Bankruptcy Overview

From Antitrust, Bankruptcy & Consumer Law Wiki

• bankruptcy is federal law (exclusively); currently set out in the bankruptcy code
• Bankruptcy Reform Act 1978 aka the Bankruptcy Code

Contents 1 Goals of Bankruptcy law: 2 Creditors and Their Liens 3 Collection of Debts Outside of Bankruptcy 4 Fair Debt Collection Practices Act

Goals of Bankruptcy law:

• • (1) seeks orderly and equitable repayment of claims for the benefit of creditors, and;
  • (2) if offers an economic fresh start to the proverbial “honest but unfortunate debtor”

There are two generic forms of bankruptcy relief:

• • liquidation
  • reorganization

Chapters we focused on:

• 7 – liquidation
• 11 – construction, restructuring, mostly for big businesses
• 13 – modest, for individuals, you keep your house

Creditors and Their Liens

• a LIEN is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the lienor and the person who has the benefit of the lien is referred to as the lienee. Creditors who have valid lien interests in a debtor’s property are usually able to retrieve that property from the bankruptcy proceeding, a valuable right
• Consensual liens – the debtor voluntarily nominates some if his or her property as collateral to secure a loan
• Judicial liens – if the Δ is unwilling to pay voluntarily (after losing a lawsuit), you must now take steps to levy execution of your judgment
  • this is generally done by sending out a bailiff or sheriff (court official) to seize property, which is then sold by the sheriff and the proceeds applied against the judgment debt

• • (1) Garnishment
    • If the debtor’s property is in the hands of others (the debtor’s employer may owe salary, for example, or a bank may carry an account for the debtor), it can be reached by a garnishment proceeding
    • Typically a court proceeding
    • A writ is issued to the person having the debtor’s property – requires that person to surrender to the court whatever property of the debtor he or she currently holds

• • (2) Receivership
    • Debtor’s affairs are a mess or debtor has been breaking the law (hiding property is an example), creditors of all kinds may apply to a court to ask the judge to appoint a receiver who will take charge of the debtor’s property and make sure it is preserved
    • Does this create a judicial lien? Varies from state to state
    • Bankruptcy ensures the orderly dealings with the property of the debtor’s estate – receivership does not

• • (3)Assignment for the Benefit of Creditors
    • Most states also have a statutory procedure whereby the debtor can go to court, make an assignment “for the benefit of creditors” – sometimes called an ABC, and have an assignee appointed

Statutory Liens - by statute or by virtute of the common law, certain creditors are automatically given liens on the debtor’s property to protect a credit extension

• 1. Mechanics’ Liens
  • Those who perform work on construction projects on real property (“mechanics”) or those who supply materials to the jobsite (“materialmen”) are entitled to file a lien on the realty in the real property records to secure the monies owed them from the construction project

• 2. Artisans’ Liens
  • Those who perform work on personal property (the car repair shop, appliance repair) get an artisan’s lien on any property repaired to the extent that the debtor does not make the required payments
• 3. Tax Liens
  • If you do not pay your taxes, the taxing entity will slap a tax lien on your property, seize it and sell it, and then come after you for any amount still due
  • The Federal Tax Lien is codified in Internal Revenue Code, 26 USC §§6321-6323
• 4.Many Others
  • Landlords, innkeepers, those caring for livestock, etc, are all granted statutory liens by various laws
  • Retaining lien – on any property of the client in the possession of the attorney and;
  • Charging lien – any judgment obtained by the attorney’s efforts

Collection of Debts Outside of Bankruptcy

(1) collection torts

• abuse of process
• malicious prosecution

Fair Debt Collection Practices Act

• statute is the Fair Debt Collection Practices Act, 15 USC §1692, which is also Title VIII of the Consumer Credit Protection Act

Barlett v. Heibl

• The Fair Debt Collection Practices Act (FDCPA) provides that within five days after a debt collector first duns a consumer debtor, the collector must send the debtor a written notice containing specified information
• Δ, an attorney hired to collect a consumer credit-card debt, sent a letter to Π advising him of his rights under the FDCPA
• Π claimed that Δ's letter violated the Act by providing information about his rights in a confusing manner.
• The fact that Π did not actually read the letter did not preclude his claim for statutory damages. T
• The court acknowledged that the Act was implicitly understood to protect unsophisticated consumers from confusion.
• The court, itself, found Δ's letter confusing for failing to explain how Π's right to demand verification of the debt within 30 days fit together with Δ's demand for payment within 30 days.
• the court concluded that Π was entitled to statutory damages and provided a model letter for attorneys to follow in advising debtors of their rights under the Act.