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For the final you can bring:

1. BK Code Book
2. Cheap basic calculator
Form of exam:
1. one long fact pattern (fact pattern is case heavy, therefore, you must know the USSC cases and 11 th Circuit cases)
a. the exam is an opportunity to shine by showing off what you know BUT DON’T answer something that isn’t there
b. the exam will most likely take you the entire 3 hours but there is no reason why you shouldn’t finish the exam
c. the people that do really well are the exam writers that provide a well thought out organized answer with all appropriate
codes
i. make sure you review the last chapters of the “Principles Book” that explain an entire typical case
ii. also make sure you go over “executory contracts” (pg. 154 of “Principles” book)
d. the fact pattern will not have every single fact you need; you might have to assume certain facts but STATE that you are
making an assumption
i. we will be provided with the OCGA
e. Whaley’s exam is more about the law rather than formulas

 Business entities and individuals can use either Ch. 7 or Ch. 11, but only individuals can file for a Ch. 13
 Ch. 3 and 5 are general rules that apply to all bankruptcy petitions
 The basic principles of obtaining the remedy of bankruptcy is clean hands and full disclosure
 Advantages of filing bankruptcy:
o for debtors:
 (1) automatic stay
 (2) discharge
 (3) possible reduction in the amount they pay to their creditors
 (4) fresh start for debtor
o for creditors:
 (1) judicial supervision of the debtor’s use of property of the estate protects creditors from fraud or waste
 (2) the aggregate costs to all creditors of a bankruptcy are less than the total costs to individual creditors of
individual collection efforts
 one of the first steps in starting a case is determining whether the client qualifies as a bankruptcy client
o first determine why the client wants to file for bankruptcy (is there a need for a bankruptcy case?)
 if so, what is the client trying to accomplish?
 if they need a fresh start right away, then you might continue the conversation along the lines of what assets the
client really needs
o for a Ch. 7 (liquidation), you would do a means test to see if they can overcome the presumption of abuse
 Ch. 7 is best for people who:
 have no tax liability
 are below the means
 where a married couple jointly owns all of their property and are jointly liable on all debts
o if the client is behind on their house or car and they need to keep those, then they most likely would need to reorganize
themselves and therefore a Ch. 13 (reorganization as well as Ch.s 11 and 12) would be applicable
o means test:
 “Means Test”: determines whether the debtor has the “means” to make meaningful payments to creditors
 will appear on the exam if the fact pattern states that (1) the debtor is an individual and (2) her debts are
primarily consumer debts and (3) she files a Ch. 7 petition, and (4) the fact pattern also gives you detailed
information about how much the debtor earns and how much she spends
 707(b)(1) provides for dismissal of the case if “abuse” is established
 abuse is established by:
o (a) bad faith filing
o (b) “totality of the circumstances of the debtor’s financial situation”
o (c) “means test”: if the debtors can afford to pay their creditors at least between $6K and $10K
over five years, they should pay instead of using Ch. 7 to avoid paying
 707(b)(2) applicability turns primarily on a comparison of the debtor’s “current monthly income” as
defined in 101 and “median family income” as defined in 101
o “current monthly income” under 101(10A)(A): the average monthly income from all sources that
the debtor receives (or in a joint case the debtor and the debtor’s spouse receive), without regard
to whether such income is taxable income, derived during the 6-month period ending on
 (i) either the last day of the calendar month immediately preceding the date of the
commencement of the case if the debtor files the schedule of current income; OR
 (ii) the date on which current income is determined by the court if the debtor does not
file the schedule of current income
o if the debtor’s “current monthly income” times 12 is less than “median family income” for the
state in which the debtor lives, then no one can file a motion to dismiss the Ch. 7 case based on
707(b)(2) means test and 707(b)(7)
o for those whose with “current monthly income” is greater than “median family income”, the
means test of 707(b)(2) compares 60 months of “current monthly income” with the total of the
following:
 (1) 60 months of expenses measured by IRS expense standards; AND
 (2) 60 months of other, actual expenses specified in 707(b)(2); AND
 (3) payments due on secured and priority debts for the 60 months after the bankruptcy
petition date
 the formula is: [(“current monthly income” x 60) – (sum of (1),(2),(3))]
 if the difference is greater than either:
o (1) $11,275 OR
o (2) the greater of $7,025 or 25% of the debtor’s non-priority
unsecured debts,
o then 707(b) “abuse” is presumed, section 707(b)(7)
 “abuse” is a rebuttable presumption which can be done by the debtor swearing
to and documenting “special circumstances” that increase expenses or
decrease “current monthly income” so as to bring the debtor’s income after
expenses below the $11K/$7K trigger
 under Ch. 13, if the debtor’s “current monthly income” exceeds “median family income”, then:
o (1) the Ch. 13 plan payment period is “not less than 5 years” instead of 3 years, section
1325(b)(4); AND
o (2) the minimum amount required to be paid under the plan is measured by the “means test”
instead of the “disposable income” test under 1325(a)(3)

 three basic policies:


o (1) equality of distribution: this phrase is found nowhere in the Bankruptcy Code; however, section 726(b) mandates a pro
rata distribution to non-priority unsecured claims in Chapter 7 cases; also see section 547 “preference” law
o (2) “adequate protection” of an interest in property: is limited to a creditor’s property rights and not a creditor’s actual
dollar-figure right to payment under contract law
 creditors with a lien on the debtor’s property have not only a contract right to be paid but also a property interest,
however, if the debtor owes creditor C $100 and C has a first lien on property of the debtor that has a value of $60,
then C cannot be deprived of its lien without being paid $60
 ex: if C has a $100 lien on a property worth only $60, C would then have no right under the Bankruptcy Code to
adequate protection of its right to be paid $100; “adequate protection” will be limited to C’s property right of $60
o (3) fresh start for debtor
 five basic bankruptcy concepts:
o (1) discharge: a debtor who receives a bankruptcy discharge is relieved from any further personal, legal liability on her
dischargeable debts
 under a Ch. 7, corporations and business entities, other than humans, cannot receive a discharge [727(a)(1)]
 see 727(a)(2)-(12) for bases upon which an individual may be denied a discharge (most of the
“objections” to discharge are based on a debtor’s misdeeds before or during a bankruptcy case)
 under a Ch. 11, discharge is obtained upon obtaining court approval of the plan of reorganization [1141(d)]
 under a Ch. 13, discharge is granted only when there has been:
 (1) confirmation of the payment plan; AND
 (2) payments under the plan have been made or judicially excused; AND
 (3) a course on personal financial management has been completed
 a discharge does not make a debt disappear; the discharge only relieves the debtor from personal liability on the
debt
 ex: if D’s debt is guaranteed by X (a third party), the discharge does not affect X’s guarantee and the
creditor can sue X for the debt
 ex: if D’s debt to C is secured by a mortgage on Blackacre, then D’s discharge does not affect M’s
mortgage on Blackacre and C might be able to foreclose and evict D, regardless of the discharge
 a discharge does not relieve a debtor from personal liability on all debts, but only “dischargeable” debts; this
depends on whether:
 the case is a 7, 11, or 13;
 when the debt arose;
 whether the debt is “excepted” from discharge
 3 main issues to look out for regarding a discharge:
 (1) what is a discharge?
 (2) who gets a discharge?
 (3) which debts are affected by discharge
o (2) Property of the estate: the filing of any bankruptcy petition automatically creates an “estate” which includes the assets of
the debtor
 in a Ch. 7, the property is collected by the trustee, it is then sold, and the proceeds are distributed to the creditors
 in a Ch. 11, 12, and 13, the debtor will remain in possession of “property of the estate”, however it will be subject
to court supervision
 in a Ch. 12 and 13, the value of the property of the estate determines the minimum amount that must be offered to
holders of unsecured claims in the debtor’s plan of repayment (for Ch. 13 see [1325(a)(4)])
 under 362(a)(3)-(4), the automatic stay bars creditors from collecting a claim from property of the estate
 362: Automatic Stay
o the moment the bankruptcy petition is filed, a stay is “automatically” in place which prevents
creditors from collecting on the debtor
o no notice is required and the creditors cannot use the excuse that they didn’t know about the
stay; any collection efforts after the stay is in place is a violation of the automatic stay
 willful violations of an automatic stay can be assessed serious fines by the bankruptcy
judge
o 362(a): deals with all of the things that are stayed
 most litigation efforts on behalf of creditors
 stays creditors from:
 filing collection suits after the bankruptcy petition is filed
 from continuing collection suits that were commenced prior to bankruptcy
 from enforcing judgments obtained prior to bankruptcy
 from obtaining liens, perfecting liens, or enforcing liens after the bankruptcy
petition is filed
 exception: the automatic stay does not cover third parties
 ex: D borrows $3K from C and G guarantees repayment; if D files for
bankruptcy, section 362(a) will stay C from attempting to collect from D but it
will not protect G from C’s collection efforts
 however, if the bankruptcy case is a Ch. 13, under 1301 co-debtors and
guarantors are protected if:
o (1) the debt is a consumer debt; AND
o (2) the co-debtor is not in the credit business
 section 105: grants to bankruptcy courts the power to issue orders “necessary or
appropriate to carry out the provisions of this title”
 courts have used this section 105 power to enjoin or restrain creditor action
against third parties, typically if the third party is of importance to the success
of D’s bankruptcy (on an exam, the idea is to emphasize how much the
injunction will benefit the debtor)
 procedurally, it is not automatic like 362 or 1301
 substantively, the court is not expressly limited by the restrictions of 362 or
1301
o 362(b): lays out what is not stayed, such as: (unless it has something to do with the estate which
is to be divided)
 domestic support obligations
 criminal prosecutions
 someone coming after you for bounced checks
 …among others
o 362(c): deals with the duration of the stay
 a stay ends when a determination is made that the property is no longer part of the
estate;
 or continues until what is specified in the rest of subsection (c)
 the stay ends when then bankruptcy case is closed or dismissed or the debtor
receives a discharge
 in a Ch. 7, the stay will last only several months since a typical Ch. 7 case only
lasts in a few months
 in a Ch. 11 or 13, the stay can last several years since these cases can last
several years
 however, under (c)(3)(A), if an individual debtor files for bankruptcy and it’s dismissed
and then they file again within the year, the automatic stay only lasts for 30 days as of
the date of the filing
 unless the debtor or some other party in interest can show that the second case
was filed in good faith
 under (4)(A(i), if there has been a third filing of a bankruptcy within the year, the stay
is not automatic and the debtor has to go the court and request the stay
o 362(d)(1): deals with granting relief of a stay
 the most general statutory ground for relief from the stay is “for cause”
 “adequate protection” is only ONE form of “cause”
 for practical purposes, under a Ch. 7, if a creditor files a motion for relief of stay, it will
most likely be granted because a Ch. 7 only lasts for about 3-4 months and in such short
time, the debtor doesn’t have time to catch up with his debts
 the creditor has to file a motion for relief from the stay and then the court has to set it
for a hearing (this is all part of due process)
 the amount of equity in an asset determines the degree to which a creditor is
“adequately protected”
 ex: D owes C $1 million and C has a security interest on equipment worth
$600K; section 362(d)(1) contemplates adequate protection of C’s $600K lien
position rather than C’s right to the payment of $1 million
o if the equipment’s value is depreciating at a rate of $5K/month, then
section 362(d) contemplates that C will in some way be protected
from a $5K/month loss due to a decline in the collateral’s value
o (a) if a creditor is not adequately protected, the debtor will most likely
be required to make a stream of payments that in total equal the total
present value of the asset today
o (b) a creditor may take an additional lien or substitute lien on other
property if the debtor needs to use the equipment for operation of his
business and doing so will decrease both the value of the equipment
and the value of C’s lien in the equipment
o (c) a secured party can realize what is known as an “indubitable
equivalent”
 however, if the adequate protection turns out to not be “adequate”, then section
507(b) will apply, in which an administrative expense priority will be granted
o a stay is lifted if:
 creditor is not adequately protected
 debtor does not have an equity in the property AND the property is not necessary to an
effective reorganization
 there is a single-asset case and the whole case is about that one asset, which is typically
real estate
 the bankruptcy petitioner is filing in bad faith, such as through multiple filings
o 362(d)(2): a lien creditor can obtain relief from the stay if:
 (A) the debtor does not have any equity in the encumbered property, AND
 (B) the encumbered property is not necessary to and effective reorganization (dicta
suggests that the reorganization is one that is not just conceptual but one that is in
prospect)
o 362(d)(3): is available only to a creditor with a lien on “single asset real estate”
 under section 101, a single asset real estate is “non-contingent, liquidated secured debts
in an amount no more than $4 million”
 a creditor with a lien on a single asset real estate has a right to relief from the stay
unless the debtor, within 90 days after the order for relief, has either:
 (A) filed a reorganization plan OR
o the plan must be one that has a “reasonable possibility of being
confirmed within a reasonable time”
 (B) started monthly payments
o the payment amount must equal interest at a “non-default contract
rate” on the value of the creditor’s interest in the real estate
o 362(d)(4): only applies to creditors with claims secured by real property where the filing was a
scheme to delay, hinder, or defraud creditors that involved either:
 (A) unauthorized transfer of the encumbered real property; or
 (B) multiple bankruptcy filings
o NOTE: sections (d)(1)-(4) are all connected by an “or”
o 362(g): establishes the burden of proof
 subsection (1): the party requesting such relief has the burden of proof on the issue of
the debtor’s equity in property; and
 (2) the party opposing such relief has the burden of proof on all other issues
 “property of the estate” under 541(a)(1):
 541: Property of the estate
o the automatic stay only applies to property of the estate
 (a)(1): “all legal or equitable interests of the debtor in property as of the commencement
of the case”
o in a Ch.7, everything the debtor owns on the date of filing becomes property of the estate, but
any property acquired an hour, for example, after the filing belongs to the debtor
 real property (such as a company’s manufacturing facility or an individual’s house)
 personal property
 tangible (manufacturing facility, or a car)
 intangible (an account receivable or a license)
 property in debtor’s possession
 property held by others in which the debtor has an interest
 property recovered by the trustee through his “avoidance powers”
 ex: D pays $1 million to one of his creditors, C, on January 10 th and D then
files for bankruptcy on January 15th; if the trustee is able to use his avoidance
powers under sections 547 and 550 to avoid the January 10th payment, then C
would have to return the $1 million, and that $1 million would become
property of the estate
o property of the estate is limited to:
 (1) “debtor’s interest in property” AND
 (2) a lien is the creditor’s interest in property
o 541(a)(5): ‘the claw-back provision’
 this allows the estate to obtain any interest that would have been property of the estate
if such interest had been an interest of the debtor on the date of the filing of the petition,
and that the debtor acquires or becomes entitled to acquire within 180 days after such
date: (only the following, because the dates of these are manipulatable)
 (A) inheritance
 (B) property settlement agreement with debtor’s spouse
 (C) beneficiary of insurance policy or death benefit plan
o 541(a)(6): “Proceeds, product, offspring, rents or profits of or from property of the estate”
 ex: if Mike and Donna file for bankruptcy and the next day their house is destroyed by
a nearby explosion, any insurance proceeds would be property of the estate
 any rents obtained from building owned by the debtor would also be property of the
estate
 in a Ch. 11 or 13, “earnings from services” that an individual debtor acquires after
filing a petition for relief are property of the estate
o in a Ch. 13, the property of the estate includes all property specified under 541 that the debtor
acquires after the commencement of the case but before the case is closed, dismissed, or
converted to a case under 7, 11, or 12 whichever occurs first
 also includes earnings from services performed by the debtor after the commencement
of the case is closed, dismissed, or converted to a case under 7, 11, or 12 whichever
occurs first
 [this is in contrast to a Ch. 7 where the property of the estate is everything up to the date
of relief with the three exceptions under 541(a)(5)(A)-(C), known as the “claw-back
provision”]
o (3) Claims: this is what is paid and discharged in a bankruptcy
 a claim is a “right to payment” including:
 un-matured
 contingent
 secured: a claim is “secured” if:
o (1) the creditor has a right of payment from the debtor; AND
o (2) the right of payment is “secured” by a right of setoff or a lien against property of the estate
o the lien is limited to creditor’s interest in the property but only up to the amount of “adequate
protection of an interest in property” and not necessarily to the entire amount owed
 ex: D owes a mortgage of $40K on property worth $100K; here, the creditor is entitled
to only the $40K; however, if the mortgage was $100K but the property was only worth
$40K, then the creditor would be entitled to the adequate protection amount of a $40K
secured claim along with a $60K unsecured claim
 unsecured: claims that do not involve any property
o typically credit cards, domestic support obligations, taxes, administrative expenses, etc.
