CHAPTER 22: BANKRUPTCY LAW 3
• Protection was extended on retirement and college-savings plans (see an ADDITIONAL BACKGROUND
elsewhere in this chapter).
For small-business debtors, key changes from previous law included—
• Small-business debtors are those with $2 million or less in debt on the date they file for bankruptcy.
• The deadline for filing a plan of reorganization under Chapter 11 is 300 days within the filing of the
initial petition. The time within which a small-business debtor has the exclusive right within which to file a
plan was extended to 180 days.
• For small-business debtors, the grounds on which a court can convert a Chapter 11 case to a
Chapter 7 case were specified and expanded.
• A U.S. Trustee can inspect the premises and the books of a small-business debtor.
• Small-business debtors must include copies of balance sheets, income statements, cash-flow
statements, federal tax returns, and other documents with their bankruptcy petitions. Such debtors must
also file periodic financial reports with information on profitability and cash receipts. Forms that debtors
must submit to creditors before their approval of a Chapter 11 plan or reorganization were simplified.
The U.S. Small Business Administration is expected to monitor the impact of BACPA on small businesses
and inform Congress of any needed changes.
A. GOALS OF BANKRUPTCY LAW
Bankruptcy law has two main goals—
• To protect a debtor by giving him or her a fresh start without creditors’ claims.
• To ensure equitable treatment of creditors competing for a debtor’s assets.
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
• Chapter 7 provides for liquidation.
• Chapter 9 governs the adjustment of municipal debts.
• Chapter 11 governs reorganizations.
• Chapters 12 and 13 provide for the adjustment of debts by parties with regular incomes (family
farmers under Chapter 12).
D. SPECIAL REQUIREMENTS OF CONSUMER DEBTORS
A clerk of court must provide consumer-debtors (those whose debts arise primarily from purchases of
A. VOLUNTARY BANKRUPTCY
Within 180 days of receiving credit counseling from an approved nonprofit agency, a debtor can file a
voluntary petition. The debtor’s attorney must verify the information in the petition. A debtor does not
have to be insolvent—anyone liable to a creditor can file. A husband and wife can file jointly.
CHAPTER 22: BANKRUPTCY LAW 5
to understand, What does it mean?
How can any person know
what the docket does not show?
What is the clue on the 46th day?
Is the case still here, or gone away?
And if a debtor did not do
what the Code had told him to
and no concerned party knew it,
Still the Code says the debtor blew it.
Well that is what it seems to say:
the debtor’s case is then “ Oy vay! ”
This kind of law is symptomatic
of something very problematic.
For if the Trustee does not know
then which way should the trustee go?
Should the trustee’s view prismatic
continue to search the debtor’s attic
and collect debtors’ assets in his fist
for distribution in a case that stands
dismissed?
After a dismissal automatic
would this not be a bit erratic?
The poor trustee cannot know
the docket does not dismissal show.
What’s a poor trustee to do—
except perhaps to say, “Boo hoo!”
And if the case goes on as normal
and debtor gets a discharge formal,
what if a year later some fanatic
claims the case was dismissed automatic?
Was there a case, or wasn’t there one?
How do you undo what’s been done?
Debtor’s property is gone as if by a thief,
and Debtor is stripped but gets no relief.
I do not like dismissal automatic.
On this point I am emphatic!
I do not wish to be dramatic,
but I can not endure this static.
Dismissal automatic is not understood.
Something more in 521 is needed
for dismissal automatic to be heeded.
For all concerned this is not good.
Before this problem gets too old
it would be good if we were told:
What does automatic dismissal mean?
And by what means can it been seen?
Are we only left to guess?
Oh please Congress, fix this mess!
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Until it’s fixed what should I do?
How can I explain this mess to you?
If the Code required an old fashioned order,
that would create a legal border,
with complying debtors‘ cases defended
and 521 violators’ cases ended,
from the unknown status of dismissal automatic,
to the certainty of a status charismatic.
The dismissal automatic problem would be gone,
and debtors, trustees and courts could move on.
As to this case, how should I proceed?
Review of the record is warranted, indeed.
A very careful record review,
tells this Court what it should do.
Was this case dismissed automatic?
It definitely was NOT and that’s emphatic.
Based upon the Court’s review, the Court has determined that the debtors have complied with the
information requirements of 11 U.S.C. § 521(a)(1).
