Markell Fall-1

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Table of Contents
Outside Bankruptcy............................................................................................................................. 2
Creditors.......................................................................................................................................................... 2
Debtors............................................................................................................................................................. 2
Basics of Bankruptcy........................................................................................................................... 2
Discharge......................................................................................................................................................... 3
Equality of Distribution.............................................................................................................................. 4
Property of the Estate.................................................................................................................................. 4
Claims............................................................................................................................................................... 5
Secured Claims............................................................................................................................................................... 6
Issues That May, But Probably Won’t Arise................................................................................. 7
Commencing a Case...................................................................................................................................... 7
Dismissal/Conversion................................................................................................................................. 7
Issues Under All Chapters................................................................................................................. 8
Automatic Stay............................................................................................................................................... 8
Adequate Protection.................................................................................................................................... 9
Avoiding or Reducing Claims.................................................................................................................... 9
Priorities....................................................................................................................................................... 10
Turnover....................................................................................................................................................... 11
Issues Relevant to All Individual Cases...................................................................................... 11
Discharge...................................................................................................................................................... 11
Chapter 7 Scope and Timing.................................................................................................................................. 11
Individual Rehabilitation Proceedings Scope and Timing of Discharge..............................................11
Dischargeability of Specific Debts......................................................................................................... 12
Exemptions................................................................................................................................................... 13
Individual Chapter 7......................................................................................................................... 14
Redemption.................................................................................................................................................. 15
Reaffirmation.............................................................................................................................................. 16
Individual Chapter 13...................................................................................................................... 16
Unsecured Creditors in Chapter 13...................................................................................................... 17
Secured Claims in Chapter 13................................................................................................................. 18
More Confirmation Requirements........................................................................................................ 19
Individual Chapter 11...................................................................................................................... 20
Business Chapter 11......................................................................................................................... 20
Overview of the Chapter 11 Process..................................................................................................... 21
Cash Collateral............................................................................................................................................................. 21
DIP Financing............................................................................................................................................................... 22
Sale as a Going Concern............................................................................................................................ 22
Plan Confirmation...................................................................................................................................... 23
Acceptance Rules........................................................................................................................................ 25
Plan Confirmation...................................................................................................................................... 25
Cram Down Under 1129(b)................................................................................................................................... 26
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Post Confirmation...................................................................................................................................... 28
Flavors of Chapter 11................................................................................................................................ 28
Avoiding Powers................................................................................................................................ 28
Fraudulent Transfers and Obligations................................................................................................. 29
Preferential Transfers.............................................................................................................................. 30
Strong Arm Power...................................................................................................................................... 31
Setoff............................................................................................................................................................... 31
Statutory Liens............................................................................................................................................ 31
Reclamation.................................................................................................................................................................. 32
Postpetition Transfers.............................................................................................................................. 32
Leases and Executory Contracts................................................................................................... 32
Consequences.............................................................................................................................................. 32
Time to “Choose”........................................................................................................................................ 33
Requirements for Assuming a Lease.................................................................................................... 33
The Gap Between Petition and Choice................................................................................................. 33
Pre-Bankruptcy Provisions and the Impact on Choice in Bankruptcy.......................................34
Additional Issues in Assignment............................................................................................................ 34
Debtor as Landlord.................................................................................................................................... 35
Debtor as Licensor of Intellectual Property....................................................................................... 35
Timelines.............................................................................................................................................. 35
Timeline-Chapter 7.................................................................................................................................... 35
Timeline-Chapter 13................................................................................................................................. 35
Timeline-Chapter 11................................................................................................................................. 36
Definitions............................................................................................................................................ 36
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Bankruptcy
Markell
Fall 2014
Outside Bankruptcy
Creditors
Outside of bankruptcy, creditors can act in their own interest and seize the property through
liens. Essentially works as first-come, first served. They can also access some assets that have
been transferred, if the transfers are actually fraudulent (done with the intent of “hindering,
delaying, or defrauding” creditors) or constructively fraudulent (“A debtor must be just before he
is generous.”).
Debtors
Not much that a debtor can do to stop a creditor from attempting to seize property outside of
bankruptcy. Only thing that can be done is negotiate with creditors to have new workout
agreements, but those only apply to those creditors who consent.
Basics of Bankruptcy
I. Bankruptcy is a federal power under the Constitution. States cannot impair the rights
of contracts, but under bankruptcy law Congress can.
a. There was no federal bankruptcy code until 1898.
b. Bankruptcy Courts are Article I courts, and have the sole job of administering
Title 11 (the bankruptcy code).
c. The Bankruptcy Code is designed to be complete coverage of bankruptcy
questions.
II. Bankruptcy creates a creditor class-action type proceeding. Similarly situated
creditors receive similar treatment.
a. Designed to increase average creditor collection.
b. Protects the continuing value in the debtor by keeping them operational
during proceedings.
c. Allows a fresh start for honest debtors.
d. Federal bankruptcy law often depends on state law definitions of property and
contracts.
III. Divisions of the Code
a. Chapter 1: Definitions
b. Chapter 3: Administration
c. Chapter 5: Claims and Creditors
d. Chapter 7: Liquidation
e. Chapter 9: Municipal Bankruptcy
f. Chapter 11: Reorganization
g. Chapter 12: Family Farmer Rehabilitation
h. Chapter 13: Rehabilitation of Individuals with Income
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i. Chapter 15: Ancillary and Other Cross-Border Cases
Discharge
I. 524(a),(e): A debtor who is eligible for discharge and receives one is relieved from
any further personal, legal liability on her dischargeable debts.
a. “who is eligible”: There are limitations put on who is eligible for bankruptcy
discharge.
i. Corporations and other business entities are not eligible for discharge
under Chapter 7.
ii. 727(a) lists eligibility exceptions for human debtors in Chapter 7.
iii. 1141(d) imposes a discharge for business entities who have a plan of
reorganization approved under Chapter 11. Actual completion of
payments under the plan is not required for the discharge.
iv. Individuals under Chapters 11 and 13 must have a confirmation of the plan
and completed all payments under the plan to get the discharge. See
1328(f).
b. “relieved from any further personal, legal liability”: under 524(e) only
personal liability is discharged. The liability of any other parties or guarantors is
not affected.
i. NO further collection efforts can be made. 524(a)(2)
c. “her dischargeable debts”: Dischargeability depends on whether the matter is
Chapter 7, 11, or 13, when the debt arose, and whether the debt is excepted from
discharge.
i. 523(a): lists exceptions from discharge for certain types of debts for
individuals.
1. (2), (4), and (6): All deal with “bad acts,” and require action by a
creditor within a certain timespan (typically 60 days, depending on
the type and time of the case) to not be discharged.
2. (1): Taxes
3. (5) and (15): Certain marital debts
4. (8): Student loan debts, except in cases of undue hardship (nearly
impossible to prove)
ii. All corporation debts are dischargeable once a plan is confirmed
under Chapter 11.
iii. Property rights are not discharged, so a secured debtor can still repossess
collateral.
II. The discharge is an injunction on future action (524(a)(2)), and violating the
discharge places the actor in contempt of court.
III. 525: The government is prohibited from engaging in almost any discriminatory
behavior on the basis of bankruptcy, the discharge, or failure to pay a dischargeable
debt. Private employers may not terminate or discriminating “with respect to
employment” on those bases.
Equality of Distribution
I. Bankruptcy is a collective proceeding. Creditors are treated as a group (or groups in
terms of plan ratification). Designed to maximize value for the most debtors
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II. Speedy distribution of assets “is second only in importance to securing equality of
distribution.” Bailey v. Glover, 88 U.S. 342, 346 (1874). This does not appear in the
Code.
III. Even though the goal of bankruptcy is equal treatment, different types and
classes of creditors gain preference in a number of ways.
Property of the Estate

I. 541(a): Property of the Estate includes “all legal or equitable interests of the debtor in
property as of the commencement of the case.” This includes all real/personal,
tangible/intangible property held by the debtor or in which the debtor has an interest.
a. 541(b) and (c)(2): Certain property is excluded from the estate.
b. 541(a)(6): income from property (but not from services) after the commencement
of the case is property of the estate.
c. 1306/1115: Proceedings under Chapter 13 and individual cases in Chapter 11
include income and interests acquired after the commencement of the case as
property of the estate. Such income/interests up to the close of the
case/conversion to a Chapter 7, 11, or 12 proceeding is included in the property of
the estate.
II. Importance of the Estate
a. Chapter 7: The trustee is charged with collecting and selling the property of the
estate.
b. Chapter 11/12: The debtor retains possession as the debtor-in-possession and
acts in the place of a trustee. A party-in-interest can request a trustee be
appointed if the property is not being appropriately used.
c. Chapter 13: There is likely a trustee, but the debtor still retains possession.
d. Chapter 12/13: The minimum value that can be offered to unsecured claims
holders in the plan of repayment is the equivalent of the value of the property of
the estate. (Chapter 11 has similar requirements for non-assenting secured claims
holders.).
III. 542/543: Actors who are in possession of property that is considered property of the
estate are restricted in their actions with such property, and may be required to
turnover such property to the trustee.
a. If a debtor files for bankruptcy after a secured party takes possession of collateral,
but before a sale is held, there are turnover issues.
Claims
I. 101(5): claim means
a. right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or
b. right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, or unsecured.
II. Claims, or rights of payment, are specific things. Not all obligations are claims under
the bankruptcy code.
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a. Ohio v. Kovacs (1985)(CB 3-17): Not all statutory duties are debts under
101(5), but if the state moves to seize assets in lieu of other means of forcing
compliance, it converts the obligation into a monetary claim.
i. Kovacs settled a state environmental law case in his personal capacity and
as CEO of his company, agreeing to clean-up. He didn’t, the state moved
to seize assets, and Kovacs filed for bankruptcy.
ii. State sought a definition that its injunction was not subject to discharge.
III. Future Claims
a. Claims can be discharged when they arose prior to bankruptcy. 502(b)
b. Pre-Petition Relationship: There must be some relationship between the debtor
and claimant pre-bankruptcy.
c. Conduct Test: A claim arises when the acts giving rise to liability are performed,
not when harm manifests
d. Asbestos Claims: Future claimants must seek recovery from a Health Trust
established during reorganization. Not immediately applicable to other tort
claims. 524(g)
e. In re Solitron Devices, Inc. (2014)(CB 3-22): Notice of the bankruptcy,
knowledge of the possible claim, and knowledge of relationship/conduct
combine to form a pre-petition claim which is discharged in bankruptcy.
i. Solitron may have contributed to landfill contamination, filed for
bankruptcy. Twenty years later NY notified Potential Responsible Parties
of liability. A group settled and sued Solitron for contribution.
ii. The debt/claim existed pre-petition, so it was discharged in bankruptcy.
IV. Claims Estimation
a. 502(c)(1) provides for the estimation of the purposes of allowance any contingent
or unliquidated claim, the fixing of which would cause undue delay in the case.
b. In order to make an estimate, a mini-trial with strict limits is often heard. Other
times, the court makes temporarily estimates, with full determination reserved.
V. Trading Claims
a. “Trading” is the sale and purchase of unsecured claims. Creditors are able to
realize immediate cash, avoiding the uncertainties of a bankruptcy case.
b. Price and when to sell depends on the markets and expectations that the debtor’s
plan will be successful.
c. Investors may realize significant profits, and if they collect enough debt, may be
able to veto an unfavorable reorganization plan.
Secured Claims
I. Secured claims holders have all the same rights as other claims holders, but also have
some more.
a. Retain property interests in collateral. This means that, subject to obtaining relief
from the automatic stay, secured claims holders can seize and sell collateral.
b. Better things happen to holders of secured claims than holders of unsecured
claims.
II. 506(a)(1): secured claim “to the extent of the value of such creditor’s interest in the
estate’s interest in such property.” “Unsecured claim to the extent that the value of
such creditor’s interest…is less than the amount of such allowed claim.”
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a. When is the collateral valued? Different courts have chosen different times in
different circumstances.
i. Plan confirmation date.
ii. Plan effective date
iii. Date of valuation hearing
iv. Petition date
b. How is valuation performed? Different circumstances lead to different values
(liquidation/going concern/arm’s length transaction).
c. 506(a)(2): In individual Chapter 7/13 cases, value of personal property is
determined as the replacement value at the date of filing. In the case of
property acquired for “personal, family, or household purposes,” this value is “the
price a retail merchant would charge for property of that kind considering the age
and condition of the property at the time value is determined.”
III. Lien Stripping: Turn On, Strip Down, and Strip Off
a. 506(d): To the extent that a lien secures a claim that is not an allowed secured
claim, that lien is void.
b. Chapter 11/13: Liens that are undersecured will be “stripped down,” into a
secured claim for the value of the collateral and an unsecured claim for the
remainder. Liens where the collateral has no value are completely stripped off
into unsecured claims.
c. Dewsnup v. Timm (1992)(CB 3-30): Undersecured claims in Chapter 7 cannot
be stripped down. This honors the original bargain, and allows the lien holder to
realize any improvement in value before the inevitable sale of the property.
i. Courts are divided as to whether Dewsnup means there can be no
strip off in Chapter 7.
Issues That May, But Probably Won’t Arise