(however, some unsecured claims such as domestic support obligations, taxes, and
administrative expenses are priority claims and have the best treatment)
o tricky example: D owes $10K from C; G (a third party) guarantees repayment and grants C a
mortgage worth the $10K; D then files for bankruptcy; here, C’s claim against D is an unsecured
claim because the mortgage is on property owed by G and not D
 Bankruptcy is federal law and the bankruptcy courts are not Article 3 courts (judicial branch), however, Article 1 grants the federal
government the jurisdiction over bankruptcies
 Bankruptcy courts are an arm of the district courts (Atlanta is in the Northern District of Georgia)
 An appeal of a bankruptcy court gets appealed to the court of appeals (here would be the 11 th Circuit); however, you can appeal
directly to the court of appeals and bypass the district court
 the decision of an appeal from a district court is not binding on the other districts and is only binding on the district the decision was
handed down to; however, if the decision comes from the court of appeals, then it is binding on the districts
 in Georgia, the highest court is the Georgia Supreme Court followed by the Georgia Court of Appeals followed by Superior Court
followed by State Court (in Georgia, Superior Court and State Court have concurrent jurisdiction on some issues)
 Parties:
o Debtor
o Creditors
o Judge (there are 10 sitting bankruptcy judges in the Northern District of Georgia)
o Trustees:
 Private: a trustee operating privately
 Panel: a trustee that is on a panel of Ch. 7 bankruptcy trustees that gets assigned a case based on random and under
any judge in that district
 Standing: a trustee working under certain judges that automatically is assigned Ch. 13 cases in that district
 Ch. 7 Trustee
 704: Duties of trustee
 Ch. 13 Trustee
 1302: Trustee
 U.S Trustees: these are federal Department of Justice employees and are the overseeing power of the U.S.
bankruptcy system; they appoint private and panel trustees
o Attorneys:
o Clerk of the Court: maintains the bankruptcy filings
 A judgment can be obtained once you win the lawsuit; however, the judgment doesn’t mean anything unless, in Georgia, you
enforce it by obtaining a ‘Fieri Facias’ (FiFA); a FiFa is the same thing as a Writ Of Execution in other states
 PMSI: purchase money security interest (for example when you finance furniture and you never see the money from the financing);
the transaction has to be simultaneous, meaning that when the money exchanges hands the creditor has an immediate lien on the
property (there has been a simultaneous final perfection)
o these get special protection in the Bankruptcy Code
 With a non-PMSI, there hasn’t been a simultaneous transaction (such as when you go to the bank and obtain a loan to buy
something)
o these do not get special protection in the Bankruptcy Code
 BAPCPA: Bankruptcy Abuse Prevention Consumer Protection Act; this was the most significant amendment to the code which was
done in 2005
 The Bankruptcy Code will give you the law, and the Bankruptcy Rules will give you the procedural rules
 a claim comes in two ways under 101(5):
o right to payment (101(5)(a))
 “liquidated” means the right has been turned into an actual amount, therefore the claim now has a number value
 a non-contingent debt is a debt that is not dependent on some event occurring or some individual’s action
o right to an equitable remedy for breach of performance if such breach gives rise to a right to payment (101(5)(b))
 the plural of a ‘proof of claim’ is ‘proofs of claim’
 a proof of claim is filed under Bankruptcy Rule 3001 (if in a Ch. 7, Ch. 12, or Ch. 13 with assets)
o under 3002(c), the claim must be filed no later than 90 days (the is the ‘bar date’) after the first date set for the meeting of
creditors called under 341(a), unless:
 the proof of claim is filed by a governmental unit, which then has 180 days
 petition date:
 order for relief:
 Marathon Pipeline 458 U.S. 50 (1982), was a jurisdictional decision where the issue was whether a bankruptcy judge could hear a
non-bankruptcy issue; if the issue is a core-matter to the bankruptcy court, then they can hear it; otherwise they would have to send it
to the district court due to lack of jurisdiction over the non-core matter; this was about whether a bankruptcy court had the same
authority and jurisdiction as an Article III authority and jurisdiction
 Grants of Jurisdiction to the District Court:
o Section 1334(a) vests original and exclusive jurisdiction in the district court over all cases arising under the Bankruptcy
Code
o a “case” involves the entire chapters 7, 11, 12, and 13
o a “proceeding” is a specific dispute that arises during the pendency of a case
 1334(b) grants the district court original but not exclusive jurisdiction over all civil proceedings “arising under title
11, or arising in or related to cases under title 11”
 proceedings include “contested matters” [motions brought in the main bankruptcy case] and “adversary
proceedings” [real lawsuits with complaints and answers]
 1334(b) grants the district court original but not exclusive jurisdiction over three types of “civil proceedings”:
 (a) “Arising Under” Title 11: involves adjudication of rights or obligations created by the Bankruptcy
Code, such as stay relief and preference litigation
 (b) “Arising In” a Title 11 case: covers matters peculiar to bankruptcy but based on rights or obligations
created by the Bankruptcy Code; such as allowance or disallowance of claims and assumption or rejection
of executor contracts
 (c) “Related To” a Title 11 case: covers matters that impact on the bankruptcy case; although it is not a
“catch-all”, it catches a lot
 Stern v. Marshall:
o the bankruptcy court did not have constitutional jurisdiction to decide the counterclaim even though it had statutory
authority under 28 U.S.C. 157(b)
o the counter-claim under these facts was merely “related to” the bankruptcy case and was therefore not a core-proceeding
o the bankruptcy court will not have jurisdiction if the issue is a “public right,” namely, a “matter” that “at a minimum
arise[s] ‘between the government and others; here, the counter-claim was between private parties and was not a “public
right” matter
o if so, therefore, all the bankruptcy judges could do concerning the counter-claim is submit findings of fact to the district
courts
o even if parties consent to the bankruptcy court adjudicating the matter, you cannot enlarge powers or grant powers to a
court if they don’t already have the constitutional authority to do so
o Rucker-feldman doctrine: a U.S. District court has no authority to review the final determinations of a state court judicial
proceeding; they may not exercise appellate jurisdiction over state courts (Atlantic Coastline v. Locomotive Engineers;
Rucker v. Fidelity Trust Co.)
 Milavetz, Gallop & Milavetz, P.A. v. U.S.
o the Court ruled that attorneys are debt relief agencies under 101(12A)
o 526 deals with restrictions on debt relief agencies if you are doing bankruptcy work for “assisted persons”
o if you are doing bankruptcy work in exchange for a fee, then you have to state that you are a “debt relief agency”
o an “assisted person” means any person whose debts consist primarily of consumer debts and the value of whose nonexempt
property is less than $175,750 (101(3))(anybody that is a consumer that has a house will fall into the “assisted person”
category)
 one of the first steps in starting a case is determining whether the client qualifies as a bankruptcy client
o first determine why the client wants to file for bankruptcy (is there a need for a bankruptcy case?)
 if so, what is the client trying to accomplish?
 if they need a fresh start right away, then you might continue the conversation along the lines of what assets the
client really needs
o for a Ch. 7 (liquidation), you would do a means test to see if they can overcome the presumption of abuse
 Ch. 7 is best for people who have no tax liability, are not behind on anything, are below the means, etc.
o if the client is behind on their house or car and they need to keep those, then they most likely would need to reorganize
themselves and therefore a Ch. 13 (reorganization as well as Ch.s 11 and 12) would be applicable
o 109: Who may be a debtor
 under (a):
 you must be a “person”
 must reside or have a domicile, place of business, or property in the U.S.
