8/21/2006

Revision 0.1
Author: Philip Larson
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Bankruptcy: Class Notes




Intellectual Property: Class notes
Table of Contents
1. Lecture 1................................................................................................................................ 3
Philip Larson Page 2
Intellectual Property: Class notes
1. Le"ture 1
1.1 What is Bankruptcy - Young
# $inal %&a' ( ta)e ho'e essa* +ith t+o ,a"t patterns. -ou have 24 hours to .o the essa*. 2p.'.
/hurs.a*. -ou have until 2p.'. $ri.a*.
# 0ra.uate. in the ,irst "lass that +ent throu1h in 1982. 2e is ver* intereste. in seein1 the s"hool
a"hieve Pols3*4s 1oal o, 3eatin1 out 5illia' an. 6ar*.
# 7i,,eren"es 3/+ 8hapter 79 11 an. 13. 5hat *our ri1hts are as a "re.itor vs. a .e3tor.
# 8re.it "ar. "o'panies spent *ears tr*in1 to a.:ust the ;an)rupt"* "o.e. -ou "oul. 1o into
3an)rupt"* an. +ipe out *our "re.it "ar. an. "ar loans. <t .oesn4t 'atter ho+ 'u"h *ou are
'a)in1 no+9 *ou "an start all over a1ain. =o+9 i, *ou +ant to 1o into 8hapter 7 an. li>ui.ate all
*our .e3ts *ou have to ta)e a test. <, *ou have assets or ,uture in"o'e that "oul. pa* those .e3ts9
*ou "an4t +ipe out all o, *our .e3ts.
# 8olu'3us .a* +ee)en. there is no "lass.
ocabulary
# Chapter ! " Li#ui$ation ( this is +hat 'ost people thin) o, +hen the* thin) o, 3an)rupt"*. <
"an4t pa* '* 3ills9 et". A trustee is appointe. that ta)es all '* assets9 li>ui.ates the'9 an. pa*s
the "re.itors ?.05 or ?.10 on the ?1. /he .e3tor +al)s a+a* ,ree o, those .e3ts.
o /his is ver* >ui"). A trustee is appointe.. 2e li>ui.ates *our assets. -ou onl* 1o into
"ourt as a .e3tor +hen the "ourt "loses the "ase. /his "an 3e over in a ,e+ 'onths.
# Chapter 11 " %eorgani&ation ( %nron +oul. tr* to 1o into 8hapter 11 in or.er to reor1ani@e its
.e3t. A "o'pan* 3orro+s 'one* on 3on.s in the hopes it in"reases its "ash ,lo+ so that +hen the
ti'e is rea.* it "an pa* 3a") the 3on.s. 2o+ever9 i, that .oesn4t +or)9 the* 'a* not have the
'one* to pa* ,or it. /he* 'a* 1o into 8hapter 11 to sa* the* "an4t pa* the' 3a")9 an. the* +ant
to re,inan"e their relationship. 8hapter 11 is =A/ a li>ui.ation9 it is a reor1ani@ation. Ane o, the
uni>ue thin1s a3out 8hapter 11 is there is no trustee appointe.. <n 8hapter 7 an. 139 there is a
trustee. 2ere9 the .e3tor is le,t in possession o, all assets an. lia3ilities.
o /here is a lot o, pressure to 1et in an. out o, 3an)rupt"* +ithin 1.5 *ears.
# Chapter 13 " Consu'ers ( A t*pi"al .e3tor is our tea"her. 2e has t+o houses9 ,ive "ars9 stu.ent
loans9 4 )i.s. <, he loses his :o3 he +on4t have the "ash ,lo+ to pa* all those .e3ts. 8hapter 139
si'ilar to 8hapter 119 he "an +or) out a ,ive *ear plan +ith a trustee. /he .i,,eren"e is "alle.
.isposa3le in"o'e +hi"h 1oes to the trustee. /hat .isposa3le in"o'e is use. to pa* the "re.itors.
o /his ta)es lon1er. <t 'a* 3e ,ive *ears 3e,ore *our .e3ts are ta)en "are o,.
# 8hapter 9 an. 12 .eal +ith 'uni"ipal 3an)rupt"ies an. ,ar'er la+*ers.
# 8hapter 15 +as :ust a..e. last *ear. <t .eals +ith "ross#3or.er issues. <nternational 3an)rupt"ies.
/hese are 1ro+in1 in i'portan"e an. nu'3er. 5e are not 1oin1 to "over this.
