7: Commencing a Voluntary Case Charles Tabb 2010
Who can file? Important threshold question is who can file under which chapter i.e., issue of debtor eligibility
Who gets in the courthouse door?
3 sets of eligibility rules 1 st: Generally applicable rule: 109(a) Two requirements: (1) person AND (2) Nexus to United States Residence Domicile Place of business property
Person Defined term 101(41) 1. Individual > a human being
Partnership What is a partnership? not defined in Code Look to state partnership law
Corporation Defined term 101(9) Very broad
Connection to United States Other absolute eligibility requirement is that the debtor must have a connection to the U.S. (domicile, residence, place of business, or property) Remember problem in Grupo Mexicano??
Chapter specific eligibility 2 nd type of eligibility rule > Chapter specific rules: 109(b) > Chapter 7 109(c) > Chapter 9 109(d) > Chapter 11 109(e) > Chapter 12 109(f) > Chapter 13 Chapter 15 > special rules in chapter 15 itself
Exclusionary rules 3 rd type of eligibility rule Exclusionary Rules: 1 st for abusive serial filers 109(g) 2 nd not get pre bankruptcy credit counseling 109(h)
Credit counseling Eligibility rule that individual consumer Dr get pre bankruptcy credit counseling was added in 2005 Supposedly to PROTECT Drs Give them a better sense of their options, not file hastily, maybe could work something out Don t do us any more favors!! Hundreds of reported cases where Drs had problems
Credit counseling Has been a real trap for Unwary Drs Drs facing an imminent foreclosure Need to file ASAP to stop foreclosure No time to get credit counseling
Problem 2.1(a) Under which chapters of the Code (if any) are the following debtors eligible for relief? a. Bill Gates (founder of Microsoft and richest person in the United States)
Answer to 2.1(a) Bill Gates? Chapter 7 [ 109(b)] Yes person with US connection No insolvency requirement Might kick out via dismissal rules (bad faith to file if billionaire?)
Gates Chapter 11? [ 109(d)] Yes Individuals can file chapter 11 (Toibb v. Radloff) Mostly tracks chapter 7 rules
Gates Chapter 13? [ 109(e)] Individual? yep Regular income? yep Debt limit? $336K unsecured, ~ $1 M secured Probably over!
Gates Chapter 9? [ 109(c)] Obviously not a municipality Chapter 12? [ 109(f)] Also not likely to qualify as a family farmer or a family fisherman
Problem 2.1(b) Under which chapters of the Code (if any) are the following debtors eligible for relief? b.
GM Chapter 7? Yes = person corporation Has US connection
GM Chapter 11? Yes person, no exclusions This is chapter actually filed under
GM Nothing else Chapter 13 not an individual
Problem 2.1(c) Under which chapters of the Code (if any) are the following debtors eligible for relief? c. Writ, Estoppel & Replevin, a law firm partnership
Partnership eligibility person so can file chapter 7 or 11 Assuming US connection But not chapter 13 because not an individual Each individual partner would have to file chapter 13
Problem 2.1(d) Under which chapters of the Code (if any) are the following debtors eligible for relief? d. New York Yankees Baseball Club
The Yankees Chapter 7 or 11 person corporation 101(9) Definition includes virtually any type of organized business, even including unincorporated association No insolvency requirement Question whether really need bankruptcy relief tested via motion to dismiss, not at eligibility But not 13 not individual
Problem 2.1(e) Under which chapters of the Code (if any) are the following debtors eligible for relief? e. Toronto Blue Jays Baseball Club
Toronto Blue Jays Same analysis as Yankees re: corporation as person Issue: requisite United States connection? ANY OF domicile, residence, place of business, or property will suffice Likely have property in the United States
Toronto Blue Jays Obviously, also would be potentially eligible for bankruptcy relief in Canada Raise transnational bankruptcy issues Dealt with in chapter 14 of casebook Problems of coordination
Problem 2.1(f) Under which chapters of the Code (if any) are the following debtors eligible for relief? f. Greg Norman, Australian golf star and resident of Florida
Greg Norman Person yes US connection? Yes even though Aussie citizen, is a resident of Florida So, eligible for chapters 7 and 11 for sure Chapter 13 likely problem with debt limits