 under (b):
 a person may be a debtor under Ch. 7 if the person is an individual, LLC, corporation, voluntary case
(301), married couple (joint case under 302)
 under (c):
 a municipality (most municipalities would not want to file bankruptcy because they don’t want a
bankruptcy judge telling them how to run the city; control would be lost to a bankruptcy judge)
 under (d):
 defines who may be a debtor under Ch. 11
 under (e):
 defines the eligibility for Ch. 13 (only an individual, or a married couple filing, D/B/A, sole
proprietorship –with regular income)(except a person filing as a stock-broker or commodity broker)
 non-contingent, liquidated, unsecured, debts of less than $360,475 and non-contingent, liquidated,
secured debts of less than $1,081,400
 under (f):
 only a family farmer or family fisherman with regular annual income
 under (g):
 no individual or family farmer may be a debtor who has been a debtor in a case pending at any time in the
preceding 180 days if:
o (1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the
court, or to appear before the court in proper prosecution of the case; OR
 this means that the petitioner is barred for 180 days IF the court dismisses the case with
prejudice (the court has to specifically state a finding of willful failure); this typically
happens after the third time of filing (the court basically gives you three shots at it)
o (2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a
request for relief from the automatic stay under 362
 this prevents the petitioner from taking advantage and circumvent a creditor’s motion
for relief from stay
 under (h):
 provides that there is a credit counseling requirement (only applies to individuals)
 What an individual debtor has to file with her bankruptcy petition:
o all debtors must file prescribed schedules of what they own (property) and what they owe (claims)
o almost all debtors must pay a filing fee [28 U.S. C. § 1930(f)(1) allows waiver of the fee for certain low-income debtors]
o as a result of BAPCPA, individual debtors must also file:
 (1) certificate of credit counseling
 (2) certificate that the debtor has received an informational notice required by section 342(b)
 (3) tax return for the most recent tax year
 (4) statement of monthly net income and any anticipated increases in income or spending after filing
 “Means Test”: determines whether the debtor has the “means” to make meaningful payments to creditors
o will appear on the exam if the fact pattern states that (1) the debtor is an individual and (2) her debts are primarily consumer
debts and (3) she files a Ch. 7 petition, and (4) the fact pattern also gives you detailed information about how much the
debtor earns and how much she spends
o 707(b)(1) provides for dismissal of the case if “abuse” is established
o abuse is established by:
 (a) bad faith filing
 (b) “totality of the circumstances of the debtor’s financial situation”
 (c) “means test”: if the debtors can afford to pay their creditors at least between $6K and $10K over five years,
they should pay instead of using Ch. 7 to avoid paying
o 707(b)(2) applicability turns primarily on a comparison of the debtor’s “current monthly income” as defined in 101 and
“median family income” as defined in 101
 if the debtor’s “current monthly income” times 12 is less than “median family income” for the state in which the
debtor lives, then no one can file a motion to dismiss the Ch. 7 case based on 707(b)(2) means test and 707(b)(7)
 for those whose “current monthly income” is greater than “median family income”, the means test of 707(b)(2)
compares 60 months of “current monthly income” with the total of the following:
 (1) 60 months of expenses measured by IRS expense standards; AND
 (2) 60 months of other, actual expenses specified in 707(b)(2); AND
 (3) payments due on secured and priority debts for the 60 months after the bankruptcy petition date
 the formula is: [(“current monthly income” x 60) – (sum of (1),(2),(3))]
o if the difference is greater than either:
 (1) $11,275 OR
 (2) the greater of $7,025 or 25% of the debtor’s non-priority unsecured debts,
 then 707(b) “abuse” is presumed, section 707(b)(7)
o “abuse” is a rebuttable presumption which can be done by the debtor swearing to and
documenting “special circumstances” that increase expenses or decrease “current monthly
income” so as to bring the debtor’s income after expenses below the $11K/$7K trigger
o under Ch. 13, if the debtor’s “current monthly income” exceeds “median family income”, then:
 (1) the Ch. 13 plan payment period is “not less than 5 years” instead of 3 years, section 1325(b)(4); AND
 (2) the minimum amount required to be paid under the plan is measured by the “means test” instead of the
“disposable income” test under 1325(a)(3)
 the filing of a bankruptcy case creates an “estate”; a whole new taxable entity (541: Property of the estate)
o all legal or equitable interests of the debtor in property as the commencement of the case
o in a Ch. 7, any property acquired up to the “order of relief” (usually date of filing) is property of the estate; property
obtained after order of relief belongs to the debtor
 except as specified under 541(a)(5)(by bequest, devise, or inheritance; as a result of property settlement agreement
with the debtor’s spouse, or of an interlocutory or final divorce decree; or as a beneficiary of a life insurance
policy or of a death benefit plan)
 327: Employment of professional persons
 328: Limitations on compensations of professional persons
 341 Meeting of Creditors:
o has to be set within 50 days of the filing of the petition (this is typically the first hearing)(judges are not allowed to sit in on
these hearings)(sometimes there are 9 an hour done that usually only last about 5 minutes but a lot of information is gleaned
during that time)
 362: Automatic Stay
o the moment the bankruptcy petition is filed, a stay is “automatically” in place which prevents creditors from collecting on
the debtor
o no notice is required and the creditors cannot use the excuse that they didn’t know about the stay; any collection efforts
after the stay is in place is a violation of the automatic stay
 willful violations of an automatic stay can be assessed serious fines by the bankruptcy judge
o 362(a): deals with all of the things that are stayed
o 362(b): lays out what is not stayed, such as: (unless it has something to do with the estate which is to be divided)
 domestic support obligations
 criminal prosecutions
 someone coming after you for bounced checks
 …among others
o 362(c): deals with the duration of the stay
 a stay starts automatically and ends when a determination is made that the property is no longer part of the estate
 or continues until what is specified in the rest of subsection (c)
 however, under (c)(3)(A), if a debtor files for bankruptcy and it’s dismissed and then they file again within the
year, the automatic stay only lasts for 30 days as of the date of the filing
 under (4)(A(i), if there has been a third filing of a bankruptcy within the year, the stay is not automatic and the
debtor has to go the court and request the stay
o 362(d): deals with granting relief of a stay
 for practical purposes, under a Ch. 7, if a creditor files a motion for relief of stay, it will most likely be granted
because a Ch. 7 only lasts for about 3-4 months and in such short time, the debtor doesn’t have time to catch up
with his debts
 a Ch. 7 creditor will typically file for relief from stay because there is no equity in the collateral and they
wish to enforce their lien; typically it will be granted
 the amount of equity in an asset determines the degree to which a creditor is “adequately protected”
 if a creditor is not adequately protected, the debtor will most likely be required to make a stream of
payments that in total equal the total present value of the asset today
 the creditor has to file a motion for relief from the stay and then the court has to set it for a hearing (this is
all part of due process)
 a stay is lifted if:
 creditor is not adequately protected
 debtor does not have an equity in the property AND the property is not necessary to an effective
reorganization
 when there is a single-asset case and the whole case is about that one asset, which is typically real estate
 when the bankruptcy filer is filing in bad faith, such as through multiple filings
o 362(g): establishes the burden of proof
 subsection (1): the party requesting such relief has the burden of proof on the issue of the debtor’s equity in
property; and
 (2) the party opposing such relief has the burden of proof on all other issues
 when a client comes in to see you, you are required under 342 to give a written notice as specified under 342(b)
 most sales and liquidations of property occur under 363
 secured claims:
o mortgage
o car loan
o PMSI (Purchase Money Security Interest – such as a ‘rent to own’ or financing of property)
o UCC filing of collateral
o Mechanic’s lien
o Tax lien
o FiFa judgement
 502: Allowance of claims or interests:
o a claim or interest is deemed allowed unless a party in interest objects
o the most common objection is under 502(b)(1): a defense that the debtor would have had to the enforceability of the claim
outside of bankruptcy is a defense to the allowance of the claim in bankruptcy (ex: statute of limitations, failure of
consideration, etc.)
 (b)(2) disallowance of post-petition interest: interest stops accruing when a bankruptcy petition is filed, therefore
“un-matured” interest
 ex: D borrows $1K from C; the loan agreement provides for 9% interest; D later files for bankruptcy; at
the time of D’s bankruptcy filing, D owes C $119K in principal and accrued interest; C’s allowable claim
will be limited to $119K, regardless of how long D’s bankruptcy lasts
 (b)(6) there is a cap on a landlord’s claim for future rents: the greater of one year’s payments or 15% of the
balance of the lease, not to exceed three year’s payments in total
 however, it does not say that there is any limit on a landlord’s claim for back rent
 (e) disallows contingent contribution claims: these are claims that are brought by guarantors of debtors who in
effect then has a right of reimbursement against the primary obligor D if G has to pay C
 the thought is that since C’s claim obviously should be allowed, then G’s claim should be disallowed
since the allowance of both C’s claim and G’s claim could result in the estate paying twice for a single
debt
o a proof of claim is prima facie evidence that your claim is an allowed claim, which then gets to you § 506
o the property must have a perfected lien
 503: Allowance of administrative expenses
o an attorney will want to be an administrative expense under (4) because administrative expenses are priority expenses
 Associates Commercial Corp. v. Rash
o when a Chapter 13 plan proposes to retain collateral for use in debtor's trade or business over creditor's objection under
“cram down” provisions, the value of the collateral (and thus amount of the secured claim) is the price a willing buyer in
debtor's trade, business, or situation would pay to obtain like property from willing seller (replacement value standard)
o Rash is codified in 11 § 506(a)(2) which applies to personal property
 Till v. SCS Credit Corp
o the formula approach, requiring adjustment of prime national interest rate based on risk of nonpayment, was appropriate
method for determining adequate rate of interest on cram down loan
o the formula approach entails straightforward, familiar, and objective inquiry, and minimized need for potentially costly
additional evidentiary proceedings, and resulting “prime-plus” rate of interest depends only on state of financial markets,
circumstances of bankruptcy estate, and characteristics of loan, not on creditor's circumstances or its prior interactions with
debtor
 506: Determination of secured status
o value is determined as of the date of the filing of the bankruptcy petition
o over-secured creditors are the only creditors entitled to interest
o (a): a creditor has a secured claim only if it has a security interest in the debtor’s property and that security interest has
actual value
o under a Ch. 7 or 13, if the value of the collateral is greater than the lien, then the holder of the claim is entitled to interest on
such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such
claim arose (506(b)) (applies to personal property)
o 506(d) lien-stripping comes from a Supreme Court case Dewsnup v. Timm
 Ch. 7 debtors cannot “strip down” creditor’s lien on real property down to judicially determined value of collateral
 ever since the 1898 Bankruptcy Act, liens on real property pass through bankruptcy unaffected
 507: Priorities
o for tax purposes under (8), the priority years are the last three years, so for this year of 2012, the last three years are 2011 to
2009; however, if the client has not paid 2008 taxes and does pay them the IRS then assesses the taxes; however, if this is
done within 240 days of filing the bankruptcy petition, then those 2008 taxes become a priority creditor un-dischargeable
debt; non-filed taxes are also non-dischargeable
 however, the IRS can assess taxes even if the debtor hasn’t filed the taxes because the IRS can estimate how much
you would owe
 the idea is to wait to file bankruptcy after 240 days of filing the back taxes so that those back taxes can become
general unsecured dischargeable creditors
o in a Ch. 7, priority claims must be paid first and must be paid in full before the next category of claims gets paid
 if there are insufficient funds to pay off in full the claims of all other categories, then each claim within that
category is paid pro rata
o in a Ch. 13, priority claims do not have to be paid first but they must be paid in full over the life of the plan, unless a
particular creditor agrees to a different treatment
 522: Exemptions (the debtor can avoid only judicial liens and non-purchase money security interests)
o under (a)(2), the fair-market value is as of the time of filing of the petition or the date the property becomes property of the
estate (‘fair market value’ is merely what a willing buyer would be willing to pay for it)
o Schedule C of the bankruptcy petition is where you list your exemptions
 You first check whether you listing federal exemptions or states exemptions
 You list the law you are claiming
 You list the exemptions and the values
o (b)(2) is the federal law that allows states to “opt out” of the federal law
 if there are joint filers such as husband and wife, one debtor cannot exempt under one jurisdiction and the other
debtor an exception under another jurisdiction; they have to be in the same jurisdiction and if they can’t agree then
they will take exceptions under (b)(2)
o (b)(3)(A) deals with what place you can take exemptions, whether federal or state
 you look back 730; if they have lived in that place for 730 days, then you can take the exemptions of that state
(however, most states will not allow you to take that state’s exemptions if the debtor isn’t currently living in that
state at the time of filing); if not, then look to see what state the debtor has lived in for at least 180 days; if not,
then the debtor will use the federal exemptions
o (f): a debtor can ‘avoid’ the following if they impair the exemptions:
 (1) judicial liens (a judgment with a FiFa but that is not a domestic support obligation under 523(a)(5)
 if the exemption amount is greater than or equal to the value of debtor’s interest in a type or item of
property, the judgment lien is always avoidable
 similarly, if the debtor exempts property subject to unavoidable liens such a residence subject to
mortgage debt, and if the value of the debtor’s interest in that property is less than or equal to the sum of
amount of debtor’s share of debts secured by that property plus the amount of the exemption, the judicial
lien is always avoidable
 (2) non-purchase money security interests (when you’ve gone down to your bank or credit union or anywhere else
and you’ve stated that you have any of the items under (f)(B)(i) and you take a lien on the property)
 (2)(A), a lien impairs an exemption if the sum of the lien, all other liens on the property, and the amount of the
exemption that the debtor could claim if there were no liens on the property, exceeds the value that the debtor’s
interest in the property would have in the absence of any liens
 522(f) refers to four separate values:
 (1) the amount of the lien sought to be avoided;
 (2) the aggregate amount of all other liens on the property;
 (3) the amount of the exemption claimed on the property; and
 (4) the value of the debtor’s interest in the property
 Formula:
 current value of Debtor’s Interest in Property minus Debtor’s Share of Nonavoidable liens minus
Exemption Amount equals Amount Available to Pay Judgment Liens
o if there is no amount available to pay judgment liens, all such liens are avoidable
o if there is an amount available to pay judgment liens, allocate that amount to the judgment liens
in order of priority; any fully covered senior judicial lien is NOT avoidable
o liens that could be partially paid are not avoidable to that extent- the amount that would pay part
of the judgment; the balance of the judgment is avoidable
o liens that are completely out of the money are avoidable in their entirety
 ex: assume a senior judgment lien of $9,000, a mortgage debt of $151,000 and an exemption of $10,000
for a total of $170,000. Assume the value of the debtor’s interest in the property is $165,000. Under these
facts, the amount that is avoidable is $5,000.