# (ection 1)1 1ives a 3un"h o, .e,initions
# (ection 1)* .e,ines +ho "an 3e a .e3tor in ea"h o, the three "hapters.
# +,- " $ebtor in possession " Ane o, the uni>ue thin1s a3out 8hapter 11 is there is no trustee
appointe..
o 2-PA: 8o'pan* A ,iles a petition o, 3an)rupt"*. At that point9 all the assets an.
lia3ilities are 'ove. over ,i"titiousl* into the B3an)rupt"* estateC. Dn.er 8hapter 7 an.
13 that is un.er the "ontrol o, the estate. A,ter the trustee is ,inishe. +ith the estate9 i,
there is an*thin1 le,t e.1. Be&e'ptionsC9 or other thin1s! are le,t ,or the .e3tor. /he
B3an)rupt"* estateC is not a"tuall* so'ethin1 that e&ists. <n 8hapter 119 there is no
trustee an. the .e3tor .e"i.es ho+ to reor1ani@e to 'a)e the "o'pan* via3le a1ain.
%ver* 3an)rupt"* "ourt has a panel o, trustees. /he* 'a* 3e lo"al la+*ers9 pro,essors9
et". /he* are :ust la+*ers9 a""ountants9 et". that .on4t ne"essaril* )no+ ho+ to run a
3usiness. /here,ore9 in 8hapter 11 +e leave the 3oar.9 o,,i"ers an. .ire"tors in "har1e.
7oesn4t this see' "ra@*E /he* are the ones that put the "o'pan* in 3an)rupt"*.
# .CC ( a "o.e ,or .ealin1 +ith "o''er"ial transa"tions o, all )in.s. ;ul) sales9 se"ure.
transa"tions. All states have a.opte. the D889 althou1h so'e 'inor thin1s are .i,,erent. $or the
'ost part +e have a uni,or' "o''er"ial "o.e.
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Intellectual Property: Class notes
o 7e3tor9 un.er the D889 'eans a person +ho has an interest in the "ollateral
# Cre$itors/ %ights ( An entit* or person that has a "lai' a1ainst a .e3tor at the ti'e9 or 3e,ore the
ti'e the or.er +as entere.. A "re.itor "an also 3e so'eone that in"urs a "lai' .urin1 the
3an)rupt"*. the 3an)rupt"* "o.e +as "reate. to prote"t ;A/2 .e3tors an. "re.itors. /here are a
lot o, prote"tions ,or "re.itors. 5hat is a "re.itorE Fe"tion 101.1.
o 0r$er of relief (
o -etition +ate ( the spe"i,i" ti'e the 3an)rupt"* petition is ,ile.. %ver*thin1 in
3an)rupt"* e'anates ,ro' this .ate.
1oreclosure ( ho+ .o *ou stop a ,ore"losureE -ou "an4t pa* *our .e3ts an*
'ore. /he* are 1oin1 to ,ore"lose at 10 a.'. At 9:45 a.'.9 '* 3an)rupt"*
la+*er ,iles 3an)rupt"*. /his "reates an auto'ati" sta*9 or in:un"tion. As soon
as the "ler) sta'ps the petition9 it is an in:un"tion a1ainst ever*one in the +orl.9
in"lu.in1 the 3an).
# Types of Cre$itors
o A "re.itor is there,ore9 t*pi"all* one o, three t*pes: 1! se"ure. "re.itor9 2! unse"ure.
"re.itor9 or 3! a priorit* "re.itor.
o (ecure$ Cre$itor ( A se"ure. "re.itor +ill either 3e overse"ure. or un.erse"ure.. /he*
have "ollateral that is either +orth 'ore or less than the 'one* o+e. to the "re.itor. A
se"ure. "re.itor "an al+a*s ,or"lose i, so'eone .e,aults on the loan. /*pi"all* this .oes
not re>uire a :u.i"ial a"tion.
02ersecure$: the 3an) is se"ure. 3* "ollateral that is +orth 'ore than the
'one* o+e. to the 3an). 3an)s re>uire people to put 10G .o+n. An a
?4009000 house9 the* onl* pa* ?3609000. /his is an e#uity cushion that 'eans
the 3an) is o2ersecure$ in the house.
.n$ersecure$: it is se"ure. 3* propert* that is +orth less than the 'one* o+e.
to the 3an). /he 3an) "oul. 3e"o'e un.erse"ure. 3e"ause the value o, the
"ollateral is 1oin1 .o+n.
o .nsecure$ Cre$itor ( so'eone 1ives *ou "re.it so that *ou "oul. .o so'ethin1 an. *ou
pro'ise. to pa* it 3a")9 3ut there is no collateral. /here,ore9 that "re.itor is unse"ure..
