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supplies, incur debts, and so on.
Creditors’ Committees – After an order for relief is granted, the court appoints a creditors’
creditors.
Executory Contracts and Unexpired Leases – A major benefit of Chapter 11 bankruptcy is that
and retiree benefits.
Critical Legal Thinking – All parties, especially employees and other stakeholders in a
corporation, benefit from a reorganization. If a company is able to keep a business operating in
the future, creditors may be paid more and certainly, some employees may retain their jobs.
Confirmation of Chapter 11 Plan of Reorganization – There must be confirmation of a
Chapter 11 plan of reorganization by the bankruptcy court for the debtor to be reorganized under
Chapter 11. The bankruptcy court confirms a plan of reorganization under the acceptance method
Ethics: Bankruptcy of General Motors Corporation
claims were left to the discretion of the bankruptcy court to sort out. The old GM went into
bankruptcy, and through complex legal arrangements, a leaner new GM emerged from
bankruptcy.
Ethics Questions: Students’ answers may vary. Chapter 11 Bankruptcy Code provides a method
for reorganizing a debtor’s financial affairs under the supervision of the bankruptcy court. It is
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shareholders, suppliers, and employees etc.
Small Business Bankruptcy – The Bankruptcy Code permits a “small business,” defined as one
with total debts of less than $2,343,300, to use a simplified, fast-track form of Chapter 11
V. Key Terms and Concepts
states’ generous homestead exemptions.
Acceptance method—A method whereby the court confirms a plan of reorganization if the
Acceptance method—The bankruptcy court must approve a plan of reorganization if (1) the
plan is in the best interests of each class of claims and interests, (2) the plan is feasible, (3) at
the United States.”
Attorney certification—The 2005 act requires an attorney certification whereby an attorney
Automatic stay—The result of the filing of a voluntary or involuntary petition; the suspension
of certain actions by creditors against the debtor or the debtor’s property.
property.
Bankruptcy law—The goal of bankruptcy laws is to balance the rights of debtors and
Bankruptcy Reform Act of 1978—This Act made it easier for debtors to rid themselves of
debts are discharged.
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Chapter 12—Adjustment of Debts of a Family Farmer or Fisherman with Regular Income—
Chapter 13—A rehabilitation form of bankruptcy that permits the courts to supervise the
debtor’s plan for the payment of unpaid debts by installments.
later than 90 days after the order for relief.
Composition—Provides for the reduction of a debtor’s debts.
Confirmation of a Chapter 11 plan of reorganization—The bankruptcy court’s approval of a
plan of reorganization.
Consumer debt—Debts incurred by an individual for personal, family, or household
purposes.
objections to proposed plans, and so on.
Debtor-in-possession—A debtor who is left in place to operate the business during the
reorganization proceeding.
Discharge—The termination of the legal duty of a debtor to pay debts that remain unpaid
upon the completion of a bankruptcy proceeding.
Disposable income—Current monthly income less amounts reasonably necessary to be spent
the Bankruptcy Code.
Executory contract—A contract that has not been fully performed. With court approval,
executory contracts may be rejected by a debtor in bankruptcy.
Exempt property—Property that may be retained by the debtor pursuant to federal or state
law; debtor’s property that does not become part of the bankruptcy estate.
Extension—Provides a longer period of time for the debtor to pay his or her debts.
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227
modify the plan.
Involuntary petition—A petition filed by creditors of the debtor; alleges that the debtor is not
paying his or her debts as they become due.
Individual with regular income—An individual whose income is sufficiently stable and
regular to enable the individual to make payments under a Chapter 13 plan.
family, the debtor can receive Chapter 7 relief.
Meeting of the creditors—A meeting of the creditors in a bankruptcy case that must occur not
less than 10 days nor more than 30 days after the court grants an order for relief.
Nonexempt property—If a debtor qualifies for a Chapter 7 liquidation bankruptcy, the non-
exempt property of the bankruptcy estate must be distributed to the debtor’s secured and
unsecured creditors.
involuntary petition.
Oversecured creditor—If the value of the collateral securing the secured loan exceeds the
secured interest, the secured creditor is an oversecured creditor.
Permanent trustee—A legal representative of the bankruptcy debtor’s estate, usually an
accountant or lawyer, elected at the first meeting of the creditors.
Petition—A document filed with the bankruptcy court that sets the bankruptcy proceedings
into motion.
amount of their claim against the debtor.
Proof of interest—A document required to be filed by an equity security holder that states the
amount of his or her interest against the debtor.
Reaffirmation agreement—An agreement entered into by a debtor with a creditor prior to
discharge, whereby the debtor agrees to pay the creditor a debt that would otherwise be
discharged in bankruptcy.
secured creditor.
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in full, or (3) assume the unexpired lease.
Simple abuse rule—The 2005 act established a new simple abuse rule, which makes it
difficult for individual debtors to qualify for Chapter 7 liquidation bankruptcy.
Small business bankruptcy—Small business bankruptcy provides an efficient and cost-saving
method for small businesses to reorganize under Chapter 11.
Statutory priority of unsecured claims—Unsecured claims are to be satisfied out of the
bankruptcy estate in the order of their statutory priority, as established by the Bankruptcy
Code.
Student loans—Generally these debts are non-dischargeable in bankruptcy.
Totality of the circumstances—Even if a debtor qualifies for Chapter 7 relief under the
of the debtor’s financial situation.
Undersecured creditor—If the value of the collateral securing the secured loan is less than the
secured interest, the secured creditor is an undersecured creditor.
Undue hardship—Undue hardship is construed strictly and is difficult for a debtor to prove
unless he or she can show severe physical or mental disability or that he or she is unable to
pay for basic necessities such as food or shelter for his or her family.
Courts in the country.
U.S. Trustee—A federal government official who has responsibility for handling and
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