Chapter 30 - Bankruptcy
Introduction.
Historically, debtors had few rights. At one time, debtors who
could not pay their debts as they came due faced harsh consequences,
including imprisonment and involuntary servitude. Today, in contrast,
debtors have numerous rights. Some of these rights were discussed
in Chapter 31. In this chapter, we look at another significant
right of debtors: the right to petition for bankruptcy relief.
This right is established by federal law. Article I, Section 8,
of the U.S. Constitution gave Congress the power to establish
“uniform Laws on the subject of Bankruptcies throughout the
United States.”
Bankruptcy law in the United States has two goals—to protect
a debtor by giving him or her a fresh start, free from creditors'
claims, and to ensure equitable treatment to creditors who are
competing for a debtor's assets. Federal bankruptcy legislation
was first enacted in 1898 and since then has undergone several
modifications. Current bankruptcy law is based on the Bankruptcy
Reform Act of 1978, as amended—hereinafter called the Bankruptcy
Code, or more simply the Code (not to be confused with the Uniform
Commercial Code, which is also sometimes called the Code). Significant
changes to the Code were made by the Bankruptcy Reform Act of
1994. These changes are included in our discussion in this chapter.
Although bankruptcy law is federal law, state laws on secured
transactions, liens, judgments, and exemptions also play a role
in federal bankruptcy proceedings.
Landmark in the Law: The Bankruptcy Reform Act of 1978 and Its
Amendments
Bankruptcy proceedings are held in federal bankruptcy courts,
which are under the authority of U.S. district courts, and rulings
from bankruptcy courts can be appealed to the district courts.
Essentially, a bankruptcy court fulfills the role of an administrative
court for the federal district court concerning matters in bankruptcy.
The bankruptcy court holds proceedings dealing with the procedures
required to administer the estate of the debtor in bankruptcy.
Bankruptcy court judges are federally appointed. A bankruptcy
court can conduct a jury trial if the appropriate district court
has authorized it and the parties to the bankruptcy consent.
Section 1: Types of Bankruptcy Relief.
The Bankruptcy Code is contained in Title 11 of the United States
Code (U.S.C.) and has eight chapters. Chapters 1, 3, and 5 of
the Code include general definitional provisions
and provisions governing case administration, creditors, the debtor,
and the estate. These three chapters apply generally to all kinds
of bankruptcies. The next five chapters of the Code set forth
the different types of relief that debtors may seek. Chapter 7
provides for liquidation proceedings (the selling of all nonexempt
assets and the distribution of the proceeds to the debtor’s
creditors). Chapter 9 governs the adjustment of debts of a municipality.
Chapter 11 governs reorganizations. Chapters 12 and 13 provide
for the adjustment of debts by parties with regular incomes
(family farmers under Chapter 12 and individuals under Chapter
13).(1)
Profile: Adequate Protection Under Chapter 7
Profile: Adequate Protection Under Chapter 12
To fully inform a consumer-debtor of the various types of relief
available, the Code requires that the clerk of the court give
all consumer-debtors (defined as individuals whose debts are primarily
consumer debts) written notice of each chapter under which they
may proceed prior to the commencement of a bankruptcy filing.
In the following sections, we deal first with liquidation proceedings
under Chapter 7 of the Code. We then examine the procedures required
for Chapter 11 reorganizations, and Chapter 12 and 13 plans. The
latter three chapters have been referred to as “rehabilitation”
chapters.
Section 2: Liquidation Proceedings.
Liquidation under Chapter 7 of the Bankruptcy Code is generally
the most familiar type of bankruptcy proceeding and is often referred
to as an ordinary, or straight, bankruptcy. Put simply, a debtor
in a liquidation bankruptcy turns all assets over to a trustee.
The trustee sells the nonexempt assets and distributes the proceeds
to creditors. With certain exceptions, the remaining debts are
then discharged (extinguished), and the debtors are relieved of
their obligation to pay the debts.
Any “person”—defined as including individuals,
partnerships, and corporations(2)—may be a debtor in a liquidation
proceeding. Railroads, insurance companies, banks, savings and
loan associations, investment companies licensed by the Small
Business Administration, and credit unions cannot be debtors in
a liquidation bankruptcy, however. Rather, other chapters of the
Bankruptcy Code or federal or state statutes apply to them.
FILING THE PETITION
A straight bankruptcy may be commenced by the filing of either
a voluntary or an involuntary petition in bankruptcy—the
document that is filed with a bankruptcy court to initiate bankruptcy
proceedings.
VOLUNTARY BANKRUPTCY When a voluntary petition in bankruptcy
is brought by the debtor, he or she files official forms designated
for that purpose in the bankruptcy court. The Code requires a
consumer-debtor who has opted for liquidation bankruptcy proceedings
to state in the petition, at the time of filing, that he or she
understands the relief available under other chapters of the Code
and has chosen to proceed under Chapter 7. If the consumer-debtor
is represented by an attorney, the attorney must file an affidavit
stating that he or she has informed the debtor of the relief available
under each chapter. A debtor does not have to be insolvent(3)
to file for bankruptcy relief. Anyone liable to a creditor can
declare bankruptcy.
The voluntary petition contains the following schedules:
1. A list of both secured and unsecured creditors, their
addresses, and the amount of debt owed to each.
2. A statement of the financial affairs of the debtor.
3. A list of all property owned by the debtor, including
property claimed by the debtor to be exempt.
4. A listing of current income and expenses. (This
schedule provides creditors and the court with relevant
information on the debtor’s ability to pay creditors a
reasonable amount from future income. This
information could permit a court, on its own motion, to
dismiss a debtor’s Chapter 7 petition after a hearing,
and to encourage the filing of a repayment plan under
Chapter 13, when that would substantially improve the
chances that creditors would be paid.)
The official forms must be completed accurately, sworn to under
oath, and signed by the debtor. To conceal assets or knowingly
supply false information on these schedules is a crime under the
bankruptcy laws. If the voluntary petition for bankruptcy is found
to be proper, the filing of the petition will itself constitute
an order for relief. (An order for relief is a court’s grant
of assistance to a complainant. In the context of bankruptcy,
relief consists of discharging a complainant’s debts.) Once
a consumer-debtor’s voluntary petition has been filed, the
clerk of the court or other appointee must give the trustee and
creditors mailed notice of the order for relief not more than
twenty days after entry of the order. A husband and wife may file
jointly for bankruptcy under a single petition.