<n 3an)rupt"*9 se"ure. "re.itors are on the top. Dnse"ure. "re.itors .on4t 1et
an*thin1 until the se"ure. "re.itors are pai..
o -riority Cre$itors ( these are a3ove se"ure. "re.itors. /he* are not allo+e. to ta)e
,ro' the "ollateral o+e. to the se"ure. "re.itor. 2o+ever9 the* are "onsi.ere. to 3e
B,irst in ti'eC 3e"ause i, there is an*thin1 in the estate other than the "ollateral that "an
3e use. to pa* o,, .e3t9 the* 1et it. Fe"tion 5.7a! .e,ines a priorit* "re.itor. Ane o, the
"han1es that o""urre. +as to 'ove .o'esti" support o3li1ations to the ver* top o, the
priorit* list. 8hil. support9 spousal support9 et". Ather priorities in"lu.e e'plo*ees +ho
are pai. ever* t+o +ee)s an. the .a* 3e,ore the ne&t pa* "he")9 the "o'pan* ,iles
3an)rupt"*. /he e'plo*ees have priorit* up to a "ap! ,or +a1es o+e. the' ,or servi"es
per,or'e.. Fe"tion 507a!8! sa*s that <RF 1ets priorit*.
# Types of -arties ,n2ol2e$
o Bankruptcy 3u$ge # Are 3an)rupt"* :u.1es "reate. in Arti"le 2E =o. Dn.er Arti"le <9
Fe"tion 89 8on1ress has the authorit* to re1ulate 3an)rupt"*. /here,ore9 a 3an)rupt"*
:u.1e is "reate. 3* 8on1ress to oversee the 3an)rupt"* an. a..ress an* .isputes that
arise. /he* are "alle. BArti"le < :u.1esC. ;an)rupt"* :u.1e usuall* ,avor the .e3tor.
/he :u.1e is o,ten B.e3tor#,rien.l*.C
Case 2s. -rocee$ing
28 D.F.8. 157 an. 28 D.F.8. 1334 sa* that an* "ase or pro"ee.in1 involvin1
3an)rupt"* 1ets sent ,ro' the 7istri"t 8ourts to the ;an)rupt"* "ourts.
Fi.e note: trustee is i'3e..e. in the 3an)rupt"* la+. /here are three )in.s o,
people usin1 the ter' trustee: 1! fi$uciary trustee +here a trust is "reate.! ( a
person +ho has a spe"ial ,i.u"iar* relationship9 2! 8hapter 7 or 13 4bankruptcy
trustee5 appointe. to oversee the li>ui.ation 8hapter 7! or the reor1ani@ation
8hapter 11!9 3! the .nite$ (tates Trustee.
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Intellectual Property: Class notes
o .nite$ (tates Trustee " the A,,i"e o, the Dnite. Ftates /rustee +as "reate. to have
so'eone responsi3le ,or overseein1 the a.'inistrative .etails o, a 3an)rupt"* that the
3an)rupt"* :u.1e .oesn4t +ant to .eal +ith. 2e 'a)es sure the .e3tor ,iles a 'onthl*
operatin1 report ho+ 'u"h revenue +as 3rou1ht in9 +hat pa*'ents +ere 'a.e9 et".!.
/he DF /rustee also 'a)es sure the .e3tor ,iles all the appropriate s"he.ules an.
,inan"ial state'ents e.1. list all the "re.itors an. ho+ 'u"h is o+e.9 et". +here is the
'one* "o'in1 ,ro'9 ho+ 'an* ta&es +ere pai.9 et".!. /he DF /rustee 'a)es sure these
s"he.ules are pai. on ti'e. 2e is also pai. a ,ee to the DF /rustee so that the DF
/rustee4s o,,i"e 'a)es so'e 'one*. /he DF /rustee is appointe. 3* the 3an)rupt"*
trustee.
