BSN 107

1. ESSENTIALS OF THE LEGAL
ENVIRONMENT TODAY, 5E
ROGER LEROY MILLER
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2. CHAPTER 15
CREDITORS’ RIGHTS AND
BANKRUPTCY
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3. LEARNING OBJECTIVES
1. What is a prejudgment attachment? What
is a writ of execution? How does a creditor
use these remedies?
2. What is garnishment? When might a
creditor undertake a garnishment
proceeding?
3. In a bankruptcy proceeding, what
constitutes the debtor’s estate in property?
What property is exempt from the estate
under federal bankruptcy law?
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4. LEARNING OBJECTIVES (CONT’D)
4. What is the difference between an
exception to discharge and an
objection to discharge?
5. In a Chapter 11 reorganization, what
is the role of the debtor in
possession?
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5. LAWS ASSISTING CREDITORS
• Liens
• A claim against specific property to satisfy
a debt
• Mechanic’s liens
• Artisan’s liens
• Judicial liens
• Attachment refers to a court-ordered seizure of property
before a judgment is obtained; prejudgment remedy
• Writ of attachment
• Writ of execution
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6. LAWS ASSISTING CREDITORS
• Garnishment
• Permits a creditor to collect a debt by
seizing property or wages of the debtor
held by a third party
• Procedures – can be a prejudgment
remedy
• Laws limiting the amount of wages subject
to garnishment
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7. LAWS ASSISTING CREDITORS
• Creditors’ Composition Agreements
• Creditors take less than owed on a
liquidated debt.
• Binding on those who agree because
consideration given by each depending
on one another.
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8. LAWS ASSISTING CREDITORS
• Suretyship and Guaranty
• Suretyship
• Promise by a third person to be responsible for the
debtor’s obligation to the creditor.
• Suretyship is an express contract between the surety and
the creditor.
• Creditor can demand payment from surety at any time
after debt is due.
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9. EXHIBIT 15.1
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10. LAWS ASSISTING CREDITORS
• Guaranty
• Third person making the guaranty is secondarily liable.
• Guarantor is liable only after the principal debtor defaults.
• Actions that release the surety and the
guarantor
1.Material modification
2.Surrender of property
3.Payment of tender of payment
• Defenses of the surety and the guarantor
1.Incapacity
2.Statute of limitations
3.Fraud
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11. LAWS ASSISTING CREDITORS
• Rights of the surety and the guarantor
• Right of subrogation
• Right of reimbursement
• Right of contribution
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12. MORTGAGES
• Fixed-Rate Mortgages
• Adjustable-Rate Mortgages
• Creditor Protection
1. Require mortgage insurance
2. Record the mortgage
3. Include contract provisions
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13. MORTGAGES
• Mortgage Foreclosure
• Ways to avoid foreclosure
• Forbearnace
• Workout agreement
• Short sale
• Foreclosure procedure
• Redemption rights
• Debtor’s legal right to repurchase, or buy back, property
before a foreclosure sale
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14. PROTECTION FOR DEBTORS
• Exempted Real Property
• Exempted Personal Property
• Most often exempt:
• Household furniture
• Clothing and personal possessions
• Vehicle for transportation
• Certain classified animals
• Equipment debtor uses in business or trade
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15. BANKRUPTCY LAW
• Bankruptcy proceedings are under
authority of U.S. District Courts.
• Types of Bankruptcy Relief
• Chapter 7 provides for liquidation
proceedings
• Chapter 11 governs reorganizations
• Chapters 12 and 13 provide for adjustment
of debts by persons with regular incomes
• Special Requirements for Consumer-
Debtors
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16. Chapter 7—Liquidation
• Most familiar type of bankruptcy
• Ordinary, or straight, bankruptcy
• Debtor turns over all assets to a
bankruptcy trustee.
• Trustee sells nonexempt assets and
distributes proceeds to creditors.
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17. Chapter 7—Liquidation
• Voluntary Bankruptcy
• Prior to filing, debtor(s) must receive credit
counseling within 180 days of filing, and
submit certificate.
• Consumer-debtor must confirm accuracy
of contents; attorney must file affidavit
informing debtor about other chapters.