Problem 2.1(g) Under which chapters of the Code (if any) are the following debtors eligible for relief? g. New York City
New York City ONLY chapter 9 109(c) municipality 101(40) Specifically excluded from definition of person So cannot file chapter 7 or 11
NYC Detailed rules in 109(c) and in chapter 9 to protect sovereignty of states Must be specially authorized to file Must be insolvent Pre bankruptcy negotiations with creditors
Problem 2.1(h) Under which chapters of the Code (if any) are the following debtors eligible for relief? h. Probate Estate of the late Warren Burger, former Chief Justice of the United States Supreme Court
Probate Estate NOT eligible Not a person Compare definition of entity 101(15) Includes person and estate thus indicating that an estate is not a person Why exclude? Insolvent probate estates handled under state law probate proceeding
Problem 2.1(i) Under which chapters of the Code (if any) are the following debtors eligible for relief? i. Reading Railroad
Railroad ONLY eligible under chapter 11, 109(d) Specifically excluded from chapter 7 Subchapter IV of Chapter 11 deals specifically with railroad reorganizations
Problem 2.1(j) Under which chapters of the Code (if any) are the following debtors eligible for relief? j. John Hancock Insurance Co.
Insurance company NOT eligible Excluded from chapter 7, 109(b)(2), (3) Chapter 7 exclusion carried over to chapter 11 Why? Heavily regulated by states States have statutes in place regarding insolvency
Problem 2.1(k) Under which chapters of the Code (if any) are the following debtors eligible for relief? k. HealthCare America, a health maintenance organization
HMO Problem a hybrid Part insurance company which is excluded, as saw in last problem But also part medical provider, would be an eligible corporation > So how decide which part controls for bankruptcy eligibility?
HMO Defer to state law classifications If treated as insurance company under state law, then have same justification for excluding as for any other insurance company, namely, detailed state law regulation
Problem 2.1(l) Under which chapters of the Code (if any) are the following debtors eligible for relief? l. Sue Debtor, a retired individual with credit card debts of $25,000 and a monthly social security check of $750
Retiree on Social Security Person Assuming US connection, clearly eligible under chapter 7 and 11 Chapter 13? Individual? yes Under debt limits? yes, $25K unsecured, well below $336K ceiling Regular income? yes, gets monthly social security check Function is whether she could fund a payment plan
Problem 2.1(m) Under which chapters of the Code (if any) are the following debtors eligible for relief? m. Bob Farmer, an individual who farms a quarter section of corn and soybeans, and whose total debts are $1.1 million, of which $900,000 is attributable to the farming operation
Farmer person and thus eligible under chapters 7 and 11, assuming US connection Chapter 13? Issue is debt ceiling Depends on mix of secured and unsecured Facts say has total debts of $1.1 M Chapter 13 ceiling is $336K unsecured and ~ $1M secured So depends on whether > $336K of total debts are unsecured
Farmer Chapter 12, 109(f), 101(18), 101(19) individual yes Under debt ceiling? Yes Ceiling is ~ $3.5 M, Bob has $1.1M Enough of a farmer? 50% of debts attributable to farming yes, $900K of $1.1M Regular income? Fact question fund a plan?
Problem 2.1(n) Under which chapters of the Code (if any) are the following debtors eligible for relief? n. Guillaum is the official Liquidator of the Cayman Islands insolvency case regarding Offshore Assets Inc. (OAI). OAI has assets in the United States. Guillaum would like to obtain relief in the U.S. courts protecting those assets
Foreign representative Guillaum may commence a chapter 15 proceeding by filing a petition for recognition under 1515 and then, upon recognition, filing a petition under 301 303. See 1511. He is the foreign representative of a foreign main proceeding the Cayman liquidation of OAI.
COMI The U.S. court should grant the petition for recognition if the Caymans is the center of main interests of OAI and if all else is in order. See 1517. The relief that will be granted is governed by 1519 1524.
