bankruptcy & creditors’ remedies - spring...

BK S15 SYL 12/17/2014 1

Bankruptcy & Creditors’ Remedies - Spring 2015

Professor Charles [email protected]

(v):410 837 4623 (f):410 837 4492

Office Hours - Suite 1014Thursday 3:00 – 4:30

Wednesday 4:00 – 6:00

Required ReadingWarren & Westbrook, 2013 Supplement of The Law of Debtors and CreditorsAny 2014 edition Bankruptcy CodeAll additional statutes, additional problems, cases and other course materials are available on TWEN

Grading PolicyPer Cent ofFinal Grade

Final Exam Completely Open Book & Open Notes - Essay 80 -100 %

ClassParticipation

Please give me a note prior to class if you are unprepared to discussthe material assigned for that class.

0 - 15%

AdditionalAssignments.

I may give announced or unannounced quizzes regarding theday’s assignment. I may give homework assignments regardingthe operation of some statute sections. These may be voluntaryor required.

0-15%

Lateness Each time (above two) arriving after class begins 2% off

Cell phones Each time a cell phone or pager goes off audibly during class 2% off

Attendance Students with more than five absences might not be permitted to take the exam.

Use of electronicdevices duringclass

The science is in: there is no such thing as multitasking. To avoid degrading yourperformance in class and distracting other students, please do not use electronicdevices for any reason other than taking or reading notes or accessing class materials.Be sure that any computer is set so that you cannot receive messages. Violators willnot be allowed to bring electronic devices to class.

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Topic Section of Materials Attached

1/12 Overview & Article 9 I & II1/14 Property of the Estate III A1/21 Special Problems III B & C1/26 Judicial Liens: Real Property IV A1/28 Judicial Liens: Personal Property IV B2/2 Garnishments

Multiple JurisdictionsIV C & D

2/4 Prejudgment Remedies IV E2/9 Lis Pendens, Statutory Liens IV F & G2/11 Exemptions V A & B2/16 Lien Avoidance V C2/18 Automatic Stay VI2/23 Fraudulent Conveyances VII2/25 Claims & Distributions VIII3/2 Mid Term3/4 Discharge IX3/9 Reaffirmation / Redemption /Ride Thru X3/11 Abuse & The Means Test XI3/23 Review Chapter 7 & Chapter 13

OverviewNo Assignment

3/ 25 Chapter 13 – Secured Claims – Part One XII 1-23/30 Chapter 13 - Secured Claims – Part Two XII 3-64/1 Chapter 13 – Unsecured Claims – Part

OneXIII 1- 2

4/6 Chapter 13 – Unsecured Claims – PartTwo

XIII 3-4

4/13 Chapter 13 - Discharge XIV4/20 Trustee’s Lien Avoidance - Part One XV A & B4/23 Trustee’s Lien Avoidance XV C4/27 Bankruptcy Jurisdiction XVI

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Abbreviations Used in This SyllabusWW refers to pages in Warren & Westbrook 2013 SupplementPages without attribution are for Warren & WestbrookPS or Problem Set refers to the problem sets in Warren & Westbrook.CJP refers to Maryland Courts & Judicial ProceedingsCL refers to the Maryland Commercial LawMD Rule or Rule (without additional attribution) refer to the Maryland Court RulesBC refers to the Bankruptcy CodeSections without attribution are for the Bankruptcy Code.Other references are to cases or materials that are on TWEN.

Basic Concepts of Debtor Creditor lawA. Overview of the Course

1. This course deals with the issue of how a person (remember that includes corporations)that is owed money can get that money from the debtor. There are three main avenues towardthat goal:

a) Extralegal: (Note: not “illegal.”) Convince the debtor to pay. There are legallimitations on the techniques that may be used to achieve this. Each state and the federalgovernment have debt collection statutes and there are common law tort remedies. Wedon’t discuss them in this class. But essentially creditors shouldn’t lie, harass, or threatenor engage in violence. These limitations, of course, take a lot of the fun out of collectingdebts.b) Legal:

(1) Obtain an interest in the debtor’s property; sell that property, andtake the debt out of the proceeds of that sale. This can be done in two ways:

(a) Voluntary: Obtain a security interest in some of the debtor’sproperty. This is largely governed by Article Nine of the UniformCommercial Code as enacted in each state.(b) Involuntary: Get a judgment against the debtor. Then obtain alien on the debtor’s property. Enlist the state to seize and sell theproperty subject to that lien.

c) Bankruptcy (either voluntary or involuntary).2. There are two main issues that will come up in our discussion throughout the course:

a) How does a creditor get an interest in the Debtor’s property?b) How are conflicts among creditors resolved?

Security Interests Under Article Nine of the UCCA. Why study this

1. There is a course that covers this area of the law in great detail. But the Secured Creditoris an extremely important player in the material we cover in this course. So our goal is just tounderstand the basics of Article Nine to understand the interaction of the Secured Creditor andthe statutes we cover.2. Essentially this is also an overview of those two basic concepts involved in this course:

a) How does a creditor get an interest in the Debtor’s property?b) How are conflicts among creditors resolved?

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B. Reading1. W&W: 44-492. Read through the following sections of Title Nine of the Maryland Commercial Law: 9-102(74),(75); 9-203; 9-308; 9-309; 9-317(a); 9-322; 9-516

C. Problem for class discussion1. We will discuss the following facts in class in order to understand

a) How a lender gets a security interest in property. The security interest allows thelender on default to seize and sell the debtor’s property.b) How conflicts among a few types of secured parties are resolved.

Basic DocumentsThis questions in this part involve the following documents:

#1 PromissoryNote

#2 Security Agreement #3 Financing Statement

I promise to pay to theorder of Ed Norton, $100 onApril 1, 2012.

Ralph KramdenFebruary 1, 2012

I hereby grant to Ed Norton asecurity interest in my Magic CanOpeners as collateral to secure theperformance of my obligation topay Ed Norton $100.

Ralph KramdenFebruary 1, 2012

Basic FactsRalph Kramden had an idea for a new business venture involving the

sale of a product called the “Miracle Kitchen Tool” However, Ralph wasafraid that his wife would not approve. So without telling her, he took$100 out their piggy bank to purchase a thousand of the tools. He thenbecame afraid that his wife would discover the money was missing beforehe would be able to replenish the piggy bank with the profits from theventure. So he asked his friend Norton to loan him $100 so that Ralphcould replace the money in the family Piggy Bank.

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Property of the EstateA. Overview

1. When a person files for Chapter 7 Bankruptcy, an “estate” is created. See §541. Thetrustee has the job of assembling, protecting, and selling that property. Please note that the Coderefers to “interests of the debtor in property.” This is language that is absolutely crucial. Weshould never speak of the “debtor’s property” but rather the “debtor’s interest inproperty.”2. Reading

a) WW 61-64b) BC § 541 (a) & (b)c) PS 3: 3.1

3. Additional Problemsa) Dorrit’s only property is Marshalacre which he owns free and clear of liens.Marshalacre is worth $100,000. If Dorrit files for Bankruptcy what will be the property ofthe estate and what will be the value of the estate. In this and in all subsequent problemsignore any possibility of exemptions.b) Assume the above facts except that:

(1) Dorrit owns the property as a tenant by the entirety with his spouse.(2) Dorrit owns the property as tenant in common with his daughter Amy.(3) Dorrit owns the property as joint tenant with his daughter Fanny

c) Suppose in the above examples, Spouse, Amy or Fanny died shortly before Dorritfiled his Bankruptcy petition.d) Suppose in the above examples, Spouse, Amy, or Fanny died shortly after Dorritfiled his Bankruptcy petition.e) Dorrit’s only property is his 1946 Marshal automobile worth $100,000. On March1, 2010, Dorrit borrowed $50,000 from First London Bank & Distrust (FIRSTBANK) andgave FIRSTBANK a security interest in the Marshal. The security interest was properlyperfected. If Dorrit filed for Bankruptcy on March 15, 2012 what is the property of theestate and what is the value of the estate? Base your answer on §541(a).f) Assume the above facts plus the following additional facts: On March 10, 2010,Dorrit borrowed $25,000 from SECONDBANK and gave SECONDBANK a securityinterest in the Marshal. The security interest was properly perfected. If Dorrit filed forBankruptcy on March 15, 2012, what will be the property of the estate and what will be thevalue of the estate. To what will each party be entitled? Base your answer on both theUCC and §541(a).g ) Assume that the loan from FIRSTBANK was for $120,000. If Dorrit files forBankruptcy what will be the property of the estate and what will be the value of the estate?

