7: Commencing a Voluntary Case. Charles Tabb 2010

(1)

7:

Commencing

a

Voluntary

Case

(2)

Who

can

file?

• Important

threshold

question

is

who

can

file

under

which

chapter

(3)

(4)

3 sets

of

eligibility

rules

1st: _Generally_applicable_rule_:_{§ 109(a)}

Two requirements: (1) “person”

AND

(2) Nexus to United States

• Residence

• Domicile

• Place of business

(5)

“Person”

• Defined term § 101(41)

(6)

Partnership

• What is a “partnership”? not defined in Code

(7)

Corporation

• Defined term § 101(9)

(8)

Connection

to

United

States

• Other absolute eligibility requirement is that the debtor must have a connection to the U.S. (domicile, residence, place of business, or

property)

(9)

Chapter

‐

specific

eligibility

2nd _type_of_eligibility_rule

‐> Chapter‐specific rules:

– § 109(b) ‐> Chapter 7

– § 109(c) ‐> Chapter 9

– § 109(d) ‐> Chapter 11

– § 109(e) ‐> Chapter 12

– § 109(f) ‐> Chapter 13

(10)

Exclusionary

rules

• 3rd _type_of_eligibility_rule

Exclusionary Rules:

1st – for abusive serial filers § 109(g)

2nd – not get pre‐bankruptcy credit counseling § 109(h)

(11)

Credit

counseling

• Eligibility rule that individual consumer Dr get pre‐bankruptcy credit counseling was added in 2005

– Supposedly to PROTECT Drs

• Give them a better sense of their options, not file

hastily, maybe could work something out – Don’t do us any more favors!!

(12)

Credit

counseling

• Has been a real trap for

– Unwary Drs

– Drs facing an imminent foreclosure

• Need to file ASAP to

stop foreclosure

• No time to get

(13)

Problem

2.1(a)

• Under which chapters of the Code (if any) are the following

debtors eligible for relief?

a. Bill Gates (founder of Microsoft and richest person in the United States)

(14)

Answer

to

2.1(a)

• Bill Gates?

• Chapter 7 [§ 109(b)]

– Yes – person with US connection

• No insolvency requirement

• Might kick out via dismissal rules (bad faith to file if

(15)

Gates

• Chapter 11? [§ 109(d)]

– Yes

– Individuals can file chapter 11 (Toibb v. Radloff)

(16)

Gates

• Chapter 13? [§ 109(e)]

– Individual?

• yep

– Regular income?

• yep

– Debt limit?

• $336K unsecured, ~ $1 M secured

(17)

Gates

• Chapter 9? [§ 109(c)]

– Obviously not a “municipality”

• Chapter 12? [§ 109(f)]

– Also not likely to qualify as a “family farmer” or a

(18)

Problem

2.1(b)

(19)

GM

• Chapter 7?

– Yes = “person”

• “corporation” – Has US connection

(20)

GM

• Chapter 11?

• Yes – person, no exclusions

(21)

GM

• Nothing else

(22)

Problem

2.1(c)

c. Writ, Estoppel & Replevin, a law firm partnership

(23)

Partnership

eligibility

• “person” so can file chapter 7 or 11

– Assuming US connection

• _But_not_chapter₁₃_because_not_an

“individual”

• _Each_individual_partner_would_have_to_file

(24)

Problem

2.1(d)

(25)

The

Yankees

• _Chapter₇_or₁₁

• “person”  “corporation” § 101(9)

– Definition includes virtually any type of organized

business, even including unincorporated

association

• No insolvency requirement

– Question whether really need bankruptcy relief

tested via motion to dismiss, not at eligibility

(26)

Problem

2.1(e)

(27)

Toronto

Blue

Jays

• Same analysis as Yankees re: “corporation” as “person”

• Issue: requisite United States connection?

– ANY OF domicile, residence, place of business, or

property will suffice

(28)

Toronto

Blue

Jays

• Obviously, also would be potentially eligible for bankruptcy relief in Canada

• Raise transnational bankruptcy issues

– Dealt with in chapter 14 of casebook

(29)

Problem

2.1(f)

f. Greg Norman, Australian golf star and resident of Florida

(30)

Greg

Norman

• “Person” – yes

• US connection?