o because the amount of the judicial lien is $9,000, it is unavoidable to the extent of $4,000. The
$4,000 figure would be added to the mix in when considering the next most senior lien. In the
example, the sum of the consensual lien and the exemption was $161,000, so that adding the
unavoided judicial lien in the amount of $4,000 produces a total of $165,000. Any junior lien
added to that amount will cause the total to exceed the property value of $165,000 and hence
will be avoidable in its entirety
 ex: you have a house with a value of $200K with a debt of $150K; however, you’ve been sued for $30K
with a proper FiFa (which attaches to your property), which now raises the debt to $180K; here, you can
still take your $10K exemption since the equity in the home is $20K; however, if you take the $10K
exemption, then the creditor is left with $10K secured lien and a $20K unsecured portion; therefore, this
means that the FiFa impairs your exemption by $20K
 ex: you have a car worth $2500 with a $4000 FiFa, you can avoid the whole $2500 car value (since it’s
within the $3500 Georgia limit) and then the creditor will have an unsecured $4K lien
 ex: if you have household items worth in total of $5K, and you have a non-pmsi lien for $5K, if you want
to avoid the entire $5K, since each item can only be avoided up to $300 each, you would have to prove
that each item was not worth more than $300 with a cumulative value of $5K and in the cumulative
everything was not worth more than $5K, because if the items are worth more than the $300, then the rest
of that value cannot be avoided
o (l) requires that debtor must list their exceptions
o (o) a state homestead exemption will be reduced by the amount that the homestead is attributable to the debtor’s disposition
of non-exempt property in the ten years prior to bankruptcy with the intent to hinder, delay or defraud creditors
 ex: D lives in a state with an unlimited homestead exemption and has a home with a $500K mortgage; D sells off
stock for $200K and uses that money to pay down her mortgage so that now she only owes $300K; she files
bankruptcy outside of the 1,215 day limit, however, her intent was to “hinder, delay or defraud creditors”; as a
result, the entire $200K would become property of the estate
o (p) value added to the homestead within 1,215 days (about 3 years and 4 months) before the bankruptcy is capped at
$146,450 [522(p)(1)(D)]
 ex: D lives in a state with an unlimited homestead exemption and has a home with a $500K mortgage; D sells off
stock for $200K and uses that money to pay down her mortgage so that now she only owes $300K; four weeks
later, she files for bankruptcy; because of the 522(p) limit, $53,550 ($200K - $146,450) of that $200K would have
to go back into the estate
o (q) limits a debtor’s exceptions if they have been convicted according to this subsection
o in Georgia: § 44-13-100
 (a)(1): homestead exemption
 if you are a single debtor, you get a $10K exemption for real property (residential property only and not
rental property)
 if your are married filing joint bankruptcy, you get a $20K exemption in real property in the form of
$10K to each debtor
o if you are married and the property is jointly owned but you file as a single petitioner, you get a
$10K exemption
o if you are married the property is single title but you file either joint or single, then you get $20K
to the single debtor or in the form of $10K to each debtor
 ex: single debtor has house worth $150K and owes $100K; the equity is $50K; the debtor can then
exempt $10K; if the trustee wants to sell the property, they can get $50K for the estate, give $10K to the
debtor and then distribute the remaining $40K to the unsecured creditors; however, if the value is $150K
and the debt is $160K, then there is no equity the debtor cannot take their exemption (of course, always
remember the ‘wild card’ exemption)
 (a)(2): the debtor’s right to receive
 for retirement accounts, in a Ch. 13, the principal account is exempt but not the distribution payments
 (a)(3): the debtor’s interest exemption total of $3500 for all vehicles
 ex: single debtor has a car worth $10K with a debt of $5K; the equity is $5K but the debtor can take his
exception of $3500, thus leaving $1500 for the estate; if it’s a joint filer with joint title on the car, then
you could take a $7K exemption ($3500 for each person) but due to the equity, you will only be able to
take the $5K (of course, always remember the ‘wild card’ exemption)
 (a)(4): the debtor's interest, not to exceed $ 300.00 in value for household items the total exemptions of the
debtor's interest in the items contained not exceed $5K in total value
 (a)(5): $500 total exemption value in all jewelry
 (a)(6): ‘wild-card’ exemption of $600, which allows a $600 buffer exemption to apply to any property in this
statute (also plus any left over of the homestead exemption not to exceed $5K of any unused homestead
exemption)
 (a)(7): the debtor's aggregate interest, not to exceed $1,500.00 in value, in any implements, professional books, or
tools of the trade of the debtor or the trade of a dependent of the debtor
 (a)(8): any un-matured life insurance contract owned by the debtor, other than a credit life insurance contract
 in addition to (a)(9-11)
 (b) deals with taking Georgia exemptions
o Schwab v. Reilly (2010)
 when the Bankruptcy Code defines the property a debtor is authorized to exempt as an interest, the value of which
may not exceed a certain dollar amount, in a particular type of asset, and the debtor's schedule of exempt property
accurately describes the asset and declares the “value of [the] claimed exemption” in that asset to be an amount
within the limits that the Code prescribes, an interested party is entitled to rely upon that value as evidence of the
claim's validity and need not object to the exemption in order to preserve the estate's ability to recover value in the
asset beyond the dollar value the debtor expressly declared exempt
 Section 522(b) does not define the “property claimed as exempt” by reference to the estimated market value; it
refers only to property defined in § 522(d), which in turn lists 12 categories of property that a debtor may claim as
exempt; most of these categories and all the ones applicable here define “property” as the debtor's “interest”- up to
a specified dollar amount-in the assets described in the category, not as the assets themselves Rule 4003:
Exemptions
 the debtor bears the responsibility for accuracy of their exemption schedules
 the value the debtor claims has nothing to do with the value that is exempt
o Debtor must file the list of exemptions under Rule 1007 or within 30 days after filing where he failed to claim exemptions
o A party in interest may file an objection to the list of property claimed as exempt within 30 days after the 341 meeting of
creditors
o The trustee may file an objection to a claim of exemption at any time prior to one year after the closing of the case if the
debtor fraudulently asserted the claim of exemption
o The objecting party has the burden of proving that the exemptions are not properly claimed
 523: Exceptions to discharge
o there are several exceptions to discharge
o under 19(c)(1), a creditor seeking to have the debt owed to them excepted from discharge must file a motion for that
exception
o Rule 4004: Time for objecting to discharge
 (a): the action must be brought no later than 60 days
o a property settlement with a spouse is not a domestic support obligation but under 523 there is no more distinction because
it is an ‘exception to discharge’ (NOTE: this is opposite to an ‘exemption’) and is non-dischargeable
o therefore, four groups of prepetition creditors who have recourse to property set aside as exempt in a bankruptcy case:
 (1) creditors with tax claims excepted from discharge by 523(a)(1)
 (2) spouses, former spouses and children of the debtor with domestic support obligations excepted from discharge
by 523(a)(5)
 (3) creditors whose claims arise from the debtor’s fraud in obtaining funding for higher education
 (4) creditors with liens on exempt property that are neither avoided nor extinguished through redemption
o credit card debt is not specifically excepted from discharge; the term “credit card” nowhere appears in 523(a)
 if on the exam “credit card” appears, you need to turn to 523(a)(2) which is based primarily on the conduct of the
debtor incurring the debt; your answer must focus on the conduct of the debtor in incurring the credit card debt
o under 523(a)(2)(B), a creditor faces difficult problems of proof under this section; a creditor seeking an exception to
discharge based on the debtor’s providing false or incomplete financial information must establish:
 (1) materially false written statement respecting the financial condition of the debtor or an “insider”;
 (2) its reasonable reliance on the statement;
 (3) the debtor’s intent to deceive
o (a)(2)(C)(I) and (II): consumer debts owed to a single creditor and aggregating more than $600 for luxury goods or services
incurred by an individual debtor on or within 90 days before the order for relief, are presumed to be non-dischargeable; and
cash advances aggregating more than $875 that are extensions of consumer credit under an open end credit plan obtained by
an individual debtor on or within 70 days before the order for relief, are also presumed to be non-dischargeable
 524: Effect of discharge
o (c) a debtor can “reaffirm” a debt with a creditor by entering into an agreement with the creditor that the debtor will pay a
debt she incurred before her bankruptcy filing that, but for the reaffirmation agreement, would have been dischargeable in
the bankruptcy case
 the rational is that the debtor wants to keep the property
 this type of agreement is legally enforceable even though there is no “bargained-for exchange” (consideration)
o (c) and (d) limit the enforceability of reaffirmation agreements by:
 (1) requiring that the agreement be executed before the discharge is granted [524(c)(1)]
 (2) giving the debtor a right to rescind [524(c)(4)]
 (3) requiring that, before any reaffirmation agreement is signed, the creditor provided the debtor with disclosures
detailed in 524(k)
 (4) requiring the reaffirmation agreement be filed with the court [524(c)(3)]
 (5) requiring a hearing if the debtor is an individual and not represent by an attorney in the reaffirmation
negotiations [524(d), (c)(6)]
 (6) requiring the attorney who represented the debtor in the reaffirmation to certify inter alia that the debtor was
fully informed and that either the agreement does not impose an undue hardship or the debtor has the ability to
make the reaffirmation payments [524(k)(5)]
o (e) limits the protection of the discharge to the debtor and the discharge does not automatically affect the liability of other
parties such as co-debtors or guarantors
 ex: the discharge of an insured tortfeasor does not affect the liability of the insurance company
o a discharge does not have any effect on a lien
 ex: D owes C $10K; the debt is secured in part by D’s car which is worth $6K; D files for Ch. 7 bankruptcy; the
trustee abandons the car to the debtor under 554; D then receives a discharge; the discharge does not extinguish
C’s security interest; if D is in default, C can repossess the car; the discharge does, however, wipe out C’s rights
against D personally; if C repossesses and resells the car, C cannot obtain a deficiency judgment against D
o (k) lists the requirements for the disclosures of the reaffirmation
o (j) are the required additional statements
o if a debtor fails to include a creditor in their schedule, and it was a type of creditor that could have been discharged, it will
most likely be discharged because otherwise the debtor would fight it by filing a motion seeking to reopen the case and be
included but then that debt will just end up being discharged anyways if they are not a secured creditor
 however, as an attorney, if you know of a debt you are required to list it
o if a client doesn’t list a current lawsuit (‘right to sue’) in a bankruptcy petition, the defendant can bring forth a motion to
dismiss against them because the plaintiff didn’t disclose it in the petition; this is because the plaintiff doesn’t disclose in
good faith (because they forgot or some other valid reason) or because out of bad faith they want to disclose the funds from
their lawsuit from the estate
 525 Protections against discriminatory treatment: protects those who filed bankruptcy from discrimination
o court cases: Myers v. Toojay’s Management Corporation 2011WL1843295 (11th Cir); Rey v. Federated Investors, 627 Fed.
3d. 937 (3rd Cir); In Re Burnett, 635 Fed. 3d. 169 (5th Cir)
o under (b) a private employer cannot terminate an existing employee, but CAN discriminate against someone applying for
the job, according to the Circuit courts
 a discharge in a bankruptcy only discharges ‘in-personam’ liability meaning that it discharges the debtor from personal liability only
and doesn’t discharge ‘in-rem’ liability, meaning that the debt doesn’t disappear and if there is a lien on a property, they can reposes
the collateral – however, they cannot sue you for any deficiency balances
o some loans are ‘recourse loans’ which states that if there is a default, they can take the collateral, liquidate it, and if they are
not made whole, then they can come after the individual
 it’s important that your client has filed his taxes BEFORE he files for bankruptcy
 541: Property of the estate
o the automatic stay only applies to property of the estate
o everything the debtor owns on the date of filing becomes property of the estate, but any property acquired an hour, for
example, after the filing belongs to the debtor in a Ch. 7
o 541(a)(5): ‘the claw-back provision’
 this allows the estate to obtain any interest that would have been property of the estate if such interest had been an
interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to
acquire within 180 days after such date: (only the following, because the dates of these are manipulatable)
 (A) inheritance
 (B) property settlement agreement with debtor’s spouse
 (C) beneficiary of insurance policy or death benefit plan
 Ch. 7:
o you can have an asset case or a non-asset case, which looks to see whether there are any assets that the trustee can seize
o attorneys should seek to find ways to get paid up front; one way to do this is to tell the client to come back later after they
have stopped paying some of their creditors and saved up their money to pay the fees
 however, petitioners have to pay the filings fees up front in order to start the bankruptcy proceeding
o Asset Ch. 7: involves equity, which is when the value exceeds the debt in the property (this could take years to liquidate)
o No-asset Ch. 7: this one only takes about 3-4 months; the debtor has to fulfill some requirements the completion of which
results in the debtor being discharged and then it’s over
 If there is property that is ‘unencumbered’, meaning property that was supposed to have a lien against it but the
lien was never perfected, the property means goods news for unsecured creditors because now there is a free-and-
clear asset that can be liquidated to pay off creditors and bad news for the debtor because although there is no lien
and the individual owns it free-and-clear, they do not get to keep it
o a debtor cannot voluntarily dismiss a Ch. 7; they have to file a motion with the court asking for permission for voluntary
dismissal under 707
o 706: Conversion
 a Ch. 7 has a right to convert to a Ch. 11, 12, or 13 as long as they qualify to be in any of those chapters so long as
they weren’t previously in an 11, 12, or 13 and then converted to the Ch. 7 they are in now (the purpose is to avoid
allowing the debtor to bounce around between chapters)
 a court cannot convert a case to a Ch. 12 or 13 unless the debtor requests it or consents to it
o 707: Dismissal of a case or conversion to a case under Ch. 11 or 13
 the purposes:
 to deal with dismissal and conversion
 (b)(1): after notice and hearing, the court on its own motion or on a motion by the U.S. trustee, trustee, or any
party in interest, may dismiss a case filed by an individual debtor, whose debts are primarily consumer debts, or
with the debtor’s consent, convert such a case to a case under Ch. 11 or 13 if it finds that the granting of relief
would be an abuse of the provisions of Ch. 7
 the court may not take into consideration whether a debtor has made, or continues to make charitable
contributions
 (b)(2)(A)(i): the means test: abuse is presumed if the debtor’s current monthly income reduced by the amounts
determined under clauses (ii), (iii), and (iv) and multiplied by 60 is not less than the lessor of:
 (I) 25% of the debtor’s non-priority unsecured claims in the case or $7,025, whichever is greater; or
 (II) $11,275
o Once an individual is discharged they are forever relieved of personal liability
o Options for secured creditors being paid
 Exercising a state right such as foreclosing on the property:
 creditors are going to want to obtain a relief from stay in an attempt to take repossession of the collateral;
this is why Ch. 7 trustees have no real interest in distributing payments to creditors with liens because
these creditors can get their collateral back; the trustee “abandons” his interest in that collateral
 therefore, the trustee sells off the assets with equity in order to get cash and then distribute the cash to the
unsecured creditors
 Obtaining relief from the automatic stay
 Reaffirmation:
 with respect to collateral with liens, the debtor can “reaffirm” the debt under 524(c) but the agreement to
reaffirm has to be made before the discharge, the debtor must have received the disclosures at or before
the time at which the debtor signed the agreement, as well as the other subsection requirements
 redemption:
 Another option for the debtor is for redemption of personal property only under § 722
o Payment of unsecured creditors: (examples are credit cards companies, taxes, medical bills, student loans, domestic support
obligations – child support and alimony, etc.)