B. Allocation of Property1. WW: 65-682. On March 1, Robert Cratchet, a charming but impecunious law teacher, filed forbankruptcy. On April 1 he won the $1,000 Teaching Excellence Award tor the school year. Whogets the $1,000?

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C. Limitations on Transfers1. 68-722. §541(c)3. PS 3: 3.24. Harrell. v. Phoenix Suns5. Problem:

Fanny Fan filed a Chapter 7 Bankruptcy on May 30, 2011. At the time of the filing, Fan was the holder ofseason tickets for the 2011–2012 game season of the Mississippi Mushers hockey team. For these tickets and anaccompanying parking pass, Fan promised, pre-petition, to pay $2,000.00 by a down payment, followed byseven monthly installments of $100. The “Terms and Conditions regarding Mushers’ Tickets” as printed on thereverse of the ticket invoice provide, in pertinent part that:

1. Any Mushers ticket purchased under this invoice is a revocable license which may be withdrawn and admissionto any Mushers game refused at any time, in the sole discretion of the Mushers upon refunding the purchase priceprinted on the face of the ticket less any discount the purchaser may have received.2. Resale or attempted resale of any Mushers ticket at a price higher than that printed thereon, including tax, isgrounds for seizure or cancellation without refund or other compensation.5. The Mushers acceptance of payment for season tickets from any individual or entity who is not the accountholder for such season tickets does not grant rights to such tickets to such individual or entity.6. Season ticket holders have no right to transfer the seat locations designated by their tickets to any person orentity, whether by a request to transfer the account into another name, or by an attempt to transfer the seatlocations by sale, gift, transfer by will or trust, property settlement, transfer to creditors or any other means.Therefore, any attempt to sell or otherwise transfer season ticket privileges may result in the cancellation of allseason ticket privileges. Upon any court order directing the distribution of season tickets to a person or entity notlisted as the season ticket holder, whether in bankruptcy or otherwise, will result in the Mushers’ rightimmediately to withdraw the license represented by the tickets, including any season ticket renewal privileges,upon refund by the Mushers of all amounts paid for games that have not yet been played.

The Mushers will, however, generally recognize two exceptions to the above prohibition. First, the Musherswill allow an individual season ticket holder to request transfer of season ticket privileges to members of theseason ticket holder's immediate family. Second, if the season ticket holder is a business, it may request achange in the name of the contact person for its account

Can the Trustee sell Fan's season ticket rights by internet auction?

Judgment Creditors & Judicial LiensA. Judgment Liens on Real Property

1. A creditor must get a lien on property in order to have the right to have the property soldand use the proceeds to satisfy the judgment. The first step is to get a judgment against thedebtor. It then depends upon whether the property is real property or personal property.2. McCartney v. Frost3. Read CJP 11-4024. Problem:

a) FACTS: Creditor sued Debtor on March 1, 2012 in the Circuit Court ofBaltimore County. The trial ended on April 2, 2012. On April 15, 2012 the judge foundthe Debtor liable to Creditor for $10,000. On May 3, 2012 the clerk recorded and indexedthe judgment. On June 1, 2012, Creditor recorded the judgment in the land records.b) Using 11-402

(1) When did the judgment lien arise?(2) What is deemed to be the effective date of the judgment lien

5. Dorrit’s only property is Marshalacre, in Baltimore County, which he owns free and clearof liens. Marshalacre is worth $100,000. On March 10, 2010, Clenman obtained a judgmentagainst Dorrit in the Baltimore County Circuit Court for $50,000. If Dorrit files for Bankruptcy on

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March 30, what will be the property of the estate and what will be the value of the estate. UseCJP §11-402.6. Assume the facts above except that on March 12, 2010, Dickens got a judgment againstDorrit for $60,000 in the Baltimore County Circuit Court. Dorrit filed for Bankruptcy on March15. What will be the property of the estate and what will be the value of the estate. To how muchwill Clenman and Dickens be entitled?7. Firstbank has a mortgage on Marshalacre for a $40,000 debt. Subsequently Dickens getsa judgment against Dorrit for $20,000 in the Baltimore County Circuit Court. What will be theproperty of the estate and what will be the value of the estate. To how much will Firstbank andDickens be entitled?8. Owen owns Landacre in Baltimore County worth $50,000. On January 1, 2012 Judithobtained a judgment against Owen for $20,000 in the Baltimore County Circuit Court. OnMarch 15, 2012, Owen sold Landacre to Purdue for $50,000. To what is each party entitled?9. Justin Fine owned a house in Baltimore city worth $100,000. On April 1, 2009,DragonInc. obtains a judgment against Fine for $200,000 in the Baltimore City Circuit Court. OnJune1, 2009, Fine spent $50,000 to build an addition onto his house which increased the valueto$150,000.10. Sandy and Pat are co owners of a large farm in Baltimore city, Maryland. Steven Meanobtains a judgment for $50,000 against Sandy in the Baltimore City Circuit court on July 5, 2011.On Augus 5, Sandy died. To what is Mean entitled, depending upon whether Sandy and Patowned the property as

a) Tenants by the entirety?b) Tenants in common?c) Joint tenants?

11. In the above problem, suppose that instead of the judgment, Sandy filed for Bankruptcyon July 5, 2011.12. Carol Chance owns a house in Baltimore County worth $100,000. On January 1, 2011Chance granted LUCKBANK a mortgage on the property to secure an $80,000 loan. Themortgage carries an interest rate of 12% per year (i.e., 1% per month –$8,000 per month). OnJanuary 2, 2011 Fran Fate obtained a judgment against Chance for $200,000 in the BaltimoreCounty Circuit Court., Assume that Chance makes no payments. To how much are Chance, Fateand LUCKBANK entitled if the property is sold (for $100,000) on

a) February 1, 2011?b) March 1,2011?c) April 1, 2011?d) January 1, 2012e) September 1, 2013

13. Assume the facts of the above problem except that Chance files a Bankruptcy petition onFebruary 1, 2011. To how much is each party entitled if the property is sold on the date above(except for 2/1/2011)?

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B. Execution Liens on Personal Property1. Statutes

a) CL §§ 2-403, 9-317, 9-324b) CJP § 11-403c) MD RULES 2641,2-642,2-643,3-641, 3-642,3-643d) WW: Pages 45-51

2. Problemsa) In each of the following scenarios Debtor has a computer worth $10,000. AssumeA obtains a judgment for $7,000 and B obtains a judgment for $8,000Determine how mucheach party should obtain upon a sale for $10,000.

Date SECNARIO 1 SCENARIO 2 SCENATIO 3January 1 A obtains Judgment B obtains Judgment A obtains JudgmentFebruary 1 B obtains Judgment A obtains Judgment A obtains writ of execution

from courtMarch 1 A obtains writ of execution

from courtA obtains writ of executionfrom court

A delivers writ to sheriff

April 2 B obtains writ of executionfrom court.

B obtains writ of executionfrom court.

B obtains Judgment

May 1 A delivers writ to sheriff B delivers writ to sheriff B obtains writ of executionfrom court.

June 1 B delivers writ to sheriff A delivers writ to sheriff B delivers writ to sheriffJuly 1 Sheriff levies on the

computer on B’s writ.Sheriff levies on thecomputer on A’s writ.