Accordingly, it is ORDERED:
1. This case is not subject to automatic dismissal under 11 U.S.C. § 521(i)(1) or (2).
2. If any party in interest has any reason to contest the Court’s finding that the debtors have filed all
information required by 11 U.S.C. § 521(a)(1), that party shall file a motion for reconsideration not later than
20 days from the date of the entry of this order, and serve such motion on the trustee, the United States
Trustee, debtors and debtors’ counsel, if any. The motion should specifically identify the information and
document(s) required by 11 U.S.C. § 521(a)(1) that the debtors have failed to file.
3. Nothing in this Order shall excuse the debtors’ duty to cooperate with the United States Trustee and
the trustee assigned to this case, and shall not prevent the United States Trustee or case trustee from
requesting by any authorized means, including, but not limited to motion, that the debtors supply further
information.
1. Chapter 7 Schedules
A voluntary petition must contain—
• A schedule of secured and unsecured creditors and what is owed to each.
• A statement of the debtor’s financial affairs.
• A list of the debtor’s property.
• A statement of the debtor’s current income and expenses.
• A certificate of credit counseling.
return, which can be filed up to seven days before the first creditors’ meeting.
CHAPTER 22: BANKRUPTCY LAW 7
whole or in part.
2. Tax Returns during Bankruptcy
A tax return must be filed each year while a case is pending, with a copy provided to the court.
3. Substantial Abuse—Means Test
A grant of relief cannot be “substantial abuse” of Chapter 7. The law provides a “means test” to
determine a debtor’s eligibility under Chapter 7. The purpose is to keep upper-income people from
abusing the bankruptcy process by filing Chapter 7.
a. The Basic Formula
petition is filed, the petition may be dismissed on a presumption of abuse. Further calculations
must be made to determine whether the person will have sufficient disposable income in the
future to repay at least some of the unsecured debt.
c. Can the Debtor Afford to Pay Unsecured Debts?
5. Order for Relief
The filling of the petition constitutes an order for relief (a discharge of debts). Creditors must be
notified within twenty days.
• If the debtor has twelve or more creditors, three or more of these creditors having unsecured
claims totaling at least $15,325 must join in the petition.
• If a debtor has fewer than twelve creditors, one or more creditors having a claim totaling
$15,325 or more may file.
8 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
stay may entitle a party to recover compensatory and punitive damages, costs, and attorneys’ fees.
1. The Adequate Protection Doctrine
Secured creditors can ask the court to protect them from losing the value of their security as a
result of the stay. Debtors can be required to make cash [payments or provide additional collateral
CHAPTER 22: BANKRUPTCY LAW 9
whole or in part.
A creditor may be granted relief from the stay sixty days after requesting it.
a. Secured Property
A stay on a secured debt may be lifted forty-five days after the first creditors’ meeting unless
the debtor reaffirms the debt.
Commencement of a Chapter 7 proceeding creates an estate in property, which consists of all the
debtor’s legal and equitable interests in property before the filing of the petition.
E. THE BANKRUPTCY TRUSTEE
A trustee’s principal duty is to collect and reduce to money the property of the debtor’s estate and to
or state why not. The trustee must provide notice of a debtor’s petition to a domestic support
creditor (e.g., an ex-spouse).
2. The Trustee’s Powers
include any voidable rights and the power to avoid preferences, certain statutory liens, and
fraudulent transfers.
• A trustee can avoid the fixing of certain statutory liens on a debtor’s property.
• If a trustee does not act to enforce these rights, the debtor can.
4. Preferences
b. Transfers That Do Not Constitute Preferences
Generally, payment for services rendered within ten to fifteen days before payment is not
considered a preference. A consumer-debtor can transfer any property to a creditor up to a
certain amount without it constituting a preference. Domestic-support debts and transfers
business with a small amount of capital, or intended to incur debts that he or she could not pay.
F. EXEMPTIONS
A debtor can exempt certain property from bankruptcy, choosing between exemptions provided under
state law and federal law. (States may bar the use of federal exemptions.) The Bankruptcy Code’s
household goods and furnishings, wearing apparel, appliances, books, animals, crops, or musical
instruments.
4. Interest in any tools of the debtor’s trade, up to a certain amount.
5. The right to receive Social Security and certain welfare benefits, alimony and support payments,
certain retirement funds and pensions, and certain education savings accounts.
