Bài giảng Business Law - Chapter 30: Bankruptcy

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin6Introduction to Credit and Secured TransactionsSecurity Interests in Personal PropertyBankruptcyCreditPARTBankruptcyPAETRHC30Success is not built on success. It's built on failure. It's built on frustration. Sometimes its built on catastrophe. Sumner Redstone Executive Chairman and Founder of ViacomLearning ObjectivesExplain purpose of bankruptcy code and types of bankruptcy proceedings (Chapters 7, 11, 12, 13)Describe process by which property in a debtor’s estate is distributed to creditors and the debtor is granted discharge in bankruptcyIdentify dischargeable debtsThe federal Bankruptcy Code provides an organized procedure for insolvent debtors and is supervised by a federal courtPrimary proceedings include: Straight bankruptcy (liquidations)ReorganizationsFamily farms and commercial fishing operationsConsumer debt adjustmentsThe Bankruptcy CodeAll bankruptcy proceedings begin by filing a petition, either voluntary or involuntary A voluntary petition may be filed by an individual, partnership, or corporate debtorAn involuntary petition may be filed by creditors of a debtor in an attempt to reach debtor’s assets in lieu of payment on debtsThe Bankruptcy CodeFiling a bankruptcy petition operates as an automatic stay, halting creditor action against a debtor or property, including:Beginning or continuing judicial proceedings against the debtorActions to repossess the debtor’s property;Actions to create, perfect, or enforce a lien against the debtor’s property; and Setoff of indebtedness owed to debtor before commencement of the bankruptcy proceedingThe Automatic StayOnce a bankruptcy petition has been filed, the court must first determine whether relief should be orderedThis step automatic for a voluntary petition or no-contest of involuntary petitionIf debtor contests involuntary petition, then a trial is held on question of whether court should grant relief. Order of ReliefTo 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 creditorsBankruptcy Code declares ten types of claims to have priority over other claimsPriority claims are paid after secured creditors but before other unsecured creditors are paidCreditor ClaimsIn a liquidation proceeding (straight bankruptcy), the debtor must disclose all property s/he owns and surrender this bankruptcy estate to a bankruptcy trusteeTrustee segregates property that debtor may keep and then administers, liquidates, and distributes the remainder of the estateRelative rights of creditors established by lawLiquidation (Chapter 7)If debtor transfers property or incurs an obligation with intent to hinder, delay, or defraud creditors, transfer voidable by trusteeBankruptcy Code permits court to dismiss cases for abuse of process if debtor acted in bad faith or had present or future means to pay a significant portion of their current debtsFraud and AbuseA bankrupt person not guilty of dishonest acts and who fulfilled duties as a bankrupt is entitled to a discharge in bankruptcyA discharge relieves the bankrupt person of further responsibility for dischargeable debts and gives him a fresh start.A corporation or partnership is not eligible for a discharge in bankruptcyDischargeChapter 11 offers a procedure in which the debtor’s financial affairs can be reorganized rather than liquidated because creditors would benefit more from the continuation of a bankrupt debtor’s business than from the liquidation of debtor’s propertyChapter 11 is available to individuals and business enterprisesChapter 11 ReorganizationRather than liquidating the debtor’s estate, a trustee for a Chapter 11 proceeding develops a plan for handling creditor claims and the various interests of persons such as shareholdersReorganization plan is essentially a contract between a debtor and its creditors and may involve recapitalization or giving creditors some equityTrustee Duties Under Chapter 11Plan must: (1) divide creditors into classes; (2) set forth how each creditor will be satisfied; (3) state which claims, or classes of claims, are impaired or adversely affected by the plan; & (4) provide equal treatment to each creditor in a particular class, unless creditors in the class consent to other treatmentIn re Made In Detroit, Inc. : plan not feasible, therefore court unable to confirm plan The Bankruptcy PlanA reorganization plan must be confirmed by the court before it becomes effectivePlans may be confirmed by voluntary agreement of creditors or a cram down: Court forces dissenting creditors whose claims would be impaired to accept the plan if the court finds it is fair and equitable to the creditors If confirmed, debtor must implement plan The Bankruptcy PlanChapter 12 is modeled after Chapter 13 and is available only for family farmers and fishermen with regular incomeChapter 12 BankruptcyChapter 13 gives individuals who do not want to be declared bankrupt the right to file a voluntary petition for bankruptcy protection, obtaining the opportunity to pay debts in installments and free of such problems as garnishments and attachments of property by creditorsMust be an individual with regular incomes owing less than a specific amount of debtChapter 13 – Consumer DebtAfter filing, the debtor submits a plan of payment to secured creditors for acceptance3-5 year payment planIf acceptable to creditors and the court, the court will approve the plan and appoint a trustee to carry out the planIn re Burt: unacceptable plan because it was a “cram-down” of creditor’s secured interestChapter 13 – Consumer DebtThought QuestionsWhy was the right to file for banruptcy protection incorporated into the U.S. Constitution? What is your opinion of the bankruptcy process?