Bài giảng Business Law (13th edition) - Chapter 30: Bankruptcy

CreditIntroduction to Credit and Secured TransactionsSecurity Interests in Personal PropertyBankruptcy6McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.BankruptcyPAETRHC30“Bankruptcy or credit default is not an issue.”Bernie Ebbers, said a few months before the bankruptcy of WorldCom (press conference, Feb. 2002)Learning ObjectivesThe Bankruptcy ActChapter 7 – liquidationDischarge in bankruptcyChapter 11 -- reorganizationsChapter 12 – family enterprisesChapter 13 – consumer debt30 - *The U.S. Constitution guarantees the right to file for bankruptcyFederal Bankruptcy Act creates a procedure for insolvent debtors, with proceedings for:Straight bankruptcy (liquidations)ReorganizationsFamily farms, commercial fishing operationsConsumer debt adjustmentsOverview30 - *All bankruptcy proceedings begin by filing a petition, either voluntary or involuntary Voluntary petition by an individual, partnership, or corporate debtorInvoluntary petition by creditors of a debtor in attempt to reach debtor’s assetsFiling a bankruptcy petition operates as an automatic stay against all legal proceedings against debtor or the propertyBankruptcy Act Procedure30 - *Once bankruptcy petition filed, court must first determine relief should be orderedAutomatic for a voluntary petitionFor involuntary petition, relief granted and interim trustee appointed only if debtor not paying debts or custodian appointedUnsecured creditors must file a proof of claim within a certain time to participate in the bankruptcy proceedingsOrder of Relief30 - *In a straight bankruptcy, the debtor must disclose all property s/he owns and transfer the bankruptcy estate to a bankruptcy trusteeTrustee segregates property debtor may keep and then administers, liquidates, distributes remainder of the estateBankruptcy estate includes all of debtor’s legal and equitable interests in propertySome exemptions allowedLiquidation (Chapter 7)30 - *Debtor may void or redeem some liens against exempt properties Debtor and creditors may engage in ordinary business transactionsIf debtor transfers property or incurs a debt with intent to hinder, delay, or defraud creditors, transfer is voidable by the trusteeCriminal penalties also possible30 - *Liquidation (Chapter 7)Chapter 11, available to individuals and companies, offers a procedure in which the debtor’s financial affairs can be reorganized rather than liquidatedTrustee develops a reorganization plan for handling creditor claims and the various interests of persons such as shareholdersA contract between debtor and creditorsChapter 11 Reorganization30 - *Reorganization plan must be confirmed by court before becoming effective and:Divides creditors into classes, states how each will be satisfied and which claims are adversely affected; and provides equal treatment to each creditor in a class, unless creditors in a class consent otherwiseIf confirmed, debtor must implement planThe Bankruptcy Plan30 - *Individuals who fit particular criteria and do not want to be declared bankrupt have a right to file a voluntary petition for federal bankruptcy protection under Chapter 13After filing, the debtor submits a plan of payment to secured creditors for acceptanceIf acceptable to creditors and court, plan approved and court appoints a trustee to carry out the planChapter 13 – Consumer Debt30 - *Debtor who fulfills duties under a plan may be discharged, relieving person of further responsibility for dischargeable debts and giving person a fresh startCorporation or partnership not eligible Certain debts, including educational loans, are not dischargeable in bankruptcySee In Re GerhardtDischarge30 - *Test Your KnowledgeTrue=A, False = BAll bankruptcy proceedings begin by filing a voluntary bankruptcy petitionOnce a voluntary bankruptcy petition has been filed, the automatic stay prevents a creditor from filing suit against the debtor for repossession of the property. Chapter 11 is available only to business enterprises30 - *Test Your KnowledgeTrue=A, False = BA reorganization plan under Chapter 11 requires unanimous consent by all creditors before it becomes effectiveTo participate in the estate of a bankrupt debtor, unsecured creditors must file a proof of claim within a certain time, usually six months after the first meeting of creditors. 30 - *Test Your KnowledgeMultiple ChoiceDays before filing for reorganization, Bernie gave six of his properties to friends in return for an agreement that they would sell the property back to him in five years. Has Bernie done anything wrong? (a) Yes, he must have sold the properties for at least $1 minimum value(b) Yes, he engaged in fraudulent transfer(c) No, properties given to friends are exempt from inclusion in the bankruptcy estate(d) None of the above30 - *Test Your KnowledgeMultiple ChoiceIn JimCo’s reorganization, the bankruptcy court forced dissenting creditors whose claims would be impaired to accept the reorganization plan. The court: (a) Improperly abused its power and will be reversed on appeal(b) Prioritized execution of the plan(c) Engaged in a cram down (d) none of the above30 - *Thought QuestionsWhy did the founding fathers incorporate bankruptcy into the U.S. Constitution as a constitutional guarantee? What is your opinion of the current bankruptcy laws? What are the ethical choices in declaring bankruptcy?30 - *