As mentioned above, debtors do not have to be insolvent to file
for voluntary bankruptcy. Debtors do not have unfettered access
to Chapter 7 bankruptcy proceedings, however. Section 707(b) of
the Bankruptcy Code allows a bankruptcy court to dismiss a petition
for relief under Chapter 7 if the granting of relief would constitute
“substantial abuse” of Chapter 7. In the following case,
the court had to decide whether granting a Chapter 7 discharge
to the debtor would constitute substantial abuse.
¾¾¨¾¾
Case 32.1
MATTER OF BLAIR
United States Bankruptcy Court,
Northern District of Alabama,
Eastern Division, 1995.
180 Bankr. 656.
BACKGROUND AND FACTS James Blair, Jr., owed primarily consumer debts of less than $7,000, and his income exceeded his living expenses by more than $200 a month. When he filed a petition for relief under Chapter 7, the court concluded that if he filed a repayment plan under Chapter 13, his debts would be paid off in forty months. The bankruptcy administrator filed a motion to dismiss Blair’s petition.
IN THE LANGUAGE OF THE COURT
JAMES S. SLEDGE, Bankruptcy Judge.
* * * *
* * * [T]he substantial abuse determination must be made on a
case by case basis, in light of the totality of the circumstances.
* * * [F]actors [that] should be
considered * * * [include:] (1) Whether the bankruptcy petition
was filed because of sudden illness, calamity, disability, or
unemployment; (2) Whether the debtor incurred cash advances and
made consumer purchases far in excess of his ability to pay; (3)
Whether the debtor’s proposed family budget is excessive
or unreasonable; (4) Whether the debtor’s schedules and statement
of current income and expenses reasonably and accurately reflect
the true financial condition; and (5) Whether the petition was
filed in good faith.
* * * *
* * * [T]his Court concludes that granting this debtor relief
under Chapter 7 would be a substantial abuse of the provisions
of the chapter as well as perverting the purpose of the Bankruptcy
Code: to give a fresh start to the honest but unfortunate debtor.
DECISION AND REMEDY The court dismissed Blair’s petition.
Full text of case
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INVOLUNTARY BANKRUPTCY An involuntary bankruptcy occurs when
the debtor’s creditors force the debtor into bankruptcy proceedings.
An involuntary case cannot be commenced against a farmer(4) or
a charitable institution. For an involuntary action to be filed
against other debtors,
the following requirements must be met: If the debtor has twelve
or more creditors, three or more of these creditors having unsecured
claims totaling at least $10,000 must join in the petition. If
a debtor has fewer than twelve creditors, one or more creditors
having a claim of $10,000 may file.
If the debtor challenges the involuntary petition, a hearing will
be held, and the bankruptcy court will enter an order for relief
if it finds either of the following:
1. The debtor is generally not paying debts as they
become due.
2. A general receiver, assignee, or custodian took possession
of, or was appointed to take charge of, substantially all of the
debtor’s property within 120 days before the filing of the
petition.
Image: Involuntary Bankruptcy
If the court grants an order for relief, the debtor will be
required to supply the same information in the bankruptcy schedules
as in a voluntary bankruptcy.
An involuntary petition should not be used as an everyday debt-collection
device, and the Code provides penalties for the filing of frivolous
petitions against debtors. Judgment may be granted against the
petitioning creditors for the costs and attorneys’ fees incurred
by the debtor in defending against an involuntary petition that
is dismissed by the court. If the petition is filed in bad faith,
damages can be awarded for injury to the debtor’s reputation.
Punitive damages may also be awarded.
AUTOMATIC STAY
The moment a petition, either voluntary or involuntary, is filed,
there exists an automatic stay, or suspension, of virtually all
litigation and other action by creditors against the debtor or
the debtor’s property. In other words, once a petition has
been filed, creditors cannot commence or continue most legal actions,
such as foreclosure of liens, execution on judgments, trials,
or any action to repossess property in the hands of the debtor.
A secured creditor, however, may petition the bankruptcy court
for relief from the automatic stay in certain circumstances. Also,
the automatic stay does not apply to paternity, alimony, maintenance,
and support debts. The Code provides that if a creditor knowingly
violates the automatic stay (a willful violation), any party injured,
including the debtor, is entitled to recover actual damages, costs,
and attorneys’ fees and may be entitled to recover punitive
damages as well.
Underlying the Code’s automatic stay provision for a secured
creditor is a concept known as adequate protection. The adequate
protection doctrine, among other things, protects secured creditors
from losing their security as a result of the automatic stay.
The bankruptcy court can provide adequate protection by requiring
the debtor or trustee to make periodic cash payments or a one-time
cash payment (or to provide additional collateral or replacement
liens) to the extent that the stay may actually cause the value
of the property to decrease. Or the court may grant other relief
that is the “indubitable equivalent” of (that is, equivalent
to, without any doubt) the secured party’s interest in the
property, such as a guaranty by a solvent third party to cover
losses suffered by the secured party as a result of the stay.
PROPERTY OF THE ESTATE
Upon the commencement of a liquidation proceeding under Chapter
7, an estate in property is created. The estate consists of all
the debtor’s legal and equitable interests in property presently
held, wherever located, together with community property, property
transferred in a transaction voidable by the trustee, proceeds
and profits from the property of the estate, and certain after-acquired
property. Interests in certain property—such as gifts, inheritances,
property settlements (divorce), and life insurance death proceeds—to
which the debtor becomes entitled within 180 days after filing
may also become part of the estate. Thus, the filing of a bankruptcy
petition generally fixes a dividing line: property acquired prior
to the filing of the petition becomes property of the estate,
and property acquired
after the filing of the petition, except as just noted, remains
the debtor’s.
The issue in the following case is whether payments made under
a covenant not to compete should be included in a debtor’s
estate. The covenant was entered into before the petition was
filed, but the payments were due after the filing.
¾¾¨¾¾
Case 32.2
IN RE ANDREWS
United States Court of Appeals,
Fourth Circuit, 1996.
80 F.3d 906.
BACKGROUND AND FACTS Tarmac Acquisition, Inc., bought AMAX Corporation, a ready-mix concrete company. As part of the deal, the AMAX owners, including John Andrews, signed agreements not to compete with Tarmac. Andrews was to receive $1 million, payable in quarterly installments over a five-year period. Three years later, Andrews filed a bankruptcy petition. He asked the federal bankruptcy court not to include, in the property of his estate (which would ultimately be distributed to creditors), any future installments. The court refused, and a federal district court affirmed this decision. Andrews appealed to the U.S. Court of Appeals for the Fourth Circuit.
