secured transactions assignment 7
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Secured Transactions Assignment 7. Treatment of Secured Creditors in Bankruptcy. The Big Picture. Chapter 1. Creditors’ Remedies Under State Law Chapter 2. Creditors’ Remedies in Bankruptcy Assignment 6: Bankruptcy and the Automatic Stay Assignment 7: Treatment of Secured Creditors - PowerPoint PPT PresentationTRANSCRIPT
1
Secured TransactionsAssignment 7
Treatment of Secured Creditors in Bankruptcy
2
The Big Picture
Chapter 1. Creditors’ Remedies Under State Law
Chapter 2. Creditors’ Remedies in Bankruptcy
Assignment 6: Bankruptcy and the AutomaticStay
Assignment 7: Treatment of Secured Creditorsin Bankruptcy
3
What secured creditors get in bankruptcy
$6K
$10K
4
What secured creditors get in bankruptcy
1. Bifurcation of claim §506(a)
$6K
$10K
5
What secured creditors get in bankruptcy
1. Bifurcation of claim §506(a)
$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
6
What secured creditors get in bankruptcy
1. Bifurcation of claim §506(a)
2. Secured portion: payment in full$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
7
What secured creditors get in bankruptcy
1. Bifurcation of claim §506(a)
2. Secured portion: payment in full
3. Unsecured portion: prorata payment with other unsecured claims
$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
8
What secured creditors get in Chapter 7
1. Bifurcation of claim §506(a)
2. Secured portion: payment in full
3. Unsecured portion: prorata payment with other unsecured claims
Example: Debtor files Chapter 7; trustee sells the asset
$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
9
What secured creditors get in Chapter 7
1. Bifurcation of claim §506(a)
2. Secured portion: payment in full
3. Unsecured portion: prorata payment with other unsecured claims
Example: Debtor files Chapter 7; trustee sells the asset
$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
Secured creditor gets $6,000 from sale; $4,000 claim shares prorata in other assets, if any.
10
What secured creditors get in Chapter 13§1325(a)(5). With respect to each allowed
secured claim . . .
$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
11
What secured creditors get in Chapter 13§1325(a)(5). With respect to each allowed
secured claim . . . (A) The holder of such claim has accepted the
plan;
$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
12
What secured creditors get in Chapter 13§1325(a)(5). With respect to each allowed
secured claim . . . (A) The holder of such claim has accepted the
plan; (B)(i)(I) the plan provides that the holder of
such claim retain the lien securing such claim . . . and(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim [$6K]. . . orowed amount of such claim; or
(C) the debtor surrenders the property securing such claim to such holder
$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
13
What secured creditors get in Chapter 13§1325(a)(5). With respect to each allowed
secured claim . . . (A) The holder of such claim has accepted the
plan; (B)(i)(I) the plan provides that the holder of
such claim retain the lien securing such claim . . . and(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim [$6K]. . . or
(C) the debtor surrenders the property securing such claim to such holder
$6K
$10K
$4K un- secured
claim
$6Ksecured
claim
14
Interest on claimsInterest on claims is important: Example: 30-year loan at 6%
15
Interest on claimsInterest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
16
Interest on claimsInterest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
18
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Undersecured
Over secured
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
19
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Yes, §502(b)
Undersecured
Over secured
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
20
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Yes, §502(b)
No, §502(b)
Undersecured
Over secured
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
21
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Yes, §502(b)
No, §502(b)
Undersecured
Over secured Yes, §506(b)
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
22
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Yes, §502(b)
No, §502(b)
Undersecured No, Timbers
Over secured Yes, §506(b)
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
23
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Yes, §502(b)
No, §502(b)
Undersecured No, Timbers
Over secured Yes, §506(b)
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
For $167 million, 30 years, at 6%, payment is $1 million per month
24
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Yes, §502(b)
No, §502(b)
Undersecured No, Timbers
Over secured Yes, §506(b)
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
For $167 million, 30 years, at 6%, payment is $1 million per monthTimbers: In one-year bankruptcy, secured loses $10 million.
25
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Yes, §502(b)
No, §502(b)
Yes§1129(b)(2)
Undersecured No, Timbers
Over secured Yes, §506(b)
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
26
§1325(a)(5): “[T]he value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim.”
Interest on claims
Is a creditor entitled to interest on its claim?
