Chapter 7: business (liquidating) or individual (discharge)

MINIMUM CREDITOR SHOULD DO:

• attend 341 meeting (maybe)
• file Proof of Claim (if asset case - will be notified if no asset case has assets)
• monitor case

LARGE BUSINESS:

• keep business operating despite inability to meet its obligations to creditors (80% fail)
• debtor, secured creditors, and creditors committee negotiate plan of reorganization to restructure debtor's finances and pay (something) to creditors (payment plan, compromise (one time payment), equity)

  (legal test: creditors should receive not less than dividend due if liquidated)

SMALL BUSINESS:

• Small Business reorganization: for company with less than $2,000,000 in debt; accelerates reorganization process and reduces administrative burden
• can be converted to Chapter 7 by debtor or by Motion by Creditors' Committee, secured creditor, Trustee, or US Trustee

MINIMUM CREDITOR SHOULD DO:

• determine if Reclamation Claim exists
• attend meeting of creditors (if one of 20 largest creditors)
• attend 341 meeting (maybe)
• file Proof of Claim
• monitor case
• 3rd party guarantors (can pursue in 11 unless debtor motions for stay - can't pursue codebtor in 13)
• subsidiary of corporation

USED PRIMARILY TO:

• stop foreclosure
• prevent secured creditor from repossessing noncorporate business assets of a debtor engaged in business

MINIMUM CREDITOR SHOULD DO:

• plan confirmation

debts incurred after filing of Chapter 11 are paid under Plan before pre-petition creditors

why are they paid?: feasibility of Plan confirmation (file request for payment with Court)

appointed by US Trustee from among 7 largest unsecured creditors

meeting of 20 largest unsecured creditors - bring your attorney!

what does the Committee do?:

1) investigate financial condition of debtor

2) investigate operation of debtor's business

3) participate in forming a reorganization plan and preparing the disclosure statement

4) examine assets of the bankruptcy estate and review any asset sales

5) request appointment of trustee or examiner

Purchase Money

Proof of Claim:

Chapter 7: may be no asset case; otherwise, Court will send notice with bar date (usually 4 months after filing of bankruptcy)

Chapter 11: Court will set bar date and give notice

Filing a proof:

• check bar date and file well in advance
• fill out form completely
• attach copies of invoices
• send to Court
• letter to Trustee after bar date
• check docket
• monitor case
• caveat: if proof filed, creditor is subject to bankruptcy court jurisdiction as "core proceeding" in preference action (might not want to fight adversary proceeding in foreign jurisdiction; don't want esoteric matter like antitrust case decided in bankruptcy court

creditor may reclaim goods within 10 days of debtor's receipt of goods, and within 20 days if bankruptcy intervenes within 10 day period (no reclamation if secured creditor has lien on all assets)

• must make demand on debtor
• leads to an administrative (priority) claim

• PMSI gives unsecured creditor a priority claim
• not voidable if perfected within 20 days of receiving good

2 years from commencement of case or 1 year from appointment of trustee (if trustee appointed within 2 year period), whichever is longer

in many cases, compromise is best solution

Chapter 7: interim trustee appointed by US Trustee's Office, usually continues in capacity unless another trustee elected (rare)

Chapter 11: trustee may be appointed on Motion of Creditors' Committee, secured creditor, US Trustee (debtor if shareholders seek replacement of management)