IN THE LANGUAGE OF THE COURT
ELLIS, District Judge:
* * * *
* * * Pre-petition assets, like the NCA [noncompetition agreement]
payments, are those assets rooted in the debtor’s pre-petition
activities, including any proceeds that may flow from those assets
in the future. These assets belong to the estate and ultimately
to the creditors. Post-petition assets are those that result from
the debtor’s post-petition activities and are his to keep
free and clear of the bankruptcy proceeding.
* * * *
Seen in this light, the NCA payments due Andrews fall clearly
on the pre-bankruptcy or “past” side of the bright line.
These payments are plainly rooted in, and grow out of, Andrews’s
pre-petition activities. * * * [B]ut for the [AMAX] sale, there
would have been no NCA and no quarterly payments to Andrews. *
* * Given this close connection between the NCA and the pre-petition
sale of the debtor’s share in the concrete business, we are
persuaded that the payments were well rooted in the pre-bankruptcy
past. * * * [T]hey should be included in Andrews’s estate.
DECISION AND REMEDY The U.S. Court of Appeals for the Fourth
Circuit affirmed the lower court’s decision.
Full text of case
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CREDITORS’ MEETING AND CLAIMS
Within a reasonable time after the order for relief has been granted
(not less than ten days or more than thirty days), the bankruptcy
court must call a meeting of creditors listed in the schedules
filed by the debtor. The bankruptcy judge does not attend this
meeting.
The debtor is required to attend the meeting (unless excused by
the court) and to submit to examination under oath by the creditors
and the trustee. Failing to appear when required or making false
statements under oath may result in the debtor’s being denied
a discharge in bankruptcy. At the meeting, the trustee ensures
that the debtor is aware of the potential consequences of bankruptcy
and of his or her ability to file for bankruptcy under a different
chapter.
To be entitled to receive a portion of the debtor’s estate,
each creditor must normally file a proof of claim with the bankruptcy
court clerk within ninety days of the creditors’ meeting.(5)
The proof of claim lists the creditor’s name and address,
as well as the amount that the creditor asserts is owed to the
creditor by the debtor. If a creditor fails to file a proof of
claim, the bankruptcy court or trustee may file the proof of claim
on the creditor’s behalf but is not obligated to do so.
Generally, any legal obligation of the debtor is a claim. In the
case of a disputed, or unliquidated, claim, the bankruptcy court
will set the value of the claim. Any creditor holding a debtor’s
obligation can file a claim against the debtor’s estate.
These claims are automatically allowed unless contested by the
trustee, the debtor, or another creditor. A creditor who files
a false claim commits a crime.
The Code, however, does not allow claims for breach of employment
contracts or real estate leases for terms longer than one year.
Such claims are limited to one year’s wages or rent, despite
the remaining length of either contract in breach.
EXEMPTIONS
The trustee takes control over the debtor’s property, but
an individual debtor is entitled to exempt certain property from
the bankruptcy. The Bankruptcy Code exempts the following property:(6)
1. Up to $15,000 in equity in the debtor’s residence and
burial plot (the homestead exemption).
2. Interest in a motor vehicle up to $2,400.
3. Interest, up to $400 for a particular item, in household
goods and furnishings, wearing apparel, appliances,
books, animals, crops, and musical instruments (the
aggregate total of all items is limited, however, to
$8,000).
4. Interest in jewelry up to $1,000.
5. Interest in any other property up to $800, plus any
unused part of the $15,000 homestead exemption up to
$7,500.
6. Interest in any tools of the debtor’s trade up to
$1,500.
7. Any unmatured life insurance contract owned by the
debtor.
8. Certain interests in accrued dividends and interest
under life insurance contracts owned by the debtor.
9. Professionally prescribed health aids.
10. The right to receive Social Security and certain welfare
benefits, alimony and support, and certain pension benefits.
11. The right to receive certain personal injury and other
awards, up to $15,000.
Individual states have the power to pass legislation precluding
debtors from using the federal exemptions within the state; a
majority of the states have done this (see Chapter 31). In those
states, debtors may use only state, not federal, exemptions. In
the rest of the states, an individual debtor (or a husband and
wife filing jointly) may choose either the exemptions provided
under state law or the
federal exemptions.(7)
Next page of section
THE TRUSTEE
Promptly after the order for relief in the liquidation proceeding
has been entered, an interim, or provisional,
trustee is appointed by the U.S. Trustee (a government official
who performs appointing and other administrative tasks that a
bankruptcy judge would otherwise have to perform).The interim,
or provisional, trustee presides over the debtor’s property
until the first meeting of creditors. At this first meeting, either
a permanent trustee is elected or the interim trustee becomes
the permanent trustee.
The basic duty of the trustee is to collect the debtor’s
available estate and reduce it to money for distribution, preserving
the interests of both the debtor and unsecured creditors. This
requires that the trustee be accountable for administering the
debtor’s estate. To enable the trustee to accomplish this
duty, the Code gives the trustee certain powers, stated in both
general and specific terms. These powers must be exercised within
two years of the order
for relief.
TRUSTEE’S POWERS The general powers of the trustee are
described by the statement that the trustee occupies a position
equivalent in rights to that of certain other parties. For example,
the trustee has the same rights as a lien creditor who could have
obtained a judicial lien on the debtor’s property or who
could have levied execution on the debtor’s property. This
means that a trustee has priority over an unperfected secured
party to the debtor’s property. This right of a trustee,
equivalent to that of a lien creditor, is known as the strong-arm
power. A trustee also has power equivalent to that of a bona fide
purchaser of real property from the debtor.
Nevertheless, a creditor with a purchase-money security interest
may prevail against a trustee, if the creditor files within ten
days of the debtor’s receipt of the collateral, even if the
bankruptcy petition is filed before the creditor perfects. For
example, Baker loaned Newbury $20,000 on January 1, taking a security
interest in the machinery Newbury purchased with the $20,000 on
that same date. On January 27, before Baker perfected her security
interest, Newbury filed for bankruptcy. The trustee can invalidate
Baker’s security interest, because it was unperfected when
Newbury filed the bankruptcy petition. Baker can only assert a
claim as an unsecured creditor. But if Newbury had filed for bankruptcy
on January 7, and Baker had perfected her security interest on
January 8, she would have prevailed, because she would have perfected
her purchase-money security interest within ten days of Newbury’s
receipt of the machinery.
The trustee has the power to require persons holding the debtor’s
property at the time the petition is filed to deliver the property
to the trustee. (A trustee does not usually take actual possession
of a debor’s property. Instead, a trustee’s possession
is constructive. For example, to obtain control of a debtor’s
business inventory, a trustee might change the locks on the doors
to the business and hire a security guard.) The trustee also has
specific powers of avoidance—that is, the trustee can set
aside a sale or other transfer of the debtor’s property,
taking it back as a part of the debtor’s estate. These powers
include any voidable rights available to the debtor, preferences,
certain statutory liens, and fraudulent transfers by the debtor.
