Bankruptcy
Automatic Stay
Once bankruptcy petition filed, creditor cannot: Receive a security interest Perfect a security interest Enforce a security interest
(repossess)
Bankruptcy Trustee
Protects unsecured creditors.Enemy of the secured creditor.
Status of judicial lien creditor
Bankruptcy trustee has status of judicial lien creditor. Thus, will prevail over unperfected
security interests.
Problem 361 – p. 974
Power to Raise Debtor’s Defenses
Bankruptcy trustee can raise any defenses the debtor may have such as:
Statute of limitations Statute of frauds
Power of any actual unsecured creditor
Moore v. Bay – 1931 United States Supreme Court
Trustee’s recovery is not limited to the amount of the unsecured creditor’s claim.
Preferences
Debtor cannot prefer one creditor over another.
Creditors cannot be overly aggressive.
Preferences
1. Transfer by debtor
Includes grant of security interest.
Preferences
2. For preexisting debt
Not a new debt.
Preferences
3. Within 90 days of filing the bankruptcy petition
One year if transfer is to an insider (e.g., relative, partner, corporate officer)
Preferences
4. Increases the amount the creditor receives
Creditor is “better off” because of the transfer as compared to what the creditor would receive under a bankruptcy distribution.
Preferences
5. Debtor insolvent at time of transfer
Presumed within 90 days before filing.
Preferences -- Exceptions
1. Contemporaneous exchange
New value given for item.
Perfection of new value within 30 days of attachment.
Preferences -- Exceptions
2. Ordinary course debt payments
Utility bills Paying ordinary debts (even
secured ones)
Preferences -- Exceptions
3. PMSI
Perfected within 30 days of debtor receiving possession.
Preferences
Problem 362 – p. 979
June 8$80,000 loan$100,000 collateral
July 18Perfection
July 19Bankruptcy filing
Preferences
Problem 363 – p. 979
Nov. 1valueSecurity agreement
Nov. 15RightsAttachment
Dec. 6Bankruptcy filing
Dec. 5Filing
Preferences
Problem 364 – p. 979
Floating Liens
[amount unsecured 90 days before filing]
minus
[amount unsecured at time of filing]
equals
preference
Floating Liens
Amount of
debt 90days before filing
Value ofcollateral90 daysbefore filing
Preference =
Amountof debtat timeof filing
Value ofcollateralat timeof filing
• Problem 365 – p. 981
Fraudulent Conveyances
Under federal or state law.
Actual intent to defraud Debtor receives less than
reasonably equivalent value
Problem 366 – p. 989
Judicial Liens
Judicial liens within 90 days of bankruptcy filing are preferences and trustee has priority.
Statutory Liens
Statutory liens have priority over the bankruptcy trustee if under state law:
They would prevail against a BFP, and
Do not arise only because the debtor is insolvent.