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BANKRUPTCYDESKBOOK

Fifth Edition

William C. HillmanMargaret M. Crouch

Steven J. BrujicContributing Editor for Release #7

Incorporating Release #7September 2017

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Practising Law InstituteNew York City

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This work is designed to provide practical and usefulinformation on the subject matter covered. However, it issold with the understanding that neither the publishernor the author is engaged in rendering legal, accounting,or other professional services. If legal advice or other expertassistance is required, the services of a competent profes-sional should be sought.

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Legal Editor: Paul Matsumoto

Copyright © 1986, 1990, 2001, 2003, 2004, 2005, 2006, 2007, 2008, 2009,2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 by Practising Law Institute.

First edition 1986, Hon. Harvey M. Lebowitz, author.

Second edition 1990

Third edition 2001, William C. Hillman & Margaret M. Crouch, authors.

Fourth edition 2006

Fifth edition 2014

All rights reserved. Printed in the United States of America. No part of thispublication may be reproduced, stored in a retrieval system, or transmitted in anyform by any means, electronic, mechanical, photocopying, recording, orotherwise, without the prior written permission of Practising Law Institute.

LCCN: 2006929973

ISBN: 978-1-4024-2171-6

William C. Hillman dedicates this book to Eleanor A. Radin.The value of her friendship and support over many decades

cannot be exaggerated.

Margaret M. Crouch dedicates this book to Paul Clinton Crouch,whose love and support as a father made this book

and all personal and professional accomplishments possible.

Preface to the Fifth Edition

Bankruptcy Deskbook is a concise treatise designed as a primary sourceof bankruptcy information for the practitioner who is not a specialistin the field. It is a reference guide oriented to practitioners who wishto represent consumer debtors and businesses in financial distress;attorneys who are consulted by creditors who have been notified of abankruptcy filing; as well as practitioners engaged to defend clientswho have been sued by a trustee or debtor in possession.

In many respects, bankruptcy law is really a remedy, applied tointerests in property created by the law of real estate, the UniformCommercial Code, domestic relations law, and other specialties. In anumber of its sections, the Bankruptcy Code explicitly states that itsprovisions are affected by principles of “applicable nonbankruptcylaw.” Thus, knowledge of the rights created by state (and other federal)law is a prerequisite to the application of the remedial provisions of theCode.1 The goal of Bankruptcy Deskbook is to provide attorneyswho practice primarily in fields other than bankruptcy with sufficientinformation so that they can use, or at least understand, the bank-ruptcy remedy as it affects their clients.

There are many critical areas of bankruptcy law where judicialdecisions are inconsistent. The enactment of the Bankruptcy AbusePrevention and Consumer Protection Act of 2005 (BAPCPA) createduncertainty in a number of contexts. Clarity has come through severalSupreme Court decisions and technical amendments, but significantissues remain unresolved. With BAPCPA now in effect for over eightyears, the Fifth Edition of Bankruptcy Deskbook is designed to fullyintegrate the provisions of that law into the text of this treatise whilehighlighting Supreme Court cases and the most recent decisionsavailable interpreting its difficult provisions.

——————

1. Throughout this treatise, references to the “Bankruptcy Code” or the“Code” are to title 11 of the United States Code. Any references to “the Act”are to the substantial number of amendments to the Code created by theBankruptcy Abuse Prevention and Consumer Protection Act of 2005.References to the “Rules” are to the Federal Rules of Bankruptcy Procedure.References to chapters of the Bankruptcy Code are capitalized, whereasreferences to chapters of this treatise (and other works) are not—thus,“Chapter 13” refers to the Bankruptcy Code, while chapter 13 of this treatisewould be “chapter 13.”

ix(Bankruptcy, Rel. #7, 9/17)

Throughout Bankruptcy Deskbook, we have attempted to point outthe most important cases. Knowledge of circuit and local precedents,however, is critical to bankruptcy practice. The careful reader will notethat a large number of the cases cited are recent and that bankruptcylaw, like virtually every other area of the law, continues to evolve.Moreover, Official Forms and other resources are readily availableonline at bankruptcy court and other websites.2 Accordingly, theauthors have elected to eliminate a separate volume containing forms.

Bankruptcy courts are one of the few trial courts that publishdecisions, and in some jurisdictions where there is no controllingappellate authority, opinions often differ. This is yet another reasonfor the bankruptcy practitioner to know the local legal culture.

Bankruptcy law can be extremely complex. For those who requirea more extensive treatment of any particular point of law, there are avariety of multi-volume reference texts to consult.

HON. WILLIAM C. HILLMAN

MARGARET M. CROUCH

May 2014

x

——————

2. Official Bankruptcy Forms referenced throughout this treatise, along withinstructions and committee notes, are posted by the United States Courtson its website for use by the public. See Bankruptcy Forms, UNITED STATES

COURTS, www.uscourts.gov/forms/bankruptcy-forms (last visited Feb. 8, 2017).

BANKRUPTCY DESKBOOK

Table of Chapters

Chapter 1 Introduction to the Bankruptcy System

Chapter 2 Jurisdiction and Related Topics

Chapter 3 Initiating, Converting, or Dismissing Chapter 7 andChapter 11 Cases

Chapter 4 Examination of the Debtor and Other Parties

Chapter 5 The Automatic Stay

Chapter 6 Avoidance Powers

Chapter 7 Collection, Disposition, and Distribution of Propertyof the Estate

Chapter 8 Claims and Interests

Chapter 9 Discharge and Dischargeability

Chapter 10 Ethical Considerations and the Employment andCompensation of Professionals

Chapter 11 Chapter 11

Chapter 12 Adjustment of Debts of a Family Farmer orFisherman with Regular Annual Income


Chapter 14 Litigation and Appeals

(Bankruptcy, Rel. #7, 9/17) xi

Table of Contents

Preface to the Fifth Edition .........................................................ix

Table of Chapters............................................................................xi

Chapter 1 Introduction to the Bankruptcy System

§ 1:1 Overview of the Bankruptcy Code.................................... 1-2§ 1:1.1 Format and Chapter Content .................................... 1-2

[A] Chapters 1, 3, and 5: General Provisions, CaseAdministration, and Definitions ............................... 1-2