Chapter 11 is an e6pensi2e 7ay to fi6 your proble's ( the .e3tor 'ust pa*
the "re.itors an. .e3tors ,ees. 6oreover9 the "re.itor is no+ responsi3le ,or the
DF /rustee4s assess'ent o, the 'eans test. /he DF /rustee loo)s at the ,or' to
.e"i.e i, *ou >uali,* un.er the B'eans testC. /he DF /rustee also :u.1es
+hether a .e3tor is a3usin1 the 3an)rupt"* pro"ess.
o 1air +ebt Collection -ractices 8ct 91+C-8: " onl* applies to "onsu'ers. <t prote"ts
the' ,ro' harass'ent9 et". parti"ularl* +hen the .e3tor
# itale 2 ;otel California " <, *ou are an unse"ure. "re.itor9 *ou +ant to 1et a :u.1'ent lien. A
:u.1'ent lien is +orthless unless it is e&e"ute. upon. <t is e&e"ute. upon 3* ta)in1 it to the sheri,,
an. as)in1 hi' to lev* the propert* as lon1 as it is not e&e'pt!. -ou "an 1et a :u.1'ent a1ainst
the .e3tor an. 1et a :u.1'ent lien. /hat 'oves *ou up into the level o, se"ure. "re.itors. -ou are
entitle. to lev* the propert* o, the .e3tor9 have the sheri,, li>ui.ate the propert*9 an. 1ive *ou
+hat is le,t a,ter ta)in1 out the sheri,,4s e&penses. 2ere9 the sheri,, ha. to shell out ?6).
2ope,ull*9 the sheri,, ha. an insuran"e poli"*. 2e 1ets subrogate$ 'eanin1 he steps into the
shoes o, Hitale. /here,ore9 he no+ has a ri1ht to "olle"t that 'one* ,ro' the pun) ro") 3ar.
# ,lli 2 <argolis " the "re.itor that a"ts >ui")l* an. .ili1entl* 1ets pai.. <, *ou represent an
unse"ure. "re.itor an. he as)s +hat he shoul. .o9 *ou shoul. tell hi' to 1et a :u.1'ent lien9 et".
<, *our "lient sa*s he .oesn4t +ant to 1o a,ter the .e3tor9 *our "lient +ill 3e tru'pe. 3* the
a11ressive "re.itor that 1ets the :u.1'ent lien an. starts 1ra33in1 +hatever he "an 1et. 2e4s the
one +ho +ill 1et pai..
# 1our Ter's
o 8ttach'ent ( +hen *ou 1et the +rit ,ro' the "ourt an. 1ive it to the sheri,, to lev* on
an. the sheri,, 1oes to 1et the propert*9 that is attach'ent. -ou have to start a la+suit9
1et a +rit9 et".
o =arnish'ent ( the sa'e pro"ess e&"ept instea. o, 1oin1 to the .e3tor9 *ou are 1oin1 to a
thir. part* that o+es the .e3tor. -ou 1et a "ourt or.er that sa*s to pa* to the "re.itor not
the .e3tor. 8o''on 1arnish'ent or.ers an e'plo*er to pa* 25G o, the .e3tors salar* to
the "re.itor.
o %eple2in " sa'e as ,ore"losure on a house 3ut ,or personal propert*. -ou have a se"ure.
interest. Replevin is the a3ilit* to ta)e the "ollateral i, that "ollateral is a personal
interest.
o Lispen$ence " i, *ou have a .ispute +ith a .e3tor. <t "reates a "lou. on the title. -ou
"an put a "lou. on the propert* 'a)in1 it .i,,i"ult to .o an*thin1 +ith the propert*.
# -hilosophy of Bankruptcy
o ,n$i2i$ual " 5e have never put people in :ail or )ill people 3e"ause the* are .e3tors.
5e i'prison people +ho .o ,rau.ulent thin1s9 3ut +e .on4t put .e3tors in :ail. /he
philosoph* is ver* si'ple. 5e are 1oin1 to 1ive *ou a ,resh start.
o Corporations " +e +ant to )eep 3usiness 1oin1 in this "ountr*. <t +oul. 3e .evastatin1
to the e"ono'* i, 06 +ent into 3an)rupt"*.
