5 THINGS EVERY LAWYER SHOULD KNOW ABOUT BANKRUPTCY Laura A. Deeter, Esq. Five Things 1. What do the different BK chapters mean? 2. Do I need to file a Proof of Claim? 3. What does the BK Trustee do? 4. What is the Automatic Stay? 5. What is a 341 Meeting and should I go? 1. BK Chapters Three main types: Chapter 7 Chapter 13 Chapter 11 ( Chapter => particular chapter under Title 11 of the U.S. Code) 1
Chapter 7 Governing rules are set forth at 11 U.S.C. 701 784. Liquidation Individuals or Businesses Liquidate all non exempt assets Chapter 13 Governing rules are set forth at 11 U.S.C. 1301 1330. Reorganization Individuals only (income based) Reorganize via structured payment Plan Chapter 11 Governing rules are set forth at 11 U.S.C. 1101 1174. Reorganization (or Liquidation) Individuals or Businesses Reorganize via a Confirmed Plan; stringent requirements 2
2. File Proof of Claim? POC can be filed in the BK case by a Creditor of the Debtor Timing important; deadlines provided in Notice POC Forms online; can attach supporting documentation 2. File Proof of Claim? Chapter 7: No Asset vs. Non exempt Assets No Asset Case: No Proof of Claims filed No recovery against Debtor 2. File Proof of Claim? Chapter 7: Non exempt Assets Case: File POC Recovery only against assets Debtor did not claim under an exemption 3
Ch. 7 Exemptions Some equity in house Household goods, clothing Some unpaid earned wages Pension Autos, jewelry, tools of trade (to max) Public benefits PI Damages Wildcard Ch. 7 Exemptions How to elect Exemptions? Federal vs. State Exemptions States have residency requirements Some states opt out of the Federal Exemptions 3. Trustee Administers the BK estate on behalf of creditors Appointed by Court Preserve and/or liquidate assets of estate Ensure Debtor complies with BK law 4
3. Trustee Chapter 7, Chapter 13: appointed Trustee Chapter 11: Debtor in Possession acts as Trustee, unless a Trustee is appointed 3. Trustee Authority of Trustee: Account for property Object to claims Employ professionals Use, sell, lease estate property Obtain credit Assume/reject contracts/leases Move to dismiss, object to discharge 3. Trustee Trustee s Avoidance Powers : 547: Preferences Can avoid certain payments to creditors made within certain time before filing 90 days vs. One year for Insiders Exceptions: New Value Ordinary Course of Business 5
3. Trustee Trustee s Avoidance Powers : 548: Fraudulent Transfers Can avoid transfers made with intent to hinder, delay, or defraud, or for less than reasonably equivalent value 2 years before filing Self settled trust: 10 years 3. Trustee Trustee s Avoidance Powers : 549: Post petition Transfers Can avoid these transfers if not authorized by Court or by Title 11 Cut off: 2 years after transfer or upon closing/dismissal, whichever is earlier 11 U.S.C. 362 Effective as soon as petition filed Prohibits debt collection efforts against Debtor Attempts to collect are sanctionable 6
Exceptions: 11 U.S.C. 362(b) has 28 subsections of exceptions. Does not stop criminal proceedings Does not stop proceedings for child support, alimony, custody, domestic violence Exceptions: Taxing authorities can maintain some actions, such as audits, notice of deficiency Stay affected if prior BK case(s) dismissed within certain time(s) Relief from Stay / Lifting the Stay: Creditor can ask court to lift the stay, so that it can proceed with collection efforts against the Debtor By Motion and Hearing 11 U.S.C. 362(d) 7
Relief from Stay / Lifting the Stay: Secured Creditor: Debtor not making payments Lack of adequate protection No equity & not necessary to reorganization Relief from Stay / Lifting the Stay: Unsecured Creditor: Debt non dischargeable Eviction, if post petition rent not paid 5. 341 Meeting? 11 U.S.C. 341 Chapter 7 Mandatory meeting of Creditors Trustee questions the Debtor to ensure compliance with bankruptcy requirements Creditors can question the Debtor 8
5. 341 Meeting? Attend if you are a Creditor with questions about the assets, the petition, whether filed in good faith, whether Debtor intends to repay your debt Typical case: Attorneys Fees Typical Payment: Chapter 7: Pay up front Chapter 13: Pay through Plan, over several years Chapter 11: Retainer up front; Fee Application to Court; paid as Administrative (high priority) claim Thank You 9