Sheriff levies on thecomputer on B’s writ.

August 1 Sheriff levies on thecomputer on A’s writ.

Sheriff levies on thecomputer on B’s writ.

Sheriff levies on thecomputer on A’s writ.

A getsB gets

b) As creditor, what action would you instruct the sheriff to take to effect a levyupon:

(1) The animals for sale by Debtor Pet Shop(2) The dental equipment of Dr. Debtor (most of which is built-in)(3) Bernie Madoff’s prison blog [more facts]

c) C wins a judgment against the D Lumber Yard. C gets a writ of execution againstD's property and has the sheriff levy on D's electric saw. Before the sheriff actually seizesthe saw, D sells it to P. What are the rights of the parties? §2-403.d) Which lien has priority? §9-317(a)(2)

Date SECNARIO 4 SCENARIO 5 SCENATIO 6January 1 S obtains a security interest

on D’s printing pressJ obtains a judgment againstD

J obtains a judgment againstD

March 1 The security interest isperfected.

S obtains a security intereston D’s printing press

S obtains a security intereston D’s printing press

May 1 J obtains a judgment againstD.

The security interest isperfected

J has the sheriff levy on theproperty.

July 1 J has the sheriff levy on theproperty.

J has the sheriff levy on theproperty.

The security interest isperfected

Who haspriority?

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C. Garnishment1. WW: 51-552. RULE 3-6453. Flat Iron Mac Associates v. Foley4. Aesop Andreas had his checking account at Mythic State Bank (MSB). As of Februaruy1,2012 the account was overdrawn by $10. Consider the following facts.

2/1/2012 Bugs Finance Company (BFC) obtained a $3,000 judgment against AesopAndreas

2/2/2012 Leonardo Finance Company (LFC) obtained a $3,000 judgment against Andreas2/3/2012 Andreas had written and delivered a $500 check to the telephone company.2/5/2012 MSB was served with a writ of garnishment regarding LFC’s judgment2/7/2012 MSB was served with a writ of garnishment regarding BFC’s judgment2/10/2012 The bank paid the telephone company check.2/8/2012 On February 8, Andreas deposited $5,000 in the account2/11/2012 Andreas deposited $200 in the account.2/15/2012 MSB answered the garnishment writs.2/17/2012 Andreas's employer made an automatic electronic deposit to Andreas’ account

of his weekly wages of $3002/19/2012 The court held a hearing regarding both garnishments.2/20/2012 Andreas deposited $100 in the account.2/21/2012 The court issued it’s judgment.2/24/2012 Andreas's employer made an automatic electronic deposit to Andreas’ account

of his weekly wages of $300

D. Multiple Jurisdictions1. Maryland judgments

a) Here is the rule in Maryland.(1) CIRCUIT COURT JUDGMENTS: A judgment creates a lien on all thedebtor’s land in the county in which the judgment.(2) DISTRICT COURT (Except Baltimore City): A judgment lien arises onlyafter the judgment is recorded in the district court.(3) BALTIMORE CITY: A judgment creates a lien on all the debtor’s land inBaltimore city.(4) OTHER COUNTIES: A judgment from one county creats a judgment lienonly after the judgment is recorded in the Circuit Court of the county in which theland is.

b) Multiglomerate, Inc. owns the Multiglomerate Building in Towson in BaltimoreCounty, Maryland. The building is worth $2,000,000,000. March 15, 2012 was not a goodday for Multiglomerate. On that day the following plaintiffs obtained the followingjudgments against Multiglomerate. MegaBank obtained a $50,000 judgment in theBaltimore, City Circuit Court. Widow Wilkins obtained a $4.86 judgment in BaltimoreCounty District Court. On November 1, Multiglomerate will file a Chapter 7 Bankruptcypetition.

(1) What will be property of the state?(2) To how much will each party be entitled?(3) What must each party do to improve their position?

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2. Foreign State & Foreign Country Judgments:a) Vocabulary

(1) What is the difference between “full faith and credit” and “comity?”(2) Where can the requirement of “full faith and credit” be found?(3) To what courts must the Maryland courts give full faith and credit?(4) To what courts may the Maryland courts extend comity?

b) What must the following parties do to obtain debtor’s property in Maryland?(1) Maryland Courts & Judicial Proceedings §11-801, et. seq. .DominikKinimod obtained a $1,999,999,912.50 judgment in the New Jersey District Court.§11-801, et. Seq.(2) 28 U.S.C. §§ 1962, 1963. Fred Fed obtained a $500,000 judgment in theFederal District Court in New Jersey. 28 U.S.C. §§ 1962, 1963

c) In 1975 Hastings borrowed $10,000 while in Belgium from SPROUTBANK at120% interest (a legal rate in Belgium).In 2012, SPROUTBANK sued Hastings. Assumethe statue of limitation on a loan in Belgium is 40 years. SPROUTBANK obtained a$400,000 judgment in the appropriate court in Belgium. Hastings had returned to the USin 1985. Pursuant to Belgian law, SPROUTBANK mailed a summons to Hastings atHasting’s office in Towson. The court rendered a default judgment against Hastings. CanSPROUTBANK enforce the judgment in Maryland? Maryland Courts & JudicialProceedings §10-701, et. seq.d) Rupert Murdoch obtained a $1,000,000 libel judgment in the appropriate court inLondon England. This suit resulted from statements Manuel Multi, the CEO ofMultiglomerate, made while visiting in England. He stated that Rupert Murdoch hadsurreptitiously placed listening device in one of the fillings of his (Multi’s) teeth. Murdochsued Multiglomerate in England for libel under English law after Multi had returned to theUnited States. Pursuant to English law, Murdoch mailed a summons to Multiglomerate atMultiglomerate’s office in Towson. The court rendered a default judgment againstMultiglomerate. Can Murdoch enforce the judgment in Maryland. Maryland Courts &Judicial Proceedings §10-701, et. seq.

E. Prejudgment Attachments1. CJP §§3-303, 3-3042. Ephraim Frisch operated a dry cleaning shop at 1420 North Charles Street,Baltimore, MD. On September 1, 2010, Frisch and Martha Onslo entered into an oralagreement whereby Onslo would remodel a portion of Frisch's building. The agreementprovided that Frisch would pay Onslo $5.00 per hour for all work done plus 115% of thecost of materials installed. Onslo kept no written record of hours spent and has lost somereceipts for materials installed but claims to have installed $200 in fixtures and to havespent two 8-hour days doing the work. On February 1, 2011, Onslo mailed Frisch a bill.On March 1, Onslo called the store but was informed the phone was disconnected. Onslowent to visit the store but it was closed with a note on the door stating "pick up drycleaning at Dairy Queen on corner." Onslo returned the next day and found the samesituation. Onslo went to Frisch's home but no one answered the doorbell and there was nocar in the driveway. Onslo returned to the store the next day but found the same sign.Onslo went to the Dairy Queen. The woman on duty said she didn't know where Frischwas but that she thought Frisch was in Florida

a) Can Onslo obtain a prejudgment attachment?b) Suppose Onslo's lawyer filed the necessary papers to obtain aprejudgment attachment of the equipment in Frisch's store. Frisch, although hedisputes the debt, immediately pays. He is unable to carry on his business without

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use of the equipment and feels he cannot afford a lawyer to resist. What are therights and liabilities of the parties?

3. At all relevant times, the only nonexempt property owned by D is Greenacre,which is worth $4,000, and miscellaneous personal property worth $3,000.

1/10 X sues D Corp. for $5,000.X obtains a writ of attachment that is directed to the sheriff.

1/13 Y sues D for $6,000.Y also obtains a writ of attachment, which is delivered to the sheriff.