[A][1] Chapter 1 .............................................................. 1-3[A][2] Chapter 3 .............................................................. 1-3[A][3] Chapter 5 .............................................................. 1-3[B] Chapters 7, 9, 11, 12, 13, and 15: The “Operative

Chapters”................................................................... 1-3[B][1] Chapter 7 .............................................................. 1-4[B][2] Chapter 9 .............................................................. 1-4[B][3] Chapter 11 ............................................................ 1-4[B][4] Chapter 12 ............................................................ 1-4[B][5] Chapter 13 ............................................................ 1-5[B][6] Chapter 15 ............................................................ 1-5

§ 1:2 Definitions, General Provisions in Chapter 1 .................. 1-5§ 1:3 The Players....................................................................... 1-9

§ 1:3.1 Debtors .................................................................... 1-10[A] Individual Debtors................................................... 1-10[B] Business Debtors ..................................................... 1-10

§ 1:3.2 Creditors.................................................................. 1-11[A] Unsecured Creditors................................................ 1-12[B] Secured Creditors .................................................... 1-12[C] Priority Creditors..................................................... 1-12

§ 1:3.3 Equity Security Holders ........................................... 1-13§ 1:3.4 Trustees ................................................................... 1-13§ 1:3.5 U.S. Trustees ........................................................... 1-14§ 1:3.6 Bankruptcy Petition Preparers ................................. 1-14§ 1:3.7 Patient Care Ombudsman ....................................... 1-16§ 1:3.8 Consumer Privacy Ombudsman.............................. 1-17

§ 1:4 Ethical Considerations ................................................... 1-17

(Bankruptcy, Rel. #7, 9/17) xiii

§ 1:5 Alternatives to Consider................................................. 1-18§ 1:5.1 Options Under the Bankruptcy Code...................... 1-18§ 1:5.2 Alternatives to Bankruptcy ...................................... 1-19

[A] Workout................................................................... 1-19[B] State Insolvency Proceedings ................................... 1-21[C] Walkaway................................................................. 1-22

§ 1:6 Recusal of Bankruptcy Judge .......................................... 1-22

Appendix 1A Summary of Eligibility ................................ App. 1A-1

Chapter 2 Jurisdiction and Related Topics

§ 2:1 Jurisdiction ....................................................................... 2-1§ 2:1.1 Background................................................................ 2-1§ 2:1.2 The Current Jurisdictional Scheme........................... 2-2

[A] Overview.................................................................... 2-2[B] Bankruptcy Court Jurisdiction................................... 2-3[B][1] Generally ............................................................... 2-3[B][2] The Rooker-Feldman Doctrine .............................. 2-3[C] Core/Non-Core Matters............................................. 2-5[C][1] Stern v. Marshall ................................................. 2-12[C][2] Supplemental Jurisdiction ................................... 2-20[D] Personal Injury and Wrongful Death Claims .......... 2-21[E] Abstention ............................................................... 2-22[E][1] Abstention Under Section 1334(c) ...................... 2-23[E][2] Dismissal or Suspension Under Section 305...... 2-26[F] Withdrawal of the Reference.................................... 2-27[G] Procedures Governing Withdrawal of the

Reference, Abstention, and Proposed Findings ........ 2-32[H] Removal and Remand.............................................. 2-33[I] Procedures Governing Removal ............................... 2-35

§ 2:2 Jury Trials ....................................................................... 2-37§ 2:3 Venue.............................................................................. 2-41§ 2:4 Sovereign Immunity ....................................................... 2-44§ 2:5 The Barton Doctrine ...................................................... 2-47

Chapter 3 Initiating, Converting, or DismissingChapter 7 and Chapter 11 Cases

§ 3:1 Introduction ..................................................................... 3-2§ 3:2 The Timing of Case Filings and the Effect of Prior

Filings............................................................................... 3-2§ 3:3 Voluntary Chapter 7 Cases .............................................. 3-4

§ 3:3.1 Eligibility ................................................................... 3-4

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[A] Pre-Filing Credit Counseling ..................................... 3-5[B] Means Testing and Other Prerequisites ................... 3-11[B][1] Prior Discharges .................................................. 3-13[B][2] Potential Debtor ’s “Current Monthly Income”

(CMI) .................................................................. 3-13[B][3] Median Family Income ....................................... 3-16[B][4] Presumed Deductions ......................................... 3-19[B][5] Applying the Presumption .................................. 3-22[C] Dismissal for Abuse................................................. 3-25[D] Chapter 7 Filing Requirements and

Debtor ’s Duties ....................................................... 3-28§ 3:3.2 Considerations......................................................... 3-36

[A] Advantages............................................................... 3-36[B] Disadvantages.......................................................... 3-38

§ 3:4 Voluntary Chapter 11..................................................... 3-41§ 3:4.1 Eligibility ................................................................. 3-41§ 3:4.2 Considerations......................................................... 3-41

[A] Advantages............................................................... 3-41[B] Disadvantages.......................................................... 3-44[C] Filing Requirements................................................. 3-45

§ 3:5 Involuntary Chapter 7 and Chapter 11 Petitions........... 3-47§ 3:5.1 Eligibility ................................................................. 3-47§ 3:5.2 Considerations......................................................... 3-52

[A] Deciding Whether and When to FileInvoluntary Petition................................................. 3-52

[B] Chapter 7 Versus Chapter 11 .................................. 3-54[C] Disadvantages in Involuntary Cases........................ 3-55[D] Dismissal of Petition ............................................... 3-56

§ 3:6 Conversion ..................................................................... 3-60§ 3:6.1 Introduction............................................................. 3-60§ 3:6.2 Conditions............................................................... 3-60§ 3:6.3 Effects of Conversion............................................... 3-70

§ 3:7 Dismissal........................................................................ 3-73§ 3:7.1 Chapter 7 ................................................................ 3-73§ 3:7.2 Chapter 11 .............................................................. 3-77§ 3:7.3 Effects of Dismissal ................................................. 3-82

§ 3:8 Closing and Reopening Cases ........................................ 3-84

Chapter 4 Examination of the Debtor and Other Parties

§ 4:1 Meeting of Creditors ........................................................ 4-1§ 4:1.1 Generally ................................................................... 4-1

[A] Scheduling and Deadlines ......................................... 4-2[B] Required Documentation........................................... 4-3[C] Nature and Scope of Proceeding ................................ 4-4

