Chapter 42 The Law of Bankruptcy

Figure 42-1 Chapter 7 (Liquidation), Chapter 9 (Municipalities), Chapter 11 (Business Reorganization), Chapter 12 (Family Farmers), and Chapter 13 (Adjustment of Debts of Individuals).

1.The goals of the bankruptcy code are (a) to convert the debtors property into cash and distribute it among creditors, and (b) to give the debtor a fresh start by leaving some of his or her assets untouched.

2.Bankruptcy proceedings begin with the filing of a petition with the federal court.

3.When there are less than twelve creditors, a single creditor who is owed more than $10,000 may file an involuntary bankruptcy petition.

4.The duties of a trustee in bankruptcy are to collect the debtor's property, and with the exception of items that the law allows the debtor to keep, convert it to cash, and pay the creditors according to certain priorities established by law.

5.Some papers filed by the debtor in a bankruptcy proceeding are a list of assets, a list of creditors, and the amount owed to each.

6.Secured creditors receive payment to the exclusion of other creditors. After they are paid, the remaining unexempt property is used to pay administrative expenses and unsecured creditors according to a priority list established by the bankruptcy code.

7.Five exemptions under the federal bankruptcy code are (a) one's resident to the extent of $16,150, (b) a motor vehicle to the extent of $2,500, (c) household furnishings and personal apparel not exceeding $400 per item, and $8,000 total, (d) $1,075 in jewelry, and (e) $1,625 in professional books or tools of trade.

8.A Chapter 7 bankruptcy is a proceeding designed to liquidate a debtor's property, pay off his or her creditors, and discharge the debtor from most debts. A Chapter 11 bankruptcy provides a method for businesses to reorganize their financial affairs, keep their assets, and remain in business.

9.A Chapter 13 bankruptcy provides a method by which an individual with regular income can pay his or her debts from future income over an extended period of time, in contrast to a Chapter 7 bankruptcy, which discharges the debtor from most debts.

10.A Chapter 12 bankruptcy provides a method for family farmers to adjust their financial affairs while continuing to operate their farms.

Understanding Legal Concepts

1.F, begin6.T

2.F, voluntary7.F, fresh start

3.F, $10,0008.F, $16,150

4.T9.F, Chapter 11

5.T10.T

Checking Terminology

1.l6.c, d11.cc16.s21.ee

2.k7.dd12.t17.m22.r

3.f8.e13.h, z18.n23.v

4.p9.g, u, bb14.i, q19.w24.x

5.aa10.y15.b20.a, j25.o

Using Legal Language

Valerie worked in a law office that specialized in bankruptcy—that is, the legal process by which the assets of a(n) debtor (one who owes a debt to another) are sold to pay off creditors (people to whom money is owed) so that a fresh start can be made financially. Mr. Rodham, a client, had just left, and Attorney Jones had instructed Valerie to prepare the papers for a(n) Chapter 7 bankruptcy, which is also called liquidation or straight bankruptcy, and is designed to liquidate (convert to cash) Mr. Rodham's property, pay off his debts, and discharge him from most debts. Since the petition will be filed by Mr. Rodham, this will be a(n) voluntary bankruptcy case, and a(n) order for relief will automatically take place. When the petition is filed, a(n) automatic suspension, also called a(n) automatic stay, occurs which is a self-operating postponement of collection proceedings against the debtor. A(n) trustee in bankruptcy will hold Mr. Rodham's assets in trust for the benefit of creditors, some of whom may receive a(n) pro rated share—one that is divided proportionately. Creditors will be required to file a(n) proof of claim within 90 days after their first meeting. The holder of the mortgage on Mr. Rodham's house is known as a(n) secured creditor and will receive payment to the exclusion of other creditors. Any preferences (earlier transfers resulting in greater percentages to some creditors) that may have occurred will be invalidated. Because of the so called homestead exemption, Mr. Rodham may be able to retain an interest in his residence to the extent of $7,500. When the case is finalized, Mr. Rodham will receive a(n) discharge in bankruptcy—that is, a release from all debts that were proved in the proceeding.

Puzzling Over What You Learned

1 / 2 / C / URE / CR / E / 3 / T / OR S / 4
S E / DI / I
X / I / N
5 / D E / BT / OR / I / N / POS / S / E / S / S / I / O / N / V
M / C / 6
B / O
P / H / A / L
7 / 8 / U
T / L I / Q / U / I / D / A / T / I / O / N / B / N
I / R / A / K / N
O / G / N / R / T
N / E / K / U / A
S / 9 / R / P
R
P / I
10
TR / US / TE / E / I / NB / A / NKR / U / P / T / CY
11 / O / B / P / C / B
A
12 / 13 / A
S T / RA / I / GH / T / BA / N / KRU / PT / C / Y
S / A / N / R / N
E / T / K / E / K
E / 14 / R / 15 / D
T / C / D / R
16
S
D / L I / Q / U / I / D / A / T / E / I / U
A / P / B / T / P
17 / T
R E / O / R / G / A / N / I / Z / A / T / I / O / N / T / O
M / C / O / R / C
Y / R / S / Y

Caveat: Do not allow squares for spaces between words and punctuation (apostrophes, hyphens, etc.) when

filling in crossword.

Across

  1. Creditors who hold mortgages and other liens.
  1. Another name for a debtor in Chapters 11, 12, and 13 cases.
  1. A proceeding designed to liquidate a debtor’s property, pay off creditors, and discharge the debtor from most debts.
  1. A person appointed by a bankruptcy court to hold the debtor’s assets in trust for the benefit of creditors.
  1. A proceeding designed to liquidate a debtor’s property, pay of creditors, and discharge the debtor from most debts.
  1. Convert to cash.
  1. A method for businesses to reorganize their financial affairs, keep their assets, and remain in business.

Down

  1. Items of property that are excepted from bankruptcy proceedings and may be retained by the debtor.
  1. A release of a debtor from all debts that were proved in a bankruptcy proceeding.
  2. A bankruptcy proceeding that is initiated by one or more creditors.
  1. The legal process by which the assets of a debtor are sold to pay off creditors so that the debtor can make a fresh start financially.
  1. The state of a person who is unable to pay debts as they become due.
  1. Divided proportionately.

11. Property.

  1. People to whom money is owed.
  1. A right to payment.
  1. One who owes a debt to another.