1/14 Y instructs the sheriff to levy on Greenacre, which the sheriff does1/16 The sheriff levies on Greenacre pursuant to X's writ of attachment.4/15 X obtains a $5,000 judgment against D.4/18 Y obtains a $6,000 judgment against D.

a) Whose judgment will be satisfied first: X's or Y's?b) Suppose D files for Bankruptcy on 4/01?c) Suppose D files for Bankruptcy on 4/16

4. On February 2, C sues D for $2,000, obtains a writ of attachment, and causes thesheriff to levy on D's horse, Fido. On March 3, B, who does not know of the attachmentline, buys Fido from D for $3,000 without asking to see the horse. On April 4, C obtains a$2,000 judgment against D. Who has greater rights to Fido: creditor C or buyer B?5. Ed Eaton has come to you with the facts listed below. He wants to satisfy hisjudgment by executing on the property. What are the priorities of the various parties to theproperty? Is any additional information needed?

4/10/12 Harriet and Wilber Jones own property as tenants by the entirety in Baltimore County.

1/10/13 Charles Cole obtained a judgment in a contract action against Harriet Jones inthe Baltimore County Circuit Court.

2/10/13 Donna Drake sued both Harriet and Wilber Jones, claiming that they (the Joneses)defrauded her (Donna) of $20,000 in the sale of vacationland in Arizona.

2/20/13 Donna obtained a prejudgment attachment of the Jones' land in Baltimore County.

3/10/13 Ed Eaton obtained a judgment against the Joneses in a tort action in theBaltimore County Circuit Court.

4/10/13 Harriet Jones became depressed by her legal troubles and decided to throw in thetowel. She settled with Drake and confessed judgment in the Baltimore CountyCircuit Court. Wilber has proved feistier; So, Drake is still pursuing him.

F. Lis Pendens1. 12-1022. Weston Builders & Developers, Inc. v.. McberryIn a business transaction, A gave B a note promising to pay B $10,000 and a mortgage onA's property called Downsland. Considering the following facts who has priority to theproperty?1.

February 14 A discovers that B engaged in fraudMarch 3 A sues B to rescind the note and mortgage.April 4, B forecloses and sells Downsland to X.May 5, A gets a judgment against B.

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G. Statutory Liens1. CL §§ 9-333,16-301, 16-3022. Simon has given First Bank a security interest in his collection ofphotographs by Mark Lens. On June 18, 2011, Simon noticed that the frameswere cracked on two of the photographs, "The Carrot Tree" and "The NoodleHarvest." Simon took them to Art's Repair Shop. Simon picked up "The CarrotTree" when it was ready. When the time came to pick-up "The NoodleHarvest," Simon was unable to pay the bill and Art refused to surrender thephotograph. Simon also defaults in his loan to First Bank. Who has priority tothe photographs? What argument would you make if you were First Bank as toboth photographs?

EXEMPTIONSA. Exemption Statutes

1. CJP § 11-5042. 11 USCA 522(b),(d)3. WW: 83-1074. Debtor and Spouse live in state X. State X has the same rules regarding tenancyby the entirety as Maryland has. The exemption law of State X reads as follows:

§101 Exemptions From Execution: A judgment debtor may exempt any property withan aggregate value of no more than $25,000.

a) Debtor and spouse own LuxAcre as tenants by the entirety. It’s value is$100,000. Debtor(s) file bankruptcy. In the chart below indicate how muchdebtor(s) will be able to exempt.

Debtor and Spouse filejointly

Only Debtor files

Debtors decide to use State Xexemptions.Debtors decide to use Bankruptcy[§552(d)] exemptions.b) Debtor’s only property is $30,000 home and a car worth $10,000 (both ofwhich he owns free and clear of any liens). Using §522(b), what choices doesDebtor have with regard to exemptions.

5. PS 4: 4.1, 4.2, 4.3 [Use Texas, Wyoming & Maryland statutes]

B. Exemption Planning1. 113-1302. PS 5: 5.1, 5.2, 5.3

C. Lien Avoidance1. 106-092. PS 4: 4.43. Fill in the following tables using §522(f)

a) TABLE I – Determine the amount of the lien that may be avoidedb) TABLE II Use 522(f)(2) formula to determine that amount of each linenthat can be avoided.

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Table I

A B C D E F GType Of Lien PMSI Non- purchase money, non-possessory

security interest.Execution Lien

1 Property Furniture Furniture Furniture Furniture Auto Furniture Auto2 Value $4,000 $4,000 $4,000 $8,000 10,000 $800 10,0003 Potential Exemption $2,000 $2,000 $2,000 $2,000 $5,000 $5,000 $5,0004 Debt $8,000 $8,000 $5,000 $8,000 $12,000 $12,000 $12,0005 Secured Claim6 Unsecured Claim7 Amount Of

Exemption ImpairedBy Lien

8 Can Debtor AvoidLien?

If yes:9 Amount Of Lien

That Debtor CanAvoid

10 Resulting SecuredClaim

11 Resulting UnsecuredClaim

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Table IIIn each of the following assume the property is worth $100,000 and that the debtor is entitled to a $50,000 exemption on theproperty.

(1) (2) (3) (4) (5) (6) (7) (8)Lien Type Amount (i) lien (ii) other

liens(iii) exempt TOTAL TOTAL -

VALUEAVOID?

H

1st Mortgage $50,000

2nd Judgment $5,000

I


2nd Judgment $20,000

J


2nd Judgment $ 7,000

3rd Judgment $50,000

K


2nd Judgment $25,000

3rd Mortgage $25,000

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Automatic Stay1. 11 USC §§362(a),(b),(c)(1)&(2),(k),(l),(m)(n), 3662. 72-783. Problem Set 3:3.4, 3.5, 3.6

Fraudulent ConveyancesA. State Law - Reading

1. CL, Title 15, Subtitle 22. Uniform Fraudulent Transactions Act3. Fraudulent Conveyances and Shielding Debtor Assets

B. State Law - Problems1. Answer questions with regard to the Uniform Fraudulent Transfer Act and theMaryland Uniform Fraudulent Conveyance Act.2. Adrienne Leiske is insolvent. She owes $50,000 to Family Finance. In order toraise money so she can make her rent payments and eat, she sells her grand piano.Although the piano is valued at $40,000, she runs a want ad asking $20,000. Whenoffered $15,000, Adrienne accepts. Can Family Finance successfully claim a fraudulentconveyance? See UFTA §§4, 5, 8.3. Bonney O'Hare is insolvent, and she feels the tightening web of creditors. Shedecides to sell her coin collection to her cousin, Susan Mallow. Although the collectionwould bring $75,000 if she sold it to a dealer, Bonney sells it to Susan for $5,000 so that"it will stay in the family." Bonney also knows that Susan has no real interest in thecollection and will undoubtedly be willing to sell it back when Bonney's financialtroubles are over. The day after her conveyance to Susan, Bonney uses her AmericanExpress card to purchase $25,000 in new furnishings. Can American Expresssuccessfully claim a fraudulent conveyance? See UFTA §§4, 5.4. Ginsberg owns Howlacre, land in Baltimore County valued at $100,000. Afraidthat his creditors will seize the property, Ginsburg gives his friend Chantilly Om amortgage in the property allegedly stating that it is for a $100,000 debt. There was nosuch debt.5. Ginsberg owns Howlacre, land in Baltimore County valued at $100,000. He isafraid that his creditors will seize the property. Therefore when Chantilly Om sues himfor $100,000 in Baltimore County Circuit Court, Ginsberg does not contest the law suitand Om obtains judgment. In fact, Ginsburg owed Om nothing.6. Jeremiah Stoke owns a homestead free and clear worth $200,000. His other assetstotal $55,000; his debts, all unsecured, total $75,000. He knows that under stateexemption law his homestead is safe from his creditors. He has made a mess of his ownaffairs, but his favorite son has just married, and Jeremiah would like to do just one thingright. So he conveys the homestead to his son as a gift and settles down to await thebattles with his creditors over his debts. Can Jeremiah's current creditors reach thehomestead conveyed to the son? See UFTA §§1, 2, 5.