(Bankruptcy, Rel. #7, 9/17)

Table of Contents

xv

§ 4:1.2 Examining a Business Debtor.................................... 4-5[A] Relationships with Insiders ....................................... 4-6[B] Relationships with Creditors ..................................... 4-7[C] Plans to Reorganize or to Liquidate Business ............ 4-7

§ 4:1.3 Examining a Consumer Debtor................................. 4-8§ 4:1.4 Transfers of Property.................................................. 4-8§ 4:1.5 Eligibility ................................................................. 4-10

§ 4:2 Examination Under Rule 2004....................................... 4-10§ 4:2.1 Scope of Examination.............................................. 4-10§ 4:2.2 Procedure ................................................................. 4-13§ 4:2.3 Who May Participate ............................................... 4-14§ 4:2.4 Objections................................................................ 4-14

§ 4:3 Privileges......................................................................... 4-15§ 4:3.1 Attorney-Client Privilege ......................................... 4-15§ 4:3.2 Privilege Against Self-Incrimination ........................ 4-16

Chapter 5 The Automatic Stay

§ 5:1 Purpose of the Automatic Stay ......................................... 5-2§ 5:2 The Scope of the Stay (Section 362(a))............................. 5-3§ 5:3 Violations of the Automatic Stay ................................... 5-10§ 5:4 Exceptions to the Stay (Section 362(b)) .......................... 5-19

§ 5:4.1 Generally ................................................................. 5-19§ 5:4.2 Specific Exceptions to the Stay ................................ 5-19

[A] Criminal Actions (Section 362(b)(1))....................... 5-19[B] Domestic Relations Matters (Section 362(b)(2)) ...... 5-21[C] Perfecting Pre-Petition Interests

(Section 362(b)(3)) ................................................... 5-24[D] Police and Regulatory Powers (Section 362(b)(4)) .... 5-25[E] Subsections 362(b)(6), (7), (8), (12), and (13) .......... 5-29[F] Tax Proceedings (Section 362(b)(9)) ......................... 5-29[G] Terminated Nonresidential Leases

(Section 362(b)(10)) ................................................. 5-30[H] Presentment and Protest of Negotiable Instruments

(Section 362(b)(11))....................................................5-30[I] Withholding of Income from Wages Used for

Repayment of Loans from Retirement Plans(Section 362(b)(19)) ................................................. 5-31

[J] Enforcement of Liens Arising from In Rem Orders(Section 362(b)(20))....................................................5-32

[K] Enforcement of Liens in Cases Filed inViolation of Section 109(g) or a Court Order(Section 362(b)(21)) ................................................. 5-33

[L] Exception for Residential Eviction Proceedings(Section 362(b)(22)) ................................................. 5-33

BANKRUPTCY DESKBOOK

xvi

[M] Endangerment of Property or the Illegal Use ofControlled Substances (Section 362(b)(23)) ............. 5-35

[N] Non-Avoidable Transfers (Section 362(b)(24)) ......... 5-36[O] Securities Regulation (Section 362(b)(25)) ............... 5-36[P] Income Tax Refunds (Section 362(b)(26)) ................ 5-37[Q] Subsections 362(b)(27) and (28) .............................. 5-37

§ 5:5 Duration of the Stay and the Effect of Prior Filings(Section 362(c))............................................................... 5-38

§ 5:5.1 Generally ................................................................. 5-38§ 5:5.2 Effect of Prior Filings ............................................... 5-38

[A] One Previous Case (Section 362(c)(3))..................... 5-39[B] More Than One Previous Case

(Section 362(c)(4)).................................................... 5-43§ 5:6 Comfort Orders (Section 362(j)) ..................................... 5-46§ 5:7 Pre-Petition Waiver of Stay ............................................. 5-46§ 5:8 Multiple Filings by Small Business Debtors:

The Stay May Not Apply (Section 362(n)) ..................... 5-47§ 5:9 Duration of the Stay and Duties of

Individual Debtors (Section 362(h)) ............................... 5-48§ 5:9.1 Section 521(a)(2) Duties: Claims Secured by

Personal Property of the Estate................................ 5-48§ 5:9.2 Section 521(a)(6) Duties: Purchase Money

Secured Claims........................................................ 5-51§ 5:9.3 Section 521(d) and Ipso Facto Clauses .................... 5-52

§ 5:10 Relief from the Stay........................................................ 5-53§ 5:10.1 Generally ................................................................. 5-53

[A] Status As a “Party in Interest”................................. 5-53[B] Right of a Servicer to Bring a Motion for

Relief from Stay ....................................................... 5-54[C] Grounds for Relief ................................................... 5-55

§ 5:10.2 Termination of the Stay After the Filing ofa Motion (Section 362(e)(1)).................................... 5-58

[A] Duration of the Stay After the Filing ofa Motion Where the Debtor Is an Individual(Section 362(e)(2)).................................................... 5-58

[B] Emergency Relief from Stay (Section 362(f))............ 5-60§ 5:10.3 Motions for Relief from Stay Under

Section 362(d)(1) for Cause ..................................... 5-60[A] Real Estate and Personal Property Cases ................. 5-61[B] Relief to Pursue Pending Litigation ......................... 5-62

§ 5:10.4 Motions for Relief Under Section 362(d)(2) ............ 5-65§ 5:10.5 Motions for Relief Under Section 362(d)(3) ............ 5-67§ 5:10.6 Motions for Relief Under Section 362(d)(4) ............ 5-69

§ 5:11 Burden of Proof (Section 362(g))..................................... 5-70§ 5:12 Adequate Protection (Section 361) ................................. 5-70


Table of Contents

xvii

Chapter 6 Avoidance Powers

§ 6:1 Introduction to the Avoidance Powers ............................. 6-2§ 6:1.1 General Concepts ...................................................... 6-2§ 6:1.2 Who May Exercise Avoidance Powers ....................... 6-3

§ 6:2 The Strong-Arm Clause ................................................... 6-6§ 6:3 Powers As Successor in Interest of Unsecured

Creditors......................................................................... 6-10§ 6:3.1 Avoidance Under State Law..................................... 6-10§ 6:3.2 Marshaling............................................................... 6-13

§ 6:4 Avoidance of Particular Types of Transactions ............... 6-13§ 6:4.1 Statutory Liens ........................................................ 6-13§ 6:4.2 Preferences............................................................... 6-16

