1 Introduction
6 types of bankruptcy under federal law
Chapter 7: Liquidation 清算
Chapter 9: Municipal debt adjustment
Chapter 11: Reorganization
Chapter 12: Family farmers with regular income
Chapter 13: Adjustment debts of individual with regular income
Chapter 15: Ancillary and other cross-border cases
1.1 Chapter 7 liquidation: Trustee Appointed 指派信托人(Applied to I.P.C)
The Trustee collects the debtor’s assets, liquidates them, and uses the proceeds to pay off creditors to the extend possible.
Indivudual debtor: Discharged
Artificial entity: Dissolved
1.2 Chapter 13 Adjustment of Debts of Individuals with regular income
Trustee required
Repay all or a portion of debts over 3-5 years
(Remaining debts of debtor are discharged)
1.3 Chapter 11 reorganization: No Liquidation, No Trustee required
Debtor Owen assets and reorganization plan
Possible payment for creditor and business continues
1.4 Chapter 15 Ancillary and cross-border cases
It was adopted to promote a uniform and coordinated legal regime for cross-border insolvency cases.
适用于跨境资不抵债 insolvency
2 Dismissal or conversion of a chapter 7 case
Individual consumer debtor - may be Dismissed or converted to a case under chapter 13
如果债务人有足够的收入，只是为了减轻债务而提交的chapter 7 case， 被视为对清算的滥用。
Step 1: Determine whether income is lower than the State Median
If yes, Chapter 7 Ok.
Greater than Median Income
Step 2: Means Test
(Average income - allowed expense)*60
1. < 8175, Chapter 7 OK
2. > 13,650, Chapter 13 or dismissed.
3. 8175- 13650, if amount >= 25% unsecured claims, not entitled to priority, presumption of abuse arises.
3. Who May be a debtor
GR: I. P. C(Resident and have a place of business)
3.1 Exception: Chapter 7, NO RIBS
Railroads, Saving Institutions, Insurance companies, banks and small investment companies.
3.2 Chapter 11 Reorganizations, No BIBS
No stockbroker, commodity broker, saving institution, insurance companies, banks or small business investment
4. Right and Duties of debtor and creditor under chapter 7 (liquidation)& chapter 11(reorganization)
4.1 Automatic Stay
When Bankruptcy is filled, automatic stay becomes effective to most creditors, stop almost all collection efforts; Not apply to criminal prosecution, paternity suits, and cases related spousal and child support obligation.
4.2 Duties of debtor(within 45 days)
- List of creditors and their addresses
- A schedule of assets and liabilities(At FMV)
- A schedule of current income and expenditures
- A statement of the debtor’s financial affairs
- Copies of fedex tax return from the last tax year.
4.3 &4.4Chapter 7 and Chapter 11, Voluntary vs. Involuntary cases
(Chapter 13, voluntary only)
Voluntary: Debtor file the petition; Debtor need NOT be insolvent but Must pass income test;Spouse may file jointly to avoid duplicate fee; Voluntary petition constitutes an automatic order for relief
Involuntary: unsecured creditor petition and debtor involuntarily to bankrupting proceeding; (Creditor) show that debtor does not pay debts when it is due; Not applied to Farmers and charities;
Requirement on creditors to file involuntary petition:
- Fewer than 12 creditors: One or More owed at least 16750,in unsecured, undisputed debt
- 12 or more creditors: at least Three owed at least 16750
- Involuntary petition does not obtain order for relief
- If involuntary petition is improperly filed, court may award debtor compensatory damages, court cost and punitive damage when bad faith can be shown.
4.5 creditors’ meeting(341 meeting)
A meeting of creditor should be held within 20-40 days after the order of relief.
All the interest parties, including creditors, the bankruptcy trustee, and the debtor must be given notice of the meeting.
4.6 Property of the bankruptcy Estate
Include:
- all of the debtor’s real and personal property at the time of filing
- income generated from estate property received within 180 days after fathers filing of petition
- Property from divorce, inheritance, or insurance within 180 days after the filing of the petition
-leases of property assumed, retained, or rejected by trustee
Exclude:
- Post-petition earnings, spendthrift trusts, educational IRAs and state tuition program (e.g wages after the petition was filed)
- Basic household items needed to live(such as clothing, medical devices, and the like)
4.6.3 Trustee is a hypothetical lien creditor as of filing date
The trustee has priority over all creditor except creditors with prior perfected security interests or prior statutory or judicial liens.
4.6.4 Power over fraudulent transfer
- 2 years
Intent to hinder, or defraud creditors or any transfer in which debtor received less than equivalent value while the debtor was insolvent.
4.6.5 Trustee Can disaffirm(取消，否认） preferences( 90 days or 1 year)
Preferential Payment is:
- Transfer made to and for a creditor
- on accounts of antecedent debt of the debtor(Contemporaneous exchange for value is not a preference)
- made with 90 days prior to the filing the petition ; 1 year if the creditor is an insider.
- Made while the debtor was insolvent
- results in the creditor receiving more than the creditor would have received under the bankruptcy code
* Exceptions: Transfer that cannot be set aside by trustee; Transfers in the ordinary course of business
4.7 Claims against the estate
- Unsecured creditors file a proof of claim, and shareholders file a proof interest with bankruptcy court
- if unsecured creditors fail to timely file a claim, they may not take part in distribution of debtor’s estate
- Perfected security interest should pass through and survives
4.8 Miscellaneous
The trustee can also serve as a professional for the the estate if the court approval.
May receive compensation as a professional in addition to the trustee’s compensation, if a court approves.
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