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7. S. R. Wilson is insolvent. His chief creditor is Lo-Cost Credit Union, to which heowes $100,000. Wilson sells his mobile home, valued at approximately $160,000, to hisneighbor Sam for $80,000 cash. Sam moves into the home, cleans it up, spends $10,000for repairs, and enhances the value of the mobile home by 20 percent. Lo-Costsuccessfully claims that the conveyance was fraudulent. What can Lo-Cost recover fromSam? See UFTA §8.8. Mr. and Mrs. Young are members of the Crystal Evangelical Free Church. Theyare active in their church, attending services regularly with their children, serving asofficers, and contributing their time. They tithe regularly, following the biblicalinjunction to contribute 10 percent of their income to the church. Last year, their churchcontributions totaled $13,450, all made while the Youngs were legally insolvent. Theyhave filed for Chapter 7, and their trustee has asked the church to return the contributions.You represent the church; what do you advise?9. On January 15, 2010 Ernie Doe borrowed $40,000 from his mother in law.Debtor had read an advertisement stating that he could purchase live vinellas, the animalwhose fur is used to make vinyl clothing with the hopes of raising the animals in hisbasement. January 15, 2011 Does paid his mother in law back. Can Tony Toussaint, acreditor of Doe’s, set aside the payment as a fraudulent conveyance?10. Could the sale described in McCartney v. Frost be set aside as a fraudulentconveyance?

C. Bankruptcy Law1. 11 U.S.C. §5482. What result if Adrienne Leiske sold her piano, and then files for Bankruptcy?

Claims & DistributionsA. Allowed Claims

1. Pages 141-1642. Owen has borrowed $5,000 from Lenny. Owen has given Lenny a securityinterest in his robot which Owen calls Myron. Owen has filed a Chapter 7 bankruptcy.Assume Owen’s unsecured claims will be paid at a rate of 10% in the bankruptcydistribution. Using ONLY §506(a)(1), complete the following chart.

VALUEOFMYRON

(A)LENNY’SALLOWEDSECUREDCLAIM

(B)LENNY’SALLOWEDUNSECUREDCLAIM

(C)AMOUNT LENNYWILL RECEIVE FORTHE UNSECUREDCLAIM

(D)AMOUNTLENNYWILLRECEIVEFOR THESECUREDCLAIM

(1) $1,000(2) 4,000(3) 6,000(4) 7,000

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3. Owen has borrowed $5,000 from Lenny at 120% interest. Owen has given Lennya security interest in his robot which Owen calls Myron. Owen files a Chapter 7bankruptcy on 2/15/2011. Assume Owen’s unsecured claims will be paid at a rate of 10%in the bankruptcy distribution. Myron is worth $5000,using ONLY §506 and , §502(a)(2,)complete the following chart.

DATE EVENT

(E)LENNY’S

ALLOWEDSECURED

CLAIM

(F)

LENNY’SUNSECURED

CLAIM1/1/2011 $500 interest accrues2/1/2011 $500 interest accrues

(5) 2/15/2011 BANKRUPTCY(6) 3/1/2011 $500 interest accrues

(7) 4/1/2011 $500 interest accrues

(8) 5/1/2011 $500 interest accrues

(9) 6//1/2011 Lenny’s lawyer does workbillable at $600.

4. Debtor filed bankruptcy on July 1, 2011. Using section 502 indicate the amount ofthe allowed unsecured claim.

(G)(10) Debtor borrowed $1,000 from A, Debtor’s brother. On 1/1/2011. The

contract provides for no interest.(11) Debtor fulfilled contract with B to murder C for $10,000.(12) Debtor borrowed $5,000 from E on January 1, 2010. The contract

provides for interest at the rate of 10% per month. Assume that means$500 per month.

(13) Debtor bought a Timex computer from F for $500 on 1/1/2000 andhas not yet paid for the computer.

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B. Distribution Priorities1. 1672. How much will each creditor get in a Chapter 7 Bankruptcy filed on 2/16/2011.Use §§ 507 & 726.

(H) (I)The Bankruptcy estate has this amountfor distribution for allowed unsecuredclaims.

$1,060 $2,000

( 14) The trustee has had expensesprotecting the property of theestate.

$1,000

(15) The debtor did not pay workerW1 for work done on 2/1/2011.

$100

(16) The debtor did not pay workerW2 for work done on2/15/2011

$200

(17) The debtor did not pay workerW3 for work done on 2/1/2009

$1,000

(18) The debtor has not paid his billto the Shop & Shop grocerystory for groceries bought on3/1/2009

$400

3. PS 7:

Discharge1. 169-1982. PS: 8: 8.1, 8.2, 8.3, 8.4, 8.5

a) In Problem 8.1(1) Be sure to answer all three questions.(2) Suppose Mr. Loyman had been a successful physician until a yearprior to filing the bankruptcy? Are there additional facts necessary andwhy?

b) Problem 8.5 In addition to the charges listed in the problem, the Lujansobtained cash advances from FirstBank MasterCard ($600) and SecondBank Visa($500). Instead of the question in the problem answer the following questions:

(1) Prior to the charges indicated in the second paragraph of theproblem Maria was told that she would get her old job back and that herincome would be increased. Would the credit card debts benondischargeable under §523(a) (2) (A)? §523(a) (2) (B)?(2) Prior to the charges indicated in the second paragraph of theproblem Maria developed a serious physical disability and was told shewould not be able to work for several years. At the same time Reynaldolost his job. Would the credit card debts be dischargeable under §523(a)(2) (A)? §523(a) (2) (B)?(3) When applying for her credit cards Renaldo gave the followinginformation. Would any of the items be grounds for nondischargeabilityunder §523(a) (2) (a)? §523(s)(2)(B)

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(a) He was a professional dancer when in fact he was aprostitute/(b) He was President of the United States.(c) He earned $400,000 a year when in fact he earned only$40,000 a year.(d) He promised to repay the debts according to the terms ofthe credit plan. In fact he was crossing his fingers when signingthe agreement. He never intended to pay back any of the money heborrowed.

3. Discuss whether the following student loans are dischargeable.a) Ed has a student loan debt of $24,000. Ed has an undergraduate degree inphysics and a graduate degree in science education. He is unemployed, suffers frompost-traumatic stress disorder resulting from his service in Iraq, and has a daughterfrom a prior marriage he is required to support. Ed’s wife makes $12,000 a year buthe claims he cannot rely on that income for support since the marriage is troubled.Ed received $220 a month from the Veterans Administration for a 30% disabilitydue to the post-traumatic stress disorder. Ed’s psychiatrist testified that Ed mightimprove within a year. Discuss whether Ed’s student loan is dischargeableb) Sheila has student loans of approximately $69,000 incurred to financemedical school tuition. Sheila is married with 2 children, aged 2 and 4 years old.Since dismissal from medical school for academic failure, Sheila has worked in asmall town as a chimney sweep, a bartender, a satellite dish salesperson, with anaverage income of only $2,000 per year. Sheila received a disability check from thegovernment for a psoriasis problem that developed while she was in the Army.Currently she operates a tire business which is losing money and is pessimistic asto whether there would be any substantial increase in her income in the near future.Sheila’s husband works for the police department earning approximately $7,000 ayear and the family is in good health.

