240 MODULE27 BANKRUPTCY

b. Trustee, with court approval, may employ professionals (e.g., accountants and lawyers) to assist'
trustee in carrying out duties that require professional expertise

(1) Employed professional must not hold any interest adverse to that of debtor (i.e., to avoid con-
flicts of interest)

(2) Employed professional has right to receive compensation for reasonable value of services per-
formed .
(a) Reasonable fee is based on amount and complexity of services rendered, not on size of es-
tate

(3) Trustee, with court approval, may act in professional capacity if capable and be compensated
separately for professional services rendered .
c. Trustee must within sixty days of the order for relief assume or reject any executory contract, in-
cluding leases, made by the debtor

(1) Any not assumed are deemed rejected

(2) Trustee must perform all obligations on lease of nonresidential property until lease is either as-
sumed ~r rejected
(3) Rejection of a contract is a breach of contract and injured party may become an unsecured
creditor
(4) Trustee may assign or retain leases if good for bankrupt's estate and if allowed under lease
and state law
(5) Rejection or assumption of lease is subject to court approval
d. Trustee may set aside liens (those which arise automatically under law) if lien
(1) Becomes effective when bankruptcy petition is filed or when debtor becomes insolvent
(2) Is not enforceable against a bona fide purchaser when the petition is filed

(3) In the case of a security interest, is not perfected before filing of bankruptcy petition
e. Trustee may set aside transfers made within one year prior to the filing of the bankruptcy peti-
tion if

(1) The transfer was made with intent to hinder, delay, or defraud any creditor. The debtor need
not be insolvent at time of transfer.

(2) Debtor received less than a reasonably equivalent value in exchange for such transfer or ob-
ligation and the debtor

(a) Was insolvent at the time, or became insolvent as a result of the transfer
(b) If the fact that the transfer was a fraudulent conveyance was the only grounds for avoiding
the transfer; once avoided by trustee, transferee that .gave value in good faith
has a lien on
property transferred to the extent of value given
f. Trustee may also set aside preferential transfers of nonexempt property to a creditor made within
the previous ninety days while insolvent in the "bankruptcy sense"

(1) Preferential transfers are those made for antecedent debts that enable the creditor to receive
more than s/he would have otherwise under a Chapter 7 liquidation proceeding

(a) Includes a security interest given by debtor to secure antecedent debt

EXAMPLE: Debtor paid off a loan to BB Bank sixty days before Debtor filed a bankruptcy petition. This
is a preferential transfer.

EXAMPLE: Debtor gave CC Bank a security interest in some office furniture he owns to secure a
previous loan CC Bank had granted him. This is a preferential transfer if Debtor gave the security
interest within ninety days of the filing of bankruptcy. The reason for this is that it gives the creditor
(bank) greater rights than it had before.

EXAMPLE: Debtor prepaid some installments on an installment loan on equipment.

EXAMPLE: Debtor made a gift to charity. This is not a transfer for an antecedent debt.
(2) Preferential transfers made to insiders within the previous twelve months may be set aside
( ontrolling stockholders of corpora-
a tions, or general partners of partnerships
)
I EXAMPLE: S is a secured creditor of XYZ Co. that is in Chapter 7 bankruptcy. S is not an insider.

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