Each of these powers is discussed in more detail below.
The debtor shares most of the trustee’s avoidance powers.
Thus, if the trustee does not take action to enforce one of his
or her rights (for example, to recover a preference), the debtor
in a liquidation bankruptcy can nevertheless enforce that right.(8)
VOIDABLE RIGHTS A trustee steps into the shoes of the debtor.
Thus, any reason that a debtor can use to obtain the return of
his or her property can be used by the trustee as well. These
grounds include fraud, duress, incapacity, and mutual mistake.
For example, Ben sells his boat to Tara. Tara gives Ben a check,
knowing that there are insufficient funds in her bank account
to cover the check. Tara has committed fraud. Ben has the right
to avoid that transfer and recover the boat from Tara. Once an
order for relief under Chapter 7 of the Code has been entered
for Ben, the trustee can exercise the same right to recover the
boat from Tara, and the boat becomes a part of the debtor’s
estate.
PREFERENCES A debtor is not permitted to transfer property
or to make a payment that favors—or gives a preference to—one
creditor over others. The trustee is allowed to recover payments
made both voluntarily and involuntarily to one creditor in preference
over another.
To have made a preferential payment that can be recovered, an
insolvent debtor generally must have transferred property, for
a preexisting debt, within ninety days of the filing of the petition
in bankruptcy. The transfer must give the creditor more than the
creditor would have received as a result of the bankruptcy proceedings.
The trustee does not have to prove insolvency, as the Code provides
that the debtor is presumed to be insolvent during this ninety-day
period.
Sometimes the creditor receiving the preference is an insider—an
individual, a partner, a partnership, or an officer or a director
of a corporation (or a relative of one of these) who has a close
relationship with the debtor. If this is the case, the avoidance
power of the trustee is extended to transfers made within one
year before filing; however, the presumption of insolvency is
confined to the ninety-day period. Therefore, the trustee must
prove that the debtor was insolvent at the time of earlier transfer.
Not all transfers are preferences. To be a preference, the transfer
must be made for something other than current consideration. Therefore,
it is generally assumed by most courts that payment for services
rendered within ten to fifteen days prior to the payment of the
current consideration is not a preference. If a creditor receives
payment in the ordinary course of business, such as payment of
last month’s telephone bill, the payment cannot be recovered
by the trustee in bankruptcy. To be recoverable, a preference
must be a transfer for an antecedent (preexisting) debt, such
as a year-old printing bill. In addition, the Code permits a consumer-debtor
to transfer any property to a creditor up to a total value of
$600, without the transfer’s constituting a preference. Also,
payment of paternity, alimony, maintenance, and support debts
is not a preference.
If a preferred creditor has sold the property to an innocent third
party, the trustee cannot recover the property from the innocent
party. The creditor, however, generally can be held accountable
for the value of the property.
LIENS ON DEBTOR’S PROPERTY The trustee has the power to avoid certain statutory liens against the debtor's property, such as a landlord’s lien for unpaid rent. The trustee can avoid statutory liens that first became effective against the debtor when the bankruptcy petition was filed or when the debtor became insolvent. The trustee can also avoid any lien against a bona fide purchaser that was not perfected or enforceable on the date of the bankruptcy filing.
FRAUDULENT TRANSFERS The trustee may avoid fraudulent transfers or obligations if they are made within one year of the filing of the petition or if they are made with actual intent to hinder, delay, or defraud a creditor. Transfers made for less than a reasonably equivalent consideration are also vulnerable if by making them, the debtor became insolvent, was left engaged in business with an unreasonably small amount of capital, or intended to incur debts that he or she could not pay. When a fraudulent transfer is made outside the Code’s one-year limit, creditors may seek alternative relief under state laws. State laws often allow creditors to recover for transfers made up to three years prior to the filing of a petition.
DISTRIBUTION OF PROPERTY
The rights of perfected secured creditors were discussed in Chapter
30. The Code provides that a consumer-debtor, either within thirty
days of filing a liquidation petition or before the date of the
first meeting of the creditors (whichever is first), must file
with the clerk a statement of intention with respect to the secured
collateral. The statement must indicate whether the debtor will
retain the collateral or surrender it to the secured party.(9)
The trustee is obligated to enforce the debtor’s statement
within forty-five days after it is filed.
If the collateral is surrendered to the perfected secured party,
the secured creditor can enforce the security interest either
by accepting the property in full satisfaction of the debt or
by foreclosing on the collateral and using the proceeds to pay
off the debt. Thus, the perfected secured party has priority over
unsecured parties as to the proceeds from the disposition of the
collateral. Indeed, the Code provides that if the value of the
collateral exceeds the perfected secured party’s claim, the
secured party also has priority as to the proceeds in an amount
that will cover reasonable fees and costs incurred because of
the debtor’s default. Any excess over this amount is used
by the trustee to satisfy the claims of unsecured creditors. Should
the collateral be insufficient to cover the secured debt owed,
the secured creditor becomes an unsecured creditor for the difference.
Bankruptcy law establishes an order of priority for classes of
debts owed to unsecured creditors, and they are paid in the order
of their priority. Each class must be fully paid before the next
class is entitled to any of the remaining proceeds. If there are
insufficient proceeds to pay fully all the creditors in a class,
the proceeds are distributed proportionately to the creditors
in the class, and classes lower in priority receive nothing. The
order of priority among classes of unsecured creditors is as follows:
1. Administrative expenses—including court costs, trustee
fees, and attorneys’ fees.
2. In an involuntary bankruptcy, expenses incurred by the
debtor in the ordinary course of business from the date
of the filing of the petition up to the appointment of the
trustee or the issuance by the court of an order for
relief.
3. Unpaid wages, salaries, and commissions earned within
ninety days of the filing of the petition, limited to $4,000
per claimant. Any claim in excess of $4,000 or earned
before the ninety-day period is treated as a claim of a
general creditor (listed as number 9 below).
4. Unsecured claims for contributions to be made to
employee benefit plans, limited to services performed
during 180 days prior to the filing of the bankruptcy
petition and $4,000 per employee.
5. Claims by farmers and fishers, up to $4,000, against
debtor operators of grain storage or fish storage or
processing facilities.
6. Consumer deposits of up to $1,800 given to the debtor
before the petition was filed in connection with the
purchase, lease, or rental of property or purchase of
services that were not received or provided. Any claim
in excess of $1,800 is treated as a claim of a general
creditor (listed as number 9 below).