4. Clara filed for Chapter 7 Bankruptcy and received her discharge. None of hercreditors objected to her discharge. Several months later, the following creditors askedthe court to deny her discharge for the following debts. What result? (Indicate wheremore facts are needed and why.) See §523(c).

a) Edubank for(1) Student loans.(2) Credit card debts

b) Dr. Needle for medical treatment.c) Clara’s ex-husband for

(1) unpaid alimony(2) Property settlement payments.

d) Maryland for(1) Unpaid taxes.(2) Parking fines

e) Myron Meek for injuries suffered when Clara(1) Hit him over the head with a Whiskey bottle.(2) accidentally ran over him in the parking lot of the bar

f) Clara’s son for using money in his trust fund to pay for her clothes.5. Simon works for the United States Good People Administration, an agency of theFederal Government. Simon filed a Chapter 7 Bankruptcy petition. After receiving hisdischarge, Simon was called into the office of Director Nice and told that Rush Limbaugh

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had complained that many of the employees of the Good People Administration were notgood at all and had, in fact, filed Bankruptcy to stiff their creditors. Director Nice firedSimon. Can he do that? §5256. PS 9.6

Computing income tax priority using §507(a)(8)The whole point of this exercise is to help you read and understand the language of § 507(a)(8).Use the table below to determine whether the taxes for a particular year of employment are priority claims depending on thedate the petition was filed. See the sample column.

(8) Eighth, allowed unsecured claims of governmental units, only to the extent that such claims are for--(A) a tax on or measured by income or gross receipts for a -(i) for which a return, if required, is last due, including extensions, after three years before the date of the filing of the

petition;Sample (A) (B) (C) (D) (E) (F) (G) (H) (J)) (J) (K)

1Debtor FiledBankruptcy on

3/15/2000 3/15/2014 5/15/2013 3/15

/209

5/15

/200

9

2

Year of employment

1999

2005

2009

2013

2014

2015

2000

2008

2010

2014

2005

2005

3 What is the end of thecalendar year for thatyear? (i.e., year in row2)?

12/31/1999

(A)taxable yearending on orbefore the date ofthe filing of thepetition-

4 Is the date of row3before row1?

YES

5 What is 3 years beforethe date of the filing ofthe petition?

3/15/1997

6 When is the return lastdue for the year ofemployment (i.e., year inrow 2)

4/15/2000

(i)a return, ifrequired, is lastdue, includingextensions, afterthree yearsbefore the date ofthe filing of thepetition;

7 Is row 6 after row5? yes

8 Are both rows 4 & 7answered Yes?

yes

9 Based on your answer inrow8 are the taxes forthat year eligible forpriority?

yes

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Reaffirmation/Redemption/Ridethrough1. Problem Set 9: 9.1, 9.2, 9.3, 9.4,2. Ridethrough Problems

a) For the following problems use:(1) § 362(h),(2) 365(a), (b);(3) 521(a)(2)&(6), (d) & (i).

b) For the following questions consider Debtors A & B:(1) Debtor A has a 1960 Edsel valued at $25,000. Debtor owesFIRSTBANK $30,000 on the Edsel. Debtor is not behind on payments.The Promissory Note contains the following language

I promise to pay$500 per month.If I don’t pay you can keep the car.

(2) Debtor B filed for Bankruptcy. Debtor has a banjo valued at$80,000. Debtor owes SECONDBANK $40,00 on the Banjo. Debtor isnot behind on payments. The promissory note contains the followinglanguage.

I promise to pay$500 per month.If I don’t pay you can keep the car.If I file Bankruptcy that is a default.

c) What options do Debtors A, B ,FIRSTBANK, & SECONDBANK have?(1) Can Debtors cannot avoid under 522(f)(2) Can Debtors can redeem?(3) Can Debtors reaffirm?(4) Can Debtors just keep the property and continue makingpayments?(5) Can Debtors repossesses the property?(6) Can Debtors assume the contracts under 365?(7) Suppose the parties do nothing prior toA & B receivingdischarges. Then A & B begin to fall behind in their payments. Whatoptions will the creditors have? Suppose B accidentally leaves the banjoin a A’s car and the car is subsequently destroyed in a fire?

d) PS 9: 9.5

Abuse & Means Test1. 273-2992. Go to the web sites referred to in the text for Income and Expense standards3. PS 12:12.1,12.2,12.3,12.5

Chapter 13 Plan – Secured Claims1. 223-2352. PS:10 – 10.1, 10.23. 235-2404. PS:10-10.45. 240-2466. PS 10: 10.5, 10.6

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Chapter 13 Plan – Unsecured Claims1. 249-253; 263-2692. PS 11: 11.1 11.2 11.3, 11.53. 253-263, 299-3014. PS 11: 11.4, PS 1: 12.4

Chapter 13 – Discharge1. Clara filed for Chapter 13 Bankruptcy. Here plan was confirmed. None of hercreditors objected to her discharge. Several months later, the following creditors askedthe court to deny her discharge for the following debts. What result? (Indicate wheremore facts are needed and why.) See §§ 523(c), 1328

a) Edubank for(1) Student loans.(2) Credit card debts

b) Dr. Needle for medical treatment.c) Clara’s ex-husband for

(1) unpaid alimony(2) Property settlement payments.

d) Maryland for(1) Unpaid taxes.(2) Parking fines

e) Myron Meek for injuries suffered when Clara(1) Hit him over the head with a Whiskey bottle.(2) accidentally ran over him in the parking lot of the bar

f) Clara’s son for using money in his trust fund to pay for her clothes.

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Interest Rate Table

MONTHS YEARS

1 2 4 5 6 1 2 3 5 10 15 20 30APR

2% $100.17 50.13 25.10 20.10 16.76 8.42 4.25 2.86 1.75 0.92 0.64 0.37

3% $100.25 50.19 25.16 20.15 16.81 8.47 4.30 2.91 1.80 0.97 0.69 0.425% $100.42 50.31 25.26 20.25 16.91 8.56 4.39 3.00 1.89 1.06 0.79 0.546% $100.50 50.38 25.31 20.30 16.96 8.61 4.43 3.04 1.93 1.11 0.84 0.607% $100.58 50.44 25.37 20.35 17.01 8.65 4.48 3.09 1.98 1.16 0.90 0.678% $100.67 50.50 25.42 20.40 17.06 8.70 4.52 3.13 2.03 1.21 0.96 .84 0.739% $100.75 50.56 25.47 20.45 17.11 8.75 4.57 3.18 2.08 1.27 1.01 .90 0.80

9.59 1.3 .94 .8510% $100.83 50.63 25.52 20.50 17.16 8.79 4.61 3.23 2.12 1.32 1.07 .97 0.8811% $100.92 50.69 25.58 20.55 17.21 8.84 4.66 3.27 2.17 1.38 1.14 0.9512% $101.00 50.75 25.63 20.60 17.25 8.88 4.71 3.32 2.22 1.43 1.20 1.0313% $101.08 50.81 25.68 20.65 17.30 8.93 4.75 3.37 2.28 1.49 1.27 1.1114% $101.17 50.88 25.73 20.71 17.35 8.98 4.80 3.42 2.33 1.55 1.33 1.1815% $101.25 50.94 25.79 20.76 17.40 9.03 4.85 3.47 2.38 1.61 1.40 1.2620% $101.67 51.25 26.05 21.01 17.65 9.26 5.09 3.72 2.65 1.93 1.76 1.6725% $102.08 51.57 26.32 21.27 17.90 9.50 5.34 3.98 2.94 2.27 2.14 2.0830% $102.50 51.88 26.58 21.52 18.15 9.75 5.59 4.25 3.24 2.64 2.53 2.5048% $104.00 53.02 27.55 22.46 19.08 10.66 6.56 5.29 4.42 4.04 4.00 4.00

Trustee’s Avoiding PowersA. § 544(a)

1. Reshaping The Estate2. Suppose Larry Lean is owed $400 by Oscar Owen. Lean has a properly perfectedsecurity interest in Owen’s LadderAll brand utility ladder that is worth $300. Assumethat in a Chapter 7 bankruptcy all of Owen’s unsecured claims are paid 10 cents on thedollar.

a) Given the above facts what is the amount of Lean’s unsecured and securedclaims.b) How much should Lean receive for the unsecured and secured claims.