Prepetition Pendency Post-confirmation
Unsecured
Yes, §502(b)
No, §502(b)
Yes§1129(b)(2)
Undersecured No, Timbers
Over secured Yes, §506(b)
Interest on claims is important: Example: 30-year loan at 6%
1. Over half of all payments will be interest
2. In first year, 83% of payments will be interest
27
Sale “subject to lien” v. “free and clear”
$80K
$100K
What seller has
28
Sale “subject to lien” v. “free and clear”
$80K
$100K
What seller has
Price: $20K
1. Lien goes with the property
2. Buyer is not liable for any deficiency unless buyer “assumes and agrees to pay”
29
Sale “subject to lien” v. “free and clear”
$80K
$100K
What seller has
$80K
$100K
What buyer gets
Price: $20K
1. Lien goes with the property
2. Buyer is not liable for any deficiency unless buyer “assumes and agrees to pay”
30
Sale “subject to lien” v. “free and clear”
$80K
$100K
What seller has
31
Sale “subject to lien” v. “free and clear”
$80K
$100K
What seller has
Price: $100K$80K lien is transferredto the proceeds
32
Sale “subject to lien” v. “free and clear”
$80K
$100K
What seller has
$100K
What buyer gets
Price: $100K$80K lien is transferredto the proceeds
33
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
34
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
Interest Feb 15 – Mar 15?
35
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
36
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
Interest Mar 15 – Sep 15?
37
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
Interest Mar 15 – Sep 15. Rate?
38
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
$2,700 Interest Mar 15 – Sep 15. Rate? 18%
39
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
$2,700 Interest Mar 15 – Sep 15. Rate? 18%
Interest Sep 15 – Dec 15, §502(b)(2)?
40
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
$2,700 Interest Mar 15 – Sep 15. Rate? 18%
0 Interest Sep 15 – Dec 15, §502(b)(2)
41
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
$2,700 Interest Mar 15 – Sep 15. Rate? 18%
0 Interest Sep 15 – Dec 15, §502(b)(2)
Attorneys fees for work in August?
42
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
$2,700 Interest Mar 15 – Sep 15. Rate? 18%
0 Interest Sep 15 – Dec 15, §502(b)(2)
0 Attorneys fees for work in August
43
Problem 7.1, page 128Mar 15
Feb 15
Dec 15
Sep 15
Workdone
Billsent
Bank-ruptcy
Now
What items are included in CompuSoft’s claim?
$30,000 Principal
0 Interest Feb 15 – Mar 15.
$2,700 Interest Mar 15 – Sep 15. Rate? 18%
0 Interest Sep 15 – Dec 15, §502(b)(2)
0 Attorneys fees for work in August
$32,700 Amount of the unsecured claim
44
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Problem 7.2, page 128
45
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Prorata distribution: Each creditor will get the same percentage of its claim
Problem 7.2, page 128
46
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Prorata distribution: Each creditor will get the same percentage of its claim
What percentage will that be?
Problem 7.2, page 128
47
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Prorata distribution: Each creditor will get the same percentage of its claim
What percentage will that be?
Problem 7.2, page 128
All distributions $59,575All claims $1,191,500
48
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Prorata distribution: Each creditor will get the same percentage of its claim
What percentage will that be?
Problem 7.2, page 128
All distributions $59,575All claims $1,191,500
49
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Prorata distribution: Each creditor will get the same percentage of its claim
What percentage will that be?
Problem 7.2, page 128
All distributions $59,575All claims $1,191,500
= .05 =
50
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Prorata distribution: Each creditor will get the same percentage of its claim
What percentage will that be?
Problem 7.2, page 128
All distributions $59,575All claims $1,191,500
= .05 =CompuSoft distributionCompuSoft claim
51
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Prorata distribution: Each creditor will get the same percentage of its claim
What percentage will that be?
Problem 7.2, page 128
All distributions $59,575All claims $1,191,500
= .05 = $1,635 $32,700
CompuSoft distributionCompuSoft claim
=
52
CompuSoft claim, $32,700
Total claims, $1,191,500
Total amount available to pay claims, $59,575
Prorata distribution: Each creditor will get the same percentage of its claim
What percentage will that be?