8/28/2006
# 23 'eetin1s ( "an4t reall* 'iss 'ore than 5
# 2 ,a"t patterns.
# 7on4t 'iss 5e.nes.a*. 2e is tal)in1 a3out a "han1e in the la+ that 5<LL ;% A= /2% %IA6.
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Intellectual Property: Class notes
Chapter >: ,n2oking Bankruptcy %elief
# <ntro.u"tion
o /here are si& possi3le t*pes o, 3an)rupt"* "ases:
8hapter 7 ( li>ui.ation
8hapter 9 ( A.:ust'ent o, .e3ts o, a 'uni"ipalit*
8hapter 11 ( reor1ani@ation
8hapter 12 ( a.:ust'ent o, .e3ts o, a ,a'il* ,ar'er or ,a'il* ,isher'an +ith
re1ular annual in"o'e
8hapter 13 ( A.:ust'ent o, .e3ts o, an in.ivi.ual +ith re1ular in"o'e
8hapter 15 ( An"illar* an. 8ross ;or.er 8ases
# 2-PA: ;o3 o+ns Print 8o'pan*9 lo"ate. in 789 has ?206 in revenue9 he4s 3een losin1 'one*
,or a ,e+ 'onths. 2e lives in a ?16 house in HA. 2is 3an) has a ,irst an. se"on. 'ort1a1e on
the house ,or ?7509000. /he 3an) also e&ten.e. a line o, "re.it to Print 8o. +ith a personal
1uarantee. /here are ven.ors o+e. ?75). 8re.itors are o+e. a3out ?50). <t4s not "lear i, these
are "overe. 3* a personal 1uarantee. ;o3 has ?36) on "re.it "ar..
o 5hat .o *ou nee. to )no+ to .e"i.e +hether so'eone "an ,ile 3an)rupt"*E /hree
re>uire'ents.
1! Person ( it 'ust 3e a person. /his .oesn4t 'ean a hu'an 3ein1. A person
"an 3e an asso"iation9 a "orporation9 or an in.ivi.ual. in.ivi.ual4s are hu'an
3ein1s!. J 101.41 a person is an in.ivi.ual9 partnership or "orporation ( un.er
the 3an)rupt"* "o.e a "orporation "oul. 3e a 3usiness trust9 et". it is a 1eneri"
ter'!.
2! 8onne"te. +ith DF ( that person has to have so'e "onne"tion to the Dnite.
Ftates. 8an a non#"iti@en ,ile 3an)rupt"* in the DF 0re1 =or'an9 an
Australian 1ol, star9 resi.es in $L an. has assets thereE -es!. 5e are loo)in1 ,or
resi.en"e9 .o'i"ile9 assets9 et". <, *ou have a DK "o'pan* +ith all o, its assets
in %n1lan.9 *ou "an4t ,ile ,or 3an)rupt"*.
3! Pre#,ilin1 "ounsel ( the in.ivi.ual 'ust have pre#,ilin1 "ounsel.
o <s there an*thin1 in the 3an)rupt"* "o.e +e4ve seen at this point that re>uires the
"o'pan* to 3e insolventE
Print 8o. is pro3a3l* insolvent9 3ut ;o3 'a* not 3e. <s that a reason that ;o3
"an4t ,ile ,or 3an)rupt"*E /here is nothin1 in the "o.e that sa*s *ou have to 3e
insolvent in or.er to ,ile 3an)rupt"*. /here are 'an* "orporations that ,ile ,or
3an)rupt"* that have a lot 'ore assets than lia3ilities.
# J 109h! ( a..s this thin1 a3out Bpre>uali,i"ationC ,or .e3tors. An in.ivi.ual 'a* not ,ile
3an)rupt"* unless .urin1 the 180 .a*s prior to ,ilin19 the* re"eive. approve. "re.it "ounsel
approve. 3* the DF /rustee4s o,,i"e!. /his is onl* true i, "re.it "ounsel is reasona3l* availa3le.
e.1. in =e+ Arleans9 there is no "re.it "ounsel so *ou pro3a3l* .on4t nee. it in or.er to ,ile. /hat
is a rare e&a'ple!. -ou "an 1et the "re.it "ounselin1 *ou nee. over the <nternet. -ou nee. to 1et a
"erti,i"ate e&e"ute. that *ou ,ile +ith *our 3an)rupt"*. 6oreover9 it "an 3e +aive. J109h!3! 3ut
*ou have to sho+ the .e3tor is e&i1ent9 is in a "o'3at @one9 et".
o 8lassi" 3an)rupt"* ,or an in.ivi.ual is +hen 3an) is 1oin1 to ,ore"lose on a house.
;an)rupt"* "reates an auto'ati" sta* that is an auto'ati" in:un"tion. -ou .on4t have to
,ile a "o'plaint9 :ust a petition. A :u.1e .oesn4t have to enter an or.er.