Venue Where file? The bankruptcy case 28 USC 1408 Proceedings in that case 28 USC 1409
Problem 2.2(a) Apply the federal bankruptcy venue statute to answer the following questions: a. Sue Debtor had lived in Illinois all her life. On March 1, she moved across the Mississippi to Iowa. On June 1, she filed chapter 7 in the district court in Iowa. Is venue proper?
2.2(a): Case venue when move? Venue of the case is proper in Iowa 1408(1) Sue has lived in Iowa (residence or domicile) for the longer portion of the 180 days before bankruptcy Specifically, has lived in Iowa for 92 days
Other problems arise with pre bankruptcy move Note: other problems especially with applicable exemption laws arise when a debtor moves before bankruptcy will see in chapter 11 of casebook
Problem 2.2(b) Apply the federal bankruptcy venue statute to answer the following questions: b. Enron Corp.: home office, principal place of business in Houston, Texas incorporated in Oregon. Enron Metals, a small affiliate of Enron, is headquartered in New York
Corporate venue Enron s management would love to file chapter 11 in the Southern District of New York Very experienced (and debtor friendly!) court Any way to do this?
Corporate venue (2.2(b)) YES use the affiliate hook Have Enron Metals, which is headquartered in NY, file first, under 1408(1) THEN the parent company, Enron Corp., can file in NY under 1408(2) Because a case is already pending in NY involving an affiliate And affiliate is defined to include parents or subs
Forum shopping The upshot of 1408(1) allowing a corporation to file where it is incorporated (domicile) Plus 1408(2) allowing parents to use the affiliate hook Is that a large corporation can file virtually anywhere it wants which promotes forum shopping
Problem 2.2(c) Apply the federal bankruptcy venue statute to answer the following questions: c. Debtor Inc. filed chapter 11 in District of Hawaii * Shortly before filing, Debtor had paid off a $1,200 debt to Creditor, a supplier located in Maine * Debtor (as DIP, e.g., trustee), sues Creditor in the federal court in Hawaii to recover the $1,200 as a preferential transfer under 547. Was Debtor supposed to file suit in Maine?
Venue of proceeding General rule: home court 1409(a) provides that the default rule is that a proceeding connected with the bankruptcy case may be filed in the district where the case is pending, e.g., the home court If that rule applies, then the filing in Hawaii is proper
Distant defendant, small $ Is it fair for a creditor located in MAINE to have to go to HAWAII to defend a lawsuit over a measly $1,200? Over 5,000 miles away! Hardship on Cr Under non bk law, likely would have to sue in Maine (where Defendant resides, 28 USC 1391(c))
Special protective rule 1409(b) protects a distant defendant on a small debt Here, a non insider being sued on a nonconsumer debt is protected for amounts less than $10,950 So the $1,200 debt is covered Have to sue in Maine
Statutory glitch 1409(b) by its terms applies when trustee sues on matter arising in or related to bankruptcy case A preference action under 547 technically is a proceeding arising under title 11 A minority of courts thus hold that the protective rule of 1409(b) is n/a to preference actions Congressional intent, though plainly was directed at preferences Legislative history see 1997 Commission Report
Mechanics of filing Debtor (or Debtor and spouse in joint case) file a petition 301, 302 Pay filing fee Specified in 28 USC 1930(a)
That s it! The filing of the petition, accompanied by the fee, commences the case And in voluntary case (e.g., DR files), the commencement of the case = order for relief Exactly same force and effect as if the Bankruptcy Judge formally entered an order
What if Debtor too poor? Can this guy file bankruptcy? Maybe NO Supreme Court held in US v Kras (1973) that no Due Process right to access to bankruptcy court can be too poor to file bankruptcy! 2005 limited in forma pauperis statute passed
Paperwork DR has huge burden of paperwork to file, either with petition or shortly thereafter If doesn t, case may be dismissed
Effects of Filing Automatic stay 362 Stops all collection efforts Protect Dr, property
Effects of filing Property of estate 541(a) DR Estate
Effects of Filing Utility services can t be cut off, 366