[A] General Concepts and Venue .................................. 6-16[B] Background and Elements ....................................... 6-18[C] Exceptions and Defenses ......................................... 6-27[C][1] Substantially Contemporaneous Exchange ......... 6-30[C][2] Ordinary-Course Transfers .................................. 6-32[C][3] Purchase Money Security Interests ..................... 6-34[C][4] Subsequent New Value ........................................ 6-35[C][5] “Floating Lien” Collateral—Improvement in

Position ............................................................... 6-38[C][6] Statutory Lien ..................................................... 6-39[C][7] Alimony, Maintenance, and Support Payments ....6-39[C][8] Small Preferences in a Consumer Case .............. 6-39[C][9] Small Preferences in Cases Without

Substantial Consumer Debt................................ 6-40§ 6:4.3 Avoidance of Fraudulent Transfers .......................... 6-40

[A] Elements of Fraud.................................................... 6-45[B] Less Than Reasonably Equivalent Value.................. 6-47[C] Self-Settled Trusts .................................................... 6-52[D] Liens for Good-Faith Transferees............................. 6-52[E] Leveraged Buyouts ................................................... 6-54[F] Ponzi Schemes......................................................... 6-55

§ 6:5 Post-Petition Transfers.................................................... 6-58§ 6:6 Set-Off and Recoupment ................................................ 6-61

§ 6:6.1 Introduction............................................................. 6-61§ 6:6.2 Pre-Petition Set-Offs ................................................ 6-62§ 6:6.3 Post-Petition Set-Offs .............................................. 6-64

§ 6:7 Limitations on Avoidance Powers .................................. 6-66§ 6:7.1 Limitations on Time to File .................................... 6-66§ 6:7.2 Liability of Transferees of Avoided Transfers and

Preservation of Liens ............................................... 6-70§ 6:7.3 Reclamation Rights ................................................. 6-73§ 6:7.4 Warehouseman’s Lien.............................................. 6-74

§ 6:8 Preservation of Avoided Transfer .................................... 6-74

BANKRUPTCY DESKBOOK

xviii

Chapter 7 Collection, Disposition, and Distribution ofProperty of the Estate

§ 7:1 What Constitutes Property of the Estate.......................... 7-2§ 7:1.1 Marital Issues .......................................................... 7-10§ 7:1.2 Exclusions from Property of the Estate.................... 7-12

[A] Restrictions on Transfers and Ipso Facto Clauses......7-14[B] Retirement, Education, and Employment

Benefit Plans............................................................ 7-15[C] Pawned Goods ......................................................... 7-17[D] Social Security and Other Benefits .......................... 7-17

§ 7:2 Collection of Property of the Estate................................ 7-18§ 7:2.1 Turnover .................................................................. 7-18

[A] Custodians............................................................... 7-19[B] Non-Custodians ...................................................... 7-21[C] Turnover Procedure.................................................. 7-22

§ 7:2.2 Avoidance Powers .................................................... 7-23§ 7:2.3 Pursuing the Debtor ’s Causes of Action and

Extensions of Time Under Section 108................... 7-23§ 7:2.4 Assumption of Executory Contracts and

Unexpired Leases..................................................... 7-25§ 7:2.5 Alter Ego, Veil Piercing, Reverse Veil Piercing ......... 7-26§ 7:2.6 Substantive Consolidation....................................... 7-28

§ 7:3 Disposition of Property of the Estate ............................. 7-30§ 7:4 Exemptions..................................................................... 7-32

§ 7:4.1 Section 522(d) Exemptions...................................... 7-46§ 7:4.2 Exemptions Other Than Under Section 522(d)....... 7-51§ 7:4.3 Application of Exemptions to Taxes and

Domestic Support Obligations ................................ 7-51§ 7:4.4 Creation of Exemptible Property ............................. 7-52

[A] Debtor ’s Right to Avoid Liens ................................. 7-52[B] Debtor ’s Right to Exempt Property Recovered by

Trustee or That Could Be Recovered by Trustee...... 7-57§ 7:4.5 Surcharge of Exempt Property ................................. 7-58§ 7:4.6 Procedure for Exempting Property and

Objecting to Exemptions ......................................... 7-59§ 7:4.7 Amendment of Exemptions..................................... 7-61

§ 7:5 Abandonment................................................................. 7-62§ 7:6 Redemption .................................................................... 7-63§ 7:7 Sale, Use, or Lease of Property Outside the

Ordinary Course of Business.......................................... 7-64§ 7:8 Sale of Property in Which the Estate and

Others Have an Interest ................................................. 7-67§ 7:8.1 Sale Free and Clear of Interests in Property ............ 7-67§ 7:8.2 Sales Involving Co-Owners ..................................... 7-69


Table of Contents

xix

§ 7:9 Assignment of Executory Contracts andUnexpired Leases............................................................ 7-70

§ 7:10 Rejection of Executory Contracts andUnexpired Leases............................................................ 7-71

§ 7:11 Distribution of Property of the Estate ............................ 7-71

Chapter 8 Claims and Interests

§ 8:1 Types of Claims and Interests .......................................... 8-1§ 8:1.1 Claims ....................................................................... 8-1

[A] Secured Claims.......................................................... 8-5[B] Priority and Non-Priority Unsecured Claims .......... 8-11

§ 8:1.2 Interests................................................................... 8-24§ 8:2 Filing Proofs of Claim or Interest................................... 8-24

§ 8:2.1 Generally ................................................................. 8-24§ 8:2.2 Timely Filing of Formal Proof of Claim .................. 8-26§ 8:2.3 Informal Proofs of Claim......................................... 8-31

§ 8:3 Disallowance of Claims or Interests .............................. 8-33§ 8:4 Allowance of Administrative Expense Claims................ 8-40

§ 8:4.1 General Procedures.................................................. 8-40§ 8:4.2 Types of Administrative Expenses Allowed ............. 8-42

§ 8:5 Estimation of Claims ..................................................... 8-48§ 8:6 Determination of Tax Liability ....................................... 8-48§ 8:7 Subordination and Recharacterization............................ 8-50§ 8:8 Interest on Tax Claims................................................... 8-55§ 8:9 Claims and Stern v. Marshall ......................................... 8-56§ 8:10 Claims Against Trustees................................................. 8-57