# ,n re (osa ( i, *ou .on4t have pre#,ilin1 "ounsel9 the :u.1es are not 1iven a "hoi"e. J3623!"!3!
( there is a presu'ption that re,illin1 is 3a. ,aith. /here,ore9 the auto'ati" sta* +oul. onl* 3e
1oo. ,or 30 .a*s. 7urin1 that perio.9 6r. Fosa +oul. have to re>uest a hearin1 an. provi.e "lear
an. "onvin"in1 evi.en"e the ,ilin1 +as in 1oo. ,aith. /he 'ort1a1ee +as in ,a"t 'islea.in1 hi'
an. put hi' into a position +here he thou1ht he ha. ever*thin1 "overe. 3ut .i.n4t :ust to strin1
hi' out so that he .oesn4t ,ile on ti'e. 8ourt sai. he "oul.n4t .o an*thin1 3e"ause there are no
e&"eptions to the re>uire'ent o, a pre#,ilin1 "ounsel.
o Note: A,ter the A'en.'ents9 there is a3out 25#30 pa1es the 3an)rupt"* la+*er 'ust no+
,ill out. /here is a3out 10 ti'es as 'u"h +or) no+. <t is no+ 'u"h 'ore e&pensive to
hire a 3an)rupt"* la+*er to ,ile ,or 8hapter 7.
Philip Larson Page 6
Intellectual Property: Class notes
o ,ssue: is the J 109h! issue :uris.i"tional. Fo'e :u.1es have sai. *es9 others no. <, the
"ourt .oes not lose :uris.i"tion9 then the "ourt still has :uris.i"tion an. "an .o so'ethin1
else other than .is'iss the "ase. 8an *ou "ure the ,ilin1 3* 1ettin1 itE
o -re filing counsel ( .e3tor 'ust have this in or.er to >uali,*. <, *ou .on4t 1et it9 *ou
aren4t eli1i3le to ,ile 3an)rupt"*9 +hether *ou have a 1oo. "ase or not.
# +i6on 2 Labarge 9,n re +i6on: ( 5hat +as the "ourt "on"erne. +ith hereE
# -roble' >.1 p*1
o Can Bill =ates file Chapter 13 9consu'er $ebtor:? <n.ivi.ual "an rearran1e thin1s9
pa* so'ethin1 to "re.itors9 3ut not all o, +hat is o+e.. J 109e!
# Where can Bob 3ones an$@or -rint Co'pany file bankruptcy? Lur* trials are t*pi"all* not
re>uire. in 3an)rupt"* "ases. Henue is 3ase. on resi.en"e9 prin"ipal assets o, .e3tor9 et".
# Anron ( 2M in 2ouston9 assets all over the pla"e 'a:orit* in 2ouston!. 5here .i. the* ,ile
3an)rupt"*E Fouthern 7istri"t o, =e+ -or). 28 U.S.C 1408-1409 ( venue is all o, these thin1s
o, the .e3tor AR o, an a,,iliate that has alrea.* ,ile.. /here,ore9 %nron ha. to have a su3si.iar*
in"orporate. in =- ,ile ,irst. /hen9 the* "oul. la*er all the other parts o, %nron un.er that one
su3si.iar*. -ou have to 3e a3le to sho+ *our resi.en"* ,or 'ore than si& 'onths. <, it is less than
si& 'onths9 *ou have to sho+ it +as 'ore than *ou ha. 3een an*+here else.
# .nite$ (tates 2. Bras # <s there a "onstitutional ri1ht to ,ile 3an)rupt"*E =o. Fupre'e 8ourt sai.
no. 2e "oul. as) the "ourt to +aive his ,ilin1 ,ee or the "ourt "oul. have hi' pa* it in
install'ents.
# ,n2oluntary bankruptcy ( +on4t run into this ver* ,re>uentl*. /ea"her has onl* seen three in 20
*ears. <n this situation9 ;o3 Lones .oesn4t +ant to ,ile 3an)rupt"*9 Print 8o is not pa*in1 its .e3ts.
2e is not .e,aultin1 on his 'ort1a1es9 3ut he isn4t pa*in1 the ven.ors an. "re.itors9 et".
%ventuall* the ven.ors an. "re.itors 1et pisse. o,, an. +ant to 1et pai.. Assu'e that the* are
unse"ure. an. there are 'ore than 12 o, the'. <, *ou "an put three o, the' to1ether9 there is no
.ispute a3out ho+ 'u"h is o+e.9 an. the* are non#"ontin1ent "lai's9 those "re.itors "an ,ile an
involuntar* petition to put that person in 3an)rupt"*. /he three have to 'eet so'e 'ini'u'
a'ount o, 'one*. /his is si'ilar to ,ilin1 a la+suit a1ainst so'e3o.*. =o+9 the presu'e. .e3tor
has a ri1ht to "o'e into the 3an)rupt"* "ourt an. sa* he shoul.n4t 3e in 3an)rupt"* "ourt an. this
is +h*. /here is a hearin1 in ,ront o, the 3an)rupt"* :u.1e an. these three "re.itors have to prove
the .e3tor is 1enerall* not pa*in1 his .e3ts as the* "o'e .o an. that he o+es at least ?13 to over
three ven.ors.
o .n$ispute$C Non-Contingent Clai's. This can be Chapter ! or 11 but not 13.
