepted from the
Automatic Stay
 Issuance of notice of tax deficiency, audit, demand
for returns or assessment
 Expired nonresidential real property lease
 Retirement loan repayments
 Residential evictions
Slide 2 of 2
Motion for Relief from Automatic
Stay
 Moving Party
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Notice of motion
Motion
Declaration of provable value
Exhibits
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Promissory note
Document evidencing security interest (UCC-1,
mortgage, or trust deed
appraisal
Any other document required by local rule
Motion for Relief from Automatic
Stay
 Opposing Party
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Request for hearing
Declaration or affidavits in opposition
Points and authorities
Exhibit: appraisals
Any other document required by local rule
Motion for Relief from Automatic
Stay
 Motion to Impose Stay for Cause Shown
 1. Serial filings 11 U.S.C. §362(c)(3), (4)
 2. Statement of Intention 11 U.S.C. §362(h)
 3. Small Business Cases 11 U.S.C. §362 (n)
 4. Residential evictions 11 U.S.C. §362(b)(22), (l)
30/30/30 Rule
 30 days after a request for relief the stay will
terminate
 a preliminary hearing must be held within 30
days of the motion
 a final hearing, if necessary, must be held
within 30 days of the preliminary hearing.
Chapter Thirteen. Objections to
Discharge and Dischargeability of Debts
 After reading this chapter, you will be able to:
 Understand that a discharge may not relieve a debtor
from all debts and that, in certain circumstances, a
debtor may be denied a discharge altogether.
 Describe which debts are automatically not
dischargeable
 Describe which debts are not dischargeable only if a
creditor obtains a judgment that the affected debt is not
dischargeable
 List those acts which can prevent a debtor’s discharge
altogether
 Understand the procedure for filing a complaint to
determine the dischargeability of a debt or the debtor’s
discharge.
Practice Pointer
 Even if the creditor takes no action, the
debtor will normally not be discharged of
most debts relating to taxes, domestic
support obligations, governmental fines or
penalties, and death or personal injury
caused by drunk driving.
Nondischargeable Debts
 A debt not subject to a debtor’s discharge.
 A debtor is not relieved from legal liability for
the affected debt.
 Some types of nondischargeable debts
require the filing of a Complaint to Determine
Dischargeability of Debt for the debt to
become nondischargeable.
 Nondischargeable debts are described in
Bankruptcy Code Section 523(a).
Nondischargeable Debts
 The following debts are nondischargeable without an
affected creditor being required to take any affirmative
action:
Priority tax claims
Unlisted debts
Domestic support obligations
Certain fines and penalties
Guaranteed student loans
Damages from DWI conviction
Debt nondischarged in prior
bankruptcy
Financial institution fraud
Restitution award
Loans obtained to pay
nondischargeable taxes
Postpetition homeowner’s
assessments
Prisoner court costs
Pension plan loans
Debts arising from federal or state
securities law violations
A Creditor May Object to Discharge of
the Following Debts
 Fraud
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Intentional fraud
False written financial statement
Limited prepetition credit transactions
 Defalcation, larceny, embezzlement
 Willful and malicious injury
Fresh Cash Rule
 The fresh cash rule covers the portion of a
debt incurred by use of a false written
financial statement.
Chapter Fourteen. Property of the
Estate and Turnover Complaints
 After reading this chapter, you will be able to:
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Define “property of the estate”
Identify those assets which are not property of
the estate and therefore not subject to the
trustee’s administration
Describe the trustee’s various rights to recover
estate property, the turnover rights and the
avoiding powers
Property of the Estate
 All property in which the debtor has a legal or
equitable interest at the commencement of a
case is property of the estate.
 During the course of the case, the trustee
must “administer” all the property.
 The figure (next slide) illustrates a typical
consumer no-asset Chapter 7 where all
property is either collateral for one or more
secured creditors, exempt, or abandoned by
the trustee as burdensome or of
inconsequential value to the estate.
Property of the Estate
Exempt
abandoned
secured
Avoiding Powers
 The ability of a trustee to set aside certain
pre- or postfiling transactions that might
otherwise be valid under nonbankruptcy law.
 Preferences, fraudulent transfers, and the
ability to set aside unauthorized postpetition
transfers are the most common of the
trustee’s avoiding powers.
Included as Property of the Estate
 Community property
 Property recovered by the trustee
 Property acquired within 180 days of filing by
bequest, inheritance, or devise, domestic
property settlement, life insurance proceeds
 Proceeds, product, or offspring from property
of the estate
 Property subject to an ipso facto clause
Excluded as Property of the Estate
 Personal postfiling earnings of an individual
Chapter 7 or 11 debtor
 Powers exercisable for the benefit of another
(e.g. power or attorney)
 Interest in an expired nonresidential lease
 Principal assets of a spendthrift trust
 Property in which the debtor holds bare legal
title
Turnover
 The concept of turnover is simple.