7. Paternity, alimony, maintenance, and support debts.
8. Certain taxes and penalties due to government units,
such as income and property taxes.
9. Claims of general creditors.
If any amount remains after the priority classes of creditors
have been satisfied, it is turned over to the debtor.
Exhibit 32–1 illustrates graphically the collection and distribution
of property in most voluntary bankruptcies.
In a bankruptcy case in which the debtor has no assets,(10) creditors
are notified of the debtor’s petition for bankruptcy but
are instructed not to file a claim. In such a case, the unsecured
creditors will receive no payment, and most, if not all, of these
debts will be discharged.
DISCHARGE
From the debtor’s point of view, the primary purpose of liquidation
is to obtain a fresh start through a discharge of debts.(11) Certain
debts, however, are not dischargeable in bankruptcy. Also, certain
debtors may not qualify to have all debts discharged in bankruptcy.
These situations are discussed below.
EXCEPTIONS TO DISCHARGE Discharge of a debt may be denied because of the nature of the claim or the conduct of the debtor. Claims that are not dischargeable in a liquidation bankruptcy include the following:
1. Claims for back taxes accruing within three years prior
to bankruptcy.
2. Claims for amounts borrowed by the debtor to pay
federal taxes.
3. Claims against property or money obtained by the
debtor under false pretenses or by false representations.
4. Claims by creditors who were not notified and did not
know of the bankruptcy; these claims did not appear on
the schedules the debtor was required to file.
5. Claims based on fraud or misuse of funds by the debtor
while he or she was acting in a fiduciary capacity or
claims involving the debtor’s embezzlement or larceny.
6. Alimony, child support, and (with certain exceptions)
property settlements.
7. Claims based on willful or malicious conduct by the
debtor toward another or the property of another.
8. Certain government fines and penalties.
9. Certain student loans, unless payment of the loans
imposes an undue hardship on the debtor and the
debtor’s dependents.
Business Law in Action: Scam Schools and Student Loans
10. Consumer debts of more than $1,000 for luxury goods
or services owed to a single creditor incurred within
sixty days of the order for relief. This denial of
discharge is a rebuttable presumption (that is, the
denial may be challenged by the debtor), however, and
any debts reasonably incurred to support the debtor or
dependents are not classified as luxuries.
11. Cash advances totaling more than $1,000 that are
extensions of open-end consumer credit obtained by the
debtor within sixty days of the order for relief. A
denial of discharge of these debts is also a rebuttable
presumption.
12. Judgments or consent decrees against a debtor as a
result of the debtor’s operation of a motor vehicle while
intoxicated.
In the following case, the question of the discharge of a student
loan is at issue.
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Case 32.3
IN RE BAKER
United States Bankruptcy Court, Eastern District of Tennessee,
1981.
10 Bankr. 870.
HISTORICAL AND SOCIAL SETTING In 1980, about 53 percent of
married women in the United States were working, compared with
about 41 percent ten years earlier. More than 60 percent of wives
who were separated from their husbands worked outside the home
in 1980, compared with about 52 percent in 1970; for divorced
women, the figures were about 74 percent and 72 percent, respectively.
On average, however, in 1980, women earned only 62 cents for every
dollar that men earned. In American families, husbands averaged
nearly $21,000 in earnings, and wives, $8,600. At the same time,
of mothers who were entitled to child support, less than 75 percent
actually received any payments. Of mothers living below the poverty
line, more than 60 percent received
nothing at all.
BACKGROUND AND FACTS Mary Lou Baker attended three different institutions of higher learning, the University of Tennessee at Chattanooga, Cleveland State Community College, and the Baroness Erlanger School of Nursing. At these three schools, she received educational loans totaling $6,635. After graduation, she was employed, but her monthly take-home pay was less than $650. Monthly expenses for herself and her three children were approximately $925. Her husband had left town and provided no child or other financial support. She received no public aid and had no other income. In January 1981, just prior to this action, Mary Lou Baker’s church paid her gas bill so that she and her children could have heat in their home. One child had difficulty reading, and another required expensive shoes. Baker had not been well and had been unable to pay her medical bills. She filed for bankruptcy. In her petition, she sought a discharge of her educational loans based on the hardship provision, which is the issue before the court.
IN THE LANGUAGE OF THE COURT
Ralph H. KELLEY, Bankruptcy Judge.
This cause came on to be heard on May 5, 1981, on debtor’s
complaint to determine dischargeability of certain educational
loans. The complaint alleges that debtor is entitled to relief
under 11 U.S.C. [Section] 523 (a)(8) which reads as follows:
Exceptions to discharge.
(a) A discharge under section 727, 1141, or 1328(b) of this title
does not discharge an individual debtor from any debt— *
* * .
(8) to a governmental unit, or a nonprofit institution
of higher education, for an educational loan, unless
(B) excepting such debt from discharge under this
paragraph will impose an undue hardship on the
debtor and the debtor’s dependents[.]
* * * *
In 1976 the Congress passed the Educational Amendments which restricted
a discharge in bankruptcy. The restriction was designed to remedy
an abuse by students who, immediately upon graduation, would file
bankruptcy to secure a discharge of educational loans. These students
often had no other indebtedness and could easily pay their debts
from future wages.
* * * *
The court concludes that under the circumstances of this case,
requiring the debtor to repay the debts owed to the three defendants
in the amount of $6,635.00 plus interest would impose upon her
and her dependents an undue hardship. In passing the Educational
Amendments of 1976 and including these amendments in the Bankruptcy
Reform Act of 1978, Congress intended to correct an abuse. It
did not intend to deprive those who have truly fallen on hard
times of the “fresh start” policy of the new Bankruptcy
Code.
DECISION AND REMEDY The debtor’s student loans were discharged.
Given the fact that she had “truly fallen on hard times,”
Baker should be allowed to have her debts discharged in bankruptcy
to avoid undue hardship.
Full text of case
¾¾¨¾¾
OBJECTIONS TO DISCHARGE In addition to the exceptions to discharge previously listed, a bankruptcy court may also deny the discharge of the debtor (as opposed to the debt). In the latter situation, the assets of the debtor are still distributed to the creditors, but the debtor remains liable for the unpaid portion of all claims. Some grounds for the denial of discharge of the debtor follow.
1. The debtor’s concealment or destruction of property
with the intent to hinder, delay, or defraud a creditor.
2. The debtor’s fraudulent concealment or destruction of
financial records.
3. The granting of a discharge to the debtor within six
years of the filing of the petition.