CHAPTER 22: BANKRUPTCY LAW 3
• Protection was extended on retirement and college-savings plans (see an ADDITIONAL BACKGROUND
elsewhere in this chapter).
For small-business debtors, key changes from previous law included—
• Small-business debtors are those with $2 million or less in debt on the date they file for bankruptcy.
• The deadline for filing a plan of reorganization under Chapter 11 is 300 days within the filing of the
initial petition. The time within which a small-business debtor has the exclusive right within which to file a
plan was extended to 180 days.
• For small-business debtors, the grounds on which a court can convert a Chapter 11 case to a
Chapter 7 case were specified and expanded.
• A U.S. Trustee can inspect the premises and the books of a small-business debtor.
• Small-business debtors must include copies of balance sheets, income statements, cash-flow
statements, federal tax returns, and other documents with their bankruptcy petitions. Such debtors must
also file periodic financial reports with information on profitability and cash receipts. Forms that debtors
must submit to creditors before their approval of a Chapter 11 plan or reorganization were simplified.
The U.S. Small Business Administration is expected to monitor the impact of BACPA on small businesses
and inform Congress of any needed changes.
A. GOALS OF BANKRUPTCY LAW
Bankruptcy law has two main goals—
• To protect a debtor by giving him or her a fresh start without creditors’ claims.
• To ensure equitable treatment of creditors competing for a debtor’s assets.
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
• Chapter 7 provides for liquidation.
• Chapter 9 governs the adjustment of municipal debts.
• Chapter 11 governs reorganizations.
• Chapters 12 and 13 provide for the adjustment of debts by parties with regular incomes (family
farmers under Chapter 12).
D. SPECIAL REQUIREMENTS OF CONSUMER DEBTORS
A clerk of court must provide consumer-debtors (those whose debts arise primarily from purchases of
A. VOLUNTARY BANKRUPTCY
Within 180 days of receiving credit counseling from an approved nonprofit agency, a debtor can file a
voluntary petition. The debtor’s attorney must verify the information in the petition. A debtor does not
have to be insolvent—anyone liable to a creditor can file. A husband and wife can file jointly.
CHAPTER 22: BANKRUPTCY LAW 5
to understand, What does it mean?
How can any person know
what the docket does not show?
What is the clue on the 46th day?
Is the case still here, or gone away?
And if a debtor did not do
what the Code had told him to
and no concerned party knew it,
Still the Code says the debtor blew it.
Well that is what it seems to say:
the debtor’s case is then “ Oy vay! ”
This kind of law is symptomatic
of something very problematic.
For if the Trustee does not know
then which way should the trustee go?
Should the trustee’s view prismatic
continue to search the debtor’s attic
and collect debtors’ assets in his fist
for distribution in a case that stands
dismissed?
After a dismissal automatic
would this not be a bit erratic?
The poor trustee cannot know
the docket does not dismissal show.
What’s a poor trustee to do—
except perhaps to say, “Boo hoo!”
And if the case goes on as normal
and debtor gets a discharge formal,
what if a year later some fanatic
claims the case was dismissed automatic?
Was there a case, or wasn’t there one?
How do you undo what’s been done?
Debtor’s property is gone as if by a thief,
and Debtor is stripped but gets no relief.
I do not like dismissal automatic.
On this point I am emphatic!
I do not wish to be dramatic,
but I can not endure this static.
Dismissal automatic is not understood.
Something more in 521 is needed
for dismissal automatic to be heeded.
For all concerned this is not good.
Before this problem gets too old
it would be good if we were told:
What does automatic dismissal mean?
And by what means can it been seen?
Are we only left to guess?
Oh please Congress, fix this mess!
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Until it’s fixed what should I do?
How can I explain this mess to you?
If the Code required an old fashioned order,
that would create a legal border,
with complying debtors‘ cases defended
and 521 violators’ cases ended,
from the unknown status of dismissal automatic,
to the certainty of a status charismatic.
The dismissal automatic problem would be gone,
and debtors, trustees and courts could move on.
As to this case, how should I proceed?
Review of the record is warranted, indeed.
A very careful record review,
tells this Court what it should do.
Was this case dismissed automatic?
It definitely was NOT and that’s emphatic.
Based upon the Court’s review, the Court has determined that the debtors have complied with the
information requirements of 11 U.S.C. § 521(a)(1).
