Basic Debtor Creditor Terminology Debtor: person who owes the money Creditor: person to whom the money is owed To qualify as a debt, it must be: Certain (i.e., not contingent on some future event) Liquidated (a sum certain) Enforceable under the law Judgment creditor: This is a creditor who has obtained a judgment in court against the debtor Legal Document Preparation Class 9 Slide 1
Major Bankruptcy Types Chapter 7 (Liquidation) This is where the debtor gives up all of his assets (except exempt assets) If it s a business, it gives up all its assets and inventory and ceases to operate unless a creditor takes it over Chapter 11 Mainly applicable to businesses The business reorganizes its debts through renegotiation with the creditors Chapter 13 This is for a working individual The individual reorganizes its debts through renegotiation with his or her creditors Must be voluntary Legal Document Preparation Class 9 Slide 2
Involuntary Bankruptcy If a debtor simply refuses to pay his/her debts and doesn t file a petition for bankruptcy, a creditor can force the debtor into Chapter 7 bankruptcy. The Procedure after this happens is basically the same as with a voluntary proceeding. Automatic Stay This applies in voluntary and involuntary proceedings After the petition is filed, the creditors must stop all collections actions (even on secured loans!) pending the hearing on the petition Legal Document Preparation Class 9 Slide 3
Bankruptcy Documents the Proof of Claim Each creditor must prepare and submit to the court a proof of claim, which gives notice of: The nature and amount of the debt owed by the debtor Basis for the claim Whether and to what extent the claim is secured Whether a judgment has been obtained that relates to the claim Whether there are any applicable priorities relevant to the claim Any setoffs that have been taken against the debt Supporting documents that proves the debt Legal Document Preparation Class 9 Slide 4
Bankruptcy Procedure First, the Petition is filed First meeting of the creditors The creditors can get all kinds of info from debtor Proof of claims must be filed within 90 days of this Trustee is designated by the court This person is in charge of administering the debtor s assets until it is distributed Sometimes the Debtor can remain in possession of the assets, especially in a non liquidation bankruptcy Then, the negotiation process takes place Finally, the discharge is issued or the petition is dismissed Legal Document Preparation Class 9 Slide 5
Fraudulent Transfers One much be careful to look back in time before the filing of the petition to make sure there are no transactions that can be undone by the court. These include: Voidable transfers Any transfer made up to a year before the petition was filed with the intent to defraud creditors Preferential transfer Given to one creditor shortly before the petition, which gives the creditor more than s/he would have received through the bankruptcy process Constructive Fraudulent Transfer Any gift made by an insolvent debtor shortly before the petition Legal Document Preparation Class 9 Slide 6
Information to collect for a Bankruptcy Client Personal info Name, address, Soc. Sec. #, etc. Information about any prior bankruptcy filings Property with secured debts Other property owned Secured Debts Unsecured Debts Property that may be exempt Income sources Legal Document Preparation Class 9 Slide 7
Preparing the Petition First, determine the proper venue! Fill out all info requested on the Petition Also, the following information must also often be included: Tax returns Statements from financial accounts Business books and records Property held by the debtor for others or held by others for the debtor Prior bankruptcies Ways debts have been collected, such as setoffs Recent transfers (watch for fraudulent transfers) Repossessions, losses, etc. Expenses of preparing petition, including attorney s fees, etc. Legal Document Preparation Class 9 Slide 8
Bankruptcy Petition Schedules Schedule A Debtor s real property Schedule B Debtor s personal property Schedule C Property claimed as exempt Schedule D Secured creditors and security interests Schedule E Creditors with priority, but no security Schedule F List of unsecured creditors Schedule G Debtor s standing contractual obligations and contracts under which the debtor is owed money Schedule H Any debts on which the debtor is a co obligor Schedule I Income information of the debtor and spouse Schedule J List of debtor s monthly expenses Summary of schedules Legal Document Preparation Class 9 Slide 9
Bankruptcy Petition Statement of Financial Affairs This must be submitted by a business petitioner. Includes: Information about the business Books and records or business Financial Statements Inventories Other income (e.g., investments by the business) Tax returns Financial Accounts Involvement in lawsuits Profits and losses statements Recent transfers Withdrawals by business members, etc. Legal Document Preparation Class 9 Slide 10
Other Important Bankruptcy Documents Order confirming plan After the negotiation to alter the payments in a Chapter 11 or 13 proceeding, the court has to approve the plan for it to go into effect. The petitioner s attorney has to prepare the complete documentation of the plan to be signed by the court Discharge This is the point of the proceeding it absolves the debtor of all debts unless they are included in the approved plan Often, the petitioner s attorney has to prepare the discharge to be signed by the court Legal Document Preparation Class 9 Slide 11