EFFECT OF DISCHARGE The primary effect of a discharge is to void any judgment on a discharged debt and enjoin any action to collect a discharged debt. A discharge does not affect the liability of a co-debtor.
REVOCATION OF DISCHARGE The Code provides that a debtor may lose his or her bankruptcy discharge by revocation upon petition by the trustee or a creditor. The bankruptcy court may, within one year, revoke the discharge decree if it is discovered that the debtor acted fraudulently or dishonestly during the bankruptcy proceedings. The revocation renders the discharge void, allowing creditors not satisfied by the distribution of the debtor’s estate to proceed with their claims against the debtor.
REAFFIRMATION OF DEBT
A debtor may wish to pay a debt—such as, for example, a debt
owed to a family member, family doctor, close friend, or some
other party—notwithstanding the fact that the debt could
be discharged in bankruptcy. An agreement to pay a debt dischargeable
in bankruptcy is called a reaffirmation agreement. To be enforceable,
reaffirmation agreements must be made before the debtor is granted
a discharge. The agreement must be filed with the court. Approval
by the court is required unless the debtor’s attorney files
an affidavit stating that the reaffirmation agreement is voluntarily
made, that the debtor understands the consequences of the agreement
and of a default under the agreement, and that the agreement will
not result in an undue hardship on the debtor or the debtor’s
family. If court approval is required, a separate hearing need
not be held.
The agreement must contain a clear and conspicuous statement advising
the debtor that reaffirmation is not required. The debtor can
rescind, or cancel, the agreement
at any time prior to discharge or within sixty days of the filing
of the agreement, whichever is later. This rescission
period must be stated clearly and conspicuously in the reaffirmation
agreement
Section 3: Reorganizations.
The type of bankruptcy proceeding used most commonly by corporate
debtor’s is the Chapter 11 reorganization. In a reorganization,
the creditors and the debtor formulate a plan under which the
debtor pays a portion of his or her debts and is discharged of
the remainder. The debtor is allowed to continue in business.
Although this type of bankruptcy is commonly a corporate reorganization,
any debtor (except a stockbroker or a commodities broker) who
is eligible for Chapter 7 relief is eligible for relief under
Chapter 11.(12) Prior to 1991, some courts barred individuals
from petitioning for reorganization, even though the language
of the Code does not limit the use of reorganization to business
debtors. The United States Supreme Court, however, ruled in 1991
that a nonbusiness debtor may petition for relief under Chapter
11.(13)
The same principles that govern the filing of a liquidation petition
apply to reorganization proceedings. The case may be brought either
voluntarily or involuntarily. The same principles govern the entry
of the order for relief. The automatic stay and adequate protection
provisions are applicable in reorganizations as well.
In some instances, creditors may prefer private, negotiated adjustments
of creditor-debtor relations, also known as workouts, to bankruptcy
proceedings. Often, these out-of-court workouts are much more
flexible and thus more conducive to a speedy settlement. Speed
is critical, because delay is one of the most costly elements
in any bankruptcy proceeding. Another advantage of workouts is
that they avoid the various administrative costs of bankruptcy
proceedings.
Under Section 305(a) of the Bankruptcy Code, a court, after notice
and a hearing, may dismiss or suspend all proceedings in a case
at any time if dismissal or suspension would better serve the
interests of the creditors. Section 1112 also allows a court,
after notice and a hearing, to dismiss a case under reorganization
“for cause.” Cause includes the absence of a reasonable
likelihood of rehabilitation, the inability to effect a plan,
and an unreasonable delay by the debtor that is prejudicial to
(may harm the interests of) creditors.(14) In the following case,
creditors of the Johns-Manville Corporation sought to dismiss,
under Section 1112, a voluntary petition filed
by Manville.
¾¾¨¾¾
Case 32.4
IN RE JOHNS-MANVILLE CORP.
United States Bankruptcy Court, Southern District of New York,
1984.
36 Bankr. 727.
COMPANY PROFILE In 1858, H. W. Johns founded a roofing materials business in Brooklyn. By 1901, Johns had patented a line of products containing asbestos and merged with the Manville Covering Company, which had begun in 1886 in Milwaukee to produce pipe coverings and insulation materials. Control of the renamed Johns-Manville Company was acquired by J. P. Morgan & Company in 1927. Under Morgan, the company concentrated on making building materials. Johns-Manville moved to Colorado in the early 1970s and in 1981 renamed itself Manville Corporation. In 1974, nearly 500 men who had worked with Manville products in the construction of ships during World War II filed the first major asbestos lawsuit against the company. By 1982, Manville had settled more than 4,000 asbestos-related lawsuits but faced a backlog of nearly 17,000. Manville phased out all activities related to asbestos and in 1988 began to focus on forest products, fiberglass, and mining.
BACKGROUND AND FACTS On August 26, 1982, the Johns-Manville Corporation filed for protection under Chapter 11 of the Bankruptcy Code. This filing came as quite a surprise to some of Manville’s creditors, as well as to some of the other corporations that were being sued, along with Manville, for injuries caused by asbestos exposure. Manville asserted that the nearly 17,000 lawsuits pending as of the filing date and the potential lawsuits of people who had been exposed to asbestos but who would not manifest asbestos-related diseases until some time in the future necessitated its filing. The creditors of Manville, including people harmed by asbestos exposure who had won lawsuits or settlements, contended that Johns-Manville had not filed in good faith and that the voluntary reorganization petition should thus be dismissed under Section 1112 of the Bankruptcy Code.
IN THE LANGUAGE OF THE COURT
Burton R. LIFLAND, Bankruptcy Judge.
* * * *
In determining whether to dismiss under Code Section 1112(b),
a court is not necessarily required to consider whether the debtor
has filed in “good faith” because that is not a specified
[requirement] under the Code for filing. Rather, according to
Code Section 1129(a)(3), good faith emerges as a requirement for
the confirmation of a plan. * * * It is thus logical that the
good faith of the debtor be deemed a predicate primarily for emergence
out of a Chapter 11 case. It is after confirmation of a concrete
and immutable reorganization plan that creditors are foreclosed
from advancing their distinct and parochial interests in the debtor’s
estate.
* * * *
In the instant case, not only would liquidation be wasteful and
inefficient in destroying the utility of valuable assets of the
companies as well as jobs, but, more importantly, liquidation
would preclude just compensation of some present asbestos victims
and all future asbestos claimants. This unassailable reality represents
all the more reason for this Court to adhere to this basic potential
liquidation avoidance aim of Chapter 11 and deny the motions to
dismiss. Manville must not be required to wait until its economic
picture has deteriorated beyond salvation to file for reorganization.