Commencing a Case
I. Voluntary Cases
a. 301: When the debtor files a bankruptcy petition, it is considered a voluntary
case. Filing the petition operates as “an order for relief.”
b. Eligibility for Any Form of Bankruptcy
i. 101(41): The term person includes individuals, partnerships, and
corporations, but not governmental units.
ii. 109(a): Resides, has a domicile, place of business, or property in the U.S.
iii. 109(h): Generally, an individual cannot be a debtor who, within 180
days before filing, has not completed an individual or group counseling
session outlining opportunities for credit counseling and aided in
performing a budget analysis.
c. Eligibility for Specific Forms of Bankruptcy
i. 109(b): Limits on Chapter 7 Debtors
ii. 109(d): Limits on Chapter 11 Debtors
iii. 109(e): Debt Limits on Chapter 13 Cases
II. Involuntary Cases
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a. 303: Involuntary cases may be commenced under Chapters 7 and 11. Creditors
generally do not like bankruptcy, but they might if another creditor is about to
seize all assets in a state proceeding.
b. Chapter 13 cases cannot be involuntary due to the fact that they require future
earnings to be pledged in support of a plan. This would violate the Thirteenth
Amendment prohibition on involuntary servitude.
c. 303(b): An involuntary case can only be initiated when three or more holders of
non-contingent, non-disputed, unsecured claims with more than $15,325 in value
bring the filing. If there are fewer than 12 creditors, then one or more holders
holding at least $15,325 of claims may bring the filing.
d. The involuntary filing commences the case, but is not an order for relief. There
must be adjudication by the court. See 303(h). Determine whether most debts
are being paid as they come due, and whether most creditors are being paid
on time. If they are, there may not be grounds for bankruptcy.
Dismissal/Conversion
I. If a case is dismissed, that means that it does not reach discharge.
a. About 67% of Chapter 11/13 cases are converted or dismissed.
II. 305: The court may grant a dismissal in any case if “the interests of creditors and the
debtor would be better served by such dismissal.”
III. Specific Chapters (Any party in interest can request)
a. 707: Dismissal or conversion to Chapter 11/13 may only be for cause.
b. 1112: Conversion to Chapter 7/Dismissal permitted in certain circumstances, not
permitted in others, and mandated in some. Notice and a hearing may be
required.
c. 1307(a): Debtor may convert to Chapter 7 at any time.
d. 1307(b): Debtor may be granted dismissal at any time, so long as the case has not
be converted from another Chapter.
e. 1307(c): Court may dismiss or convert on motion from other parties in interest, so
long as certain conditions are met.
Issues Under All Chapters

Automatic Stay
I. 362: Commencing a case results in an automatic stay of actions against the debtor,
her property, and property of the estate.
a. The stay does not require court action to go into effect. It starts at filing.
b. The scope of the stay is well defined in 362(a). Essentially all civil actions
involving the debtor, debtor’s property, and property of the estate are stayed.
i. The stay only impacts the debtor, not any guarantors or other parties.
ii. 105: The court has the power to grant a stay protecting other parties if it is
necessary to carry out the provisions of the Bankruptcy Code.
II. 362(b): There are twenty-eight exceptions to the automatic stay.
a. (1): no stay on criminal actions against the debtor
b. (2): no stay on family/domestic proceedings
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c. (4): no stay on government’s police or regulatory activities (exception: does not

apply to money judgments/actions which may be categorized as collection efforts)
III. Violations of the Stay
a. Any actions in violation of the stay are void/voidable.
b. 362(k)(1): individuals injured by actions in violation of the stay shall recover
actual damages, including costs and attorneys’ fees, and may recover punitive
damages (unclear how this impacts non-natural persons)
c. Violations can also be punished through contempt of court. In that case,
sanctions are at the discretion of the court, unlike in 362(k)(1).
IV. Termination of the Stay
a. 362(c)(1): The stay no longer applies to property of the estate when the property
ceases to be property of the estate.
b. 362(c)(2): The stay terminates when a case is closed, is dismissed, or when a
discharge is granted or denied.
c. Other grounds for termination are in 362(c)(3), 362(n), and 362(h)(1).
V. Relief from the Stay
a. 362(d): A party in interest may move, and after notice and a hearing the court
shall grant relief from the automatic stay
i. (1): for cause, including lack of adequate protection
ii. (2): when, regarding the stay against property, (A) the debtor does not
have equity in the property OR, (B) the property is not necessary for
effective reorganization.
b. 362(e): there are time limits (typically 30 days) on how long a court can wait
before holding a hearing on a request for relief from the stay
c. 362(f): to protect a party from irreparable damage to the interest in property (no
hearing necessary if the harm will manifest prior to a hearing)
d. 362(g): the burden is on the party requesting relief to show that relief is
warranted/fits the limits of the law.
e. Relief from the stay can take the form of annulment, modification, or
limitations.
Adequate Protection
I. 361: Adequate Protection may be required under 362, 363, and 364 in order to protect
the property interest of a secured creditor. It can be provided by
a. (1): requiring the trustee to make cash payment/periodic cash payments to cover
the decrease in value of a secured claim holder’s interest in the property;
b. (2): providing an additional or replacement lien to cover a decrease in value of the
interest in property; OR
c. (3): other relief, other than compensation as an administrative expense, that will
realize the full value of the property.
II. If a property is oversecured, then the “equity cushion” may count as adequate
protection.
III. United Savings Association of Texas v. Timbers of Inwood Forest Associates (1988)
(CB 5-14)
a. Adequate protection is meant to protect the value of collateral that is
depreciating, not the time value of an interest in property. There is no need
for interest payments to an undersecured creditor.
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b. Oversecured creditors are eligible for interest, but only to the extent that the
interest can be paid out of the “equity cushion.”
IV. Most circuits only require adequate protection payments when there has been a
request from a creditor.
Avoiding or Reducing Claims

I. 521: The debtor is required to file a list of creditors, and (in most cases) a schedule of
assets, liabilities, current income and expenditures.
II. 501: Creditors may file proof of claims; equity security holder may file proof of
interest. If they do not do so in a timely manner, and entity liable to the creditor with
the debtor may file proof of the claim. The debtor may also file proof of such claim if
the creditor does not timely do so.
a. All claims need to be filed. Only claims receive payments and get discharged.
b. In Chapter 11, 1111(a) dictates that claims do not need to be filed if they are non
disputed, noncontingent, and liquidated, and the debtor has listed the claim
accurately under its 521 schedules.
c. Filing a false claim is a crime.
III. 502(a): A claim filed under 501 is deemed allowed unless a party in interest
objects.
IV. 502(b): (from notes, not text) accelerate everything that is due; it is deemed due on
the filing date, and then disallow anything in the 502(b) exceptions.
a. 502(b)(1): Any defense the debtor would have to a claim outside of bankruptcy
also exists in bankruptcy.
b. (2): Claims for postpetition interest are disallowed.
c. (6): Claims for lease termination are capped at a particular amount. Essentially,
only back rent and that future rent which is limited to the greater of 1 year’s rent,
or 15% of future rent / as much of that 15% that does not exceed 3 years rent.
d. (9): Untimely filings can be disallowed, except claims filings by government
actors.
e. Disallowance means that a claim does not receive a distribution from the
estate. However, disallowance does NOT impact discharge.
V. Regarding subrogation and reimbursement claims of guarantors/codebtors, see 502(e)
and 509.
Priorities
I. Priority only applies to unsecured claims, varying the typical pro-rata schemes. It is
important to remember that secured claims and liens still rank above prioritized
claims in bankruptcy, and are administered according to their priority outside of
bankruptcy.
a. In Chapters 11, 12, and 13, priority claims must be paid in full, but sometimes
payment can be stretched over time.
b. In Chapter 7, priority claims are paid in the order in which they are listed in 507.
One class is paid in full first, and then move to pro rata payments of the next
priority class. See 726(a)(1).
II. Administrative Priority
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a. 507(a)(1)(A+B): Allowed unsecured claims for domestic support obligations,

