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Consumer Bankruptcy Law and Practice: 6.5.3.5 Delay to Obtain More Favorable Treatment of Certain Secured Debts in Chapter 13

The 2005 amendments added a provision to chapter 13 that may impair the debtor’s right to “cramdown” certain debts secured by purchase money security interests in personal property.179 The provision applies if a motor vehicle was purchased for the debtor’s personal use within the 910 days before the bankruptcy petition was filed or if other property was purchased within one year before the petition was filed.180 If the debtor is filing a chapter 13 case in which the debtor can benefit from the b

Consumer Bankruptcy Law and Practice: 6.5.3.7 Timing the Petition to Avoid Automatic Stay Limitations

The dismissal of prior bankruptcy cases within one year before filing a new petition may result in early termination of the automatic stay with respect to the debtor or, in some cases, prevent the stay from taking effect altogether.183 Delaying the bankruptcy filing beyond the one-year period may ensure that the debtor gains the full protection of the automatic stay and eliminates the need to file a motion for extension or imposition of the stay in the new case.184

Consumer Bankruptcy Law and Practice: 7.3.4 List of Creditors, Codebtors, and Parties to Executory Contracts

Federal Rule of Bankruptcy Procedure 1007(a)(1) requires each debtor to file a list of all creditors or other parties listed on Schedules D and E/F of Official Form 106, as well as parties to executory contracts and unexpired leases listed on Schedule G, and codebtors listed on Schedule H of the same official form.71 If the debtor owns community property, the list should include all creditors who have community claims—which may include creditors who have claims against a non-filing spouse—because such creditors have the right to file claims aga

Consumer Bankruptcy Law and Practice: 7.3.12.5 Formulating the Plan

As a practical matter, when formulating a chapter 13 plan, practitioners should keep several broad principles in mind. A strategy must be designed for priority, secured, and unsecured debts that meets the debtor’s objectives, consistent with the Code and the debtor’s available income. Legitimate priority debts generally must be paid in full, unless the creditor agrees otherwise.

Consumer Bankruptcy Law and Practice: 10.4.2.2 Procedure for Use of Avoiding Powers

The Federal Rules of Bankruptcy Procedure prescribe the procedure to be followed for lien avoidance by the debtor. Rule 4003(d) provides that lien avoidance under 11 U.S.C. § 522(f) shall be by motion in accordance with Bankruptcy Rule 9014, or by serving a chapter 12 or chapter 13 plan on the lienholder in the manner provided for in Rule 7004.396 However, transfer or lien avoidance under 11 U.S.C.

Consumer Bankruptcy Law and Practice: 10.4.2.3.2 Limitations on power to avoid judicial liens

As with the other avoiding powers, if the lien only partially impairs the exemption, only that part may be avoided. Thus, if a $3000 judgment lien encumbers an otherwise unencumbered house worth $17,000, in which an interest of $15,000 can be claimed as exempt and in which an interest of $2000 is not exempt, only $1000 worth of the lien can be avoided.438 The other $2000 is deemed an encumbrance on the interest in the house that may not be claimed as exempt.

Consumer Bankruptcy Law and Practice: 10.4.2.3.3 Avoidance of liens on property that may be claimed as exempt under § 522(b)(3)(B)

A final issue that may arise under this section is whether a lien may be avoided if that lien is on joint property, such as property owned as tenants by the entireties when, but for the lien, the property could be claimed as exempt under section 522(b)(3)(B). Creditors have argued that because the lien made such property subject to process immediately before the commencement of the case, the property could not be claimed as exempt in the first place under section 522(b)(3)(B), and that therefore the avoiding powers do not even come into play.

Consumer Bankruptcy Law and Practice: 10.4.2.5 Power to Exempt Property Recovered by Trustee—§ 522(g)

A power of the debtor utilized somewhat less often is provided in section 522(g). This provision allows the debtor to exempt any property that the trustee recovers using the various trustee powers to recover property.487 Thus, if such property comes into the trustee’s hands, the debtor may claim it as exempt, as long as the prebankruptcy transfer of the property from the debtor was not voluntary and the debtor did not conceal the property.

Consumer Bankruptcy Law and Practice: 10.4.2.6.1 Introduction

More likely to be used are the provisions of section 522(h), which give the debtor the wide panoply of avoiding powers available to the trustee under sections 544, 545, 547, 548, 549, 553 and 724(a) in cases in which the trustee does not choose to avoid a transfer.504

Consumer Bankruptcy Law and Practice: 10.4.2.6.3 Statutory liens—§ 545

Under section 545, certain statutory liens may be avoided. These include any lien that first becomes effective upon insolvency or insolvency proceedings of various types, liens that could be defeated by a bona fide purchaser on the date of commencement of the case, liens for rent and liens of distress for rent. Such liens may be avoided even if they have already been enforced by a sale before the filing of the bankruptcy case.542

Consumer Bankruptcy Law and Practice: 10.4.2.6.4.1 Overview

By far the most frequently used trustee avoiding power is the power to avoid preferences, codified in 11 U.S.C. § 547. With certain exceptions, set forth in section 547(c) and (i), the trustee may avoid any transfer of property of the debtor:

Consumer Bankruptcy Law and Practice: 10.4.2.6.4.2 Exceptions to preference avoiding power

The major exceptions to the preference avoiding power are listed in section 547(c).571 The first is for exchanges that are intended to be and are, in fact, “substantially contemporaneous” exchanges for new value, for example, cash purchases, purchases paid for immediately by check, or security interests securing new value.572 The Code does not define “substantially contemporaneous.”573 Also excepted are transfers made prior to the debtor’s receipt

Consumer Bankruptcy Law and Practice: 10.4.2.6.5 Fraudulent transfers—§ 548

Besides the power to avoid transfers fraudulent under state law that is bestowed upon the trustee through section 544, the Code also contains its own fraudulent transfer avoidance power, in section 548.

Under the Code’s definition, the trustee may avoid a transfer or obligation if the transfer612 or obligation was made or incurred within two years before the case was filed and:

Consumer Bankruptcy Law and Practice: 10.4.2.6.6 Postpetition transfers—§ 549

In line with the general principle that filing a bankruptcy freezes the debtor’s property for administration by the bankruptcy court, section 549 allows the trustee to avoid most postpetition transfers of the debtor’s property. Like the other avoiding powers, this power may be exercised by the debtor under Code section 522(h), if the property was not concealed and the transfer was not voluntary. As elsewhere in the Code, “transfer” is broadly defined to mean almost any parting with an interest in property.657

Consumer Bankruptcy Law and Practice: 10.4.2.6.7 Setoff—§ 553

The Code gives the trustee the power to avoid some, but not all, setoffs of mutual debts in the ninety days prior to filing of the petition.680 If a setoff is otherwise permissible under nonbankruptcy law,681 section 553 provides certain tests that must be met before it can be avoided.