3. Suppose that Lean had failed to file the financing statement and that, therefore,the security interest is unperfected..

a) Can the trustee using 544(a) avoid Lean’s lien on the LadderAll?b) What would then be the amount of Lean’s unsecured and secured claims.c) How much should Lean receive for the unsecured and secured claims.

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B. §544(b) and §5481. All parties live and events take place in Maryland. Boris filed a chapter 7bankruptcy petition on September 1, 2009.2. On January 1, 2008, Dudley obtained a judgment against Boris for $1,000. OnFebruary 1, 2007, Boris gave his daughter Natasha his (Boris’) a gold watch becauseBoris wanted to prevent Dudley from having the sheriff seize the property to satisfy ajudgment.

a) What is “applicable law” referred to in §544(b)(1)?b) Under the ‘applicable law’ is there a creditor that has an unsecured claim?c) Who is that creditor?d) Has the statute of limitations expired on that creditor’s claim?e) Does that creditor have the right to avoid the transfer under the applicablelaw?f) Under §544(b)(1), may the trustee avoid the transfer?g) Under §548, may the trustee avoid the transfer?h) If the transfer of the watch had been on January 1, 2008, may the trusteeavoid the transfer under §548.

3. On January 1, 2008, Dudley obtained a judgment against Boris for $1,000. OnAugust 9, 2008, Boris gave his daughter Natasha his (Boris’) gold watch. On January 1,2009, Boris paid Dudley back. Because of the payment, Boris had no creditors. Then, onFebruary 1, 2009, Boris borrowed $10,000 from Rocky. Boris was unable to pay Rockyback.

a) May the trustee avoid the transfer of the gold watch under §544(b).b) May the trustee use §548 to avoid the transfer of Boris to Natasha.

4. On January 1, 2008, Dudley obtained a judgment against Boris for $1,000. OnAugust 9, 2008, Boris gave his daughter Natasha his (Boris’) gold watch because Boriswanted to prevent Dudley from having the sheriff seize the property to satisfy thejudgment. However, On January 1, 2009, Boris was able to pay Dudley back. Becauseof the payment, Boris had no creditors. On February 1, 2009, Boris borrowed $10,000from Rocky. Boris was unable to pay Rocky back.

a) Could the trustee avoid the transfer under §544(b)?b) Could the trustee avoid the transfer under §548?

5. Assume Bernard Madoff made a sizable contribution to the Madoff Foundationto Support Incarcerated Financiers, protected by §501(c)(3), shortly before filing abankruptcy petition.

a) Could the trustee avoid the donation under §544(b)?b) Could the trustee avoid the donation under §548?

C. Preferences1. Basics of 547

This is designed to walk you through §547, the preference provision of the Bankruptcy Code.Essentially, this provision attempts to reverse a particular type of conveyance that may not be fraudulentin terms of the UFTA, but that also defeats the purpose of Bankruptcy by favoring some creditors aboveothers. The basic scenario is this: Debtor owes many debts and knows he will be in the bankruptcy.Therefore, he pays off some creditors before filing.

For example, if Debtor owes creditors $1,000,000 and has $10,000 in assets, each creditor willget paid 10% of their claim. One of Debtor’s creditors is Knuckles Kaboon. Debtor owes Kaboon$5,000. Fearing what might happen to him if he does not pay Kaboon in full, Debtor pays Kaboon infull $5,000. If Debtor hadn’t done this Kaboon, would have obtained only $500 in the bankruptcydistribution. However, Kaboon got $5,000. In addition, there is now only $5,000 in assets for the other

BK S15 SYL 12/17/2014 25

creditors with claims of $995,000. Thus, now each creditor will get only about 5% of their claims. Itdoesn’t seem fair that Kaboon gets so much more (percentage wise) than the other creditors.

Therefore, bankruptcy law considers that payment a preference. Kaboon has to give the moneyback, get in line like everybody else, and get his measly 10%. Section 547 of the code provides for theavoidance of preferences. Below are the relevant provisions of §547 with notes indicating theapplication of the facts.

§ 547. Preferences(b) Except as provided in subsections (c) and (i) of thissection, the trustee may avoid any transfer of aninterest of the debtor in property--

Giving Kaboon the money was a transfer ofproperty.

(1) to or for the benefit of a creditor; It was to the benefit of Kaboon(2) for or on account of an antecedent debt owed

by the debtor before such transfer was made;It was on account of an antecedent debt. Kaboonwas owed the money before the transfer was made.

(3) made while the debtor was insolvent; [see presumption in §547(f)](4) made--

(A) on or within 90 days before the date of thefiling of the petition; or

This transfer was made within 90 days.

B) between ninety days and one year beforethe date of the filing of the petition, if suchcreditor at the time of such transfer was aninsider; and

(5) that enables such creditor to receive morethan such creditor would receive if--

This transfer enabled Kaboon to receive $500.

(A) the case were a case under chapter 7 of thistitle;

.

(B) the transfer had not been made; and(C) such creditor received payment of such

debt to the extent provided by the provisions ofthis title.

In a Chapter 7 case, Kaboon would have received$500. Therefore, the transfer enabled Kaboon toreceive more than he would have received in theChapter 7 distribution.

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2. Problems on §547(b)a) Debtor filed a Bankruptcy petition on June 1. On that day, Debtor had thefollowing debts and property.

Nonexempt Property DebtsCash $100,000 Bank A $10,000

Store B 40,000Neighbor N 50,000Florist F $100,000

(1) ALTERNATIVE I: On May 1, Debtor pays Neighbor $50,000.(a) What percent of their claims would each creditor havereceived if the transfer had not been made?(b) Therefore, how much would Neighbor have received if thetransfer had not been made?(c) As a result of the transfer, did Neighbor receive more thathe would have received had the transfer not been made?

(2) ALTERNATIVE II: On May 1, Debtor pays Neighbor $30,000 ofNeighbor’s claim. Debtor now only owes Neighbor $20,000

(a) What percent of their claims would each creditor havereceived if the transfer had not been made?(b) Therefore, how much would Neighbor have received if thetransfer had not been made?(c) After the transfer was made, what percentage of eachremaining claim would be paid(d) As a result of the transfer, how much will Neighborreceive? (i.e., combine the amount Neighbor received beforebankruptcy and the amount Neighbor will receive afterbankruptcy)(e) As a result of the transfer, did Neighbor receive more thathe would have received had the transfer not been made?

b) Debtor filed a Bankruptcy petition on June 1. On that day, Debtor had thefollowing debts and property.

Nonexempt Property DebtsHousehold Goods $ 40,000 Bank A $ 10,000 A has a security interest in BMWStamp Collection $ 10,000 Store B $ 40,000BMW $ 30,000 Neighbor N $ 50,000 N has a security interest in the stamp collectionLog Cabin $ 10,000 Florist F $ 100,000Cash 10 $10,000

(1) Bank A has a $_______ unsecured claim and a secured claim and a$_____(2) Neighbor has a $_____unsecured claim and a secured claim and a$_____(3) ALTERNATIVE III: On May 1, Debtor pays Neighbor $10,000.Now how much will each creditor get?

(a) What percent of their unsecured claims would each creditorhave received if the transfer had not been made?(b) Therefore, how much would Neighbor have received if thetransfer had not been made? (Total secured claim and unsecuredclaim)

BK S15 SYL 12/17/2014 27

(c) After the transfer was made, what percentage of eachremaining unsecured claim would be paid(d) As a result of the transfer, how much will Neighborreceive? (i.e., combine the amount Neighbor received beforebankruptcy and the amount Neighbor will receive afterbankruptcy)(e) As a result of the transfer, did Neighbor receive more thanhe would have received had the transfer not been made?

(4) ALTERNATIVE IV: On May 1, Debtor pays Bank A $10,000 ofA’s claim.

(a) What percent of unsecured claims paid if no transfer?(b) How much would A receive if no transfer?(c) After transfer what percent of unsecured claims paid?(d) As a result of the transfer, how much will A receive?(e) Did A receive more than if transfer not made?