subject to (C): administrative expenses of the trustee under 503(b)(1)(A), (2), and
(6) are to be paid prior to the claims in (A) and (B).
i. 503(b)(1)(A): actual, necessary costs and expenses of preserving the
estate, including wages, salaries, commissions for services rendered after
the commencement of this case.
ii. 503(b)(2): compensation and reimbursement awarded under 330(a)
b. 507(a)(2): Administrative expenses allowed under 503(b) and any fees and
charges assessed against the estate under chapter 123 of title 28.
i. 503(b)(9): “the value of any goods received by the debtor within 20 days
before the date of commencement of a case…in which the good have been
sold to the debtor in the ordinary course of such debtor’s business.” Note:
This normally would be a pre-petition claim, but the 2005 Amendments
included it as an administrative claim.
c. 507(a)(4): Wages earned in the 180 days prior to filing or cessation of business,
only up to $12,475 per employee.
d. 507(a)(5): Contributions to an employee benefit plan for services rendered in the
180 days prior…, but only to the extent of the unused portion of the allowance in
507(a)(4).
i. Howard Delivery Service v. Zurich American Insurance (2006)(CB 5-26):
Payments to a workers’ compensation carrier are not included in the
heading of “benefits.”
e. Administrative priority will be granted to those expenses that arose out of
transactions between a creditor and the trustee/debtor-in-possession. The
service must have been “induced” by the debtor-in-possession, not the pre-
petition debtor.
III. Subordination
a. 510(a): “A subordination agreement is enforceable in a case under this title to the
same extent that such an agreement is enforceable under applicable
nonbankruptcy law.”
i. This means that creditors can form agreements before a bankruptcy
about who will have priority if a bankruptcy occurs.
b. 510(c): The court has an equitable power to change priority (usually done to
remove priority from a creditor who has acted inequitably and harmed other
creditors). Test:
i. The claimant engaged in some type of inequitable conduct;
ii. The misconduct caused injury to the creditors or conferred unfair
advantage on the claimant;
iii. Equitable subordination of the claim is consistent with bankruptcy law.
Turnover
I. 542: An entity, other than a custodian, in possession during the case of property that
the trustee can use, sell, or lease under 363, or that the debtor can exempt under 522
shall deliver such property or the value of such property to the trustee, unless the
property has inconsequential value/benefit for the estate.
a. Comes into play when collateral is repossessed by a secured creditor before the
filing.
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b. Subject to adequate protection.

II. U.S. v. Whiting Pools (1983)(CB 5-33): Even the IRS and government actors with
tax/judicial liens are subject to the turnover provisions in 542.
Issues Relevant to All Individual Cases

Discharge
Chapter 7 Scope and Timing
I. Bankruptcy Rule 4004(a): In Chapter 7, objections to the debtor’s discharge must be
filed no later than 60 days after the first date set for the meeting of creditors, and
creditors will be given at least 28 days notice of the fixed time for objections.
II. Bankruptcy Rule 4004(c)(1): When the time for objections expires, the court shall
grant the discharge.
Individual Rehabilitation Proceedings Scope and Timing of Discharge

I. Chapter 13
a. 1328(a): “as soon as practicable after completion by the debtor of all payments
under the plan” he court shall grant a discharge. Until that point, the automatic
stay remains in effect.
b. 1328(b): There are limited conditions under which a discharge can be granted
even without the completion of payments.
c. “Chapter 20”: A form of bankruptcy where debtors would file Chapters 7 and 13
in quick succession, using 7 to eliminate non-dischargeable debt, and then 13 to
restructure the debt that could not be eliminated. This has largely been eliminated
with 1328(f)(1)’s provisions banning a discharge in 13 if one has been received in
7, 11, or 12 in the previous 4 years.
II. Chapter 11 (Regarding Individual Debtors)
a. 1141(d)(5)(A): Unless the court decides otherwise for cause, the confirmation of
a plan does not discharge debt. Discharge occurs on completion of all payments.
Dischargeability of Specific Debts

I. Exception to Discharge
a. Objections to discharge are universal, but exceptions to discharge are specific to
the creditor/claim.
b. 523(a): Lists all the exceptions from discharge. Except for those noted below,
these exceptions could be brought at any time (Bankruptcy Rule 4007). They
must be brought in bankruptcy court.
II. 523(a)(5) and (15): Domestic support obligations. (15) broadens the scope to include
all debts incurred in the course of a divorce or separation, a separation agreement,
divorce decree, other order of a court of record, or a determination made in
accordance with State law.
III. 523(a)(8): Student loan payments. The only exception to this exemption is for undue
hardship, which is incredibly difficult to qualify for.
a. Greene v. U.S. Department of Education: Unless you pass one of the three
prongs of the Brunner Test, there is no undue burden.
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i. Prong 1: “cannot maintain, based on current income and expenses, a

‘minimal’ standard of living…if forced to repay the loan.”
ii. Prong 2: “illness, disability, a lack of usable job skills, or the existence of
a large number of dependents.”
iii. Prong 3: “made good faith efforts to repay loans.” This includes good
faith efforts to “obtain employment, maximize income, and minimize
expenses.”
IV. Unscheduled Debts
a. Unscheduled debts are those not listed on the debtor’s schedule of debts. Since
they won’t be notified of the bankruptcy, they won’t file proof of claim, which
will disadvantage them in payout.
b. 523(a)(3)(A): Except for the bad acts exemptions, a creditor not notified in time
to make a timely filing of proof of claim is exempted from discharge. This does
not apply if the creditor had notice or actual knowledge of the case in time to
file timely proof of claim.
c. 523(a)(3)(B): With regard to the bad act exemptions, time would have been
needed for filing proof of claim AND a timely request for determination of
dischargeability of the debt. This does not apply if the creditor had notice or
actual knowledge of the case in time to file timely proof of claim and request.
d. In a no asset case, this exemption likely does not apply, as there was no dispersal,
so there was no harm in the omission.
e. Notice is a broad concept, and may even be met with a newspaper advertisement.
V. 523(a)(2), (4), and (6): All deal with “bad acts,” and require action by a creditor
within a certain timespan. 523(c)(1) requires the action be brought and that notice
and a hearing be fulfilled before the debts are exempted from discharge. Bankruptcy
Rule 4007(c) says this must be within 60 days of the creditor meeting.
a. Fraud requires (1) a false representation with the intent to deceive the creditor, (2)
the creditor to rely on the representation, (3) the reliance was justified, and (4) the
creditor sustained a loss as a result of the representation.
b. First National Bank of Omaha v. Manriquez (In re Manriquez) (2009)(CB 6-24):
Use of a credit card is a representation of intent to pay, not ability to pay,
and so use cannot be considered a false representation.
c. Ormsby v. First American Title Company of Nevada (In re Ormsby) (2010)(CB 6-
27): Utilizing proprietary information without permission constitutes fraud
within the definition of (a)(4) and willful and malicious within the definition
of (a)(6).
d. Defalcation under (a)(4): requires “knowledge of, or gross recklessness in
respect to, the improper nature of the relevant fiduciary behavior.”
e. Kamjoo v. Wright (In re Wright) (2010)(CB 6-32): Time limits for exemption
requests are strict, and technical difficulties are no excuse. Bring all
complaints in a timely manner.
VI. Morris v. Cunningham (In re Cunningham) (2006)(CB 6-35): State law
determinations are credited in bankruptcy court to prevent relitigation of issues.
However, if there is an alternate way to interpret/read the judgment, the issue is
not precluded.
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Exemptions
I. Exemptions are designed, in theory, to allow an individual debtor to keep enough to
survive and take advantage of the fresh start.
a. Liens still trump an exemption/exemptions do not impact consensual secured
creditors.
b. Some states say that certain unsecured claims, like domestic support obligations,
are so important as to get around exemptions.
c. Once deemed exempt, property is beyond the reach of unsecured creditors.
Since exemptions usually reduce the amount available to unsecured creditors,
they usually involve a court fight between the debtor and the trustee (as the
representative for all unsecured creditors).
II. What defines property exemptions?
a. Exemptions are largely defined by state law.
b. 522(b)(1): Appears to give debtors the choice of (2) federal exemptions and (3)
state exemptions.
c. 522(b)(2): States that federal exemptions are those listed in 522(d), but that states
can eliminate this option.
d. 522(b)(3): Outlines the requirements for determining what state law applies.
e. 522(d): Lists the federal exemptions, including real property, a motor vehicle,
household furnishings, jewelry, tools of the trade, unmatured life insurance,
prescribed health aids, certain payments/benefits, certain retirement funds.
f. 522(o)(4) and 522(p)(1)(D): Reduces the amount of interest in real or personal
property (p)(1)(D) acquired in the 1215 days prior to filing that exceeds $155,675,
or (o)(4) that is attributable to any portion of any property that the debtor disposed
of in the 10 years prior to filing, if done with the intent of hindering, delaying, or
defrauding a creditor, if the debtor could not exempt the property on the day it
was disposed.
i. Norwest Bank v. Tveten (In re Tveten) (1988)(CB 6-10): Intent to fraud,
hinder, or delay can be inferred from the debtor’s actions and the
timeline for those actions.
1. Tveten liquidated all of his non-exempt property pre-bankruptcy,
using the proceeds to purchase exempt life insurance and annuity
contracts. He owed nearly $19 million.
III. Exemptions typically do not impact liens. Are there exceptions to that rule?
a. 522(f): Empowers a debtor to remove judicial liens, nonpossessory,
nonpurchase-money security interests in household furnishings/tools of the
trade, etc., if the lien impairs an exemption to which the debtor would otherwise
be entitled.
b. Impairment occurs when the lien, all other liens on the property, and the amount
of the exemption the debtor could claim if there were no liens exceeds the value
of the debtor’s interest in the property if there were no liens on it.
IV. Exemptions in Individual Rehabilitation Proceedings: Minimum payments in
Rehabilitation Proceedings often depend on what a creditor would receive in a
Chapter 7 liquidation. This means you must determine the value of a Chapter 7
liquidation, requiring knowledge of the exemptions.
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a. 1322(b)(4): A plan will not be confirmed unless each unsecured creditor will
receive under the plan at least as much as the present value of what they would
have received in a Chapter 7 liquidation.
b. 1129(a)(7)(A)(ii): If the holder of a claim is outvoted by the members of her
class, she must receive at least what she would have received in a Chapter 7
liquidation.
Individual Chapter 7
I. 726: Provides a list of the order of payment/dispersement. Except as provided in
subordination agreements (510), the following order controls. Remember: This is
what happens AFTER liens are settled.
a. (a)(1): According to the listing in 507 (Priorities)
b. (a)(2): All other unsecured claims that were timely filed
c. (a)(3): Other unsecured claims not timely filed
d. (a)(5): Interest to any claims under paragraphs 1-4
e. (a)(6): The debtor
f. (b): Pay all of one category in full before moving to the next. If there is not
enough to pay a category in full, pro rata payments are made. Except: In a case
converted from another chapter, Chapter 7 admin expenses get priority over
admin expenses incurred under the other chapter.
II. 554: If property is burdensome to the estate or is of inconsequential value and benefit
to the estate, the trustee may abandon it to anyone who has an interest in the property.
III. The Means Test: 707(b)(1)
a. Before 2005, all individual debtors had the choice between Chapter 7 and Chapter
13 or 11. However, since 2005, debtor with debts that are “primarily consumer
debts” must pass the means test in order to qualify for Chapter 7.
b. General Rule: If your income for the 6 months preceding filing is below the
median income for a household your size in your county, you may stay in Chapter
7.
c. More Complicated Rule: If your income for the 6 months preceding filing is
above the median income for a household your size in your county, you need to
determine the filer’s disposable income based on actual expenses and several IRS
standards. If the disposable income for the next 5 years is over $12,475, there
is a presumption that Chapter 7 filing is abusive.
d. 707(b)(3): A Chapter 7 case can also be dismissed for abuse.
e. See Official Form 22A.
IV. 727(a): There are twelve possible objections to discharge under Chapter 7. These
are the only way to withhold a discharge in Chapter 7. The court SHALL grant
a discharge unless there is a valid objection.
a. (1): The debtor is not an individual.
b. (2): The debtor acted to hinder, delay, or defraud a creditor or officer of the estate
through transfer, removal, destruction, mutilation, or concealment of property
within certain time limits.
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i. In re Bajgar (1995)(CB 7-9): This section is clear. Even if a transfer is