 Payment is dependent upon ‘priority;
 507: Priorities
 tells the order in which the trustee is going to make distributions under 726, which is under Ch. 7
bankruptcy
 the first payments (first priority) go to domestic support obligations
 second is administrative expenses allowed under 503(b)
 third are unsecured claims allowed under section 502(f)
 fourth are allowed unsecured claims, but only to the extent of $11,725 and as subject to 507(a)(4)
 and as specified in the rest of 507
 the creditors are all paid in ‘pro rata’
o 722: Redemption
 a debtor can “redeem” the personal property
 ex: the debt of a car is $8300 and the value is $4K; you can redeem it by paying the $4K value and the
remaining $4300 is discharged
o 726: Distribution of property of the estate
 at this point there is a pot of money that has come together because debts have been redeemed, collateral has been
sold off and now all that is left are general unsecured creditors
 first are paid priority claims under 507
 (a)(1)(A): domestic support obligations
 (a)(1)(B): domestic support obligations paid to a government agency
 (a)(1)(C): administrative expenses
 and so on…
 then, comes:
o allowed unsecured claims which were either timely filed or tardily filed by a creditor who did
not know of the bankruptcy
o allowed unsecured claims which were tardily filed by a creditor with notice or actual knowledge
of the bankruptcy
o fines and punitive damages
o post-petition interest on prepetition claims
 each 507(a)(1) priority claim must be paid in full before any claim in the next category receives any
distribution
 however, if there are insufficient funds to pay off each claim in full within a certain category, then each
claim within a particular category is paid pro rata
o ex: there is $20K available to pay holders of unsecured claims and the following unsecured
claims:
 $11K claims entitled to priority under 507
 $4.8K claim by X that was timely filed
 $7.2K claim by Y that was timely filed
 $3K claim by Z that was not timely filed even though Z knew of the bankruptcy
 the distribution would be:
 $11K to priority claims; then
 $3.6K to X (this is 40% of the remaining $9K of the total pot of $20K, since
X’s claim is 40% of the total $12K claims of X and Y)
 $5.4K to Y (this is 60% of the remaining $9K of the total pot of $20K, since
Y’s claim is 60% of the total $12K claims of X and Y)
 therefore, between priority claim + X’s claim + Y’s claim, all of the $20K is
used up and nothing is left for Z
o 727: Discharge (Objection to Discharge)
 523 deals with exceptions to discharge regarding only specific debts/creditors, however, 727 applies to a discharge
overall
 if you are a debtor’s attorney, you would prefer to have a 523 discharge denied rather than a 727
discharge because then your whole 727 discharge would be denied
 as a debtor’s attorney, you cannot bargain a 727 discharge but only a 523 discharge
 (a)(1): a discharge will not be granted if the debtor is not an individual
 Ch. 7 deals with personal liability which naturally doesn’t apply to corporations; however, corporations
CAN file a Ch. 7
 if it’s a corporation that files a Ch. 7, then the case closes after all liquidations and there is no actual
discharge
 (a)(2): a discharge will not be granted if in [bad faith] (this is pursuant to all of descriptions in this subsection)
 a disgruntled person will most likely come forward and claim (a)(2), such as a disgruntled business
partner, former spouse, former significant other, etc.
 (a)(3): discharge will not be granted if there is [further bad faith] (pursuant to this subsection)
 (a)(4): discharge will not be granted if there is [fraud](pursuant to this subsection)
 (a)(5): discharge will not be granted if failure to disclose loss of assets or deficiency of assets to meet debtor’s
liabilities
 (a)(6): discharge not granted if debtor exercises a refusal pursuant to (A)-(C), such as on a ground of privilege
against self-incrimination
 this typically involves clients that have simultaneous criminal activity going on; many times, the client
will refuse to testify in order to avoid incriminating himself
 (a)(7):
 (a)(8): the debtor has been granted a discharge under Ch. 7 or Ch. 11 within 8 years before the date of the filing of
the petition
 (a)(9): the debtor has been granted a discharge under Ch. 12 or Ch. 13 within 6 years before the date of the filing
of the petition, unless the payments under the plan in the case totaled at least 100 percent of the allowed unsecured
claims OR, 70 percent of such claims AND the plan was proposed by the debtor in good faith, and was the
debtor’s best effort
 (a)(10): the court has approved a written waiver of discharge executed by the debtor after the order for relief under
this chapter
 (a)(11): the debtor, after filing the petition, the debtor failed to complete an instruction course concerning personal
financial management described in section 111 OR: (here the court just closes the case without a discharge instead
of denying the discharge)
 (a)(12): the court notices that there is reasonable cause to believe that…[pursuant to (a)(12)(A) and (B)]
 (b): states that, except as provided under 523, a discharge under 727(a) discharges the debtor from all debts that
arose before the date of the order for relief under Ch. 7, in addition to claims under 502 regardless of whether or
not a proof of claim based on any such debt or liability is filed under section 501, and whether or not a claim based
on any such debt or liability is allowed under section 502
 (c): the trustee, a creditor, or the U.S. trustee may object to the granting of a discharge
 (2): on request of a party in interest, the court may order the trustee to examine the acts and conduct of
the debtor to determine whether a ground exists for denial of discharge
 (d): on request of the trustee, a creditor, or the U.S. trustee, and after notice and hearing, the court shall revoke a
discharge if [pursuant to (d)(1)-(4)
 (e): the trustee, a creditor, or the U.S. trustee may request a revocation of a discharge [pursuant to (e)(1)-(2)]
 Rule 7041: if you file an objection to discharge but then decide to dismiss the 727 objection, it can’t be dismissed
unless there has been a notice to the trustee, U.S. trustee, and anyone else as directed by the court; this is because
anyone else can continue the 727 objection to discharge if you don’t
 Ch. 11:
o this is most typically for corporations
o anyone can technically file under Ch. 11 but it is way more costly and would make no sense to do so if you can qualify to
file under a Ch. 13
o once the plan is confirmed, the case is over with
 Ch. 13:
o Requirements:
 (1) Must be an individual (can be an individual that is a D.B.A. or an individual that owns a corporation)
 (2) Regular source of income (any income that comes in on a regular basis which you can count on)
 101(10A)(A): “current monthly income”: you look back 6 months and average out what they make
monthly from all sources (“mechanical approach”)
 (3) Debt Limits: 109: who may be a debtor
 (e): lists monetary limits on filing a Ch. 13
o only an individual with regular income that owes, on the date of the filing of the petition, non-
contingent, liquidated, unsecured debts of less than $360,475 and non-contingent, liquidated,
secured debts of less than $1,081,400 or an individual with regular income and such individual’s
spouse with debts in the aggregate of the same amounts as above
 exception: stockbrokers or commodities brokers
 (4) must take the required credit counseling prior to filing the Ch. 13 petition
o when preparing to file the petition:
 521: Debtor’s duties [you file:]
 list of creditors
 schedules D, E, F
 schedules A &B
 schedules I & J
 Statement of Financial Affairs
 payment advices (pay stubs; Y-T-D payment amount will suffice in most jurisdictions)
 form B22 Current Monthly Income means testing form
 Credit Counseling certificate
o the case lasts about 3-5 years which is a reorganization where the debtor wants to keep assets in order to be able to pay for
their debts
o a debtor may voluntarily dismiss their Ch. 13 case or convert it to a Ch. 7 under 1307
o the debtor (only the debtor) submits a plan and lives within the plan during the entire length of the Ch. 13 bankruptcy
[1322]
 1321 mandates that “the debtor shall file a plan”
o payment options for a secured creditor:
 payment under the plan
 obtain relief from the automatic stay
 exercising state rights such as through foreclosing on the property
o 1301: Stay of action against co-debtor
 the co-debtor stay applies only to consumer debt; this stay is automatic
 this is because if the co-debtor would not be protected, then a Ch. 13 bankruptcy would not be effective
because the creditor would just simply go after the co-debtor
 if a creditor wants relief from automatic stay against the co-debtor, they would file a motion under 1301
 otherwise, if they seek relief against the debtor, then they would file a motion under 362
 under 362, the stay is still in place for the debtor but lifted for that specific creditor
 under 1301, the relief is lifted as per that specific creditor 20 days after the filing of the request unless the debtor or
any individual that is liable on such debt with the debtor files and serves upon such party in interest a written
objection to the taking of the proposed action
o when reading 1322 and 1325, you must keep the following in mind:
 502: Allowance of claims
 506: Determination of secured status
 507: Priorities
o 1302: Trustee
 a trustee in a Ch. 13 is also a party in interest
 1302(b)(1): the duties the trustee shall perform [704(a)(2), 704(a)(3), 704(a)(4), 704(a)(5), 704(a)(6), 704(a)(7),
704(a)(9)]
 also duties found in 1302(b)(2)-(6)
 appear and be heard at any hearing concerning the value of property subject to a lien, confirmation of a
plan, or modification of the plan after confirmation
 disburse monies
 advise, other than on legal matters, and assist the debtor in performance under the plan
o there is a very fine line in advising the debtor but not providing legal advice; the debtor must
obtain legal advice from their attorney only
 ensure that the debtor commences making timely payments under section 1326
 if there is a domestic support obligation, provide the applicable notice specified in subsection (d)
o 1303: Rights and powers of debtor
 the debtor does not have any more powers than a trustee under Ch. 13 [“subject to any limitations on a trustee
under this chapter, the debtor shall have, exclusive of the trustee, the rights and powers of a trustee under 363(b),
363(d), 363(e), 363(f), and 363(l)
o 1305: Filing and allowance of post-petition claims
 this typically happens when the debtor obtains credit and debt while in the plan; these new debts will generally be
allowed if it’s for property or services necessary for the debtor’s performance under the plan
 requires trustee’s approval
 however, under (c), the claim will be disallowed if the holder of the claim knew or should have known
that prior approval by the trustee was practicable and was not obtained
 but if the creditor lacked this knowledge and the claim for new credit is allowed, the debt is excepted
from the discharge if the debtor failed to obtain the trustee’s approval when doing so was practicable
o 1306: Property of the estate
o payment of unsecured creditors:
 § 1322 requires that priority creditors have to be paid in full before you move on down the list, unless agreed to
otherwise
 however, if child support payments are assigned to an agency, then they might not have to be paid in full
 ‘best interest of creditors’ test: under § 1325(a)(4), you have to pay the creditors as much as you would have under
a Ch. 7
 ex: if you have a house with a value of $200K and a debt of $100K, then you have $100K in equity of
which to use to pay creditors; therefore, if you have unsecured debt of $50K, then you would be able to
100% of that debt; however if you have debts of $200K, then you would only be able to pay the creditors
50% of each of their debts
o 1322: Contents of plan (look at In Re Nobleman)
 (a)(1): the debtor must provide enough money to execute the plan
 (a)(2): the debtor must pay in full priority claims under 507, unless the creditor agrees to a different treatment
 (a)(3): claims within a certain class will all be treated the same
 (a)(4): if the debtor is paying regular child support, you don’t have to pay it in full if you pay in a plan for 60
months even if you are below the median income
 (b)(1): you can designate a class or classes of unsecured claims but the debtor may not discriminate unfairly
against any class
 (b)(2): allows for the modification of the rights of holders of secured claims or unsecured claims, such as lowering
a car payment, lowering the interest, strip part of a lien, etc.,
 exception: you cannot modify the rights of a secured holder when the property is real property that is the
debtor’s principal residence (the mortgage on your principal residence)
 rationale: the mortgage companies didn’t want all of the bankruptcy judges having discretion and uneven
discretion in rewriting all their mortgages and control over the whole credit industry
 however, lien stripping of a second mortgage is allowed since home values are upside down, second
mortgages are not ‘secured’ by anything, therefore (b)(2) would allow it
 Nobleman v. American Savings Bank: 1322(b)(2) prohibits a Chapter 13 debtor from relying on § 506(a)
to reduce an under-secured homestead mortgage to the fair market value of the mortgaged residence
 In Re Tanner: the proper interplay of 506(a) and the 1322(b) anti-modification provision is that they
protect a mortgage on a principle residence if that mortgage has a claim to any value (under-secured
claim) in the property so long as it’s not wholly unsecured; once a mortgage is wholly unsecured, it will
not be afforded 1322(b) anti-modification protection and you can therefore strip the lien
o therefore, you can strip off the junior lien if there is no value at all AND you will be receiving a
discharge in the plan
o however, this also means that if you have enough equity to cover ANY of the 2nd mortgage, then
you CANNOT strip any of the 2nd mortgage IF it’s your principle residence
 (b)(3): the plan may provide for the curing or waving of any default, mostly seen on past-due mortgage payments
 (b)(4): an unsecured creditor, a trustee, co-debtor, etc., can make a debtor pay unsecured creditors concurrently
with the secured creditors; typically seen when a debtor is just dragging their feet in paying their creditors
 especially if the debt is non-dischargeable, you will want as much time as possible in order to pay off the
debt
 (b)(5): you can provide for a cure in a reasonable time on a payment where the last payment is due after the date
on which the final payment under the plan is due; typically seen in mortgages
 (b)(6): you can provide for any post-petition claims