Accordingly, it is ORDERED:
1. This case is not subject to automatic dismissal under 11 U.S.C. § 521(i)(1) or (2).
2. If any party in interest has any reason to contest the Court’s finding that the debtors have filed all
information required by 11 U.S.C. § 521(a)(1), that party shall file a motion for reconsideration not later than
20 days from the date of the entry of this order, and serve such motion on the trustee, the United States
Trustee, debtors and debtors’ counsel, if any. The motion should specifically identify the information and
document(s) required by 11 U.S.C. § 521(a)(1) that the debtors have failed to file.
3. Nothing in this Order shall excuse the debtors’ duty to cooperate with the United States Trustee and
the trustee assigned to this case, and shall not prevent the United States Trustee or case trustee from
requesting by any authorized means, including, but not limited to motion, that the debtors supply further
information.
1. Chapter 7 Schedules
A voluntary petition must contain—
• A schedule of secured and unsecured creditors and what is owed to each.
• A statement of the debtor’s financial affairs.
• A list of the debtor’s property.
• A statement of the debtor’s current income and expenses.
• A certificate of credit counseling.
return, which can be filed up to seven days before the first creditors’ meeting.
CHAPTER 22: BANKRUPTCY LAW 7
whole or in part.
2. Tax Returns during Bankruptcy
A tax return must be filed each year while a case is pending, with a copy provided to the court.
3. Substantial Abuse—Means Test
A grant of relief cannot be “substantial abuse” of Chapter 7. The law provides a “means test” to
determine a debtor’s eligibility under Chapter 7. The purpose is to keep upper-income people from
abusing the bankruptcy process by filing Chapter 7.
a. The Basic Formula
petition is filed, the petition may be dismissed on a presumption of abuse. Further calculations
must be made to determine whether the person will have sufficient disposable income in the
future to repay at least some of the unsecured debt.
c. Can the Debtor Afford to Pay Unsecured Debts?
5. Order for Relief
The filling of the petition constitutes an order for relief (a discharge of debts). Creditors must be
notified within twenty days.
• If the debtor has twelve or more creditors, three or more of these creditors having unsecured
claims totaling at least $15,325 must join in the petition.
• If a debtor has fewer than twelve creditors, one or more creditors having a claim totaling
$15,325 or more may file.
8 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
stay may entitle a party to recover compensatory and punitive damages, costs, and attorneys’ fees.
1. The Adequate Protection Doctrine
Secured creditors can ask the court to protect them from losing the value of their security as a
result of the stay. Debtors can be required to make cash [payments or provide additional collateral
CHAPTER 22: BANKRUPTCY LAW 9
whole or in part.
A creditor may be granted relief from the stay sixty days after requesting it.
a. Secured Property
A stay on a secured debt may be lifted forty-five days after the first creditors’ meeting unless
the debtor reaffirms the debt.
Commencement of a Chapter 7 proceeding creates an estate in property, which consists of all the
debtor’s legal and equitable interests in property before the filing of the petition.
E. THE BANKRUPTCY TRUSTEE
A trustee’s principal duty is to collect and reduce to money the property of the debtor’s estate and to
or state why not. The trustee must provide notice of a debtor’s petition to a domestic support
creditor (e.g., an ex-spouse).
2. The Trustee’s Powers
include any voidable rights and the power to avoid preferences, certain statutory liens, and
fraudulent transfers.
• A trustee can avoid the fixing of certain statutory liens on a debtor’s property.
• If a trustee does not act to enforce these rights, the debtor can.
4. Preferences
b. Transfers That Do Not Constitute Preferences
Generally, payment for services rendered within ten to fifteen days before payment is not
considered a preference. A consumer-debtor can transfer any property to a creditor up to a
certain amount without it constituting a preference. Domestic-support debts and transfers
business with a small amount of capital, or intended to incur debts that he or she could not pay.
F. EXEMPTIONS
A debtor can exempt certain property from bankruptcy, choosing between exemptions provided under
state law and federal law. (States may bar the use of federal exemptions.) The Bankruptcy Code’s
household goods and furnishings, wearing apparel, appliances, books, animals, crops, or musical
instruments.
4. Interest in any tools of the debtor’s trade, up to a certain amount.
5. The right to receive Social Security and certain welfare benefits, alimony and support payments,
certain retirement funds and pensions, and certain education savings accounts.