not concealed, and is returned to the estate, there can still be a
presumption of the necessary intent and a denial of discharge.
c. (3): The debtor failed to keep or preserve records.
d. (4): The debtor acted knowingly and fraudulently in connection with the case.
e. (5): The debtor failed to satisfactorily explain any loss of assets…
f. (8): The debtor has received a Chapter 7 discharge in the previous 8 years.
g. (9): Under certain circumstances, if the debtor received a Chapter 12 or Chapter
13 discharge in the previous six years.
h. (10): The court approves a written waiver of discharge from the debtor AFTER
the order for relief.
i. (11): After filing the petition, the debtor failed to complete an instructional court
concerning personal financial management as outlined in 111.
j. (c)(1): The trustee, a creditor, or the U.S. trustee can object to the granting of a
discharge.
Redemption
I. The Code provides some ways for a Chapter 7 debtor who would like to keep
property but has no equity in the property.
II. 521(a)(2)(A): State within thirty days whether the debtor intends to redeem.
III. 722: An individual debtor may, whether or not the debtor has waived the right to
redeem under this section, redeem tangible personal property intended primarily for
personal, family, or household use, from a lien securing a dischargeable consumer
debt, if such property is exempted under 522 or abandoned under 554, by paying the
lien holder the amount of the allowed secured claim (see 506(a)(2)) that is secured
by such lien-in full at the time of redemption.
a. There must be a cash payment for the property. This may come from family,
friends, a new loan, but not the estate in any way.
b. The court does not need to approve redemption.
Reaffirmation
I. Reaffirmation is an agreement, approved by the court, to incur a new legal obligation
to pay certain dischargeable debts.
a. Why? Discharge does not extinguish debts, so creditors may still go after
guarantors. Certain debts are not discharged. A lien holder can still collect from
its property interests.
II. 521(a)(2)(A): State within thirty days whether the debtor intends to reaffirm.
III. 524(c): Reaffirmations are permissible when entered into pre-discharge, when they
are voluntary, will not impose an undue hardship on the debtor, and a statement from
the debtor’s attorney that the debtor is fully informed of the legal effects of the
agreement and the effects of default in such a situation. An attorney’s affirmation
of no undue hardship is taken as gospel unless challenged. If no attorney will
affirm, the court rules on it. See also 524(k-m).
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I. Eligibility: 109(e): Only those individual debtors with regular income that owes
noncontingent, liquidated, unsecured debts of less than $383,175 and noncontingent,
liquidated, secured debts of less than $1,149,525, or an individual with a regular
income and such individual’s spouse, except a stockbroker or a commodity broker,
that owe noncontingent, liquidated, unsecured debts that aggregate less than $383,175
and noncontingent, liquidated, secured debts of less than $1,149,525.
II. The Plan
a. The Plan is designed to move quickly, and prevent delay.
b. Bankruptcy Rule 3015(b): The debtor may file a plan with her petition, or within
14 days after filing the petition/14 days after conversion to Chapter 13. This time
can only be extended for cause.
c. 1326(a)(1): The debtor must begin making payments to the trustee within 30 days
after the date of filing or the order of relief, whichever is earlier. This is true even
if the plan has not been confirmed.
d. The 341(a) meeting of creditors must take place between 21 and 50 days after
filing.
e. 1324(b): A plan confirmation hearing should be held between 20 and 45 days
after the 341(a) creditor meeting.
f. 1326(a)(2): The trustee will begin disbursement as soon as practicable after plan
confirmation.
III. The Discharge
a. 1328(a): The court shall grant a discharge grant a discharge as soon as practicable
after the completion of plan payments.
i. (1): Debts of the type in 1322(b)(5) (cured defaults with payment plans
ending AFTER the plan ends.
b. 1328(b): A discharge may be granted prior to plan completion in case of hardship.
IV. 1301: The stay in Chapter 13 applies to codebtors as well as the debtor. (Allows time
for the plan to take action and for debts to be fulfilled.
Unsecured Creditors in Chapter 13

I. Best Interests Test
a. 1325(a)(4): Unsecured creditors must receive AT LEAST as much in Chapter 13
as they would receive in a Chapter 7 liquidation.
b. The court must determine what the likely Chapter 7 payouts would have been,
taking account of that amount that would have been realized including avoidance
and liquidation of non-fully-exempt assets. The court must also factor in
liquidation costs, such as the trustee, accountants, attorneys, advertisement, etc.
c. Must reduce the payments over the life of the Chapter 13 plan to their
present day value in order to determine comparison to liquidation payout.
(Difficult to know what interest rate to utilize—courts are split.)
II. Disposable Income Test
a. 1325(b)(1)(B): If there is an objection to the plan, the court cannot approve unless
the plan either pays all claims in full or dedicates all projected disposable income
(defined in 1325(b)(2)) to the plan for the commitment period.
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b. 1322(d)(1): If the current monthly income of the debtor+spouse is equal to or

more than the median family income in their State for their family size, the
commitment period cannot be longer than 5 years.
c. 1322(d)(2): If the current monthly income of the debtor+spouse is less than the
median family income in their State for their family size, the plan cannot propose
for a commitment period of more than 3 years (1325(b)(4)(A) states that it must
be 3 years), unless the court approves, in which case the commitment period
cannot exceed 5 years.
d. Projected Income: 1325(b)(2) requires consideration of projected income and
projected expenses.
i. 101(10A): Defines “current monthly income” on the basis of the past 6
months.
ii. Hamilton v. Lanning (2010)(CB 8-7): When considering disposable
income, courts should take a “forward-looking” approach to monthly
income, and consider any foreseeable changes to the debtor’s ability
to pay.
e. Projected Expenses
i. 1325(b)(2): If income is below state median, then the court determines
reasonably necessary expenses for maintenance, charitable contributions,
and the continuation of business.
ii. 1325(b)(3): If income is above the state median, the court has far less
discretion, and is bound by 707(b)(2)(A) and (B) (the means test). This
generally includes
1. Living expenses, as determined by IRS standards
2. Monthly secured debt payments
3. Amounts required to pay priority debts in full
4. Other administrative and special purpose expenses, including up to
10% of the projected Chapter 13 plan payments for administrative
expenses, and most charitable contributions.
III. Ancillary Rules
a. 1322(a)(2), (4): The plan must provide for priority claims (507) to be paid in full,
except those under 507(a)(1)(B) if the plan provides for all disposable income to
be dedicated to the plan for a 5 year commitment period.
b. Some goals of the debtor may require her to pay more than the baseline amount
over the plan. For example, to keep a house or car on which she is behind on
payments, she will need to cure the default and keep the debt current (1322(b)(2)-
(5) and 1325(a)(5))
IV. Classification of Claims
a. 1322(b)(1): Classification of unsecured claims as provided for in 1122 is
permissible in Chapter 13, but unfair discrimination is not permissible.
b. In re Crawford (2003)(CB 8-17): Discrimination is likely fair when without
preferencing one unsecured creditor the entire plan becomes unworkable.
When discrimination leads to a result against public policy (unsecured
creditors being made to pay a debtor’s criminal fines by preferencing the fine
over their claims) it is impermissible.
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Secured Claims in Chapter 13

I. Ways to Secure Plan Approval
a. Holder Accepts the Plan
b. Cram Down
i. 1325(a)(5)(B): The plan can be approved so long as the value paid to the
secured creditor is not less than the allowed amount of the claim (506(a)
(1) and (2)). This includes strip down of undersecured loans (only the
secured portion needs to be paid in full).
1. (ii): The payout must be not less than the allowed claim as of the
effective date of the plan, so the present value of the future
payments must be determined.
2. Till v. SCS Credit Corp. (In re Till) (2004)(CB 8-21): When
determining the discount percentage rate, the court does not
need to consider what the creditor would have received outside
of bankruptcy, as cram-down is designed to do things that
creditors may not prefer. Instead, the court should look at the
national prime rate that a commercial bank would likely
charge, and adjust it to take into consideration the greater risk
of nonpayment from a debtor.
3. Adequate protection is required during the payment scheme, and
the lien is retained until discharge or into conversion.
c. Debtor Surrenders the Property to the Secured Claim Holder
II. Protected Secured Debts
a. Home Mortgages
i. 1322(b)(2): Secured claims secured only by home mortgages are exempt
from modification and cram down in Chapter 13.
ii. 1322(e): Interest will likely need to be paid if a debtor tries to cure a
default on a home mortgage under 1322(b)(3) and (5)
iii. 1322(c)(2): A home mortgage can be modified if the final payment under
the original payment schedule would be due before the final payment of
the Chapter 13 plan.
b. Certain Vehicle/Other Loans
i. 1325(a)(*): In claim modification under 1325(a)(5), 506 (claim
bifurcation) will not apply to a claim where the creditor has a purchase
money security interest securing the debt, the debt was incurred in the 910
days prior to filing the petition, and the collateral is a motor vehicle for the
personal use of the debtor OR if the collateral is another thing of value if
the debt was incurred within the year preceding filing.
ii. Essentially, the hanging paragraph requires debtors to pay the debts that it
refers to in full if they want to keep the collateral and confirm the plan.
iii. Alternately, the debtor could simply surrender the collateral. Most courts
thought this completely took care of the claim (since bifurcation was not
an option.
iv. In re Wright (2007)(CB 8-30): Any shortfall in the value of 1325(a)(5)
(C) surrendered collateral must be considered an unsecured debt,
including when 1325(a)(*) applies.
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More Confirmation Requirements