Chapter 9 Discharge and Dischargeability

§ 9:1 Introduction ..................................................................... 9-2§ 9:2 Who Is Entitled to a Discharge?....................................... 9-3

§ 9:2.1 Individuals................................................................. 9-3[A] Requirements for Issuance of Discharge.................... 9-4[B] Waiver of Discharge ................................................... 9-6

§ 9:2.2 Corporations and Partnerships .................................. 9-7§ 9:2.3 Chapter 12 Debtors ................................................... 9-7

§ 9:3 Effect of a Discharge......................................................... 9-7§ 9:4 Reaffirmation, Redemption, and Surrender.................... 9-13

§ 9:4.1 Reaffirmation........................................................... 9-14§ 9:4.2 Redemption ............................................................. 9-20§ 9:4.3 Surrender ................................................................. 9-21

§ 9:5 Discharge Orders............................................................ 9-24§ 9:6 Objection to an Individual Debtor ’s Discharge.............. 9-25

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§ 9:6.1 Introduction............................................................. 9-25§ 9:6.2 Procedure and Time for Objections......................... 9-25§ 9:6.3 Grounds for Denial of Discharge ............................ 9-28

[A] Fraudulent Transfer, Concealment, orDestruction of Property ........................................... 9-29

[B] Failure to Keep or Destruction of Records............... 9-30[C] False Oath or Claim ................................................ 9-31[D] Bribery ..................................................................... 9-32[E] Failure to Cooperate with Officers of the Estate...... 9-32[F] Failure to Explain Loss of Assets ............................. 9-33[G] Failure to Follow Valid Orders ................................. 9-33[H] Forbidden Acts in Another Bankruptcy Case .......... 9-34[I] Personal Financial Management Training ............... 9-34[J] Prior Discharge; Other Grounds.............................. 9-35

§ 9:6.4 Burden of Proof........................................................ 9-36§ 9:7 Revocation of Discharge ................................................. 9-36§ 9:8 Dischargeability of Debts ............................................... 9-39

§ 9:8.1 Introduction............................................................. 9-39§ 9:8.2 Procedure and Time for Objections......................... 9-42§ 9:8.3 Burden of Proof........................................................ 9-44§ 9:8.4 Non-Dischargeable Debts Under Section 523(c) ..... 9-46

[A] Debts Created by Fraud ........................................... 9-46[A][1] False Pretenses, False Representations, and

Actual Fraud........................................................ 9-46[A][2] False Statements of Financial Condition ............ 9-51[A][3] “Loading Up” Consumer Debts and

Credit Card Debts .................................................9-53[B] Fiduciary ’s Fraud or Fiduciary ’s Defalcation and

Embezzlement or Larceny ..........................................9-54[C] Willful and Malicious Injury ................................... 9-59

§ 9:8.5 Non-Dischargeable Debts Other Than UnderSection 523(c) .......................................................... 9-64

[A] Gap Claims ............................................................. 9-64[B] Eighth Priority and Other Taxes .............................. 9-64[B][1] Three-Year Taxes.................................................. 9-65[B][2] 240-Day Taxes..................................................... 9-67[B][3] Unassessed but Assessable Taxes ........................ 9-67[B][4] Property Taxes ..................................................... 9-68[B][5] Trust Fund Taxes................................................. 9-68[B][6] Employee Benefit Plan Taxes............................... 9-68[B][7] Excise Taxes and Customs Duties ...................... 9-68[B][8] Unfiled and Late-Filed Returns ........................... 9-69[B][9] Tax Fraud ............................................................ 9-69[C] Unlisted or Unscheduled Debts .............................. 9-70[D] Domestic Support Obligations and Other

Divorce-Related Claims ........................................... 9-72


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[E] Fines and Penalties .................................................. 9-76[F] Student Loans.......................................................... 9-79[G] Claims Arising from Driving Under the

Influence of Drugs or Alcohol....................................9-85[H] Debtor Previously Not Granted a Discharge ........... 9-86[I] Loans from Retirement Plans .................................. 9-86[J] Miscellaneous .......................................................... 9-86

§ 9:9 Settlement of Section 523 and Section 727Adversary Proceedings .................................................... 9-89

§ 9:9.1 Settlement of Section 523 Proceedings.................... 9-89§ 9:9.2 Settlement of Section 727 Proceedings.................... 9-89

§ 9:10 Money Judgments .......................................................... 9-90

Chapter 10 Ethical Considerations and the Employmentand Compensation of Professionals

§ 10:1 Introduction ................................................................... 10-2§ 10:2 Duties of Debtors’ Attorneys in Consumer Cases

Under Chapters 7 and 13............................................... 10-2§ 10:2.1 Disclosure of Compensation Statements ................ 10-2§ 10:2.2 Limitation of Representation................................... 10-3§ 10:2.3 Certifications and Sanctions Under

Section 707(b) and Rule 9011 ................................. 10-6§ 10:2.4 Debt Relief Agencies................................................ 10-8

[A] Requirements for Debt Relief Agencies.................... 10-9[B] Debt Relief Agency Disclosures ............................. 10-10[C] Restrictions on Debt Relief Agencies ..................... 10-13

§ 10:3 Requirements Governing the Employment ofProfessionals Under Sections 327 and 329 .................. 10-16

§ 10:3.1 Debtor ’s Counsel in Chapter 7, Chapter 12,and Chapter 13 Cases..............................................10-20

§ 10:3.2 Special Considerations in Chapter 11 Cases......... 10-21§ 10:3.3 Full and Complete Disclosure ............................... 10-23§ 10:3.4 Post Facto Employment of Professionals ............... 10-24

§ 10:4 Compensation of Professionals .................................... 10-26§ 10:4.1 Retainers................................................................ 10-29

[A] Types of Retainers.................................................. 10-29[B] Contents of Retainer Agreements.......................... 10-31[C] Sources of Retainers............................................... 10-31[D] Indemnification Agreements ................................. 10-32

§ 10:4.2 Contingent Fees..................................................... 10-32§ 10:4.3 Fee Application Standards ..................................... 10-34§ 10:4.4 Fee Application Procedures.................................... 10-39

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§ 10:5 Sanctions for Professional Misconduct......................... 10-40§ 10:5.1 Sanctions Under Bankruptcy Rule 9011 ............... 10-40§ 10:5.2 Contempt Under Section 105 and