+ebtor has the right to
o 8ny $isputeE <s it that there "an4t 3e an* .isputeE
# Where $o you get all the for'sE +++.vae3.us"ourts.1ov
Ta'ecki 2. 1rank 9,n re Ta'ecki:
# /enants 3* the entiret*. PA la+ e&e'pts tenants 3* entiret* propert*. /here,ore9 it .oes not
3e"o'e part o, the 3an)rupt"* estate. /a'e")i ,iles 3an)rupt"*. 6r. an. 6rs. / have 3een
separate.. Fhe ,ile. .ivor"e several *ears a1o 3ut nothin1 has happene.. /he* +ere ar1ua3l*
+aitin1 to ,inali@e the .ivor"e until a,ter the 3an)rupt"* to ensure the house +as e&e'pt.
#
J541 ( propert* o, the estate
J342 ( auto'ati" sta*
8/30/2006
# J707 ( Prior to the A'en.'ents9 3an)rupt"* "ourt "oul. 1et ri. o, a 8hapter 7 i, there +as
Bsu3stantial a3use.C /he )in.s o, a3use +e4re tal)in1 a3out are li)e +hen la+ stu.ents +oul.
3uil. up 3i1 "re.it "ar. .e3t .urin1 s"hool an. then ,ile ,or 8hapter 7. <, *ou4ve 1ot ?40) in
"re.it "ar. .e3t9 an. *ou are a3out to enter a ne+ :o3 an. *ou +ant to 1et ri. o, *our .e3t. Dn.er
the ol. provisions this person "oul. ,ile 3an)rupt"* an. 1et all that .e3t +ipe. out. -ou "an use
e&"eptions to )eep *our "ar. -ou .on4t have a lot o, assets to put on *our 3an)rupt"* appli"ation.
/he "ourt +oul. have to sa* that this +as Bsu3stantial a3use.C
# 5hat are *our assets on the Petition 7ate P7!9 an. +hat are *our .e3ts on the P7E
Philip Larson Page 7
Intellectual Property: Class notes
# J 541 sa*s none o, the in"o'e a 8hapter 7 .e3tor earns a,ter P7 3e"o'es part o, the 3an)rupt"*
estate. /here,ore9 none o, the ne+ in"o'e +ill 3e use. to pa* the past .e3ts.
# ;e,ore +e allo+ *ou to ,ile 8hapter 79 +e +ant to test to 'a)e sure *ou "an4t pa* so'e o, this
3a") 'ovin1 ,or+ar. un.er 'ore o, a 8hapter 13 approa"h.
o 8hapter 7 ( li>ui.ation ( this is prett* short an. eas*. Fo'e thin1s are e&e'pt. /he
.e3tor 1ets a .is"har1e o, an* .e3ts le,t over a,ter a 8hapter 7.
o 8hapter 13 ( reor1ani@ation ( the trustee is appointe.9 3ut the .e3tor has to put to1ether a
plan. /he .e3tor sa*s Bhere is +hat < 'a)e an. here is +hat '* ,a'il* nee.sC. /he
.i,,eren"e 3et+een the' is .isposa3le in"o'e +hi"h 1oes to the trustee to pa* the
"re.itors. <, the .e3tor .oes this ,or 5 *ears9 the "ourt .is"har1es all the .e3ts.
o /here,ore9 the B'eans testC is a +a* o, "he")in1 +hether i, *ou +ent into 8hapter 13
over the ne&t 5 *ears9 "oul. *ou a"tuall* pa* so'ethin1 3a") to the "re.itors.
T;A <A8N( TA(T
/here are ,our or ,ive parts to the 'eans test.
1! it onl* applies to individuals ,ilin1 8hapter 7. <t .oes not appl* to
"orporations9 partnerships9 et".
2! it onl* applies to in.ivi.uals +ith primarily consumer debt. <, *ou are in
3usiness ,or *oursel, as a sole proprietor9 *our .e3t as a sole proprietor is =A/ a
"onsu'er .e3t. 8onsu'er .e3t is stu,, ,or househol. nee.s9 et".
3! /he presu'ption o, a3use onl* applies to those +hose combined family
income is larer t!an t!e state median income. 0o to the +e3site an. ,in. the
'e.ian in"o'e in HA ,or 2 ppl9 3 ppl9 4 ppl an. 5 ppl.
