238 MODULE 27.

BANKRUPTCY

5. Chapter 7 Bankruptcy Proceedings (also called a liquidation or straight bankruptcy)

6. Take place under federal law
7. An order of relief is sought
8. Court appoints interim trustee
9. Filing petition automatically stays other legal proceedings against debtor's estate until bankruptcy
case is over or until court orders otherwise
10. Debtor may regain property in possession of interim trustee by filing court approved bond
EXAMPLE: Mortgage foreclosure by savings and loan will be suspended against debtor.
11. First creditors' meeting
12. Debtor furnishes a schedule of assets, their locations, and a list of creditors
13. Claims of debtors are deemed allowed unless objected to, in which case the court will determine
their validity
(1) Claims must be filed within six months of first creditors' meeting
(2) Contingent and unliquidated claims are estimated
(3) Any attorneys' fees above those ruled reasonable by court are disallowed when objected to by
creditors
14. Trustee may be elected by creditors in Chapter 7 proceeding
(1) If no election requested by creditors, interim trustee appointed by court continues in office
15. Trustee-the representative of the estate
16. Trustee has right to receive compensation for services rendered based on value of those services
(rather than only' on size of estate)
b.. Duties-to collect, liquidate, and distribute the estate, keeping accurate records of all transactions
17. Trustee represents estate of bankrupt ( debtor)
18. Estate of debtor consists of
(1) Property. presently owned by debtor (as of the filing date)
(2) Property owed to debtor by third parties that can be recovered by trustee
(3) Income from property owned by estate after petition is filed
(4) Property received by debtor within 180 days after filing of petition by following methods: in-
heritance, life insurance, divorce decree, property settlement with spouse, bequest, or
devise
(a) Part of estate of debtor even if debtor has right to receive above within 180 days after the
filing of petition
(5) Leases disguised as secured or unsecured installment sales contracts
(a) Typically happens when lessee automatically owns "leased" property for no additional
consideration or when lessee has option to buy "leased" property for
nominal considera-
tion, especially when leased property has a significant market value
1] However, if agreement is a true lease, it is not part of the lessee's estate
EXAMPLE: Y has been leasing property to Z under which Z may purchase the property for $10 at
the expiration of the lease. It is estimated that the property will be worth $6,000, however, at that
time. If Z takes out or is forced into Chapter 7 bankruptcy, this property will be included as part of
Z's estate.
EXAMPLE: Same facts as above except that Y perfects its security interest. Now Y can sell the
property to satisfy Y's debt.
,
(6) Property acquired by debtor, other than by rriethods listed above, after filing is considered
"new estate" and not subject to creditors' claims in bankruptcy proceeding
19. Exemptions to which debtor is entitled
20. Keeps any interests in joint tenancy property if those interests are exempt under other nonbank-
ruptcy law, and
21. Debtor usually has option of choosing either
(1) Both exemptions under state law and federal law other than under federal Bankruptcy Code
(a) Typical state exemptions (limited in monetary value) include