Bankruptcy Rule 9020 ........................................... 10-44§ 10:5.3 Inherent-Power Sanctions...................................... 10-47§ 10:5.4 Removal of Trustee or Examiner ........................... 10-49


§ 11:1 The Debtor in Possession............................................... 11-3§ 11:1.1 Powers ..................................................................... 11-4§ 11:1.2 Duties ...................................................................... 11-5§ 11:1.3 Employment of Professionals .................................. 11-6

§ 11:2 Other Participants in Chapter 11................................. 11-12§ 11:2.1 Creditors’ Committee............................................ 11-12§ 11:2.2 Equity Security Holders and Other Committees .....11-17§ 11:2.3 Trustee................................................................... 11-18

[A] Grounds for Appointment ..................................... 11-18[B] Qualification.......................................................... 11-20[C] Duties and Powers................................................. 11-20[D] Compensation ....................................................... 11-23

§ 11:2.4 The Examiner........................................................ 11-24§ 11:2.5 The U.S. Trustee ................................................... 11-24

§ 11:3 Conducting Business .................................................... 11-25§ 11:3.1 Transactions in the Ordinary Course of

Business................................................................. 11-25§ 11:3.2 Transactions Outside the Ordinary Course of

Business................................................................. 11-26[A] First-Day Orders .................................................... 11-26[A][1] Extensions of Time to File Schedules and

Statement of Financial Affairs........................... 11-27[A][2] Joint Administration ......................................... 11-27[A][3] Payment of Pre-Petition Employee

Compensation................................................... 11-28[A][4] Critical Vendor Motions.................................... 11-29[A][5] Reclamation Claims and Twenty-Day

Claims............................................................... 11-31[A][6] Pre-Petition Customer Service Programs........... 11-33[A][7] Employment of Professionals ............................ 11-34[A][8] Pre-Petition Bank Accounts............................... 11-34[A][9] Utilities ............................................................. 11-34[A][10] Financing Orders............................................... 11-36[B] Post-Petition Financing.......................................... 11-36[B][1] Use of Cash Collateral ...................................... 11-36[B][2] Obtaining Credit ............................................... 11-41


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[B][3] Controversial Provisions in Financing Orders.....11-44[B][3][a] Cross-Collateralization ................................... 11-44[B][3][b] Findings of Fact Regarding the Validity,

Perfection, Priority, or Amount of theSecured Party ’s Liens ...................................... 11-45

[B][3][c] Waivers of Rights and Defenses...................... 11-46[B][3][d] Liens in Avoidance Actions ............................ 11-46[B][3][e] Drop-Dead Clauses......................................... 11-47[B][3][f] Carve-Outs ..................................................... 11-47[B][3][g] Miscellaneous Provisions................................ 11-48[C] Use, Sale, or Lease of Property .............................. 11-48[C][1] The Business-Judgment Test and

All-Asset Sales................................................... 11-50[C][2] Sales Procedures ................................................ 11-52

§ 11:3.3 Employee Issues .................................................... 11-57[A] Retention, Bonus, and Severance Programs........... 11-57[B] Retirement Benefits ............................................... 11-60

§ 11:3.4 Assumption and Rejection of ExecutoryContracts and Leases............................................. 11-61

[A] Definitions............................................................. 11-62[B] Procedure ............................................................... 11-65[B][1] Timing .............................................................. 11-65[B][1][a] Residential Real Property and Personal

Property .......................................................... 11-65[B][1][b] Nonresidential Real Property.......................... 11-66[B][2] Motion Practice................................................. 11-67[B][3] The Confusion About Section 365(d)(3) ........... 11-67[B][4] Rejection............................................................ 11-70[B][4][a] Considerations................................................ 11-70[B][4][b] Grounds.......................................................... 11-71[B][5] Assumption....................................................... 11-72[B][6] Assignment ....................................................... 11-76[C] Termination by the Non-Debtor............................ 11-78[D] Claims from Rejection........................................... 11-78[E] Special Contracts ................................................... 11-81[E][1] Collective Bargaining Agreements..................... 11-81[E][2] Contracts for Lease or Sale of

Real Property or Timeshare Interests ................ 11-84[E][3] Intellectual Property Contracts ......................... 11-85

§ 11:4 Formulation of a Chapter 11 Plan ............................... 11-88§ 11:4.1 Introduction and Summary ................................... 11-88§ 11:4.2 Who Can Propose a Plan? ..................................... 11-89§ 11:4.3 Contents of a Plan................................................. 11-90

[A] Mandatory Provisions............................................ 11-90[B] Discretionary Provisions........................................ 11-94

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§ 11:4.4 Classification of Claims and Interests................... 11-97[A] Secured Creditors .................................................. 11-98[B] Unsecured Creditors............................................ 11-101[C] Equity Security Holders ....................................... 11-101[D] Other Classifications ........................................... 11-101

§ 11:4.5 Types of Plans...................................................... 11-101§ 11:4.6 Treatment of Claims and Interests...................... 11-105

§ 11:5 Disclosure Statement ................................................. 11-109§ 11:6 Acceptance of the Plan ............................................... 11-112§ 11:7 Confirmation of the Plan ........................................... 11-114

§ 11:7.1 The Hearing on Confirmation ............................ 11-114§ 11:7.2 Standards for Confirmation................................. 11-116

[A] General ................................................................ 11-116[B] The Cramdown ................................................... 11-122[B][1] Secured Claims ............................................... 11-123[B][2] Unsecured Creditors ....................................... 11-124[B][3] Holders of Interests ......................................... 11-125[B][4] The Absolute Priority Rule.............................. 11-125[C] The Section 1111(b) Election .............................. 11-126

§ 11:7.3 Effect of Confirmation......................................... 11-129[A] Third-Party Releases ............................................ 11-133

§ 11:8 Modification of the Plan............................................. 11-136§ 11:9 Revocation of an Order of Confirmation.................... 11-138§ 11:10 Consummation of the Plan........................................ 11-139

§ 11:10.1 Implementation................................................... 11-139§ 11:10.2 Retention of Jurisdiction...................................... 11-139§ 11:10.3 Distribution and Final Decree............................. 11-141

§ 11:11 Conversion and Dismissal ......................................... 11-142§ 11:12 The Small Business Case ........................................... 11-146