Problem 7.2, page 128
All distributions $59,575All claims $1,191,500
= .05 = $1,635 $32,700
CompuSoft distributionCompuSoft claim
=
53
Problem 7.3.a, page 1293 months
What is in the claim?
$340,000 Principal
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$400K
54
Problem 7.3.a, page 1293 months
What is in the claim?
$340,000 Principal
6 months interest?
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
55
Problem 7.3.a, page 1293 months
What is in the claim?
$340,000 Principal
$20,400 6 months interest
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
56
Problem 7.3.a, page 1293 months
What is in the claim?
$340,000 Principal
$20,400 6 months interest
3 months interest?
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
57
Problem 7.3.a, page 1293 months
What is in the claim?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
6 monthsInterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
58
Problem 7.3.a, page 1293 months
What is in the claim?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
$371,212 Claim (secured)
6 monthsInterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
59
Problem 7.3.b, page 1293 months
What is in the claim?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
$371,212 Claim (secured)
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
If market rate 12% and planconfirmed today, how much?
60
Problem 7.3.b, page 1293 months
What is in the claim?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
$371,212 Claim (secured)
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
If market rate 12% and planconfirmed today, how much?$371,212 plus interest
61
Confir-mation
Problem 7.3.c, page 1293 months 12 months
If plan not confirmed for year?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
12 months interest?
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
$43.2K
62
Problem 7.3.c, page 1293 months 12 months
If plan not confirmed for year?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
$28,788 12 months interest
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
$28.8K
$14.4K Confir-mation
63
Problem 7.3.c, page 1293 months 12 months
If plan not confirmed for year?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
$28,788 12 months interest
$400,000 Claim (secured)
6 monthsInterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
$28.8K
$14.4K Confir-mation
64
Problem 7.3.c, page 1293 months 12 months
If plan not confirmed for year?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
$28,788 12 months interest
$400,000 Claim (secured)
Claim (unsecured)?
6 monthsInterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
$28.8K
$14.4K Confir-mation
65
Problem 7.3.c, page 1293 months 12 months
If plan not confirmed for year?
$340,000 Principal
$20,400 6 months interest
$10,812 3 months interest
$28,788 12 months interest
$400,000 Claim (secured)
0 Claim (unsecured)
6 monthsinterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
$400K
$10.8K
$28.8K
Confir-mation
66
Problem 7.4, page 1293 months 12 months
a. What is in the claim?
Secured claim ?
6 monthsInterest unpaid
Bank-ruptcy
Now
$340KLien
$20.4K
If the value is only $325K?
$10.8K
$43.2K
Confir-mation
67
Problem 7.4, page 1293 months 12 months
a. What is in the claim?
$325,000 Principal (secured)
$325,000 Secured claim
6 monthsinterest unpaid
Bank-ruptcy
Now
$325KLien
$20.4K
If the value is only $325K?
$10.8K
$43.2K
Confir-mation
$15.0K
68
Problem 7.4, page 1293 months 12 months
a. What is in the claim?
$325,000 Principal (secured)
$325,000 Secured claim
Unsecured claim?
6 monthsinterest unpaid
Bank-ruptcy
Now
If the value is only $325K?
$325KLien
$20.4K
$10.8K
$43.2K
Confir-mation
$15.0K
69
$20.4K
Problem 7.4, page 1293 months 12 months
a. What is in the claim?
$325,000 Principal (secured)
$15,000 Principal (unsecured)
$20,400 6 mo. interest (unsec)
0 3 mo. interest
$325,000 Secured claim
$35,400 Unsecured claim
6 monthsinterest unpaid
Bank-ruptcy
Now
$325KLien
If the value is only $325K?
$10.8K
$43.2K
Confir-mation
$15.0K
$325KLien
70
Problem 7.5, page 1293 months 12 months
a. What is in the claim?
Unsecured claim?
6 monthsinterest unpaid
Bank-ruptcy
Now
$340K
$20.4K
$10.8K
$43.2K
Confir-mation
No security agreement exists
71
Problem 7.5, page 1293 months 12 months
a. What is in the claim?
$340,000 Principal
$20,400 6 mo. interest
0 3 mo. interest
$360,400 Unsecured claim
6 monthsinterest unpaid
Bank-ruptcy
Now
$340K
$20.4K
$10.8K
$43.2K
Confir-mation
No security agreement exists
72
Problem 7.5, page 1293 months 12 months
b. How much do we get?
