This document discusses creditors' rights and bankruptcy. It covers laws that assist creditors in collecting debts, such as liens, garnishment, and suretyship. It then discusses bankruptcy law and procedures for liquidating assets under Chapter 7 bankruptcy. This includes how the debtor's estate is established, exemptions, the means test for substantial abuse, and the role of the automatic stay in halting creditor collection actions upon filing.

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
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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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