Skip to main content

Search

Consumer Bankruptcy Law and Practice: 17.5.4.5 Sale of Property Free and Clear of Liens

Chapter 12 allows the sale of collateral in a debtor’s estate free and clear of liens regardless of whether the consent of the secured creditor is granted and of whether the sale will bring sufficient funds to satisfy the entirety of the secured creditor’s claim.546 By contrast, sale free and clear of liens can only take place in other bankruptcy chapters under certain more restrictive conditions.547 Although section 1206 is couched in terms of sale by the trustee, the debtor can sell conditione

Consumer Bankruptcy Law and Practice: 17.5.5.1 Generally

Section 1225 also sets forth specific confirmation requirements that apply to the debtor’s unsecured claims. There are two such requirements, the “liquidation test” and the “disposable income requirement.” The debtor’s plan must meet each of these different tests with regard to each of their unsecured creditors. Note that a secured creditor may have both a secured and an unsecured claim, so all of the relevant tests must be applied to that creditor.

Consumer Bankruptcy Law and Practice: 17.5.5.2 The Liquidation Test

Chapter 12 requires that unsecured creditors under a plan receive not less than they would have received if the debtor had undergone liquidation.552 This test is discussed elsewhere in this treatise.553 In many farmer bankruptcies, virtually all equity has been pledged to one or more creditors as security; unpledged property is usually exempt. In such cases, unsecured creditors would receive little or nothing upon liquidation.

Consumer Bankruptcy Law and Practice: 2.4.2 Jurisdiction

A principal goal of the 1978 Bankruptcy Reform Act had been to simplify a jurisdictional scheme that had caused endless litigation for the previous eighty years under the Bankruptcy Act of 1898. This simplification was to be accomplished by giving the bankruptcy court broad and pervasive jurisdiction over all matters related in any way to the bankruptcy case.18 But granting such broad jurisdiction to a non-Article III court was found unconstitutional by the United States Supreme Court.19

Consumer Bankruptcy Law and Practice: 2.5.6 Tax Refunds and the Earned Income Tax Credit

The right to receive a tax refund for a tax year that has ended before the petition date is clearly property of the estate.137 The debtor may also have a property interest in excessive withholding by an employer for the then-current tax year that becomes a part of a refund due after the filing of the bankruptcy.138 When such withholdings do result in a refund, the refund is often prorated over the entire year, with the prebankruptcy portion considered property of the estate.

Consumer Bankruptcy Law and Practice: 2.5.7 Personal Injury Claims and Other Causes of Action

There can sometimes be significant issues concerning whether a cause of action accrued prior to the bankruptcy petition and therefore is the property of the estate. These issues have come to the fore when debtors and trustees have been contacted long after the bankruptcy case and informed that the debtor has a right to a class action settlement payment, often in cases involving defective medical devices. In some cases, debtors have received these settlement payments even though they have suffered no injury.

Consumer Bankruptcy Law and Practice: 2.7 The United States Trustee

Every judicial district, with the exception of those in Alabama and North Carolina, is part of a larger United States Trustee District, served by a United States trustee and one or more assistant United States trustees.190 For political reasons, neither Alabama nor North Carolina has a United States trustee.191

Consumer Bankruptcy Law and Practice: 5.2 The Importance of Getting All the Facts

Before a bankruptcy case can be filed, it is necessary that a decision be made that bankruptcy is, in fact, the best vehicle for dealing with the problems facing a particular client. Indeed, most of the legal analysis that occurs in a typical consumer bankruptcy case involves comparing bankruptcy with other possible avenues of relief.

Consumer Bankruptcy Law and Practice: 5.3.2 Filling in the Complete Picture

Once bankruptcy is being seriously considered, and has perhaps been tentatively decided upon, much more information is necessary. Only after all of this information is gathered can bankruptcy be finally recommended. Again, the principal source of information is usually the client, but methods of tapping this source may vary.

Consumer Bankruptcy Law and Practice: 5.3.3.2 Property

Among the types of property clients often forget in reporting their assets are long-dormant accounts with savings institutions, such as banks and credit unions. Especially in the case of the latter, the client may not have access to a share balance (deposit) that was required to secure a loan. Nonetheless, such a balance belongs to the client and may become important to the case.

Consumer Bankruptcy Law and Practice: 5.3.3.3 Liabilities

Naturally, the opportunity for discharge of debts in bankruptcy should be used to its fullest, and every conceivable liability should be searched out and considered in weighing the advantages of a petition. Clients do not always realize that they have certain types of debts, especially if payment has not been demanded. Just as a legal claim may be a form of property, so too may a legal claim give rise to a liability if the client is the potential defendant.

Consumer Bankruptcy Law and Practice: 11.6.2.6 Method of Maintaining Current Payments on Debts Being Cured

Many courts permit current payments on long-term obligations that are being cured to be paid directly by the debtor, sometimes referred to as payments “outside the plan.”473 And, as the payments on long-term obligations are often higher than on any others, it is a common practice to have the debtor disburse them to avoid adding the substantial cost of the trustee’s percentage fees and expenses (up to ten percent).474 In such cases it is often helpful to include a plan provision requiring the mor