 (b)(7): provide for the assumption, rejection, or assignment of any executory contract (§ 365) or unexpired lease of
the debtor not previously rejected
 (b)(8): provide for the payment of all or part of a claim against the debtor from property of the estate or property of
the debtor
 (b)(9): provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor
or in any other entity (in Georgia, the property does not vest in the debtor)
 (b)(10):
 (b)(11): include any other appropriate provision not inconsistent with this title
 (c)(1): as long as you get the bankruptcy filed before foreclosure, you have the right to cure the mortgage in the
bankruptcy case
 (c)(2): if the last note of a claim secured by real property which is the debtor’s principal residence is due before the
last payment of the plan, then you can modify the claim within the plan
 (d)(1):
o 1325: sets out the confirmation requirements and has a two-part test for establishing the minimum amount that a Ch. 13
debtor must pay
 requires that the plan be filed in good faith [1325(a)(3)], AND that the action of the debtor in filing the petition
was in good faith [1325(a)(7)]
 when considering whether Chapter 13 plan has been proposed in good faith, among factors bankruptcy
court must consider are:
o (1) amount of debtor's income from all sources;
o (2) living expenses of debtor and his dependents;
o (3) amount of attorney fees;
o (4) probable or expected duration of debtor's Chapter 13 plan;
o (5) motivations of debtor and his sincerity in seeking relief under provisions of Chapter 13;
o (6) debtor's degree of effort;
o (7) debtor's ability to earn and likelihood of fluctuation in his earnings;
o (8) special circumstances such as inordinate medical expense;
o (9) frequency with which debtor has sought relief under Bankruptcy Reform Act and its
predecessors;
o (10) circumstances under which the debtor has contracted his debts and his demonstrated bona
fides, or lack of same, in dealings with his creditors; and
o (11) burden which plan's administration would place on trustee
 secured claims:
 under (a)(5) the creditor must accept your proposed plan; if not, then you have two other options:
o (a)(5)(B)(i)(I) the plan provides that the holder of the claim retains the lien until the earlier of
either paying off the debt in full outside of bankruptcy law or discharge under 1328 (which
involves paying off the debt in full through the plan either with modifying the amount under a
cram-down or not)(this is how you satisfy a lien and keep the property)
o (B)(i)(II) if the case is dismissed or converted without completion of the plan, the lien will revert
to how it was previously
 ex: if you have a $10K car debt and your case gets converted or dismissed prior to plan
completion, the lien goes back to $10K, even if you crammed down the amount; the
amount goes back to original amount, however, they do have to apply any amount you
paid to the debt amount
o (B)(ii): the present value of the stream of payments cannot be less than the amount of the claim
o (B)(iii): payments must be in equal payments and the payment amounts provide the creditor with
adequate protection
 if you have a car worth $10K and it depreciates at a rate of $100/month, then you would
pay an interest rate that compensates for the car’s depreciation (risk factor)
o (C) or they could just give the property back
 therefore, under a Ch. 13, a debtor can regarding claims secured by property they can either (1) pay in
full, (2) cram it down, or (3) give it back
 unsecured claims:
 (b)(1) if the trustee or holder of an allowed unsecured claim objects to the confirmation of the plan, then
the court may not approve the plan unless the debtor:
o (A) pay back in full OR
o (B) all of debtor’s projected disposable income is to be paid to unsecured creditors (formula: this
is the number on the bottom of the Form 22C (line 59) x applicable commitment period =
 ‘applicable commitment period’ is if you are paying your creditors in full
 3 ways to pay the creditors: (whichever is greater is the test used)
 (1) “best interest” liquidation test: a Ch. 13 plan must enable unsecured creditors to receive as much as
they would have received if this had been a Ch. 7 case and nonexempt, unencumbered property of the
estate had been sold, with net proceeds distributed to creditors [1325(a)(4)]
o this test will always apply to all cases above or below median
 (2) “best efforts” test/“disposable income requirement”: Ch. 13 requires a debtor to pay all of her
projected “disposable income” to creditors under the plan for a 3 to 5 year commitment period
[1325(b)(1)(B)]
o applies only to above median income debtors
o “disposable income” based on the Ch. 13 debtor’s current monthly income less certain living
expenses which is used to pay your unsecured creditors (see “current month income” and
“median family income” from Ch. 7)
 101(10A)(A): “current monthly income”
 you average the income from all sources during the last 6 months
(“mechanical approach”)
 income & expenses amount will be different on the 22C and the Schedule J
because Schedule J contains your actual income and expenses, whereas Form
22C reflects income and expenses as determined by IRS standards
 PDI is "currently monthly income" (CMI) (see 101(10)(a)) less projected expenses (PE)
(these are based on whether the debtor is above or below the median income level)
 As far as the B22C: CMI comes from Line 20
 1325 controls projected expenses, so you look at Part IV to gather expenses (A: Those
expenses allowed as deductions by the IRS (this includes local standards,
transportation, etc.), B: Additional Living Expenses, C: Deductions for Debt
Payment). The total PE will be on Line 52
 Now, you need to determine if there are any additional considerations Lines 53- 58.
 Your Monthly Disposable Income under s. 1325(b)(2) will be Line 53 (CMI from Line
20) - PE & Adjustments from Line 58. So Line 59 gives you that total
 formula: projected disposable income x months of applicable commitment period
 ex: $200 PDI x 60months = $12K
o under Hamilton v. Lanning, when a bankruptcy court calculates a debtor's projected disposable
income, the court may account for changes in the debtor's income or expenses that are “known
or virtually certain” at the time of confirmation (“forward-looking approach”)
o In Re Tennyson: an above-median-income debtor must remain in bankruptcy for a minimum of
five years, unless all unsecured creditors' claims are paid in full
 (3) Real Net Income (Base Plan)
o 36 months is the required minimum “commitment period” if the debtor’s current monthly
income is less than the applicable median family income
 if so, then “reasonably necessary” expenses can be deducted
 however, a period longer than 3 years may be requested “for cause” but may not be
more than 5 years [1322(d)(2)]
 however, if you can pay all your unsecured creditors in full, then you can have a plan
that is shorter than 36 months
o formula: plan pmt x applicable commitment period months
 ex: $600 plan pmt x 60 months = $36K
o 60 months is the maximum required “commitment period” if the debtor’s current monthly
income is more than the applicable median family income [1322(d)(1)]
 if so, then “reasonably necessary” expenses are calculated through the means test
formula
 4 types of permissible deductions:
 (1) living expenses, as determined by the IRS guidelines
 (2) monthly secured debt payments
 (3) amount required to pay priority debts in full
 (4) other administrative and special purpose expenses, including up to 10% of
the projected Ch. 13 plan payments for administrative expenses, and most
charitable contributions
 if you can pay all your unsecured creditors in full, then you can have a plan that is
shorter than 36 months
 if the amount of the priority claims exceeds the amount that the debtor must pay to meet the best interests
test and the disposable income requirement, then the minimum amount that the debtor must pay is the
amount necessary to pay the priority claims
 if, for example, the debtor is behind on her house or car payments and she wants to keep the house or
recently purchased car, she will either need to cure the default through the plan payments (bring the house
or car loan current) or will have to pay the entire debt through the plan [1325(a)(5); 1325(b)(2)-(5)]
 Who Gets Paid
 (1) priority claims:
o in a Ch. 13, priority claims do not have to be paid first but they must be paid in full over the life
of the plan, unless a particular creditor agrees to a different treatment
 (2) unsecured claims:
o a Ch. 13 plan may classify claims and pay some classes of claims more than others
o a debtor can use claim classification to pay one or more of her creditors in full even though she
does not have sufficient disposable income to pay all of her creditors in full
o under 1322(b)(1), a Ch. 13 plan can divide unsecured claims into more than one class and treat
the various classes differently
 however, the discrimination may not “discriminate unfairly”
 this is based on a multi-factor test, where the factor that seems to be the most important
is the difference in the amount of payment to the various classes
 it will be easier to get court approval of a plan that pays Class 2 100% and all
other classes 90% than a plan that pays Class 2 100% and all other classes
10%
 (3) secured claims other than home mortgages:
o in most Ch. 13 plans, each secured claim is the subject of a separate plan provision that modifies
contract rights of the secured creditor
 ex: D owes C $7K and the debt is secured by D’s bass boat; the installment sales
contract provides for 10% interest and 30 equal monthly payments; D’s Ch. 13 plan can
modify S’s contract rights by reducing the total amount to be paid C, change the interest
rate, change the number of payments, and change the amount of each payment
o a Ch. 13 plan can propose modifications of a secured claim to which the holder of the claim
consents
o a plan can also surrender the encumbered property to the holder of a secured claim
 ex: D owes C $200K secured by a first mortgage on Blackacre; if D’s Ch. 13 plan
surrenders Blackacre to C, then C no longer has a secured claim; if Blackacre’s value is
less than $200K, C might still have a claim, just not a secured claim
o “cram down issues”: secured claim plan confirmation issues (known as “cram down” issues)
arise only if the plan proposes that:
 (i) the debtor retain the encumbered property; and
 (ii) the secured claim be modified; and
 (iii) the holder of the secured claim does not accept the plan
o a “cram down” is any change in the payment obligation approved by the court over the creditor’s
objection
 in order to cram down a Ch. 13 modification of a secured claim, the bankruptcy court
must apply section 1325(a)(5)(b), and in order to apply this section, it’s necessary to
determine the nature of the proposed modification
 post-2005 legislation mandates that, under Rash and Till, the debtor cannot cram down
a change in the principal to be paid, but she can:
 (i) cram down a change in the interest rate to be paid; AND
o under Till, the Court stated that the approach to be used was the
“formula approach” which is calculated by starting with the prime
rate (which is a rate that a commercial lender would charge a
commercial borrower with good credit that includes the amount
necessary “to compensate for the loan’s opportunity costs, the
inflation risk, and the relatively slight default risk”) plus additional
percentage points as is necessary to compensate the creditor if the
debtor poses a greater risk of nonpayment than a commercial
borrower with good credit
 the adjustment should not be so high “as to doom the plan”,
and is generally in the 1% to 3% range
o the Court’s 3 reasons for using the formula approach:
 (i) bankruptcy judges should be uniform in their approach to
determining interest rates; the formula approach requires less
expensive evidentiary hearings than the other approaches,
and is familiar to the financial community
 (ii) the fact that the Ch. 13 debtor has proposed a feasible
plan, as determined by the bankruptcy court, and payments
are being made through the bankruptcy estate, reduces the
risk of default
 (iii) the formula rate uses objective criteria, thereby assuring
uniform treatment for similarly situated creditors, which is
what the Bankruptcy Code requires
o burden of proof: the creditor bears the burden of proving how many
point should be added to the prime rate
 (ii) change the number of payments and the amount of each payment
o under 1325(a)(9) hanging paragraph, the 2005 legislation prohibits:
 a strip down (one form of a cram down where there is a
reduction on the amount to be paid to the holder of the
secured debt down to the value of its collateral) on any debt
incurred within one year prior to the bankruptcy filing
 stripping a PMSI incurred within 910 days (2.49 years)
before the bankruptcy filing if it is secured by a motor
vehicle (49 U.S.C. § 30102: a vehicle driven or drawn by
mechanical power and manufactured primarily for use on
public streets, roads, and highways, but does not include a
vehicle operated only on a rail line) acquired by the debtor
for personal use, or if collateral for that debt consists of any
other thing of value, if the debt was incurred during the 1-
year period preceding that filing
o a post-2005 debtor who owes $13K, for example, on a car that she
wants to keep, will now have to make payments with a present value
of $13K
o a strip down is still possible so long as:
 (1) the debt was not incurred within a year of bankruptcy;
and
 (2) the collateral is not a personal-use automobile; and
 (3) the collateral is not the debtor’s home
 (4) secured claims secured only by a mortgage on the debtor’s principle residence:
o 1322(b) “anti-modification” rule: no plan modification of claims secured only by a security
interest in real property that is the debtor’s principle residence
 ex: if D owes $100K on her home mortgage to M at the time she files for Ch. 13 and
her payments are $625/month and the interest rate is 10%, D cannot use 1322(b) to
change her mortgage payment schedule or interest rate, nor reduce the amount of that
secured claim, regardless of the value of the home, such as attempting to strip down a
$100K mortgage down the home’s actual value of $70K
 however, while the Court has ruled that home mortgages cannot be “stripped down” in
a Ch. 13 case, courts are divided as to whether a home mortgage can be “stripped off”
(also known as “lien stripping”)
 ex: M has a $100K first mortgage on D’s home which is worth only $70K; S
has a second mortgage in D’s house; here, D cannot “strip down” M’s secured
claim from $100 to $70K; under 506(a), a creditor has a secured claim only if
it has a security interest in the debtor’s property and that security has actual
value; therefore, the majority of courts have ruled that if the security interest
does not have actual value, the anti-modification rule does not apply
