Bankruptcy Basics for Attorneys

MICHAEL SHERIDAN – ATLAS LAW FIRM
763-568-7343 / atlasbankruptcy.com
Bankruptcy Basics
What Every Attorney Should Know

What is bankruptcy? How does it
work?
 Title 11 of the United States Code. Congress
passed the Bankruptcy Code under its
Constitutional grant of authority to "establish...
uniform laws on the subject of Bankruptcy
throughout the United States. “
 U.S. Constitution Article I, Section 8.
 Chapter 7 – Liquidation
 Chapter 9 - Municipalities
 Chapter 11 - Reorganization
 Chapter 12 - Adjustment of Debts of a Family Farmer or
Fisherman with Regular Annual Income
 Chapter 13 - Adjustment of Debts of an Individual with Regular
Income
 Chapter 15 – Foreign debtors
© Atlas Law Firm, LLC 2013

The Bankruptcy Estate
 The commencement of a bankruptcy case
creates a bankruptcy estate. 11 U.S.C. § 541(a)
 The bankruptcy estate is comprised of all legal
and equitable interests of the debtor on the date
of filing. The bankruptcy code provides the
debtor with exemptions, with which to protect
assets from the bankruptcy estate. See 11
U.S.C. § 522

The Trustee(s)
 The chapter 7 panel trustee conducts due
diligence on behalf of the bankruptcy estate and
collects and liquidates non-exempt assets, if any.
 The chapter 13 standing trustee collects the
debtor’s payments under the chapter 13 plan and
distributes the funds to the creditors pursuant to
the claims filed in the case.
 The U.S. Trustee's office is responsible for
reviewing the qualification requirements for ch7
filings as well as the litigation for abuse of ch7
filings.

Meeting of Creditors
(aka § 341 hearing)
 The Meeting of Creditors is a required meeting
between the debtor, his/ her attorney and the
trustee.
 Creditors or any other party of interest may attend
and ask questions of the debtor about the
information contained in the petition. Creditors
rarely attend the meeting of creditors.

Bankruptcy Judges
 Bankruptcy judges are subject to appeals to the
federal district court. In some judicial circuits,
such are ours, appeals may be taken to a
Bankruptcy Appellate Panel (BAP).

The Debtor(s)
 "only a person that resides or has a domicile, a
place of business, or property in the United
States, or a municipality, may be a debtor under
this title.“
 11 USC § 109
 Debtors do not have to be late on their debts,
they do not have to be insolvent, they do not have
to have a minimum amount of debt.
 Married couples can file jointly. A married person
can also file individually.

Automatic Stay & Discharge
 The Automatic Stay, aka Order for Relief prohibits
the collection actions of all creditors for the
duration of the case.
 Motion to Lift Stay:
 (1) for cause;
 (2) the debtor does not have an equity in such
property; and
 (3) such property is not necessary to an effective
reorganization.
 The Order for Discharge discharges the debtor's
liability for all but educational loans & priority
debts© Atlas Law Firm, LLC 2013

Chapter 7
 Qualification
 Means Test
 Is income > median?
 If no, Chapter 7
 If yes, is disposable income > $166.67/ mo.?
 If yes, Chapter 13
 If no, is disposable income = $100-$166/ mo. AND
monthly disposable income x 60 < 25% of total debt?
o If yes, Chapter 7 may be an option
o If no, Chapter 13
 Monthly Budget/ § 707(b)
 Chapter 7 takes approx. 90 days from filing to
discharge.

