Basic Debtor-Creditor Terminology
• Debtor: person who owes the money
• Creditor: person to whom the money is owed
• To qualify as a “debt,” it must be:
– Certain (i.e., not contingent on some future event)
– Liquidated (a sum certain)
– Enforceable under the law
• Judgment creditor:
– This is a creditor who has obtained a judgment in court
against the debtor
Legal Document Preparation Class 9
Slide 1
Major Bankruptcy Types
• Chapter 7 (Liquidation)
– This is where the debtor gives up all of his assets (except
exempt assets)
– If it’s a business, it gives up all its assets and inventory and
ceases to operate unless a creditor takes it over
• Chapter 11
– Mainly applicable to businesses
– The business “reorganizes” its debts through renegotiation with
the creditors
• Chapter 13
– This is for a working individual
– The individual “reorganizes” its debts through renegotiation with
his or her creditors
– Must be voluntary
Legal Document Preparation Class 9
Slide 2
Involuntary Bankruptcy
• If a debtor simply refuses to pay his/her debts and
doesn’t file a petition for bankruptcy, a creditor can
“force” the debtor into Chapter 7 bankruptcy.
• The Procedure after this happens is basically the same
as with a voluntary proceeding.
• Automatic Stay
– This applies in voluntary and involuntary proceedings
– After the petition is filed, the creditors must stop all
collections actions (even on secured loans!) pending the
hearing on the petition
Legal Document Preparation Class 9
Slide 3
Bankruptcy Documents- the Proof of Claim
• Each creditor must prepare and submit to the court a
“proof of claim,” which gives notice of:
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The nature and amount of the debt owed by the debtor
Basis for the claim
Whether and to what extent the claim is secured
Whether a judgment has been obtained that relates to the
claim
– Whether there are any applicable priorities relevant to the
claim
– Any setoffs that have been taken against the debt
– Supporting documents that proves the debt
Legal Document Preparation Class 9
Slide 4
Bankruptcy Procedure
• First, the Petition is filed
• First meeting of the creditors
– The creditors can get all kinds of info from debtor
– Proof of claims must be filed within 90 days of this
• Trustee is designated by the court
– This person is in charge of administering the debtor’s
assets until it is distributed
– Sometimes the Debtor can remain in possession of the
assets, especially in a non-liquidation bankruptcy
• Then, the negotiation process takes place
• Finally, the discharge is issued or the petition is
dismissed
Legal Document Preparation Class 9
Slide 5
Fraudulent Transfers
• One much be careful to look back in time before the filing
of the petition to make sure there are no transactions
that can be undone by the court. These include:
– Voidable transfers
• Any transfer made up to a year before the petition was filed
with the intent to defraud creditors
– Preferential transfer
• Given to one creditor shortly before the petition, which gives
the creditor more than s/he would have received through the
bankruptcy process
– Constructive Fraudulent Transfer
• Any gift made by an insolvent debtor shortly before the
petition
Legal Document Preparation Class 9
Slide 6
Information to collect for a Bankruptcy Client
• Personal info
– Name, address, Soc. Sec. #, etc.
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Information about any prior bankruptcy filings
Property with secured debts
Other property owned
Secured Debts
Unsecured Debts
Property that may be exempt
Income sources
Legal Document Preparation Class 9
Slide 7
Preparing the Petition
• First, determine the proper venue!
• Fill out all info requested on the Petition
• Also, the following information must also often be included:
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Tax returns
Statements from financial accounts
Business books and records
Property held by the debtor for others or held by others for the
debtor
Prior bankruptcies
Ways debts have been collected, such as setoffs
Recent transfers (watch for fraudulent transfers)
Repossessions, losses, etc.
Expenses of preparing petition, including attorney’s fees, etc.
Legal Document Preparation Class 9
Slide 8
Bankruptcy Petition- Schedules
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Schedule A- Debtor’s real property
Schedule B- Debtor’s personal property
Schedule C- Property claimed as exempt
Schedule D-Secured creditors and security interests
Schedule E- Creditors with priority, but no security
Schedule F- List of unsecured creditors
Schedule G- Debtor’s standing contractual obligations and contracts
under which the debtor is owed money
Schedule H- Any debts on which the debtor is a co-obligor
Schedule I- Income information of the debtor and spouse
Schedule J- List of debtor’s monthly expenses
Summary of schedules
Legal Document Preparation Class 9
Slide 9
Bankruptcy Petition- Statement of Financial Affairs
• This must be submitted by a business petitioner. Includes:
– Information about the business
– Books and records or business
– Financial Statements
– Inventories
– Other income (e.g., investments by the business)
– Tax returns
– Financial Accounts
– Involvement in lawsuits
– Profits and losses statements
– Recent transfers
– Withdrawals by business members, etc.
Legal Document Preparation Class 9
Slide 10
Other Important Bankruptcy Documents
• Order confirming plan
– After the negotiation to alter the payments in a Chapter 11
or 13 proceeding, the court has to approve the plan for it to
go into effect.
– The petitioner’s attorney has to prepare the complete
documentation of the plan to be signed by the court
• Discharge
– This is the point of the proceeding- it absolves the debtor
of all debts unless they are included in the approved plan
– Often, the petitioner’s attorney has to prepare the
discharge to be signed by the court
Legal Document Preparation Class 9
Slide 11