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18. Chapter 7—Liquidation
• Chapter 7 schedules
1. A list of both secured and unsecured creditors, their
addresses, and the amount of debt owed to each.
2. A statement of the financial affairs of the debtor.
3. A list of all property owned by the debtor, including
property claimed by the debtor to be exempt.
4. A listing of current income and expenses.
5. A certificate of credit counseling (as discussed previously).
6. Proof of payments received from employers within sixty
days prior to the filing of the petition.
7. A statement of the amount of monthly income, itemized
to show how the amount is calculated.
8. A copy of the debtor’s federal income tax return for the
most recent year ending immediately before the filing of
the petition.
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19. Chapter 7—Liquidation
• Tax returns during bankruptcy
• Substantial abuse and the means test
• To determine whether debtor’s petition will be dismissed
under Chapter 7
• The Basic Formula
• Applying the means test to future disposable income
• Additional grounds for dismissal
• Order for relief
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20. Chapter 7—Liquidation
• Involuntary Bankruptcy
• Occurs when creditors force debtor into
bankruptcy proceedings
• Automatic Stay
• Suspension of all actions by creditors
against the debtor or debtor’s property
• Estate in Property
1.Community property
2.Property transferred in a transaction voidable by the trustee
3.Proceeds and profits from the property of the estate
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21. Chapter 7—Liquidation
• The Bankruptcy Trustee
• Duties for means testing
• To determine whether there is substantial abuse. Must file
statement within 10 days after 1st
meeting with creditors.
• The trustee’s powers
• Trustee has the right to ‘strong arm’ creditors to return
debtor’s property to trustee.
• Voidable rights
• Preferences
• Fraudulent transfers
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22. Chapter 7—liquidation
• Exemptions
• Debtor is entitled to exclude certain
property from bankruptcy
• States can pass legislation precluding
debtors from using federal exemptions
within the state.
• The Homestead Exemption
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23. Chapter 7—liquidation
• Creditors’ Meeting
• Creditors’ Claims
• Distribution of Property
• Distribution to secured creditors
• Distribution to unsecured creditors
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24. EXHIBIT 15.2
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25. Chapter 7—liquidation
• Discharge
• Exceptions to discharge
• Claims for back taxes accruing within 2 years prior to
bankruptcy
• Claims for amounts that the debtor borrowed to pay federal or
nondischargeable taxes
• Certain government fines
• Claims by creditors who were not notified of bankruptcy
• Domestic-support obligations and property settlements made
from separation or divorce
• Claims that arose from a debtor’s driving while intoxicated
• False representations and misuse of funds
LO-4
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26. Chapter 7—liquidation
• Objections to discharge
• Court may deny discharge of debts based on debtor’s
conduct
• The debtor’s concealment or destruction of property with
the intent to hinder, delay, or defraud a creditor
• The debtor’s fraudulent concealment of destruction of
financial records
• The grant of a discharge to the debtor within 8 years
before the petition was filed
• The debtor’s failure to complete the required consumer
education course
• Proceedings in which the debtor could be found guilty of
a felony
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27. Chapter 7—liquidation
• Reaffirmation of Debt
• An agreement between a debtor and
creditor in which the debtor voluntarily
agrees to pay a debt dischargeable in
bankruptcy
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28. Chapter 11—reorganization
• Most commonly used by organizations
• Creditors and debtor create a plan
under which the debtor pays a portion
of the debts and is discharged of the
remainder.
• Congress established “fast-track”
Chapter 11 procedure
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29. Chapter 11—reorganization
• Debtor in Possession
• A debtor who is allowed to continue in
possession of the estate in property
(business) and to continue business
operations
• The Reorganization Plan
• Filing the plan
• Acceptance of the plan
• Confirmation of the plan
• Discharge LO-5
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30. BANKRUPTCY RELIEF UNDER
CHAPTER 12 AND CHAPTER 13
• Chapter 12—Family Farmers and
Fishermen
• Filing the petition
• Content and confirmation of the plan
• Chapter 13—Individuals’ Repayment
Plans
• Filing the petition
• Good faith requirement
• The repayment plan
• Discharge© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-
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