§ 11:12.1 Attaining Small Business Status.......................... 11-146§ 11:12.2 Responsibilities of the U.S. Trustee and

the Small Business Debtor .................................. 11-147§ 11:12.3 Plan Confirmation for the Small Business

Case..................................................................... 11-149§ 11:13 The Individual Chapter 11 Debtor............................. 11-150

Appendix 11A Operating Guidelines and ReportingRequirements for Chapter 11 Cases.......... App. 11A-1

Chapter 12 Adjustment of Debts of a Family Farmer orFisherman with Regular Annual Income

§ 12:1 Introduction ................................................................... 12-2§ 12:1.1 Definitions and Eligibility ....................................... 12-2

[A] Family Farmer ......................................................... 12-4[B] Family Fishermen.................................................... 12-7


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§ 12:1.2 Voluntary Nature..................................................... 12-8§ 12:1.3 Considerations......................................................... 12-8

[A] Advantages............................................................... 12-8[B] Disadvantages.......................................................... 12-9[C] Filing Requirements............................................... 12-10

§ 12:2 Operating Under Chapter 12 ....................................... 12-11§ 12:2.1 The Principal Players............................................. 12-11§ 12:2.2 The Debtor and Debtor in Possession................... 12-12§ 12:2.3 The Chapter 12 Trustee ........................................ 12-13§ 12:2.4 Creditors................................................................ 12-15

§ 12:3 Property of the Estate ................................................... 12-16§ 12:4 Stay of Actions ............................................................. 12-16§ 12:5 Adequate Protection ..................................................... 12-17§ 12:6 Sales Free of Interests ................................................... 12-18§ 12:7 The Plan....................................................................... 12-20§ 12:8 Modification of the Plan............................................... 12-25§ 12:9 Confirmation................................................................ 12-27§ 12:10 Effect of Confirmation.................................................. 12-33§ 12:11 Payments ...................................................................... 12-35§ 12:12 Revocation of Confirmation ......................................... 12-36§ 12:13 Tax Provisions .............................................................. 12-36§ 12:14 Discharge...................................................................... 12-36§ 12:15 Conversion and Dismissal ........................................... 12-37


§ 13:1 Initiating a Chapter 13 Case.......................................... 13-4§ 13:1.1 Introduction............................................................. 13-4§ 13:1.2 Eligibility ................................................................. 13-4§ 13:1.3 Filing Considerations ............................................ 13-13

[A] The Chapter 13 Discharge .................................... 13-13[A][1] Student Loans ................................................... 13-17[A][2] Post-Petition Interest......................................... 13-18[B] Timing Considerations.......................................... 13-19[C] Advantages and Disadvantages.............................. 13-20

§ 13:1.4 Filing Requirements............................................... 13-28[A] Initial Filing Requirements.................................... 13-28[B] Obligations to File Tax Returns ............................. 13-32[C] The Plan................................................................ 13-35

§ 13:2 Operating Under Chapter 13 ....................................... 13-35§ 13:2.1 Property of the Estate ............................................ 13-35§ 13:2.2 The Automatic Stay and the Co-Debtor Stay........ 13-38§ 13:2.3 The Debtor and the Debtor ’s Attorney ................. 13-40§ 13:2.4 The Chapter 13 Trustee ........................................ 13-43

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§ 13:2.5 Secured Creditors .................................................. 13-47§ 13:2.6 Unsecured Creditors.............................................. 13-48§ 13:2.7 Chapter 13 Debtors’ Right to Sue and

Avoidance and Recovery Powers ............................ 13-49§ 13:3 Considerations in Formulating and Obtaining

Confirmation of a Chapter 13 Plan ............................. 13-51§ 13:3.1 General Criteria: Sections 1322 and 1325 ............ 13-51

[A] Plan Contents: Mandatory Provisions................... 13-51[B] Plan Contents: Discretionary Provisions............... 13-53[B][1] Section 1322(b)(1) ............................................. 13-54[B][2] Section 1322(b)(2) ............................................. 13-56[B][3] Section 1322(b)(3)–(11) ..................................... 13-56[C] Plan Duration........................................................ 13-60[D] Retirement Accounts ............................................. 13-64[E] Practical Considerations ........................................ 13-66

§ 13:3.2 Confirmation Requirements.................................. 13-67[A] The Confirmation Hearing.................................... 13-67[B] General Requirements: Section 1325(a)(1)

and (2) ................................................................... 13-68[C] Good Faith: Section 1325(a)(3) and (7) ................. 13-68[D] The Best-Interests Test: Section 1325(a)(4) ........... 13-74[E] Feasibility: Section 1325(a)(6)................................ 13-75[F] Domestic Support Obligations and Tax Returns:

Section 1325(a)(8) and (9)........................................13-76§ 13:3.3 Treatment of Priority Claims ................................ 13-78§ 13:3.4 Treatment of Unsecured Claims ........................... 13-81

[A] Filing Proofs of Claim ........................................... 13-81[B] Classification ......................................................... 13-82[C] Chapter 13 Criteria for Payment of Unsecured

Creditors: The Best-Efforts Test............................. 13-84[C][1] Introduction ...................................................... 13-84[C][2] Issues................................................................. 13-92[C][2][a] Is Projected Disposable Income the

Same As Disposable Income?......................... 13-92[C][2][b] Is an Ownership Expense for an

Unencumbered Automobile Owned by anAbove-Median-Income Debtora Reasonably Necessary Expense?................... 13-95

[C][2][c] Can an Above-Median-Income DebtorCalculate His Chapter 13 Plan Payment byDeducting from His Income the Full ListedAmount of an “Applicable” IRS LocalStandard Expense Even Though the Debtor ’sActual Expense Is Substantially Less? ............ 13-98


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[C][2][d] Is the Debtor Allowed a Deduction forSecured Debt Payments When theCollateral Is Being Surrendered?..................... 13-99

[C][2][e] Is the Applicable Commitment PeriodTemporal or Monetary? ................................ 13-101

[C][2][f] Should the Bankruptcy Courts Refer tothe Internal Revenue Manual forDetermining Expenses UnderSection 707(b)(2)(A)(ii)(I) andMay Debtors Take an “Old Car” Expense? .....13-104

[C][3] Other Unsettled Topics InvolvingDebtors’ Income and Expenses ....................... 13-105