I. Good Faith
a. 1325(a)(7): The petition must be filed in good faith.
b. 1325(a)(3): The plan must be proposed in good faith.
c. The following factors may impact good faith.
i. The amount of the proposed payments and the amount of the debtor’s
surplus.
ii. The debtor’s employment history, ability to earn and likelihood of future
increases in income.
iii. The probable of expected duration of the plan.
iv. The accuracy of the plan’s statements of debts, expenses and percentage
repayment of unsecured debt and whether any inaccuracies are an attempt
to mislead the court.
v. The extent of preferential treatment between classes of creditors.
vi. The extent to which secured claims are modified.
vii. The type of debt sought to be discharged and whether any such debt is
nondischargeable in Chapter 7.
viii. The existence of special circumstances such as inordinate medical
expenses.
ix. The frequency with which the debtor has sought relief under the
Bankruptcy Reform Act.
x. The motivation and sincerity of the debtor in seeking Chapter 13 relief.
xi. The burden which the plan’s administration would place upon the trustee.
II. Taxes and Domestic Support Obligations
a. 1325(a)(9): A plan cannot be confirmed unless the debtor has properly filed all
tax returns as required by 1308. This is useful, as tax debt is a priority debt and
must be paid in full, so the filings will illustrate how realistic that is.
b. 1325(a)(8): The debtor must have paid all domestic support obligations that have
come due since the date of filing. If payments are not made, the plan cannot be
confirmed.
I. An individual, regardless of whether they own a business or owe business debts, can
be a Chapter 11 debtor.
a. Individuals may choose to be a Chapter 11 debtor if they do not qualify under the
means test for Chapter 7, and their debts are too high for Chapter 13.
b. If they want reorganization but do not qualify under Chapter 13, Chapter 11 is
their only option.
c. In re Baker (2013)(CB 9-3): In some cases where a creditor moves to convert a
Chapter 7 to a Chapter 11 and the court thinks it is in the best interest of all
parties, it will do so over the objection of a debtor. There is always the
option for dismissal or reconversion to Chapter 7 if no plan is confirmed.
II. 1115(a)(2): Property and income acquired post-petition, of the types described in
541, are property of the estate in Chapter 11. This means court permission is required
for any expenses outside the normal course of business.
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III. Similarities to Chapter 13

a. 1123(b)(5): The rights of secured claim holders can be modified, except where
the claim is secured only by real property that is the debtor’s primary residence.
b. 1141(d)(5)(A): Discharge occurs either at completion of payments or after notice
and a hearing for cause.
i. There is no time limit on a Chapter 11 plan, so it can take years to get a
discharge/the individual debtor can be bound to the plan and not fully
control her income for a prolonged period.
c. 1129(a)(15): Individual Chapter 11 debtors are required to dedicate all disposable
income to the plan for 5 years or during the period for which the plan provides
payments, whichever is longer. (Exact provision of Chapter 13).
IV. Differences from Chapter 13
a. No codebtor stay.
b. 506(a)(2) does not apply to certain secured claims valuations.
c. Chapter 11 debtors must pay U.S. Trustee’s fees of a minimum of $325 per
quarter.
d. Many others listed in CB 9-5.
V. Chapter 11 Slavery to the Trustee?
a. Courts have said that there is little concern about forced work for a trustee with no
absolute right to dismissal when the debtor is not tied to a particular employer,
job, or to work at all.
Business Chapter 11
I. Why not Chapter 7? Not suited for long-term restructuring. The trustee can only run
the business in the short term, in anticipation of the liquidation.
II. Why not Chapter 13? Financial restructuring cannot assist in correcting operating
problems.
III. Why Chapter 11? The provisions of a Chapter 11 plan, and not the provisions of the
bankruptcy law, determine who gets what. It is pliable. The plan binds even those
creditors that do not agree to it (under specified circumstances). N.B. Fewer than 1/3
of all Chapter 11 cases end in a confirmed plan.
Overview of the Chapter 11 Process

I. When the debtor files a petition, it has the option to remain in control as the “debtor-
in-possession.”
a. 1107: The debtor-in-possession has all the rights and powers of a bankruptcy
trustee.
II. Vendors are not obliged to keep dealing with a Chapter 11 debtor. To the extent that
they supplied goods in the 20 days pre-filing, they have a priority claim (503(b)(9)).
Some want immediate payment, but courts typically won’t order that without a
showing of net benefit to the estate.
III. 1102(a)(1): The U.S. Trustee is obligated to try to put together a creditors’
committee.
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a. 1103: The committee has the power to hire counsel, accountants, investment
bankers, to investigate the debtor, to make recommendations on any plan, and to
request a trustee if the DIP isn’t working properly.
b. Many times the power to organize a creditors’ committee is unexercised.
IV. The Bankruptcy Estate’s Counsel
a. 327: Professionals hired by the bankruptcy estate must be disinterested persons
and competent.
b. 330: The court enters an order employing professionals, and can review/approve
their fees.
V. Creditor Requests for Conversion or Dismissal
a. 1112(b)(1): The case shall be converted and dismissed for cause.
b. 1112(b)(4): Sixteen incidences of cause. The list is not exhaustive.
i. Marshall v. Marshall (In re Marshall) (2013)(CB 10-12): Bad faith may
be “cause.” The most damning evidence against bad faith is a plan
actually qualifying for confirmation.
c. 1112(b)(2): If the court identifies “unusual circumstances specifically identified
by the court that establish that the requested conversion or dismissal is not in the
best interest of creditors and the estate” the requirement to convert or dismiss is
not mandatory.
i. 1112(b)(2): Also requires that a debtor or another party in interest
establish:
ii. (A): there is reasonable likelihood that a plan will be established in the
appropriate timeframes established in 1121(e) and 1129(e), or within a
reasonable period if those timeframes do not apply
iii. (B): The grounds for conversion or dismissal include a debtor’s act or
omission other than those in 1112(b)(4) for which there is a reasonable
justification and that will be cured in a reasonable time fixed by the court.
Cash Collateral
I. 363(c)(2): Cash collateral cannot be used to operate the estate without consent of the
creditor or a court order.
II. Cash collateral is cash resulting from normal business activities, in which a creditor
has a security interest.
III. Creditors are usually amenable to an agreement on cash collateral, recognizing that it
is essential to the value of the business as a going concern. Sometimes conditions on
the bankruptcy filing are demanded.
IV. If it gets to a court, the DIP needs to show that the pre-petition lender is adequately
protected.
DIP Financing
I. 364(a): A trustee/DIP can obtain unsecured credit and incur unsecured debt in the
ordinary course of business, which will be allowable under 503(b)(1) as an
administrative expense.
II. 364(b): Allows a court to permit unsecured credit/incurring unsecured debt that does
not fit under 364(a) after notice and a hearing, which will be allowable under 503(b)
(1) as an administrative expense.
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III. Administrative expenses have priority over all other expenses in Chapter 11, and
1129(a)(9)(A) requires payment of them in full, in case, on confirmation.
a. If the filing is converted to Chapter 7, administrative expenses incurred under
Chapter 7 get priority over those incurred under Chapter 11.
b. Administrative priority is usually enough to convince vendors to continue
engaging with a debtor. However, it may not be enough to convince new lenders.
i. 364(c): If a lender will not otherwise lend to a DIP, the DIP, after
authorization by the court, can offer priority over “any or all
administrative expenses,” security by a lien on property not encumbered
by a lien, or a junior lien on previously encumbered property.
1. Unencumbered property exists because:
2. 552(a): Property acquired by the estate after commencing the case
is not subject to any lien resulting from any agreement formed
prior to commencement. 552(b): a lien attached to the proceeds,
products, offspring, or profits of property that was agreed to pre-
commencement will still attach post-commencement.
ii. 364(d): If no other option works, the court, after notice and a hearing, may
authorize credit secured by offering a senior “later-in-time” lien on
property already subject to a lien. This MUST provide adequate
protection for the pre-petition lien holder (since there is no unencumbered
property, this is usually premised on the future profitability built on the
back of the new financing).
Sale as a Going Concern

I. Rather than completely reorganizing, some debtors simply opt to sell the business.
363 is now interpreted to permit sales of the whole business.
II. 363(b): sales outside the ordinary course of business require court approval (this
includes sales of the full business). Such approval is normally governed by the
business judgment rule.
III. 363(f): It is possible to sell a business “free and clear of any interest in such property
of an entity other than the estate,” stripping off any other security interests in the
property.
a. This can only be done under certain circumstances:
i. (3): if the sale price is greater than the aggregate values of all liens
(oversecured properties can be sold without consent of lien holders)
ii. (2): if the entities with pre-petition interests consent to the sale (failure
to respond to notice of sale is construed as consent).
iii. (4): if you have a bona fide dispute over the interest, you can sell free
of that interest (but the interest likely still attaches to proceeds)
b. This can lead to a much higher purchase price than property encumbered by liens.
c. 363(f) is still subject to adequate protection concerns, so the liens stripped are
usually transferred to the proceeds of the sale.
d. 363(f) may also break the chain of successor liability.
e. 363(k): A lien holder may bid on the property/company, and offset its purchase
price by the amount of its lien.
f. 363(m): Only good faith is required to show that the sale is valid. All appeals are
moot.
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i. Campbell v. Motors Liquidation Co. (In re Motors Liquidation Co. et al.