– Yes – even though Aussie citizen, is a resident of

Florida

• So, eligible for chapters 7 and 11 for sure

(31)

Problem

2.1(g)

(32)

New

York

City

• ONLY chapter 9 ‐‐ § 109(c)

• “municipality” ‐‐ § 101(40)

• _Specifically_excluded_from_definition_of

“person”

(33)

NYC

• Detailed rules in § 109(c) and in chapter 9 to protect sovereignty of states

– Must be specially authorized to file

– Must be insolvent

(34)

Problem

2.1(h)

h. Probate Estate of the late Warren Burger, former

Chief Justice of the

(35)

Probate

Estate

• NOT eligible

• Not a “person”

• _Compare_definition_of_“entity”_{§ 101(15)}

– Includes person and estate – thus indicating that

an estate is not a person

• _Why_exclude?

– Insolvent probate estates handled under state law probate proceeding

(36)

Problem

2.1(i)

(37)

Railroad

• ONLY eligible under chapter 11, § 109(d)

• Specifically excluded from chapter 7

• _Subchapter_IV_of_Chapter₁₁_deals_specifically

(38)

Problem

2.1(j)

(39)

Insurance

company

• NOT eligible

• Excluded from chapter 7, § 109(b)(2), (3)

• _Chapter₇_exclusion_carried_over_to_chapter₁₁ • _Why?

– Heavily regulated by states

(40)

Problem

2.1(k)

k. HealthCare America, a health maintenance organization

(41)

HMO

• Problem – a hybrid

• Part insurance company – which is excluded, as saw in last problem

• But also part medical provider, would be an eligible corporation

‐> So how decide which part controls for bankruptcy eligibility?

(42)

HMO

• Defer to state law classifications

• _If_treated_as_insurance_company_under_state

law, then have same justification for excluding as for any other insurance company, namely, detailed state law regulation

(43)

Problem

2.1(l)

l. Sue Debtor, a retired individual with credit card debts of $25,000 and a monthly social

(44)

Retiree

on

Social

Security

• “Person”

• Assuming US connection, clearly eligible under

chapter 7 and 11

• Chapter 13?

– Individual? – yes

– Under debt limits? – yes, $25K unsecured, well below

$336K ceiling

– Regular income?

• yes, gets monthly social security check

(45)

Problem

2.1(m)

m. Bob Farmer, an individual who farms a quarter section of corn and soybeans, and whose total debts are $1.1 million, of which $900,000 is attributable to the farming

(46)

Farmer

• _“person”_and_thus_eligible_under_chapters₇

and 11, assuming US connection

• _Chapter_13?

– Issue is debt ceiling

– Depends on mix of secured and unsecured

• Facts say has total debts of $1.1 M

• Chapter 13 ceiling is $336K unsecured and ~ $1M

secured

• So depends on whether > $336K of total debts are

(47)

Farmer

• Chapter 12, §§ 109(f), 101(18), 101(19)

• “individual” – yes

• Under debt ceiling?

– Yes

– Ceiling is ~ $3.5 M, Bob has $1.1M

• Enough of a “farmer”?

50% of debts attributable to farming – yes, $900K of $1.1M

• Regular income?

(48)

Problem

2.1(n)

n. Guillaum is the official Liquidator of the

Cayman Islands insolvency case regarding Offshore

Assets Inc. (OAI). OAI has

assets in the United States.

Guillaum would like to

obtain relief in the U.S. courts

(49)

Foreign

representative

• Guillaum may commence a chapter 15

proceeding by filing a petition for recognition

under § 1515 and then, upon recognition,

filing a petition under 301‐303. See 1511. He is the “foreign representative” of a “foreign

main proceeding” – the Cayman liquidation of OAI.

(50)

COMI

• The U.S. court should grant the petition for recognition if the Caymans is the “center of

main interests” of OAI and if all else is in order. See § 1517. The relief that will be granted is governed by §§ 1519‐1524.

(51)

Venue

• Where file?

– The bankruptcy case

• 28 USC § 1408

– Proceedings in that case

(52)

Problem

2.2(a)

• Apply the federal bankruptcy venue statute to answer the

following questions:

• a. Sue Debtor had lived in Illinois all her life. On

March 1, she moved across the Mississippi to Iowa.