[C][3][a] Expense Deductions for Multiple Vehicles......13-105[C][3][b] Double-Dipping ............................................ 13-105[C][3][c] Educational Expenses and Other

Income and Expense Issues .......................... 13-106§ 13:3.5 Treatment of Secured Claims .............................. 13-107

[A] In General ........................................................... 13-107[A][1] The Bar to Balloon Payments:

Section 1325(a)(5)(B)(iii)(I) .............................. 13-116[A][2] The Hanging Paragraph .................................. 13-119[A][2][a] What Happens When the Vehicle Is

Surrendered? ................................................. 13-120[A][2][b] Is a 910 Claim a Secured Claim and If

Bifurcation Is Not Permitted Can theInterest Rate and Term of the Loan BeModified?...................................................... 13-122

[A][2][c] Can the Debtor Bifurcate a 910 Claimin His Plan If the Creditor Does NotObject?.......................................................... 13-125

[A][2][d] What Is a “Purchase Money SecurityInterest” for Purposes of the HangingParagraph? .................................................... 13-126

[A][2][e] How Do You Count the 910-Day Period? .... 13-129[A][2][f] What Is a “Motor Vehicle”?.......................... 13-130[A][2][g] When Is a Vehicle “Acquired for the

Personal Use of the Debtor”? ....................... 13-131[A][2][h] The Clause “Or if collateral for

that debt consists of any other thingof value” ....................................................... 13-133

[B] Practical Considerations and Hybrid Plans ......... 13-134[C] Residential Real Property..................................... 13-138[D] Unsecured Junior Mortgages ............................... 13-143[D][1] Issues............................................................... 13-147[D][1][a] Can Unsecured Mortgages Be Stripped in

“Chapter 20” Cases?..................................... 13-147

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[D][1][b] Is An Adversary Proceeding Necessary?........ 13-149[D][1][c] When Is Value Determined?......................... 13-150[D][2] Curing Defaults............................................... 13-150

§ 13:3.6 Post-Petition Claims............................................ 13-153§ 13:4 Confirmation of the Plan ........................................... 13-154

§ 13:4.1 General Principles ............................................... 13-154[A] Procedure ............................................................. 13-154[B] Due Process ......................................................... 13-155[C] Payments and the Effects of Conversion

and Dismissal...................................................... 13-156[D] Payments “Outside the Plan” .............................. 13-160

§ 13:4.2 Plan Modification Prior to Confirmation ............ 13-161§ 13:4.3 Effect of Confirmation......................................... 13-162§ 13:4.4 Post-Confirmation Plan Modifications................ 13-167§ 13:4.5 The Chapter 13 Discharge .................................. 13-177

[A] The Chapter 13 Discharge upon Completionof Payments ......................................................... 13-177

[B] The Hardship Discharge...................................... 13-179§ 13:4.6 Personal Property Leases...................................... 13-181

§ 13:5 Conversion and Dismissal ......................................... 13-181§ 13:5.1 Conversion to Chapter 13 from Chapter 7 ......... 13-181§ 13:5.2 Conversion from Chapter 13 to Chapter 7, 11,

or 12, and Dismissal ........................................... 13-182§ 13:6 Proofs of Claim .......................................................... 13-190§ 13:7 Attorney Fees, Costs, and Other Charges

Incurred by Mortgage Lenders .................................... 13-196§ 13:7.1 Rule 3002.1 ......................................................... 13-199

Appendix 13A Comparison of Chapter 7 and Chapter 13Discharge Provisions ................................. App. 13A-1

Chapter 14 Litigation and Appeals

§ 14:1 Litigation in the Bankruptcy Court ................................ 14-2§ 14:1.1 Adversary Proceedings ............................................. 14-4

[A] Scope ....................................................................... 14-4[B] Commencing an Adversary Proceeding ................... 14-6[C] Process; Service of Summons and Complaint ......... 14-7[C][1] Service by First-Class Mail.................................. 14-7[C][2] Service by Publication and Other Rules

Governing Service ............................................... 14-9[C][3] Pleadings ........................................................... 14-12[C][4] Discovery........................................................... 14-17[C][5] General.............................................................. 14-17

§ 14:1.2 Contested Matters ................................................. 14-23

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Table of Contents

§ 14:1.3 Litigation in Consumer Cases............................... 14-25[A] Unfair or Predatory Lending Practices................... 14-25[B] Class Actions......................................................... 14-32[C] Arbitration Claims ................................................ 14-34

§ 14:1.4 Litigation in Business Cases.................................. 14-37§ 14:1.5 Defenses ................................................................ 14-38

[A] In Pari Delicto ....................................................... 14-38[B] Judicial Estoppel .................................................... 14-40[C] Standing................................................................. 14-41[D] Defenses of the Estate (Section 558) ..................... 14-43

§ 14:1.6 Compromises and Settlements of AdversaryProceedings and Contested Matters ...................... 14-43

§ 14:1.7 Motions for Amendment of Judgments andMotions for Relief from Judgments or Order ........ 14-45

§ 14:2 Appeals ......................................................................... 14-47§ 14:2.1 Appealable Orders.................................................. 14-49

[A] Final Versus Interlocutory Orders.......................... 14-49[B] Appealable Interlocutory Orders ............................ 14-53[B][1] The Collateral Order Doctrine.......................... 14-54[B][2] Discretionary Appeal Under Section 158(a) ...... 14-55[B][3] The Forgay-Conrad Doctrine............................. 14-56

§ 14:2.2 Appellate Standing................................................. 14-57§ 14:2.3 Where to Appeal .................................................... 14-60§ 14:2.4 Direct Appeals to the Court of Appeals................. 14-61§ 14:2.5 Effect of Appeal on Jurisdiction of the

Bankruptcy Court .................................................. 14-64§ 14:2.6 Rules for Appeals ................................................... 14-66

[A] Manner and Time for Filing.................................. 14-66[B] Service of Notice of Appeal.................................... 14-71[C] Stay Pending Appeal .............................................. 14-72[C][1] Automatic Stay of Enforcement of Judgment.... 14-72[C][2] Motion for Stay Pending Appeal ....................... 14-72[C][3] Equitable Mootness Doctrine ............................ 14-74

Table of Authorities .....................................................................T-1

Index ................................................................................................ I-1

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