F/K/A General Motors Corp.) (2010)(CB 10-28): Absent a stay,
mootness of appeals in 363(b) sales is almost inevitable, because the
court would essentially have to rewrite a sale agreement based on a
successful appeal—something they lack the power to do.
g. In re On-Site Sourcing, Inc. (2009)(CB 10-21): Elements of a 363 sale designed
to substitute for a Chapter 11 plan will not be permitted, as they constitute a
run-around of the plan process.
IV. If there are no assets remaining after the secured creditors, professionals, and
government creditors get paid, the Asset Purchase Agreement typically provides for
dismissal of the Chapter 11 case. If there are assets to distribute, the Agreement
typically provides for conversion to Chapter 7.
a. In re Buffet Partners, LP (2014)(CB 10-35): A structured dismissal can avoid
the unnecessary cost/expense of conversion to Chapter 7, while still not rising
to the level of a sub rosa plan.
b. In re Humboldt Creamery, LLC (2009)(CB 10-38): 363 sales are often premised
on the fact that the company is losing value, and if not purchased immediate,
all value as a going concern will be lost. This is too easy for companies to
manipulate for courts to take such a lackadaisical approach to reviewing the
cases.
Plan Confirmation
I. Whatever the plan provides (allowing for adequate protection, etc.), is what gets
dispersed.
II. Chapter 11 Distribution
a. Cash
b. Notes
c. Equity Securities
III. Chapter 11 Classes
a. 1123(a)The plan shall distinguish creditors into classes. The three major classes
are secured creditors, unsecured creditors, and equity holders. In some cases,
each secured claims holder is given their own class.
i. 1122(a): Members of a class must be substantially similar to other
members of the class.
ii. 1123(a)(4): All claims in a class must be treated in the same manner.
iii. The code does not define “class” or “class of claims.”
iv. In re Keck, Mahin & Cate (1999)(CB 10-43): Secured claims are usually
put in their own classes since they are typically different than other
secured claims (security in different property, different priority levels in
the same property, etc). When secured claimholders share a pro-rata
interest in the same security, they can be placed in the same class.
v. In re Dow Corning Corp. (2002)(CB 10-45): When there are economic
reasons for different classifications of claimants, the classification will
be permissible.
1. Dow separately classified foreign tort claimants based on the fact
that foreign torts payouts were often substantially lower than
domestic.
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b. All classes must approve of the plan. Individual creditors can be outvoted within
their class.
i. 1126(c)/(d): A class of claims/interest is deemed to have accepted the plan
if such plan has been accepted by creditors representing two-thirds in
amount and one-half in number of the allowed claims of such class.
c. 1129(a)(8)(B): Unimpaired classes are deemed to approve of the plan.
d. 1123: Sets the limits on what the plan must include.
i. 1126/1129: Sets the real limits on what the plan will include
(creditor/court approval)
IV. Submission and Approval Timeline
a. 1121(b): The debtor has exclusive right to submit a plan for the first 120 days.
1121(c)(3): The debtor then has 60 days after that 120 day deadline to have the
plan approved by all impaired class.
b. 1121(c): If a trustee has been appointed, the debtor has not filed a plan within the
first 120 days, or a plan the debtor submitted has not been approved within the
first 180 days, any party in interest can then submit a plan.
c. 1121(d)(1): The timelines above may be reduced or extended for cause.
i. (A): The extension of debtor exclusivity may not be for longer than 18
months.
ii. (B): The extension of debtor exclusivity for approval may not be past 20
months.
d. 1125(a)/(b): The plan proponent files the plan and a disclosure statement,
which provides adequate information for a reasonable investor to make an
informed judgment about the plan. The court declares what constitutes
adequate information, after which a plan proponent may solicit creditor approval
of the plan.
i. Adequate information has the same goal as securities law: informed
decision-making.
ii. 1125(c): Different disclosure statements can be sent to different classes,
but not to different claims within a class.
e. 1129(a): Even with unanimous approval, the court cannot approve a plan that is
not proposed in good faith, is partially forbidden by law, etc.
V. Pre-Pack Plans
a. A pre-pack is when the debtor negotiates with creditors pre-filing, and then
submits the plan and disclosure statement all at once at asks for approval.
b. 1126(b): If the court approves everything, the pre-petition solicitations of
approval may count for plan approval.
c. Risk: The court may not approve the pre-petition disclosure statements, mooting
everything.
d. Problem: There is no automatic stay protection.
Acceptance Rules
I. 1126(c)/(d): A class of claims/interest is deemed to have accepted the plan if such
plan has been accepted by creditors representing two-thirds in amount and one-half in
number of the allowed claims of such class.
a. 1126(a): Only holders of allowed claims or interests under 502 may vote to
accept or reject a plan.
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b. Stone Hedge Prop. V. Phoenix Capital Corp. (In re Stone Hedgee Prop.) (1995)
(CB 10-53): Disputed claims under 502(a) can be temporarily allowed for the
purposes of voting, if the dispute has not been resolved by the time a plan is
to be voted on.
II. Non-Votes
a. 1126(f): A class that is not impaired under the plan is presumed to consent and
does not need to vote on the plan.
i. 1124: A class is unimpaired if the plan (1) leaves unaltered the legal,
equitable, and contractual rights to which the claim entitles the holder, or
(2) notwithstanding a contractual provisions entitling accelerated payment
after default, the plan cures any default that occurred before or after the
commencement of the case, reinstates the maturity of the claim as it
existed pre-default, compensates the holder for any damages that occurred
due to reasonable reliance on the contractual provision allowing
accelerated payment, and does not otherwise alter the legal, equitable, and
contractual rights of the holder.
ii. ALL changes to legal, equitable, and contractual rights constitute
impairment.
b. 1126(g): A class that is fully impaired, i.e. that will receive nothing under the
plan, is deemed to not accept the plan and does not need to vote.
III. 1126(e): On request of a party in interest, and after notice and a hearing, a court may
designate (disqualify) any entity whose acceptance/rejection of a plan was not in good
faith, or was not solicited/procured in good faith/the provisions of this title.
a. Figter Ltd. V. Teachers Ins. & Annuity Ass’n (In re Figter Ltd.) (1997)(CB 10-
58): Purchasing other claims and voting them in line with the claimant’s
interests is not per se a violation of good faith. Good faith is a fluid concept
and must be judged under the circumstances.
i. A lender purchased unsecured claims in order to prevent cram down of its
secured claim.
ii. Each CLAIM gets a vote, not each CREDITOR.
Plan Confirmation
I. 1129(a): The court will only confirm a plan which abides by the sixteen conditions
listed in 1129(a)
a. (3): The plan has been proposed in good faith and not in any forbidden manner
i. In re Dow Corning Corp. (1999)(CB 10-62): A plan that rehabilitates a
“solvent but financially-distressed corporation,” even by resolving
tort liability, does not automatically violate good faith. Look at
procedures (arms-length negotiations, etc) to determine good faith.
b. (10): At least one non-insider impaired class has confirmed the plan.
c. (7): In each impaired class of claims or interests, each claim holder has either
accepted the plan or will receive at least what they would have received under a
Chapter 7 liquidation.
i. You don’t file proof of claim, you don’t get this protection.
d. (11): Feasibility Study: Confirmation is not likely to be followed by liquidation or
the need for further financial reorganization of the debtor, unless such liquidation
or reorganization is proposed in the plan.
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i. In re Trans Max Technologies (2006)(CB 10-66): The plan proponent

needs to prove by a preponderance of the evidence that the plan is
feasible…the evidence must support such an inference (speculation is
not sufficient). Consider:
1. The adequacy of the debtor’s capital structure
2. The earning power of its business
3. Economic conditions
4. The ability of the debtor’s management
5. The probability of the continuation of the same management, and
6. Any related matters which determine the prospects of a sufficiently
successful operation to enable performance of the provisions of the
plan.
e. (9): Administrative claims, domestic support obligations, taxes under 507(a)(8),
and secured government claims that would be taxes under 507(a)(8) except for
their secured status must be paid in full.
f. (1) and (2): The plan and proponent comply with the applicable provisions of
Chapter 11.
i. 524(e): This says that the discharge only applies to the debtor. But is
there a ban on third-party release/discharge in Chapter 11? This may be a
question of 1129(a)(1). N.B. If you put such a release/discharge in the
plan, no one objects, and the court enters an order on it, that
release/discharge sticks with the plan.
Cram Down Under 1129(b)

I. You need the consent of all classes of creditors for a plan. If you fail to receive the
support of a class, you may still be able to get approval through 1129(b).
a. This usually arises with secured creditors.
b. 1129(b): If all requirements of plan approval in 1129(a) are met except for
1129(a)(8), the court, on request of the plan’s proponent, shall confirm the plan so
long as the plan does not unfairly discriminate, and is fair and equitable with
respect to those classes of claims or interests that are impaired but have not
accepted the plan.
i. You drop class approval requirement and add fairness requirements.
ii. Unfair Discrimination: Some courts look to whether the discrimination is
necessary to confirm the plan. Others look to whether there is a business
reason for discrimination. The toughest case is where one class is getting
far less than a class that was similar pre-bankruptcy.
1. Markell Rules: A Chapter 11 plan is presumptively subject to
denial of confirmation on the basis of unfair discrimination when
there is (1) a dissenting class, (2) another class of the same priority,
and (3) a difference in the plan’s treatment of the two classes that
results in (a) a materially lower percentage recovery for the
dissenting class OR (b) an allocation of materially greater risk to
the dissenting class.
2. Justifications: See Above.
iii. 1129(b)(2): Fair and equitable means that the plan provides
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1. For secured claims: Either retaining liens of the allowable

amount, receive deferred cash payments at least of the allowable
amount, liens attached to the proceeds of a 363(k) sale of the
property, or “the realization by such holders of the indubitable
equivalent of such claims.”
a. 1111(b)(1)(A): Secured creditors with nonrecourse claims
(don’t get the unsecured claim in bifurcation) are given all
the same rights as a secured creditor with a recourse claim.
b. 1111(b)(2): If the class of creditors to which the 1111(b)(1)
claim holder belongs elects, by 2/3 amount and ½ number,
application of this section, the claims are secured claims to
the extent that the claims are allowed.
c. Assuming the plan includes deferred cash payments as
allowed in 1129(b)(2)(A), and that the election in 1111(b)
(2) was made, the creditor would be given a note in the full
value of the original debtr, and the note would pay below
market interest so that the current value was the same as
the value of the collateral.
2. For unsecured claims: Receive/retain property of the value of the
allowable interest OR holders of claims or interests that are junior
to the claims of the class will receive no payout.
a. Bank of America v. 203 N. LaSalle St. Partnership (1999)
(CB 10-85): Prebankruptcy shareholders cannot secure
value in contravention of 1129(b)(2)(B)(ii) by
contributing new value to the post-bankruptcy
organization, without consent of the unsecured claim
holders. If unsecured claim holders are to be crammed
down, shareholders must get nothing.
3. For interests: Receive/retain property of a value equal to the
greatest of the allowed amount of any fixed liquidation OR holders
of any interest that is junior to the claims of the class will receive
no interest in property.
Post Confirmation
I. 1141(a): Except as provided for in 1141(d)(2) and (3), the provisions of a confirmed
plan bind the debtor and creditors, regardless of whether the individual creditor
accepted the plan.
II. 1141(b): Property of the estate, except as provided in the plan, is vested in the debtor.
III. 1141(c): Except as provided for in the plan, property dealt with in the plan is free and
clear of all prebankruptcy claims.
IV. 1141(d)(1): Except as provided in the plan, the debtor is discharged from any debts
pre-confirmation, and terminates all rights and interests of equity security holders and
general partners provided for by the plan.
V. 1141(d)(2) and (3): No discharge granted in certain cases for certain debts.
VI. 1127: No modification of plans that have been substantially consummated.
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Flavors of Chapter 11
I. Small Business Cases
a. 101(51D)(A): A small business debtor is a person engaged in commercial or
business activities that have aggregate noncontingent liquidated secured and
unsecured debts as of the date of filing the petition of the date of the order for
relief of not more than $2,490,925. The U.S. Trustee also has not appointed a
creditors’ committee, or the committee is “not sufficiently active and
representative to provide efficient oversight.”
i. “Engaged in” means more than “owning or operating”
b. U.S. Trustee has increased oversight duties (see 1116)
c. There are additional reporting requirements for the debtor (see 308 and 1116)
d. 1125(f): A court can determine that the plan provides adequate notice, meaning a
disclosure statement is unnecessary. There can be a standard form disclosure
statement. The approval of the disclosure statement can be combined with
confirmation.
e. 1121(e): 180 days of debtor plan exclusivity; 300 day deadline for filing plan and
disclosure statement.
f. 1129(e): 45 days after filing the plan to confirm the plan.
II. Single Asset Real Estate Cases
a. 101(51B): Single property or project, real property, no substantial other business.
b. 362(d)(3): The debtor must stay current on monthly interest payments to secured
creditors to stay in Chapter 11.
c. These are primarily disputes between the single asset debtor and its single
creditor.
d. Push to move the cases more quickly (sometimes debtor exclusivity is only 90
days).
III. Individual Debtor
a. Absolute Priority Rule in Cram Down may or may not apply to individual
Chapter 11 debtors. More courts agree with the former option.
Avoiding Powers
I. What are the consequences of avoiding a transfer?
a. 550(a): The trustee may recover for the benefit of the estate, property transferred,
or if the court orders, the value of such property from the initial transferee or the
entity for whose benefit the transfer was made, OR any immediate or mediate
transferee of the initial transferee.
b. 550(b): The trustee may not recover under 550(a)(2) from a transferee that takes
for value, including satisfaction or securing of a present or antecedent debt, in
good faith, without knowledge of the voidability of the transfer, OR the
immediate or mediate good faith transferee of such transferee.
c. 541(a): Property of the estate includes any interest in property that the trustee
recovers under 550.
d. 502(d): The court shall disallow any claim of an entity from which property is
recoverable under 542, 543, 550, or 553, unless such entity has paid the amount or
turned over the property.
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Fraudulent Transfers and Obligations