DECISION AND REMEDY The motions to dismiss the Manville petition
were denied. The court concluded that a bankruptcy proceeding
was appropriate in this situation.
Full text of case
¾¾¨¾¾
DEBTOR IN POSSESSION
Upon entry of the order for relief, the debtor generally continues
to operate his or her business as a debtor in possession (DIP).
The court, however, may appoint a trustee (often referred to as
a receiver) to operate the debtor’s business if gross mismanagement
of the business is shown or if appointing a trustee is in the
best interests of
the estate.
The DIP’s role is similar to that of a trustee in a liquidation.
The DIP is entitled to avoid pre-petition preferential payments
made to creditors and pre-petition fraudulent transfers of assets.
The DIP has the power to
decide whether to cancel or assume pre-petition executory contracts
(those that are not yet performed) or unexpired leases.
Under the “strong-arm clause”(15) of the Bankruptcy
Code, a DIP can avoid any obligation or any transfer of property
of the debtor that could be avoided by certain parties. These
parties include (1) a creditor who extended credit to the debtor
at the time of bankruptcy (petition) and who consequently obtained
a lien on the debtor’s property; (2) a creditor who extended
credit to the debtor at the time of bankruptcy and who consequently
obtained a writ of execution against the debtor that was returned
unsatisfied; and (3) a bona fide purchaser of real property from
the debtor, if at the time of the bankruptcy the transfer
was perfected.
COLLECTIVE BARGAINING AGREEMENTS
Under the Bankruptcy Reform Act of 1978, questions arose as to
whether a reorganization debtor could reject a recently negotiated
collectively bargained labor contract. In National Labor Relations
Board v. Bildisco and Bildisco, the United States Supreme Court
held that a collective bargaining agreement subject to the National
Labor Relations Act of 1935 (see Chapter 35) is an “executory
contract” and thus subject to rejection by a debtor in possession.(16)
The Court emphasized that such a rejection should not be permitted
unless there is a finding that the policy of Chapter 11 (successful
rehabilitation of debtors) would be served by the action. Hence,
when the bankruptcy court determines that a rejection of a collective
bargaining agreement should be permitted, it must make a reasoned
finding on the
record as to why it has determined that a rejection should
be permitted.
The Code attempts to reconcile federal policies favoring collective
bargaining with the need to allow a debtor company to reject executory
labor contracts while trying to reorganize. The Code sets forth
standards and procedures under which collective bargaining contracts
can be assumed or rejected under a reorganization filing. In general,
a collective bargaining contract can be rejected if the debtor
has first proposed necessary contractual modifications to the
union and the union has failed to adopt them without good cause.
The company is required (1) to provide the union with the relevant
information needed to evaluate this proposal and (2) to confer
in good faith in attempting to reach a mutually satisfactory agreement
on the modifications.
CREDITORS’ COMMITTEES
As soon as practicable after the entry of the order for relief,
a creditors’ committee of unsecured creditors is appointed.
The committee may consult with the trustee or the DIP concerning
the administration of the case or the formulation of the plan.
Additional creditors’ committees may be appointed to represent
special-interest creditors. Orders affecting the estate generally
will be entered only with either the consent of the committee
or a hearing in which the judge hears the position of the committee.
Businesses with debts of less than $2 million that
do not own or manage real estate can avoid creditors’ committees.
In these cases, orders can be entered without
a committee’s consent.
THE REORGANIZATION PLAN
A reorganization plan to rehabilitate the debtor is a plan to
conserve and administer the debtor’s assets in the hope of
an eventual return to successful operation and solvency. The plan
must be fair and equitable and must do the following:
1. Designate classes of claims and interests.
2. Specify the treatment to be afforded the classes. (The plan
must provide the same treatment for all claims in a particular
class.)
3. Provide an adequate means for execution.
Only the debtor may file a plan within the first 120 days after
the date of the order for relief. If the debtor does not meet
the 120-day deadline, however, or if the debtor fails to obtain
the required creditor consent (discussed below) within 180 days,
any party may propose a plan. If a small-business debtor chooses
to avoid creditors’ committees, the time for the debtor’s
filing is shortened to 100 days, and any other party’s plan
must be filed within 160 days.
Once the plan has been developed, it is submitted to each class
of creditors for acceptance. Each class must accept the plan unless
the class is not adversely affected by the plan. A class has accepted
the plan when a majority of the creditors, representing two-thirds
of the amount of the total claim, vote to approve it.
Even when all classes of claims accept the plan, the court may
refuse to confirm it if it is not “in the best interests
of the creditors.”(17) A spouse or child of the debtor can
block the plan if it does not provide for payment of their claims
in cash.
The plan is binding upon confirmation. The debtor is given a reorganization
discharge from all claims not protected under the plan. This discharge
does not apply to any claims that would be denied discharge under
liquidation.
Even if only one class of claims has accepted the plan, the court
may still confirm the plan under the Code’s so-called cram-down
provision. In other words, the court may confirm the plan over
the objections of a class of creditors. Before the court can exercise
this right of cram-down confirmation, it must be demonstrated
that the plan does not discriminate unfairly against any creditors
and that the plan is fair and equitable.
Section 4: Additional Forms of Bankruptcy Relief.
In addition to bankruptcy relief through liquidation and reorganization,
the Code also provides for individuals’ repayment plans (Chapter
13) and family-farmer debt adjustments (Chapter 12).
INDIVIDUALS’ REPAYMENT PLANS
Chapter 13 of the Bankruptcy Code provides for “Adjustment
of Debts of an Individual with Regular Income.” Individuals
(not partnerships or corporations) with regular income who owe
fixed unsecured debts of less than $250,000 or fixed secured debts
of less than $750,000 may take advantage of bankruptcy repayment
plans. This includes salaried employees; individual proprietors;
and individuals who live on welfare, Social Security, fixed pensions,
or investment income. Many small-business debtors have a choice
of filing a plan for reorganization or for repayment. There are
several advantages, however, with repayment plans. One advantage
is that they are less expensive and less complicated than reorganization
proceedings or, for that matter, even liquidation proceedings.
FILING THE PETITION A repayment plan case can be initiated only by the filing of a voluntary petition by the debtor. Certain liquidation and reorganization cases may be converted to repayment plan cases with the consent of the debtor.(18) A trustee, who will make payments under the plan, must be appointed. Upon the filing of a repayment plan petition, the automatic stay previously discussed takes effect. Although the stay applies to all or part of a consumer debt, it does not apply to any business debt incurred by the debtor.