$340,000 Principal
$20,400 6 mo. interest
0 3 mo. interest
$360,400 Unsecured claim
At 10¢ on the dollar
6 monthsinterest unpaid
Bank-ruptcy
Now
$340K
$20.4K
$10.8K
$43.2K
Confir-mation
No security agreement exists
73
Problem 7.5, page 1293 months 12 months
b. How much do we get?
$340,000 Principal
$20,400 6 mo. interest
0 3 mo. interest
$360,400 Unsecured claim
$36,040 At 10¢ on the dollar
6 monthsinterest unpaid
Bank-ruptcy
Now
$340K
$20.4K
$10.8K
$43.2K
Confir-mation
No security agreement exists
74
Problem 7.6, page 129
Sale for$1 million
Now $1million
Six months
a. How much to the estate? §541
$1,000,000 Sale proceeds
75
Problem 7.6, page 129
Now
Six months “Such estate is composed of . . .all legal and equitable interests of the debtor in property . . .
$1million
a. How much to the estate? §541
$1,000,000 Sale proceeds
Sale for$1 million
76
Problem 7.6, page 129Six months
Now
$850,000Mort
$1million
a. How much to the estate? §541
$1,000,000 Sale proceeds
$850,000 Secured claim
Sale for$1 million
“Such estate is composed of . . .all legal and equitable interests of the debtor in property . . .
77
Problem 7.6, page 129Six months
Interest accrued
Now
$850,000Mort
$42,500
$1million
a. How much to the estate? §541
$1,000,000 Sale proceeds
$850,000 Secured claim
$42,500 Six months of interest
Sale for$1 million
“Such estate is composed of . . .all legal and equitable interests of the debtor in property . . .
78
Problem 7.6, page 129Six months
Interest accrued
Now
$850,000Mort
$60,000$42,500
$10K$1million
a. How much to the estate? §541
$1,000,000 Sale proceeds
$850,000 Secured claim
$42,500 Six months of interest
$60,000 Broker
$10,000 Costs, property taxes
Sale for$1 million
“Such estate is composed of . . .all legal and equitable interests of the debtor in property . . .
79
Problem 7.6, page 129Six months
Interest accrued
Now
$850,000Mort
$60,000$42,500
$10K$1million
a. How much to the estate? §541
$1,000,000 Sale proceeds
$850,000 Secured claim
$42,500 Six months of interest
$60,000 Broker
$10,000 Costs, property taxes
$37,500 Net to the estate
Sale for$1 million
80
Problem 7.6, page 129Six months
Interest accrued
Now
$850,000Mort
$60,000$42,500
$10K
Can trustee recover the costs of sale from the secured creditor’s share?
$1million
a. How much to the estate? §541
$1,000,000 Sale proceeds
$850,000 Secured claim
$42,500 Six months of interest
$60,000 Broker
$10,000 Costs, property taxes
$37,500 Net to the estate
Sale for$1 million
81
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
a. How much to the estate? §541
$1,000,000 Sale proceeds
$850,000 Secured claim
$42,500 Six months of interest
$60,000 Broker
$10,000 Costs, property taxes
$37,500 Net to the estate
82
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Does 1st Capital benefit from this sale?
Problem 7.6, page 129
a. How much to the estate? §541
$1,000,000 Sale proceeds
$850,000 Secured claim
$42,500 Six months of interest
$60,000 Broker
$10,000 Costs, property taxes
$37,500 Net to the estate
$850,000Mort
$60,000$42,500
$10K
83
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Does 1st Capital benefit from this sale?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
Trustee sells (house) Trustee does not sell
1st Capital paid in full 1st Capital: Hires counsel
84
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Does 1st Capital benefit from this sale?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
Trustee sells (house) Trustee does not sell
1st Capital paid in full 1st Capital: Hires counsel
Lifts stay
85
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Does 1st Capital benefit from this sale?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
Trustee sells (house) Trustee does not sell
1st Capital paid in full 1st Capital: Hires counsel
Lifts stay
Forecloses in state court
86
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Does 1st Capital benefit from this sale?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
Trustee sells (house) Trustee does not sell
1st Capital paid in full 1st Capital: Hires counsel
Lifts stay
Forecloses in state court
Buys property at sale?