o the Court focuses on the “rights of the holders” phrase of 1322(b)(2)
 it is not the secured claims in residences that cannot be modified but the rights of
holders of claims secured by residences
o a Ch.13 plan can provide for curing defaults on home mortgages
 ex: D missed three mortgage payments of $700/month and under the terms of her home
mortgage this default triggered an acceleration clause which made the entire loan
balance due immediately; D can use the Ch. 13 plan to cure these defaults “within a
reasonable time” where each month D will not only pay $700/month but will also pay
some additional amount that will cure the $2,100 default within a reasonable time
 obtaining court approval of the plan:
 Ch.13 requires only court approval, i.e., confirmation, of the plan
 living “under” a Ch.13 plan:
 for the duration of the plan, which will generally be 3 to 5 years, the debtor must live on the budget that
was the basis for determining “disposable income”
o 1329: Modification of plan after confirmation
 this is typically for when the debtors obtain a raise in income during the performance of the plan
 however, there is uncertainty as to the extent to which projected disposable income encompasses actual,
future income
 however, a court is very likely to modify the plan to increase payments to unsecured creditors
o if the debtor cannot continue performing under a Ch. 13 (three options):
 (1) the bankruptcy court may grant a discharge in a Ch.13 even though the debtor has not completed payments
called for by the plan by empowering the bankruptcy court through 1328(b) to grant a “hardship” discharge if
(limited by all 523(a) exceptions):
 (1) failure to complete the plan was due to circumstances for which she “should not justly be held
accountable;” AND
 (2) value of the payments made under the plan to each creditor at least equals what that creditor would
have received under Ch.7; AND
 (3) modification of the plan is not “practicable”
 (2) the debtor can request the court to modify the plan to reduce the amount of payments to unsecured creditors by
showing that:
 the original plan was not realistically, accurately predictive; OR
 some change of circumstances nevertheless justifies a reduction in payments
 (3) the debtor can either dismiss the Ch. 13 case or convert it to Ch. 7
 however, debtor loses the benefits of bankruptcy protection including the stay and the discharge
 also, upon conversion, any valuation of collateral and lien stripping done in Ch. 13 is undone for purposes
of the Ch. 7 case
 further, if converting to Ch. 7, the means test may still apply according to the circumstances existing
either at the time the case was filed or the time of conversion, but the courts have not decided which
“time” applies
o ending a Ch.13 case:
 a Ch.13 case can end with either (1) the debtor receiving a discharge, (2) the case being dismissed, or (3) the case
being converted to Ch.7
 discharge:
 1328(a) discharge is subject to most but not all of the exceptions to discharge in 523
o ex: unlike a Ch.7 case, a Ch.13 discharge will cover debts for willful and malicious injury to
property and debts for divorce or separation property settlements [1328(a)(2),(4)]
 1328 imposes two additional requirements for obtaining any Ch.13 discharge:
o (1) the debtor must complete a personal finance management course AND
o (2) any family support obligations, whether due prepetition or accrued post-petition, must have
been paid in full
 Avoidance Powers
o some payments, sales, exchanges, judicial liens, security interests, and other transfers that are valid under state law can be
avoided in bankruptcy
o applies to: transfers
 transfers: “transfer” [101(54)]: the term “transfer” means--
 (A) the creation of a lien;
 (B) the retention of title as a security interest;
 (C) the foreclosure of a debtor's equity of redemption; or
 (D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or
parting with--
o (i) property; or
o (ii) an interest in property
 (1) voluntary transfers: such as debtor making a “gift” to a relative
 (2) involuntary transfers: such as a creditor garnishing debtor’s bank account or subjecting debtor’s real
property to a judgment lien
 (3) absolute transfers: gifts, payments, and sales
 (4) security transfers: mortgage liens and judgment liens
o avoidance powers seeks to recuperate property for the estate that:
 (1) resulted in a decrease in the amount of property of the estate available to pay creditors; or
 (2) resulted in a greater recovery by one or more but not all creditors; or
 (3) was unrecorded even though non-bankruptcy law required recording in order for the transfer to be effective
against third parties; or
 (4) was not timely recorded
o the “loser” is the transferee from whom property is had
o the “winner” is the property of the estate [in Ch. 7 cases, the creditors to whom the net proceeds from the liquidation of the
estate are distributed]
o when the trustee avoids an absolute transfer of property, that property then becomes property of the estate
 ex: D owes C $25K; D repays C $12K; D later files for bankruptcy; at the time of D’s bankruptcy filing, the $12K
paid to C is not property of D’s estate; if the trustee avoids the payment and recovers the $12K, then the $12K
become property of the estate [541(a)(3); 550]
 further explanation: because of the $12K payment, at the time of the bankruptcy filing, C’s claim was now only
$13K; if the trustee avoids AND recovers the $12K payment, then C’s claim will be $25K [502(h)]
 if the trustee is able to establish a legal basis for avoiding the transfer but is unable to recover the
payment, then C’s claim for the remaining $13K will be disallowed (invalidated) under 502(d)
o there are similar consequences for voiding a security transfer
 ex: D borrows $77K from C and grants C a mortgage on Blackacre worth $120K; D later files for bankruptcy; C
now has a $77K secured claim; here, Blackacre itself is not property of the estate but it’s rather the interest in
Blackacre that is property of the estate; however, if the trustee is able to avoid the transfer, then D now has a $77K
unsecured claim, and Blackacre without any encumbrance will be property of the estate
o 544(a): a trustee’s 544(a) avoiding power depends upon the existence of a non-bankruptcy law avoiding right held by an
actual creditor under (a)(1) and (a)(2) as well as a bona fide purchaser under (a)(3)
o 544(b): state fraudulent conveyance can become a part of bankruptcy law by reason of section 544(b)
 this section empowers the trustee to avoid any pre-bankruptcy transfer that is “voidable under applicable law by a
creditor holding an unsecured claim that is allowable”
 however, the extent of the trustee’s 544(b) avoidance power is greater than the power of the actual creditor
 under Moore v. Bay, the trustee is not limited in her recovery to the amount of the claim of the actual
creditor, but rather can entirely avoid the transfer regardless of the size of the actual creditor’s claim
o ex: D sells Blackacre with a value of at least $2K to X for $100; X immediately records the
deed; at the time of the sale, D was insolvent and one of D’s creditors was Y who was owed
$7K; 2.5 years later, D files for bankruptcy and still owes Y $3K
o here, 548(a)(1) is not applicable since the transfer was more than two years prior to the
bankruptcy petition; however, 544(b) will be applicable if applicable state fraudulent
conveyance law had a look-back period of more than 2.5 years; if so, then the entire transfer can
be avoided
o 550: consequences of avoidance are not limited to recovery of the property transferred, or to the person to whom the
transfer was made
 550(a): the court can order the recovery of the “value of the property” transferred, rather than the property itself
 550 permits recovery from:
 (i) the initial transferee
 (ii) later transferees
 (iii) anyone who was not a transferee but benefited from the transfer
o ex:
 (1) D gives Blackacre which was worth $400 to X;
 (2) X later sells Blackacre to Y for $100;
 (3) D files for bankruptcy;
 (4) the gift of Blackacre from D to X was an avoidable transfer under Ch. 5; and
 (5) Blackacre’s present value is now only $200
 550 provides statutory authority for any of the following results:
 (i) recovery of Blackacre from Y;
 (ii) recovery of the “value of such property” from either X or Y with no
statutory guidance as to whether the value would be present value of $200 or
value at the time of transfer of $400
o disallowance of claim under 502(d) because of unavoided, avoidable transfer
 ex: D owes C $3K; D pays C $400; D files for bankruptcy; D’s payment of $400 to C is an avoidable transfer but
C does not repay the $400; C then files a claim for $2.6K; under 502(d), C’s entire $2.6K claim can be disallowed
o avoidance litigation: avoidance in bankruptcy of a pre-bankruptcy transfer requires litigation
 the trustee in Ch.s 7, 11, 12, and 13 can initiate avoidance litigation
 under 546, an avoidance action must be brought within 2 years after the order for relief except that if a trustee is
appointed more than one year after the order for relief but within two years after the order for relief, then the
trustee shall have one year; also, transfers can be avoided so long as they were made within 90 days before filing
bankruptcy
 ex: on 1/15/2006, D pays X $100; if D files for bankruptcy on 7/13/2006, that payment cannot be avoided
under 547 -- since the transfer occurred more than 90 days before bankruptcy; however, if D files for
bankruptcy on 4/5/2006, then the payment can be avoided under 547 (since the filing is within 90 days) if
the avoidance complaint is filed within two years of 4/5/2006
o fraudulent transfers [548]
 ex: D is insolvent (unable to pay his debts when due); D gives Blackacre to X so that her unpaid creditors are
unable to seize and sell Blackacre; determining whether the transfer was avoidable under fraudulent transfer law
would depend on the impact of the transfer or obligation on creditors of D, and not the impact of the transfer on D
or X
 548: concerns transfers of the debtor’s property that occurred within two years before the date of the bankruptcy
petition or obligations incurred by the debtor within two years before the filing
 ex: if D transfers Blackacre in January 2006 and files for bankruptcy in March 2008, that transfer is not
subject to 548 scrutiny
 548(a)(1)(A): Actual Fraudulent Intent
 applies to transfers that are actually fraudulent, i.e., made with the actual, subjective intent of hurting
creditors
 however, there is almost never any direct evidence of actual fraudulent intent; rather it’s usually
established through circumstantial evidence involving certain facts known as “badges of fraud”
 3 most significant “badges of fraud”:
o (i) the existence of a family or other close relationship between the transferor and the transferee
o (ii) the absence or inadequacy of consideration
o (iii) the secrecy of the transfer
 548(a)(1)(B): Constructive Fraud
 when a transfer meets the standards of 548(a)(1)(B) it is constructively fraudulent, and this section
“pretends” it is a fraudulent transfer or obligation and treats it that way even though no one intended it to
be fraudulent
 both parts (i) and (ii) of 548(a)(1)(B) must be satisfied:
o part (i) focuses on the adequacy of what the debtor received in exchange for what the debtor
gave; and
o part (ii) focuses on the financial condition of the debtor at the time of the transfer
 (I) was insolvent on the date that such transfer was made or such obligation was
incurred, OR became insolvent as a result of such transfer or obligation; or
 (II) was engaged in business or a transaction, or was about to engage in business or a
transaction, for which any property remaining with the debtor was an unreasonably
small capital; or
 (III) intended to incur, or believed that the debtor would incur, debts that would be
beyond the debtor's ability to pay as such debts matured; or
 (IV) made such transfer to or for the benefit of an insider, or incurred such obligation to
or for the benefit of an insider, under an employment contract and not in the ordinary
course of business
 “insider” as defined in 101(34)
 two biggest examples of constructively fraudulent transfers:
o (1) gifts: there is no problem under this section in making a gift so long as the donor still has
enough stuff left to pay her creditors (is not insolvent)
 gifts to qualified religious or charitable entity or organizations are protected by
548(a)(2) from avoidance as a fraudulent transfer by 548(a)(1)(B)
o (2) sales at unreasonably low prices: an insolvent person selling her stuff at an unreasonably low
price is treated as if she were giving her stuff away
 ex: D borrowed $180K from M; the debt was secured by a deed of trust; D defaulted; M
foreclosed on the realty and sold the property for $115,400, the amount of D’s
outstanding debt; M’s foreclosure and sale completely complied with state law; a few
days later, D filed for bankruptcy; the foreclosure sale amount will be deemed to be a
“reasonably equivalent value” so long as all the requirements of the state’s foreclosure
law have been complied with
o (3) guarantees: an unsecured guarantee by a person who is “insolvent” can result in a fraudulent
obligation; a secured guarantee by such a person can result in both a fraudulent obligation and a
fraudulent transfer
 548(a)(1)(B)(i): the standard is not whether someone received “reasonably equivalent
value in exchange” but rather whether the debtor received reasonably equivalent value
 in a personal debt guarantee or an inter-corporate debt guarantee, the creditor generally
is providing an appropriate amount of consideration, but is providing the consideration
to a person other than the guarantor
 ex: C lends $900K to X, Inc., D Corp., a subsidiary of X, Inc., guarantees
repayment; a few months later D Corp files for bankruptcy; here C provided a
sufficient amount of consideration – C is trying to collect $900K from D Corp
because it loaned $900K to X, Inc.; here C provided the consideration to
someone other than D Corp (the guarantor); therefore 548(a)(1)(B) will ask
not whether the creditor/transferee gave reasonably equivalent consideration to
someone but rather whether the debtor “received” reasonably equivalent value;
here the guarantor D Corp did not actually “receive” any equivalent value
upon guaranteeing the loan
 548(a)(1)(B) does not only inquire into the adequacy of consideration to the debtor but
also the financial condition of the debtor
 if D Corp was clearly solvent at the time of the guarantee, then there is no 548
fraudulent transaction
 further, a loan to one corporation can benefit related entities such as a loan to a
company benefiting that company’s subsidiaries
 the key is to compare (1) the value of what D Corp gave up by providing a guarantee to
C and (2) the value of what D Corp got from C’s loan to X, Inc.