 Someone has property of the estate: It may
be the debtor, it may be a third party, it could
be anyone.
 If the third party refuses to voluntarily turn the
property over to the trustee, the court can
order the third party to turn it over.
Chapter Fifteen. Avoiding Powers-Introduction
 After reading this chapter, you will be able to:
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Describe the concept and purpose of the
trustee’s avoiding powers
List the general limitations upon the trustee’s
avoiding powers
Avoiding Powers
 The abilities given a trustee to avoid certain
pre- or postfiling transactions that would
otherwise be valid under nonbankruptcy law
are known as the avoiding powers.
 Preferences, fraudulent transfers, and the
ability to set aside unauthorized postpetition
transfers are the most common avoiding
powers.
Strong Arm Clause
 Section 544 gives the trustee various powers
collectively and commonly known as the
strong arm powers, or the strong arm clause.
 The strong arm rights collectively place the
trustee in full command of all a debtor’s
assets affected by the bankruptcy
proceeding.
Chapter Sixteen. Avoidable
Preferences—11 U.S.C. §547
 After reading this chapter you will be able to:
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Describe the avoidable preferences under the
Bankruptcy Code
List he elements of an avoidable preference
Understand the affirmative defenses which a
creditor may assert to defeat a trustee’s claim
of an avoidable preference
Describe the basic procedures of a preference
complaint
Preferences
 A preference is a transfer of property or an
interest in property to a creditor, on the eve of
bankruptcy, in full or partial satisfaction of
debt to the exclusion of other creditors.
 A preference meeting certain defined
conditions will be avoidable by a bankruptcy
trustee.
Practice Pointers
 The Code defines a ‘‘transfer’’ to mean:
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(1) the creation of a lien
(2) retention of title
(3) foreclosure of the debtor’s equity of
redemption
(4) any mode, ‘‘direct or indirect, absolute or
conditional, voluntary or involuntary, of
disposing of or parting with property or an
interest in property.’’
Elements of a Preference
 Transfer of property or an interest in property
 To or for the benefit of a creditor
 On or for account of an antecedent or
preexisting debt
 Made while the debtor is insolvent
 Made within 90 days of filing or within one
year if the transferee is an insider
 That enables the creditor to receive a greater
Chapter 7 dividend than it would otherwise
receive
Preference Defenses
 A contemporaneous exchange for new value
 A debt incurred and paid in the ordinary course of
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business
Within any nonbankruptcy perfection periods or within
30 days of debtor receiving possession
Unsecured debt incurred for new value
Floating liens, except for improvement of position
Unavoidable statutory liens
Domestic support obligations
A consumer debtor’s consumer debts of up to $600
(permits preferential payment of nominal debts)
Business transfers less than $5,475
Consumer approved repayment plan
Noninsider security interests for the benefit of insider
Plaintiff/Trustee Pleadings
 Summons and Complaint
 Cover Sheet, as required by local rule
 Evidence Proving Preference:
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Checks
Contracts
Recorded documents
Documents of title
Defendant/Transferee Pleadings
 Answer
 Evidence Proving Defense
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Checks
Contracts
Recorded documents
Documents of title
Chapter Seventeen. Fraudulent and
Postpetition Transfers
 After reading this chapter, you will be able to:
 Understand fraudulent transfers as they exist in
the bankruptcy code
 Describe the avoidability of unauthorized
postbankruptcy filing (postpetition) transactions
 List the damages recoverable by a trustee who
successfully exercises the avoiding powers
 Describe the bankruptcy code’s treatment of a
creditor’s common law right of setoff.
Fraudulent Transfer
 A fraudulent transfer is a transfer made by a
debtor with an intent to hinder, delay, or
defraud creditors.
 A transfer without reasonable or fair
consideration made while a debtor is
insolvent or that renders a debtor insolvent
will also be fraudulent.
 Fraudulent transfers are the subject of
Bankruptcy Code Section 548.
 Fraudulent transfers are one of the trustee’s
avoiding powers.
Postpetition Transfers
 A transfer of estate property after a
bankruptcy filing that is made without court
approval or is not otherwise authorized by the
Bankruptcy Code.
 An unauthorized postpetition transaction may
be avoided by a bankruptcy trustee.
 Postpetition transactions are the subject of
Bankruptcy Code Section 549.
Setoffs
 A setoff is the common law right of a creditor
to balance mutual debts with a debtor.