THE REPAYMENT PLAN A plan of rehabilitation by repayment must provide for the following:
1. The turnover to the trustee of such future earnings or
income of the debtor as is necessary for execution of
the plan.
2. Full payment in deferred cash payments of all claims
entitled to priority.(19)
3. The same treatment of all claims within a particular class.
(The Code permits the debtor to list co-debtors, such as guarantors
or sureties, as a separate class.)
Filing the Plan. Only the debtor may file for a repayment plan.
This plan may provide either for payment of all obligations in
full or for payment of a lesser amount. The time for payment under
the plan may not exceed three years unless the court approves
an extension. The term, with extension, may not exceed five years.
The Code requires the debtor to make “timely” payments,
and the trustee is required to ensure that the debtor commences
these payments. The debtor must commence making payments under
the proposed plan within thirty days after the plan has been filed.
If the plan has not been confirmed, the trustee is instructed
to retain the payments until the plan is confirmed and then distribute
them accordingly. If the plan is denied, the trustee will return
the payments to the debtor less any costs. Failure of the debtor
to make timely payments or to commence payments within the thirty-day
period will allow the court to convert the case to a liquidation
bankruptcy or to dismiss the petition.
Confirmation of the Plan. After the plan is filed, the court holds a confirmation hearing, at which interested parties may object to the plan. The court will confirm a plan with respect to each claim of a secured creditor under any of the following circumstances:
1. If the secured creditors have accepted the plan.
2. If the plan provides that creditors retain their liens and
if the value of the property to be distributed to them
under the plan is not less than the secured portion of
their claims.
3. If the debtor surrenders the property securing the
claims to the creditors.
Objection to the Plan. Unsecured creditors do not have a vote to confirm a repayment plan, but they can object to it. The court can approve a plan over the objection of the trustee or any unsecured creditor only in either of the following situations:
1. When the value of the property to be distributed under
the plan is at least equal to the amount of the claims.
2. When all the debtor’s projected disposable income to
be received during the three-year plan period will be
applied to making payments. Disposable income is all
income received less amounts needed to support the
debtor and dependents and/or amounts needed to
meet ordinary expenses to continue the operation of
a business.
Modification of the Plan. Prior to completion of payments, the plan may be modified at the request of either the debtor, the trustee, or an unsecured creditor. If there is an objection to the modification by any interested party, the court must hold a hearing to determine approval or disapproval of the modified plan.
DISCHARGE After completion of all payments, the court grants
a discharge of all debts provided for by the repayment plan. Except
for allowed claims not provided for by the plan, certain long-term
debts provided for by the plan, and claims for alimony and child
support, all other debts are dischargeable. A discharge of debts
under a Chapter 13 repayment plan is sometimes referred to as
a “super-discharge.” One of the reasons for this is
that the law allows a Chapter 13 discharge to include fraudulently
incurred debt and claims resulting from malicious or willful injury.
Therefore, a discharge under Chapter 13 may be much more beneficial
to some debtors than a liquidation discharge under Chapter 7.
Even if the debtor does not complete the plan, a hardship discharge
may be granted if failure to complete the plan was due to circumstances
beyond the debtor’s control and if the value of the property
distributed under the plan was greater than would have been paid
in a liquidation. A discharge can be revoked within one year if
it was obtained by fraud.
FAMILY-FARMER PLANS
In 1986, to help relieve economic pressure on small farmers, Congress
created Chapter 12 of the Bankruptcy Code by passing the Family
Farmer Bankruptcy Act. The act, which was to remain in effect
until October 1, 1993, was recently extended for another five
years. The act defines a family farmer as one whose gross income
is at least 50 percent farm dependent and whose debts are at least
80 percent farm related. The total debt must not exceed $1.5 million.
A partnership or closely held corporation (at least 50 percent
owned by the farm family) can also take advantage of this law.
The procedure for filing a family-farmer bankruptcy plan is very
similar to the procedure for filing a repayment plan under Chapter
13. The farmer-debtor must file a plan not later than ninety days
after the order for relief. The filing of the petition acts as
an automatic stay against creditors’ and co-obligors’actions
against the estate.
The content of a family-farmer plan is basically the same as that
of a Chapter 13 repayment plan. The plan can be modified by the
farmer-debtor but, except for cause, must be confirmed or denied
within forty-five days of the filing of the plan.
Court confirmation of the plan is the same as for a repayment
plan. In summary, the plan must provide for payment of secured
debts at the value of the collateral. If the secured debt exceeds
the value of the collateral, the remaining debt is unsecured.
For unsecured debtors, the plan must be confirmed if either the
value of the property to be distributed under the plan equals
the amount of the claim or the plan provides that all of the farmer-debtor’s
disposable income to be received in a three-year period (or longer,
by court approval) will be applied to making payments.
Disposable income is all income received less amounts needed to
support the farmer-debtor and family and to continue the farming
operation. Completion of payments under the plan discharges all
debts provided for by the plan.
A farmer who has already filed a reorganization or repayment plan
may convert the plan to a family-farmer plan. The farmer-debtor
may also convert a family-farmer plan to a liquidation plan.
Profile: Family Farmer Bankruptcy Act
Concept Summary 32-1
ACCESSING THE INTERNET:
BUSINESS LAW AND LEGAL ENVIRONMENT
The U.S. Bankruptcy Code is online at
http://www.law.cornell.edu:80/uscode/11
Cornell Law School’s Legal Information Institute provides
a general introduction to bankruptcy law and links to related
Internet resources at
http://www.law.cornell.edu/topics/bankruptcy.html
You can find links to an extensive number of bankruptcy resources
on the Internet by accessing the Bankruptcy Lawfinder at
http://www.agin.com/lawfind
The American Bankruptcy Institute (ABI) is also a good resource
for bankruptcy information. The ABI site includes a collection
of selected bankruptcy court decisions, daily and weekly summaries
of important bankruptcy news, legislative updates, and so on.
You can access the site at
http://www.abiworld.org
You can get answers to the most frequently asked questions about
personal bankruptcy at
http://www.bhs.com/art/bkfq.html
If you want to read articles about bankruptcy law and related
subjects, you can go to
http://www.law.indiana.edu/ftp/archives/bankrlaw/bankrlaw.html
For a discussion of alternatives to bankrupcy, go to
http://apocalypse.berkshire.net/~mkb/
The site includes information on the following alternatives: Debt
Workout, Do Nothing, and Pay Creditors.
Dockets, records, and some of the decisions of the bankruptcy courts can be accessed online through the federal courts’ electronic bulletin board system, PACER (see the Accessing the Internet section at the end of Chapter 3 for information on PACER).