I. 548(a)(1)(A): The bankruptcy trustee may avoid transfers made with actual intent
(may be inferred) to hinder, delay, or defraud creditors.
II. 548(a)(1)(B): The bankruptcy trustee may avoid constructively fraudulent transfers. It
requires that less than reasonably equivalent value was received AND
a. the debtor was insolvent on the date of the transfer or became insolvent as a result
of the transfer OR
b. was engaged in/about to engage in business for which the property remaining with
the debtor was unreasonably small capital OR
c. intended to incur debts that would be beyond the ability of the debtor to pay as
they matured OR
d. made the transfer to/for the benefit of an insider under a business contract and not
in the ordinary course of business.
e. 101(32): insolvent means a financial condition such that the sum of the entity’s
debts is greater than all of the entity’s property, exclusive of property transferred
with intent to hinder, delay or defraud creditors and property exempted under 522
f. Notes imply that this has a 2 year lookback.
III. 548(C): If the transferee gave value in exchange for the transfer, she may retain any
interest transferred of enforce any obligation incurred.
IV. Corporate Transactions
a. Often one actor in a family of companies will guarantee the debt of another actor,
or pledges its assets as security for the other actor’s transaction. Is such a
transaction fraudulent under 548(a)(1)(B)?
b. Senior Transeastern Lenders v. Official Comm. of Unsecured Creditors (In re
Tousa, Inc.) (2012)(CB 11-8): The actor who makes a transfer/incurs an
obligation under 548(a)(1)(B) must receive equivalent value. This calls into
question subsidiaries offering liens for parent company’s loans.
c. Leveraged Buyouts: Where the assets of the purchased corporation are used as
collateral for the loan financing the purchase.
i. Posner says that the payment to the shareholders may be considered
fraudulent if the corporation fails, since, by definition, no value has be
achieved, only more debt on top of the corporation’s normal debt.
ii. Some Leveraged Buyouts leave the firm insolvent.
V. Use of State Law
a. 544(b)(1): The trustee may avoid any transfer of an interest of the debtor in
property or any obligation incurred by the debtor that is voidable under applicable
(State) law by a creditor holding an unsecured claim that is allowable under 502
of that is not allowable only under 502(e).
i. This places the trustee in the role of an unsecured creditor for the purposes
of the Uniform Fraudulent Transfers Act.
ii. Even though this requires an actual unsecured creditor to be in existence,
the avoidance is not limited by the actual amount of the creditor’s claim.
iii. Fraudulent transfer law never applies when the transfer is performed to
satisfy existing valid debt.
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Preferential Transfers
I. If you make a payment/transfer with the intent to benefit one creditor over other
similar creditors (with the knowledge that you will be filing bankruptcy), it can be
clawed back.
II. 547(b): The trustee may avoid any transfer of an interest of the debtor in property
a. to or for the benefit of a creditor,
b. for or on account of an antecedent debt,
c. while the debtor was insolvent,
d. made within 90 days before the date of filing the bankruptcy petition OR between
90 days and 1 year before filing if the transfer was to an “insider,” AND
e. the transfer had the effect of increasing the amount the transferee would receive in
a Chapter 7 case.
III. 547(c): If defenses/exceptions can be proven, the trustee may not avoid the transfer.
a. (1): Transactions that are intended as contemporaneous exchanges for new value
and are, in fact, substantially contemporaneous.
b. (2): Transfers in the ordinary course of business or according to ordinary business
terms.
c. (4): Transfers to or for the benefit of a creditor to the extent that, after such
transfer, such creditor gave new value to or for the benefit of the debtor, not
secured by an otherwise unavoidable security interest and on account of which
new value the debtor did not make an otherwise unavoidable transfer to or for the
benefit of such creditor.
d. (5): The creditor is an inventory and receivables lender, except to the extent that
lender’s position was actually improved on the date of filing as compared to the
90th day prior to filing.
IV. 547(g): The burden of proving these elements of an avoidable transfer falls on
the trustee. The burden of proving a defense to those elements falls on the
recipient of the transfer.
V. Types of Debts and Avoidability
a. Payments on unsecured debts are preferences.
b. Payments on fully secured debts are not preferences.
c. Payments on partially secured debts are preferences to the extent of the
deficiency. Exception: If the payment is collateral proceeds.
VI. Third Party Preferences
a. If a party makes a transfer to another party that is preferential to a third party, that
transaction may be recoverable. Example: Firm receives a loan from Lender,
guaranteed by Guarantor. Both Lender and Guarantor are creditors. Payments to
Lender also benefit Guarantor, creating a preference.
b. Firm declares bankruptcy. Pre-Deprizio, if the 90 day time limit had passed and
Lender was not an insider (but Guarantor was), the trustee could only go after
Guarantor.
c. Post-Deprizio, the trustee can go after both Guarantor and Lender.
i. First, look at 547(b) to determine if there was a preference.
ii. Second, look at 550(a)(1) to determine the possible responsible parties to
go after for turnover.
d. Congress “fixed” this with 547(i) in 2005. Lenders are now protected again.
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Strong Arm Power

I. The bankruptcy trustee can avoid certain pre-petition liens that are not recorded or
otherwise perfected. Rationale: Failure to record may impact other creditors.
II. 544(a)(1): Gives the trustee the status of a hypothetical lien creditor. It can then
avoid anything that a lien creditor could avoid under applicable state law.
III. 544(a)(3): Gives the trustee the status of a bona fide purchaser of real estate.
IV. UCC Article 9 means that a lien creditor can always defeat an unperfected
Article 9 secured creditor (544(a)(1)). In mortgage law, priority is given to a
bona fide purchaser over an unrecorded mortgage (544(a)(3)).
V. 547(e)(2): A transfer that is perfected within 30 days of the transaction is deemed to
have occurred on the day of actual transfer. A transfer that is perfected after 30 days
is deemed to have occurred at the date of perfection. A transfer that is not perfected
as of the commencement of the case is deemed to have taken place immediately
before the date of filing.
a. This MAY allow avoidance of some transactions that otherwise would not be
avoidable, since the date they are deemed to have occurred may be moved within
the reach of 547 as preferences.
Setoff
I. Setoff is the netting out of obligations owed between two or more parties.
II. Setoff is treated as a secured claim in 506(a).
III. 362(a)(7): A creditor that did not exercise setoff before the filing of bankruptcy
cannot do so after filing except after securing relief from the automatic stay.
IV. 553(a): Recognizes the nonbankruptcy right to setoff, subject to denial under 553(a)
(1-3), avoidance under 553(b) if the creditor improved her position within 90 days of
filing, and 553(c) creates an presumption of insolvency during that 90 day period.
Statutory Liens
I. 101(53): A statutory lien is a lien that is neither consensual nor judicial, but arises
solely by force of statute.
II. Statutory Liens are generally enforceable in bankruptcy, except when a state has
created an automatic statutory lien that arises when the debtor files for bankruptcy.
III. 545: The trustee may avoid a statutory lien fixing on property of the debtor if the lien
first became effective when a case under Title 11 commenced, when the debtor
became insolvent, or when the debtor’s financial condition failed to meet a specified
standard.
Reclamation
I. 546(c): Vendors can reclaim goods shipped within 45 days of the bankruptcy filing,
subject to the requirement of a written demand…not entirely sure how this plays out.
Postpetition Transfers
I. 549(a): The trustee may avoid a transfer of property of the estate that occurs after
commencement of the case and that is authorized only under 303(f) or 542(c) OR that
is not authorized by the Code or the court.
32
Leases and Executory Contracts

I. Executory Contract: A contract in which both sides have some obligations that are
still due, and which, if not fulfilled, are a material breach of the contract.
a. Examples: Leases, supply contracts, intellectual property licenses, etc.
II. 365: The trustee has one of three choices with regard to executory contracts:
a. (a): Rejection: This will be treated as a material breach of contract, and the non-
debtor party will have whatever remedies they would have had under non-
bankruptcy law. 365(g) impacts rejection by categorizing the damages from the
breach as having arisen at the time of the order of relief (making them pre-petition
claims).
b. (a): Assumption: The estate assumes the benefits and burdens of the contract.
c. (f): Assignment: Sale of an intangible right. Someone else will take over the
benefits and burdens of the contract. Unlike in non-bankruptcy law, assignment
of the contract under 365(k) relieves the original party of all obligations.
d. There is no statutory right to modification of the terms of an unexpired lease
or executory contract. The debtor may, however, be able to convince the other
party to agree to modifications.
i. In fact, most motions to assume are actually motions to amend and
assume.
Consequences
I. Assumption
a. In re Enderle (2006)(CB 12-3): Assuming an unexpired lease constitutes a
post-petition obligation, which means that default is entitled to
administrative priority under 503(b)(1)(a).
II. Rejection
a. In re Old Carco LLC F/K/A Chrysler LLC (2010)(CB 12-5): In case of a
rejection, state law will help determine the amount of the relevant claim, but
it will not impact priority. 365(g) clearly states that rejection creates a pre-
petition claim.
III. Assignment
a. In re DH4, Inc. (2007)(CB 12-9): Once there has been adequate assurance of
future performance by the assignee, 365(f)(2)(B), and the court has approved
the assignment, 365(k) relieves the debtor of any responsibility for an
assigned contract. State law cannot change this; neither can the terms of a
lease.
Time to “Choose”
I. 365(d)(4): With regard to nonresidential real property, the trustee must assume or
reject the unexpired lease within 120 days of the order for relief (or before a plan is
confirmed). One 90 day extension is permitted for cause. Any extension beyond this
must be approved by the lessor and the court.
a. If a decision is not made within that time period, the contract is deemed rejected.
II. 365(a): The trustee makes the decision to accept or reject, subject to the approval of
the court. The court typically uses a business judgment rule when considering
approval.
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Requirements for Assuming a Lease