Assets
 Disclose, disclose, disclose
 All of the legal and equitable interests in property
as of the date of filing, except rights to receive
inheritances or life insurance benefits up to 180
days after the date of filing.
 Federal vs. State exemptions
 11 U.S.C. § 522
 Property excluded from the bankruptcy estate
 college tuition plans (i.e. 529 plans)
 educational IRA
 Custodial accts
 Beneficiary under spendthrift trust

Debts
 Debtor must include all debts, regardless of
whether the intention to continue payment, non-
dischargeability, etc.
 Priority Debts – 11 U.S.C. § 507:
 Income taxes that do not meet dischargeability
criteria
 Domestic Support Obligations
 Unless adjudicated to be a “property settlement”
 Personal injury claims resulting from drunk driving
 Restitution
 Wages owed to employees within 180 days prior to
case filing
 Student Loans – only dischargeable if “undue
burden” adjudicated – incredibly high standard© Atlas Law Firm, LLC 2013

Keeping Debts After Bankruptcy
 Reaffirmation
 No obligation on part of lender to reaffirm
 Must be approved by court
 May require hearing if reaffirmation causes “undue
hardship”
 Must be filed within 60 days of § 341 hearing
 Can be rescinded within 60 days after filing
 Retain and Pay (aka Ridethru)
 Debtor keeps the payments current, Creditor does
not exercise repossession
 Some lenders do not allow ridethrus, requiring
reaffirmation
 Redemption

Transfer Issues
 Fraudulent Transfers
 Two Types:
 Actual fraud - transfer of asset(s) with actual intent to hinder,
delay or defraud the collection efforts of a creditor.
 Badges of fraud: lack of consideration, insolvency,
insiders, secrecy, etc.
 Constructive Fraud - transfer of asset(s) for less than
reasonably equivalent value.
 Two year look back period per 11 U.S.C. § 548
 Six year look bank period if transfer to insider per
Minn. Stat § 513.41 – 513.51

Transfer Issues
 Preferential Transfers - 11 U.S.C. § 547
 Any transfer of an interest of the debtor in property (over $600/
$5,850):
 (1) to or for the benefit of a creditor;
 (2) for or on account of an antecedent debt owed by the debtor
before such transfer was made;
 (3) made while the debtor was insolvent;
 (4) made – a) 90 days for third-parties; or b) 1 year for
"insiders”;
 (5) That enables such creditor to receive more than such
creditor would receive under chapter 7 or if the transfer had
not been made.
 Note that liens can be voidable if preference criteria met.
 Potential Defenses:
 New value / contemporaneous exchange of value
 Ordinary course of business

Possible Objections
 Adversary Proceedings
 § 523 - Determination of non-dischargeability
 Obtaining credit or money by fraud
 UI overpayments
 Materially false statement in writing with intent to deceive
 Presumption of fraud:
 Debt incurred with single creditor exceeding $650 in 90
days prior to filing if for “luxury goods”;
 Cash advances with single creditor exceeding $925 in 90
days prior to filing.
 § 727 – Denial or Revocation of discharge
 Replevin/ Purchase Money Security Interests

Chapter 13
 Chapter 13 bankruptcy is a 3-5 year repayment plan proposed
by the debtor based on his income and reasonable and
necessary expenses.
 Trustee and creditors have opportunity to objection to plan
 109(e) limitations
 Good faith requirement
 Why file a Chapter 13 instead of Chapter 7?
 Inability to qualify for chapter 7
 Can pay value of non-exempt assets to the bankruptcy estate
over 5 years rather than turning over assets
 Can pay priority debts over 5 years without interest and penalties
 Priority debts must be paid over 5 years or plan is “busted”
 Debtor can bring mortgage arrears current over course of 5 years
 If case filed prior to foreclosure sale
 Debtor can “cramdown” secured debt (not home mortgage) if
certain criteria met
 Debtor can strip a wholly unsecured junior lien on his/ her
homestead

Additional Resources
 U.S. Bky Court - Dist of MN:
 http://www.mnb.uscourts.gov/
 U.S. Federal Court:
 http://www.uscourts.gov/FederalCourts/Bankruptcy/
BankruptcyResources.aspx
 Legal Information Institute:
 http://www.law.cornell.edu/wex/bankruptcy
 Atlas Law Firm:
 http://atlasbankruptcy.com/bankruptcy-information/

Bankruptcy Basics for Attorneys

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