On June 1, she filed chapter 7 in the district court in

Iowa. Is venue proper?

(53)

2.2(a):

Case

venue

when

move?

• Venue of the case is proper in Iowa

– § 1408(1)

• Sue has lived in Iowa (residence or domicile) for the longer portion of the 180 days before bankruptcy

(54)

Other

problems

arise

with

pre

‐

bankruptcy

move

• Note:

other problems – especially with applicable exemption laws – arise when a debtor moves before bankruptcy

(55)

Problem

2.2(b)

• Apply the federal bankruptcy venue statute to answer

the following questions:

• b. Enron Corp.:

– home office, principal place

of business in Houston, Texas

– incorporated in Oregon.

– Enron Metals, a small affiliate of Enron, is

(56)

Corporate

venue

• Enron’s management would love to file

chapter 11 in the Southern District of New York

• _Very_experienced_(and_debtor_‐_friendly!)_court • _Any_way_to_do_this?

(57)

Corporate

venue

(2.2(b))

• YES – use the “affiliate hook”

• Have Enron Metals, which is headquartered in NY, file first, under 1408(1)

• THEN the parent company, Enron Corp., can file in NY under 1408(2)

– Because a case is already pending in NY involving

an “affiliate”

(58)

Forum

shopping

• The upshot of

– 1408(1) allowing a corporation to file where it is

incorporated (domicile) Plus

– 1408(2) allowing parents to use the affiliate hook

Is that a large corporation can file virtually

anywhere it wants

(59)

Problem

2.2(c)

• Apply the federal bankruptcy venue statute to answer the

following questions:

c. Debtor Inc. filed chapter 11 in District of Hawaii

* Shortly before filing, Debtor had paid off a

$1,200 debt to Creditor, a supplier located in Maine

* Debtor (as DIP, e.g., trustee), sues Creditor in the

federal court in Hawaii to recover the $1,200 as a

preferential transfer under § 547.

(60)

Venue

of

proceeding

• General rule: home court

• 1409(a) provides that the default rule is that a proceeding connected with the bankruptcy

case may be filed in the district where the case is pending, e.g., the “home court”

• If that rule applies, then the filing in Hawaii is proper

(61)

Distant

defendant,

small

$

• Is it fair for a creditor located in MAINE to

have to go to HAWAII to defend a lawsuit over a measly $1,200?

• _Over_5,000_miles_away! • _Hardship_on_Cr

• _Under_non_‐_{bk law,}_likely_would_have_to_sue_in

Maine (where Defendant “resides, 28 USC 1391(c))

(62)

Special

protective

rule

• 1409(b) protects a distant defendant on a small debt

– Here, a non‐insider being sued on a non‐

consumer debt is protected for amounts less than

$10,950

– So the $1,200 debt is covered

(63)

Statutory

glitch

• 1409(b) by its terms applies when trustee sues on

matter “arising in or related to” bankruptcy case

• A preference action under § 547 technically is a

proceeding “arising under” title 11

• A minority of courts thus hold that the protective

rule of 1409(b) is n/a to preference actions

• Congressional intent, though plainly was directed at preferences

(64)

Mechanics

of

filing

• Debtor (or Debtor and spouse in joint case) file a petition

– §§ 301, 302

• Pay filing fee

(65)

That’s

it!

• The filing of the petition, accompanied by the fee, “commences” the case

• And in voluntary case (e.g., DR files), the “commencement” of the case =

“order for relief”

– Exactly same force and effect as if the Bankruptcy

(66)

What

if

Debtor

too

poor?

• Can this guy file bankruptcy?

• _Maybe_NO

– Supreme Court held in US v Kras

(1973) that no Due Process right

to access to bankruptcy court –

can be too poor to file bankruptcy!

(67)

Paperwork

• DR has huge burden of paperwork to file, either with petition

or shortly thereafter

• If doesn’t, case may be dismissed

(68)

Effects

of

Filing

• Automatic stay § 362

• Stops all collection efforts

(69)

Effects

of

filing

• Property of estate § 541(a)

(70)