87
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Does 1st Capital benefit from this sale?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
Trustee sells (house) Trustee does not sell
1st Capital paid in full 1st Capital: Hires counsel
Lifts stay
Forecloses in state court
Buys property at sale?
Hires broker
88
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Does 1st Capital benefit from this sale?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
Trustee sells (house) Trustee does not sell
1st Capital paid in full 1st Capital: Hires counsel
Lifts stay
Forecloses in state court
Buys property at sale?
Hires broker
Sells property
89
§506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim . . . .
Does 1st Capital benefit from this sale?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
Trustee sells (house) Trustee does not sell
1st Capital paid in full 1st Capital: Hires counsel
Lifts stay
Forecloses in state court
Buys property at sale?
Hires broker
Sells property
Paid in full?
90
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against us
c. Can First Capital prevent us fromselling? §554(b)
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
91
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against us
c. Can First Capital prevent us fromselling? §554(b)
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
92
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against us
c. Can First Capital prevent us fromselling? §554(b)
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
93
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month
c. Can First Capital prevent us fromselling? §554(b)
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
94
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month
c. Can First Capital prevent us from trying to sell?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
§554(b). On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
95
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month
c. Can First Capital prevent us fromtrying to sell?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
§362(d)(1). On request of a party in interest . . . the court shall grant relief from the stay . . . for cause, including the lack of adequate protection of an interest in property of such party in interest.
96
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month
c. Can First Capital prevent us fromtrying to sell?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
§362(d)(1). On request of a party in interest . . . the court shall grant relief from the stay . . . for cause, including the lack of adequate protection of an interest in property of such party in interest.
1st Capital must show risk of loss from collateral value decline
97
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month
c. Can First Capital prevent us fromtrying to sell?
d. We are advising the trustee. Is sellingthe house the right thing to do?
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
98
a. If we sell in exactly six months, how much money to the estate? $37,500 to $107,500
b. What if it takes longer to sell? Interest is accruing against the estate at $7,083.30 per month
c. Can First Capital prevent us fromtrying to sell?
d. We are advising the trustee. Is sellingthe house the right thing to do?
Harms the secured to help theunsecureds
Problem 7.6, page 129
$850,000Mort
$60,000$42,500
$10K
99
Problem 7.7.a, page 130
If Friendly’s lien is on the Piper aircraft
$214,000 Piper aircraft
$150,000 Less Friendly Credit
$64,000 $64,000 Net to the estate, aircraft
$26,000 Coin collection
$2,200 Cash
$92,200 Total available for distribution
100
Problem 7.7.a, page 130
If Friendly’s lien is on the Piper aircraft
$214,000 Piper aircraft
$150,000 Less Friendly Credit
$64,000 $64,000 Net to the estate, aircraft
$26,000 Coin collection
$2,200 Cash
$92,200 Total available for distribution
$300,000 General unsecured claims
101
Problem 7.7.a, page 130
If Friendly’s lien is on the Piper aircraft
$214,000 Piper aircraft
$150,000 Less Friendly Credit
$64,000 $64,000 Net to the estate, aircraft
$26,000 Coin collection
$2,200 Cash
$92,200 Total available for distribution
$300,000 General unsecured claims
.3073 Cents per dollar
102
Problem 7.7.b, page 130
If Friendly’s lien is on the coin collection
$214,000 Piper aircraft
$26,000 Coin collection
$26,000 Less Friendly Credit secured
0 0 Net to the estate
$2,200 Cash
$216,200 Total available for distribution
103
Problem 7.7.b, page 130
If Friendly’s lien is on the coin collection
$214,000 Piper aircraft
$26,000 Coin collection
$26,000 Less Friendly Credit secured
0 0 Net to the estate
$2,200 Cash
$216,200 Total available for distribution
$300,000 General unsecured claims
$124,000 Plus Friendly unsecured
$424,000 Total unsecured claims
104
Problem 7.7.b, page 130
If Friendly’s lien is on the coin collection
$214,000 Piper aircraft
$26,000 Coin collection
$26,000 Less Friendly Credit secured
0 0 Net to the estate
$2,200 Cash
$216,200 Total available for distribution
$300,000 General unsecured claims
$124,000 Plus Friendly unsecured
$424,000 Total unsecured claims
.5099 Cents per dollar