 applying 548(a)(1)(B) to LBOs (leveraged buyouts)
o an LBO involves a person buying a business and then using the assets of that business to secure
its financing
 ex: C makes a loan to X to enable her to buy all of the stock of D Corp from its
shareholders; once X has all the D Corp stock, X makes D Corp grant C a lien on the
assets of D Corp., as collateral for the loan from C to X; shortly after the LBO is
completed, D Corp files for bankruptcy; here, D Corp made a security transfer of its
assets to C; if D Corp is not solvent then you would need to look at whether D Corp
received reasonably equivalent value for the transfer
o 548 2-year rule applies: if the transfer occurred or the obligation was incurred more than two
years before bankruptcy, then 548 doesn’t apply; instead, state fraudulent conveyance law [made
a part of bankruptcy law through 544(b)] which generally looks back four or more years, might
apply;
o 548(d): the purpose is to prevent sales of real estate, mortgages on real estate, and security
interests on personal property from escaping invalidation as fraudulent transfers by being kept
secret
o a sale or mortgage of real estate or a grant of an Article 9 security interest does not occur for
purposes of 548 until the required recordation or other perfection
 ex: on 1/10/2006, D gives Redacre to X who does not record the deed until 11/11/2009;
on 12/12/2010, D files for bankruptcy; here, the transfer of Redacre was made more
than two years prior to the bankruptcy petition; however, because under 548 the transfer
was not effective against a subsequent bona fide purchaser until it was recorded on
11/11/2009, the transfer is deemed “made” on 11/11/2009, therefore falls within the
548 2-year requirement
 here, 11/11/2009 is not only the relevant date for applying within the 2 year
requirement but also for determining D’s solvency
o Preferences [547]
 the essence of a 547 preferences avoidance argument is that “but for” the transfer of property which would have
been property had it not been transferred before bankruptcy (1) to someone who was a creditor (2) for a prior debt,
all OTHER creditors got less money
 there is no state law counterpart to the Code’s preference provisions, and as a result, state creditor’s rights law
does not “condemn” a preference
 however, bankruptcy law does “condemn” certain preferences
 look to 547(b) to determine whether a transfer is a preference;
 if, and only if, the requirements of ALL of the numbered paragraphs are met, then look to section 547(c)
to determine whether the preference qualifies for an exception
 if the ANY of the requirement paragraphs are met, then there is an exception
 under 547(b), the trustee may avoid a pre-bankruptcy transfer of an interest of the debtor in property if she can
establish ALL of the following:
 (1) the transfer was “to or for the benefit of a creditor”; AND
o (a true gift would not be preference since it’s not to or for the benefit of a creditor)
 (2) the transfer was made for or on account of an “antecedent debt” (a debt owed prior to the time of the
transfer); AND
o (a mortgage to secure a new loan is not a preferential transfer because it is not an antecedent
debt)(however, if I take out a loan and then a month later grant a mortgage, then a month later
file for bankruptcy, the mortgage can be avoided because it was a preferential transfer since the
mortgage was issued for the past debt)
 (3) the debtor was insolvent at the time of the transfer; AND
o (547-f creates a rebuttable presumption of insolvency for the 90 days immediately preceding the
filing of the bankruptcy petition)
 (4) the transfer was made within 90 days before the date of the filing of the bankruptcy petition, or, was
made between 90 days and 1 year before the date of the filing of the petition to an “insider” (‘insider’
includes relatives of an individual debtor and directors of a corporate debtor); AND
o (remember that a transfer is deemed to have been “made” upon recordation or some other form
of perfection)
o (also, transfers to insiders are looked at from the preceding year of the bankruptcy petition)
 (5) the transfer has the effect of increasing the amount that the transferee would receive in a Ch. 7 case
o this element is satisfied unless:
 (i) the transferee has a claim secured by property worth more than the amount of its
claim; or
 (ii) the transferee has a secured claim and all that is transferred to her is part or all of
the collateral that secured the claim; or
 (iii) the estate is sufficiently large to pay all unsecured claims in full
o ex: D owes C $100 and C is secured by Blackacre which is worth $40; D pays C $30 and files
for bankruptcy the next month; here, assuming D’s creditor would not be paid in full in a Ch. 7
case, before the payment, C had a $40 secured claim and a $60 unsecured claim; after the $30
payment, C has a total claim of $70; nothing in the facts indicate that C released its mortgage
and so C still has its lien on Blackacre and so C still has a secured claim of $40 and an unsecured
claim of $30; therefore, the transfer was preferential because the $30 payment in effect ate away
at the unsecured portion and C still has a $40 secured claim; come bankruptcy time, C will end
up getting paid more just because most of the claim is a secured portion
 ex 1: on January 10, D borrows $10K from C; on February 2, D pays C $7K; on March 3, D files for
bankruptcy; the trustee can recover the $7K
 ex 2: on February 2, D borrows $10K from C; on March 3, D grants C a mortgage on Blackacre worth
$7K; on April 4, D files for bankruptcy; here, the trustee can avoid the mortgage on Blackacre so that
Blackacre is again unencumbered property of the estate; this is because the mortgage is a “transfer”; if the
transfer is not avoided, it would result in C having a $7K secured claim that would be paid in full, and a
$3K unsecured claim; if the transfer had not been made, C would have a $10K unsecured claim
 ex 3: on March 3, D borrows $100K from C and grants C a mortgage on Blackacre worth $70K; on April
4, D files for bankruptcy; here, the trustee CANNOT avoid the mortgage on Blackacre because the
mortgage was NOT “for or on account of an antecedent debt” (meaning that the mortgage was not
granted after the fact and is therefore not a “transfer”; the mortgage was instead granted simultaneously
with the loan)
 ex 4: on April 4, D borrows $10K from C; on May 5, D pays C $70K; on December 12, D files a
bankruptcy petition; here, the trustee cannot avoid the May 5 payment UNLESS C was an “insider” AND
the trustee can prove that D was insolvent on May 5 th
 payments and other transfers by people other than the person who is later the debtor in the bankruptcy case is
never a 547 preference
 ex: D owes $100 to A, B, and C; M, D’s momma, pays A but not B and C; D later files for bankruptcy;
here, M’s payment of A but not B or C treated A more favorably than B or C; however, in a bankruptcy
sense, M’s payment is not a preference because it was not a “transfer of an interest of the debtor in
property” and therefore not a decrease in the property of D’s estate; A’s benefit was not to the detriment
of D’s other creditors
o assume M gave the $100 to D who then used that $100 to pay A; to determine whether D’s
payment to A is a “transfer of an interest of the debtor in property”, most courts would look to
the “earmarking doctrine” where if an insolvent debtor pays one of her creditors with funds from
a third party that were clearly earmarked to pay a specific antecedent debt, then there is no 547
preference; here, A benefited but not to the detriment of D’s other creditors; therefore, the
pivotal question is whether the debtor had any control over how the funds from the third party
could be used

 547(b) three-party transactions


 ex: D makes a transfer to C that is for the benefit of X and results in a preference to X
 three types of three-party indirect preferences:
o (1) guarantees
 ex: C makes a loan to D, and X guarantees payment of the loan; here, C is the creditor,
and D is the Debtor; however, X is also a creditor because under the ‘Historical and
Statutory Notes’ following 101, a guarantor of or surety for a claim against the debtor is
also a creditor, because he holds a contingent claim against the debtor that becomes
fixed when he pays the creditor whose claim he has guaranteed or insured
 ex 2: D pays C on January 15 and then files for bankruptcy on January 17; D’s payment
to C is a transfer because it is “TO a creditor”; the payment is also “FOR THE
BENEFIT OF a creditor” – since X is a creditor, X benefits from D’s payment to C: D’s
payment to C frees X from her obligations under the guarantee; accordingly, the
payment to one creditor, C, can be an indirect preference to another creditor, X, if the
other elements of section 547(b) are satisfied
 550 allows the trustee to recover a preference from either the actual transferee or “the
entity for whose benefit the transfer was made”
 finding such an indirect preference can be important to the trustee where:
 the transferee is insolvent
 the transfer is not avoidable as to the actual transferee
o ex: D pays C on January 15 and then files for bankruptcy on July 13;
C is not an insider but X is; the payment to C is not a preference as to
C; since C is not an insider, the relevant section 547(b) time period is
90 days; the payment of C is a preference as to X; since X (like most
guarantors) is an insider, the relevant time period is 1 year and the
trustee can therefore recover from X
o (2) two or more liens on the same property
 ex: F and S are both creditors of D with a lien on Blackacre; F is owed $100K and has a
first lien; S is owed $200K and has a second lien; the value of Blackacre is $150K; if D
pays F $30K, the payment will not be a 547 transfer because it is a payment to a fully
secured creditor (F’s lien is first and is for $100K while the value of the property is
$150K); however, this payment is preferential as to S – by paying F $30K and reducing
F’s secured claim on Blackacre to $70K, D has indirectly benefited S by increasing S’s
secured claim on Blackacre to $80K (originally, S had a secured claim of only $50K
and unsecured portion of $150K; as a result of the $30K payment to F and because the
house still has a $100K value, F’s secured claim went down to $70K, thus freeing up
$30K to be applied toward S’s claim which in effect makes S have an $80K secured
claim – up from the original $50K secured claim)
o (3) letters of credit
 ex: D owes C $1K; D’s debt is unsecured; D does not pay C – that would have been a
547(b) preference; C does not get a mortgage on D’s real estate – that would also have
been a 547(b) preference since it would have been on an “antecedent debt”; instead, D
obtains a letter of credit from X Bank for the benefit of C; in order to obtain that letter
of credit, D grants X Bank a mortgage on its real estate; C draws on the letter of credit,
i.e., C is paid $1K by X Bank; D then files for bankruptcy
 here, the mortgage granted to X Bank was a “transfer of an interest of the
debtor in property”; while the transfer was not for an antecedent debt owed by
D to X Bank, it was “on account of” an antecedent debt owed by D to C and it
did enable C who would have been an unsecured creditor in D’s bankruptcy
but for the transfer and the letter of credit and the draw to “receive more”
 accordingly, if D’s bankruptcy occurred within 90 days of the mortgage, there
is a voidable transfer under 547(b); therefore, under 550, there can be recovery
from either C or X Bank
 Preference Exceptions
 547(c) contains nine numbered exceptions to section 547(b): a creditor/transferee can prevent avoidance
of the transfer by proving that the transfer is covered by one of the 547(c) exceptions
o however, because 547(c) applies only in concert with 547(b), if the trustee fails to establish a
preference under 547(b), it’s then not necessary to look to 547(c)
 547(c)(2): “ordinary course” (meaning ‘routine’)
o this protects a debtor’s routine payments on its routine debts
 ex: D receives her water bill for January on February 5th and pays it the same day; that
payment was a transfer for an antecedent debt; if D files for bankruptcy within 90 days
of February 5th, that payment probably meets the preference requirement of 547(b), and
it also meets the 547(c)(2) exception requirements
o 547(c)(2) has two requirements:
 (1) the first requirement looks at the nature of the debt and requires that it be routine
(must be routine for both the debtor AND the creditor: i.e., in the ordinary course of
business if the debtor is a business debtor or in the ordinary course of financial affairs if
the debtor is a consumer debtor
 (2) the second requirement looks to the nature of the payment and requires that the
payment be routine (look primarily to the form of payment, such as cash, wire transfer,
check, etc., AND the timeliness of the payment, such as five days late, two months late,
etc.)
 the “routineness” or “ordinariness” can be established EITHER by looking at
what has been routine in the past in payments by this debtor to this creditor (a
subjective test) OR by showing what has been routine in payments by similar
parties on similar debts (an objective test)
 ex: D Stores routinely buys merchandise on credit from S; invoices provide
“net 7 days” meaning that the payment is due within seven days; D Stores
makes three payments to S within 90 days before D Stores files for
bankruptcy; each of the three payments was made between 12 and 32 days
after receipt of the invoice; D’s late payments will be treated as “ordinary” for
purposes of section 547(c)(2) if either D Stores routinely paid S 12 to 32 days
after invoice or if such late payments were ordinary in that type of
merchandise sale
 547(c)(4): Subsequent Advances
o provides a measure of protection for a creditor who receives a preference and “after such
transfer” extends further unsecured credit
o this is a SUBSEQUENT advance rule and NOT a NET RESULT rule
 the sequence of events is of critical significance in that the additional extension of
credit must occur after the preferential transfer
o the key words in 547(c)(4) are “after such transfer”
 ex: on June 6, C lends D $6K; on July 7, D repays $4K; on August 8, C lends D an
additional $3K; on September 9, D files a bankruptcy petition; the bankruptcy trustee
can recover only $1K; this is because the July 7 payment was a preference under
547(b), but the trustee’s recovery is reduced by the amount of the August 8 unsecured
advance of $3K, 547(c)(4)
 however -- on June 6, C lends D $6K; on July 7, C lends D an additional $3K;
on August 8, D repays $4K, and on September 9, D files a bankruptcy petition;
here, the trustee could recover $4K under 547 since there was no new
unsecured credit “after such transfer”
o (c)(4) contains two additional requirements beyond the creditor/transferee’s giving new value
after the transfer:
 (1) the new value must be unsecured, i.e., “not secured by an otherwise unavoidable
security interest” [547(c)(4)(A)]
 (2) the new value must go “unpaid”, i.e., “on account of which new value the debtor did
not make an otherwise avoidable transfer to or for the benefit of such creditor
[547(c)(4)(B)]
 “Ch. 20” bankruptcy:
o this is when a debtor files a Ch. 13 and is not eligible for a discharge because of a recent Ch. 7 discharge
o however, the issue regarding lien stripping is whether a Chapter 13 Debtor who is ineligible for a discharge due to a recent
Ch. 7 discharge, may strip a lien on a wholly unsecured second mortgage on a principal residence
o requirements:
 notice (see United Student Aid Funds v. Espinoza)
 good faith (see In Re Kitchens)
o however, courts are split as to whether lien stripping is allowed in a “Ch. 20”
 those courts that DO NOT allow the stripping state that a no-discharge Ch. 13 case may not result in a permanent
modification of a creditor’s rights where such modification has traditionally only been achieved through a
discharge and where such modification is not binding if a case is dismissed or converted
 those courts that DO allow the stripping state that 1325(a)(5) creditor acceptance only applies when there is value
in the collateral to support the lien holder’s claim
 these courts find that the claims are then allowed unsecured claims and are entitled to have their claims
treated like the claims of other non-priority unsecured claimholders in the Debtor’s bankruptcy case
 upon the completion of the Chapter 13 plan and payment of the value in the collateral securing the claim,
there is no obligation to remain secured by the lien