(5) ALTERNATIVE V: On May 1, Debtor grants F a securityinterest in his Household Goods. Note the definition of transfer.

(a) What percent of unsecured claims paid if no transfer?(b) How much would F receive if no transfer?(c) After transfer what percent of unsecured claims paid?(d) As a result of the transfer, how much will F receive?(e) Did F receive more than if transfer not made?

3. Problems involving §547 (c)(1), (2), (7), (8), (9)a) Debtor purchases heating oil from Carbona. Carbona’s invoices state thatbills must be paid within 5 days of delivery. Unfortunately Debtor has been unableto pay the heating bills promptly and has paid each bill for the last 5 months 28days after delivery. Can the trustee recover the payments to Carbona aspreferences?

Delivery Amount Payment11/01/09 $1,000 11/28/0912/01/09 $600 12/28/091/01/09 $400 1/28/092/01/09 $400 2/28/093/01/09 $8003/15/09 Bankruptcy Petition Filed

b) Debtor went to Lawyer and engaged her services to file his bankruptcypetition, agreeing to pay her $800 for handling his case. She insisted on payment upfront, and he told her he could borrow that amount from his brother and have it inher hands the next day. That same day the two of them sat in her office and filledout the schedules using the computer program she had devised for this purpose,though he was missing certain records that he had failed to bring with him. Thenext day he brought in those records, along with a check for $800, and she finishedfilling out his schedules. The petition was filed later that afternoon, immediatelyafter she had cashed his check. On learning this, the trustee in bankruptcy wantedAngelina to cough up the $800, on the theory that she had received a preference. Isthe trustee right?c) Suppose a week before filing the petition Debtor paid his ex-wife theamount he owed on their divorce court order.

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Jurisdiction1

Subsections (a) and (b) of 28 U.S.C. § 1334 govern the basic grant of jurisdiction in bankruptcy cases:(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive

jurisdiction of all cases under title 11.(b) Except as provided in subsection (e)(2) and notwith standing any Act of Congress that confers exclusive

jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusivejurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.

The apparent contradiction in these subsections (one providing that jurisdiction is exclusive and the other that itis not) is explained by understanding the distinction between "cases" and "proceedings" in bankruptcy. The "case" is theentire bankruptcy that adjudicates the whole financial relationship between a debtor and all of its creditors. A "proceeding"is a subset of a case—a civil dispute that deals with particular legal issues and often involves the debtor and only anindividual creditor. Each bankruptcy "case" may involve many "proceedings."

"Note that the grant of jurisdiction is to district courts and not to bankruptcy courts. Bankruptcy courts originatedas an administrative branch of district courts, governed by "referees." Bankruptcy judges today are Article I judges;they do not have the life tenure and protection from diminution in salary that is enjoyed by Article III judges, such asthose appointed to the district and appellate courts.

This distinction was critical in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50,102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), in which a debtor-in-possession brought suit in bankruptcy court for breach of aprepetition contract. The defendant asserted that the bankruptcy court lacked jurisdiction and that Congress could notauthorize the bankruptcy court to hear such cases. The Supreme Court agreed, holding that the Constitution does notallow bankruptcy judges, who lack life tenure, to hear and determine cases such as the one at bar. The suit was neitherdirectly related to the bankruptcy proceeding, nor a case in which a third party was suing the bankruptcy estate.

For practical purposes, Marathon voided bankruptcy court jurisdiction under the 1978 Bankruptcy Code. Congresshad to amend the Code to revive the bankruptcy courts' power to hear bankruptcy cases. Simply making bankruptcyjudges Article III judges—the easiest solution—was not a politically viable option. Congress, therefore, solved theMarathon dilemma by granting jurisdiction to the Article III judges of the district courts rather than to bankruptcy courts.Congress then provided, in 28 U.S.C. § 157(a), that district courts can delegate jurisdiction to the bankruptcy courts in"cases under" the Bankruptcy Code and in "proceedings arising under * * * or arising in or related to" the Code.

Subsection 157(b)(l) permits a bankruptcy judge to "hear and determine * * * all core proceedings arising undertitle 11, or arising in a case under title 11." Subsection 157(b)(2) provides a nonexclusive list of "core proceedings."The proceedings in the list, such as allowance of claims and objections to discharge, are ones that invoke substantialrights under the Code or can only arise in conjunction with a bankruptcy case. In other words, a core proceeding is"inextricably linked" to the bankruptcy case.

If a proceeding is "noncore," a bankruptcy judge may "hear and determine" it only if the parties consent. 28U.S.C. § 157(c)(2). Otherwise, the bankruptcy judge may "hear" the matter, but cannot "determine" it; the bankruptcyjudge must submit proposed findings of fact and conclusions of law to the district judge, who may enter those findingsand conclusions "after consideration." The district judge must make a de novo review upon the record, or, if additionalevidence is submitted, of any part of the bankruptcy judge's findings of fact or conclusions of law to which a partyobjected in accordance with Bankruptcy Rule 9033. The district judge may accept, reject, or modify the proposed findingsof fact or conclusions of law, receive further evidence, or recommit the matter to the bankruptcy judge withinstructions.

Congress determined that neither the district court nor the bankruptcy court should handle state law causes ofaction that are related to a bankruptcy case but that do not arise under title 11. Accordingly, 28 U.S.C. § 1334(c)(2)provides that a party to a proceeding based on a state law claim or cause of action may move the district court to abstainfrom hearing the proceeding if an action is commenced and can be timely adjudicated in an appropriate state forum.Section 1334(c) has been interpreted as a "clear congressional policy * * * to give state law claimants a right to haveclaims heard in state court." Piombo Corp. v. Castlerock Properties (In re Castlerock Properties), 781 F.2d 159, 163 (9thCir. 1986).

READ: Wood v. Wood

1 This material is taken from Howard, Bankruptcy, Cases & Materials (2012)

cshafer

Rectangle

Unsecured CLaims

Chap7 Min.1325(a)(4).Chap7 Min.1325(a)(4).

1

Disposable Income1325(b)(1)(B):

Disposable Income1325(b)(1)(B):

2

Income.Income.

3

ProjectedCurrent Monthly

Income:

ProjectedCurrent Monthly

Income:

4

Income MayChange.

Income MayChange.

5

Amount ProbableLanning.

Amount ProbableLanning.

6

Income Won'tChange.

Income Won'tChange.

7

Expenses.Expenses.

8

Amount ReasonablyNecessary1325(b)(2):

Amount ReasonablyNecessary1325(b)(2):

9

Above MedianIncome

Use formula1325(b)(3):

Above MedianIncome

Use formula1325(b)(3):

10

Expenses MayChange.

Expenses MayChange.

11

Probably AdjustProbably Adjust

12

Won't Change.Won't Change.

13

Use Formula.Use Formula.

14

Below MedianIncome

Use Actual.

Below MedianIncome

Use Actual.

15

Secured Claims

Cure1322(b)(5).

Cure1322(b)(5).

1

Modify:Modify:

2

ModifyChange Int. Rate

Change Monthly Pays1322(b)(2).

ModifyChange Int. Rate

Change Monthly Pays1322(b)(2).

3.May not modify

MOrtgagereal property

residence1322(b)(2).

.May not modifyMOrtgage

real propertyresidence1322(b)(2).

4

Secured Must Get PV of Claim1325(a)(5)(B)(ii):

Secured Must Get PV of Claim1325(a)(5)(B)(ii):

5

!PMSIAuto 3 yearsOthers 1 year

Secured Claim = Debt1325(a) Hanging.

!PMSIAuto 3 yearsOthers 1 year

Secured Claim = Debt1325(a) Hanging.

6

Non PMSI.Secured Claim =

506.

Non PMSI.Secured Claim =

506.

7

Unsecured Claim.Unsecured Claim.

8