I. 365(b)(1): If there has been a default in an executory contract or unexpired lease, the
trustee may not assume unless at the time of assumption the trustee
a. (A): cures, or provides adequate assurance that the trustee will promptly cure,
such default other than a default which is a breach of a provision relating to the
satisfaction of any provision relating to a default arising from any failure to
perform nonmonetary obligations under an unexpired lease of real property, if
it is impossible to cure such default by performing the acts at the time of
assumption, except if the default arises from a failure to operate in accordance
with a nonresidential real property lease (that shall be cured by performance at
and after the assumption in accordance with the lease). Pecuniary losses will be
compensated in accordance with the provisions of 365(b).
i. Adequate assurance can take a number of forms, including additional
security deposits.
b. (B): compensates a party other than the debtor for any actual pecuniary loss to
such party resulting from the default.
c. (C): Provides adequate assurance of future performance.
II. 365(b)(2): Paragraph 1 does not apply to defaults that are a breach of a provision
relating to insolvency or financial condition of the debtor at any time before the close
of the case, the commencement of a bankruptcy case, the appointment of a trustee in a
bankruptcy case, the satisfaction of any penalty rate/provision relating to a default
arising from any failure by the debtor to perform nonmonetary obligations under the
contract/lease.
III. In re M. Fine Lumber Co. (2008)(CB 12-17): If the contract provides for
attorney’s fees in the case of breach, then attorney’s fees can be required to cure
the default.
The Gap Between Petition and Choice

I. 365(d)(1): Regarding residential property or personal property in a Chapter 7 case, if
an assumption/rejection decision is not made within 60 days, the contract is deemed
rejected.
II. 365(d)(2): In all non-Chapter 7 cases, the deadline for the choice regarding
residential property or personal property is confirmation of the plan. The non-debtor
party can request a time limit, but those requests are rarely granted.
III. 365(d)(3) and (5): Prior to a decision, the basic assumption is that the trustee will
continue to perform the obligations of the contract (weird time limits in (5)).
Pre-Bankruptcy Provisions and the Impact on Choice in Bankruptcy

I. 365(e): Any sort of ipso facto clause (bankruptcy or related events = default) in a
contract CANNOT be enforced in bankruptcy. The estate has full control of what it
accepts or rejects, and will get the full benefit of those decisions.
II. 365(f)(1): Notwithstanding any provision in the contract or in applicable law that
prohibits, restricts, or conditions the assignment of such contract or lease, the trustee
may assign such contract of lease under 365(f)(2) (subject to the trustee first
assuming the contract and then providing for adequate assurance of future
performance by the assignee
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a. 365(f)(3): Pre-bankruptcy provisions cannot terminate or modify the contract on

the basis of in-bankruptcy assumption or assignment.
Additional Issues in Assignment

I. Change in Use
a. Matter of U.L. Radio Corp. (1982)(CB 12-27): Ensuring that the lessor receives
the full benefit of his bargain does not mean that each and every term of the
bargain must be met in assignment. The preference favoring assumption
encourages moderate allowances when it comes to deviation from the original
lease in assignment.
b. 365(b)(3): There are special requirements with regard to use when it comes to
shopping centers, reflecting the careful planning that goes into their breakdown of
use.
II. Contracts Not Open for Assignment
a. 365(c): The trustee may not assume or assign any executory contracts or
unexpired lease of the debtor if (1)(A) applicable law excuses a party to the
contract from accepting performance from or rendering performance to an entity
other than the debtor or the debtor in possession, whether or not the contract
restricts assignment of rights or delegation of duties, and (B) such party does not
consent to such assumption or assignment OR (2) such contract is a contract to
make a loan or extend other debt financing or financial accommodations, to or for
the benefit of the debtor, or to issue a security to the debtor.
i. What this means: Contracts specific to the individual, or types under
state law, cannot be assigned.
b. In re Pioneer Ford Sales (1984)(CB 12-32): 365(c)’s restrictions on contract
assumption are not limited to personal services contracts.
c. In re Catapult Entertainment, Inc. (1999)(CB 12-34): 365(c) specifically applies
to assumption, not only assumption and assignment. Without a patent
holder’s consent, the DIP cannot assume a nonexclusive patent license. If the
DIP lacks hypothetical authority to assign the contract, it cannot itself
assume the contract.
Debtor as Landlord
I. 365(h)(1)(A): If the trustee rejects an unexpired lease where the debtor is lessor and
(i) the rejection amounts to such breach as would entitle the lessee to treat the lease as
terminated by the terms OR applicable nonbankruptcy law OR any agreement made
by the lessee, the lessee may treat such lease as terminated by the rejection OR (ii) if
the lease has commenced, the lessee may retain its rights under the lease (including
requirements to pay rent), including all rights in or appurtenant to the real property
for the balance of the lease and for such extensions as nonbankruptcy law permits.
II. 365(h)(1)(B): If the lessee exercises rights under 365(h)(1)(A)(ii), then the lessee
may offset from rent any damages the lessor’s failure to perform after rejection
causes. There is no other right of claim against the estate or debtor for such damage.
Debtor as Licensor of Intellectual Property

I. 365(n)(1)(A): If the trustee rejects an executory contract under which the debtor is
the licensor of intellectual property, the licensee may elect to treat the contract as
35
terminated by the rejection if the rejection would amount to breach allowing the
license to treat the contract as terminated under the contract’s terms, nonbankruptcy
law, or an agreement made by the licensee with another entity OR
II. 365(n)(1)(B): To retain its rights as they existed immediately before commencement
of the case for the duration of the contract and any period that applicable law would
permit for extensions.
III. 365(n)(2): If the licensee elects to retain its rights, (A) the trustee shall allow the
licensee to exercise the rights, (B) the licensee shall make all royalty payments due
under the contract for the duration of the contract, and (C) the licensee is deemed to
waive any right to setoff it may have with respect to the contract under applicable
nonbankruptcy law, and any claim allowable under 503(b) arising from the
performance of the contract.
Timelines
Timeline-Chapter 7
Filing: When you communicate to the clerk’s office.
Within 15 days—file list of all creditors, all assets, state of financial affairs (major transactions
in the year previous to filing)
Within 40-60 days—first meeting of creditors (341(a) meeting). Mandatory meeting of all
creditors or their representatives. The trustee examines the debtor under oath about its
transactions (not a lot of time spent on this).
60 days after 341(a) meeting—clerk is required to issue a discharge
Average dividend in Chapter 7: 10% of the debt owed.

No assets exist in 90% of Chapter 7 cases.
Timeline-Chapter 13
Within 15 days, need to file a plan of how to deal with creditors
Discharge doesn’t happen until the end of the case, when the plan is performed (3-5 years)
Two-Thirds of plans don’t make it to discharge.
Chapter 13 Trustee looks at the plan, and after the 341(a) meeting, at some point, the plan is
confirmed.
Timeline-Chapter 11
No deadline for a plan. No requirement to file.
First 120 days the debtor has the exclusive right to file a plan, but it is not mandatory. Any plan
that is filed goes through a confirmation hearing. Once confirmed, discharge occurs.
Chapter 11 Trustee occurs in cases when there is a good company managed by crooks.
Definitions
Contingent: The claim depends on some event that hasn’t happened yet and may never occur.
Example: A warranty.
Unliquidated: The debt may exist, but the exact amount hasn’t been determined yet.
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Example: A lawsuit that has not yet been reduced to judgment.

Disputed: The debtor and creditor do not agree about the existence or amount of the debt.
Example: Dispute with the IRS over amount of taxes.
Filing
Is the debtor eligible for that form of bankruptcy? §109
Automatic Stay
Is there termination or a grant of relief?
Claims
Is there a right to payment? Or a potential right to payment arising from pre-bankruptcy
actions?
Is the claim secured?
Is the value of the collateral more or less than the value of the claim?
Can there be strip down/strip off for a secured claim?
Is there adequate protection for secured claims?
Discharge
Is the debt excepted under 523(a)?
Are there specific Chapter exceptions?
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i. Chapter 15: Ancillary and Other Cross-Border Cases

Property of the Estate

Issues That May, But Probably Won’t Arise

Issues Under All Chapters

c. (4): no stay on government’s police or regulatory activities (exception: does not

Avoiding or Reducing Claims

a. 507(a)(1)(A+B): Allowed unsecured claims for domestic support obligations,

b. Subject to adequate protection.

Issues Relevant to All Individual Cases

Individual Rehabilitation Proceedings Scope and Timing of Discharge

Dischargeability of Specific Debts

i. Prong 1: “cannot maintain, based on current income and expenses, a

i. In re Bajgar (1995)(CB 7-9): This section is clear. Even if a transfer is

Unsecured Creditors in Chapter 13

b. 1322(d)(1): If the current monthly income of the debtor+spouse is equal to or

Secured Claims in Chapter 13

More Confirmation Requirements

III. Similarities to Chapter 13

Overview of the Chapter 11 Process

Sale as a Going Concern

i. Campbell v. Motors Liquidation Co. (In re Motors Liquidation Co. et al.

i. In re Trans Max Technologies (2006)(CB 10-66): The plan proponent

Cram Down Under 1129(b)

1. For secured claims: Either retaining liens of the allowable

Fraudulent Transfers and Obligations

Strong Arm Power

Leases and Executory Contracts

Requirements for Assuming a Lease

The Gap Between Petition and Choice

Pre-Bankruptcy Provisions and the Impact on Choice in Bankruptcy

a. 365(f)(3): Pre-bankruptcy provisions cannot terminate or modify the contract on

Additional Issues in Assignment

Debtor as Licensor of Intellectual Property

Average dividend in Chapter 7: 10% of the debt owed.

Example: A lawsuit that has not yet been reduced to judgment.

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