4! i, the .e3tor has pro"ected e#cess income under t!e formula $0$%b&%2&%'&
%i& there is a presumption of abuse.
A! 8o'pute the .e3tors B"urrent 'onthl* in"o'e.C J 10110A!.
<n"lu.e all in"o'e +hether it is ta&a3le or not. 6ust in"lu.e an*
in"o'e ,ro' a spouse. 2o+ever9 i, the* have a 3ona,i.e separation
not ne"essaril* .ivor"e.!9 *ou .on4t have to in"lu.e *our spouse4s
in"o'e. <, the +i,e is pa*in1 support9 it +oul. 3e in"lu.e. in a
.i,,erent part o, the ,or'.
;! Fu3tra"t out the ,ollo+in1 e&penses:
o Livin1 e&penses9 "al"ulate. 3* the <RF 1ui.elines ,or
.elin>uent ta&pa*ers9 J 7073!2!A!ii!<!.
o Pro:e"te. se"ure. .e3ts e.1. 'ort1a1e on *our house9 "ar9 et".
an*thin1 *ou "an )eep un.er 8hapter 7 on +hi"h *ou have
pa*'ents!. J 7073!2!A!iii!.
o Pro:e"te. priorit* .e3ts. J 7073!2!A!iv!. -ou "an su3tra"t
these 3e"ause i, *ou 1o into 8hapter 13 *ou 2AH% to 'a)e
these "lai's.
o Fpe"ial interest e&penses9 "harita3le "ontri3utions9 an.
a.'inistrative "har1es. J 7073!2!A!ii!<<!#H!9 J 7073!1!
=o+9 *ou have NAT ,NC0<A. /his =et nu'3er 'ust 3e L%FF
/2A= %</2%R
o ?6)9 or ?100/'onth 69000/60N100!. /here,ore9 i, it is less
than ?100/'onth9 the presu'ption is not there an. the "lient
"an ,ile ,or 8hapter 7 AR 25G o, the .e3tor4s nonpriorit*
unse"ure. "lai's9 +hi"hever is 1reater
o AR9 ?10) or ?167/'onth. there,ore9 i, *ou "al"ulate a net
in"o'e a3ove ?167/'onth t!e presumption of abuse (ill
al(ays be t!ere. /here,ore9 +hat +e are tal)in1 a3out is
+hether people 3et+een ?100/'onth an. ?167/'onth "an ,ile
,or 8hapter 11.
o =ote: i, *our "lient ,alls on the +ron1 si.e o, this an. has
?200/'onth. /he presu'ption e&ists an. *our "lient +ill 3e
Philip Larson Page 8
Intellectual Property: Class notes
,oun. ineliible to file C!apter $. 2o+ever9 *ou "an "o'e
3a") an. re3ut that presu'ption. -ou have to sho+ that there
is no reasonable alternative other than .e"reasin1 the in"o'e
or in"reasin1 the e&penses use.. <, *ou "an sho+ spe"ial
"ir"u'stan"es an. there is no reasona3le alternative9 *ou 'a*
"onvin"e the :u.1e to a.:ust the values in the 'eans test so
that *ou ,all +ithin the re>uire'ents o, the 'eans test. <, not9
the "lient "an then either "hoose not to 1o into 3an)rupt"*9 or
the* "an ,ile 8hapter 13. -ou "an4t $AR8% so'eone to 1o
into 8hapter 13. /he .e3tor 'ust ele"t to .o this i, the* ,ail
the 'eans test un.er 8hapter 7.
o J7073!4! ( the la+*er is on the hoo). -ou are sa*in1 that
*ou have "arrie. out .ue .ili1en"e in insurin1 ever*thin1 in
the petition is "orre"t. <, the "lient is not entitle. to ,ile
8hapter 79 *ou 'a* 3e san"tione. 3* the "ourt. /his is a
"o.i,i"ation o, Rule 11. /his is a prett* sti,, penalt*. /he
"on"ern is 1! la+*ers have to .o 'ore +or) in or.er to
prepare a petition there,ore9 there is 'ore "ost ??! an. 2!
'an* la+*ers +ill "hoose =A/ to .o 8hapter 7 "ases.
# Pro3le' 2.89 p124
o A! /his la+ stu.ent "an ,ile 8hapter 7. onl* the :u.1e or the DF /rustee "an sa* that she
is a3usin1 the s*ste'.
o ;! 8oo) 'a)es ?4490009 a3ove the 'e.ian. /here,ore9 he has to 1et throu1h the 'eans
test. <s it ,air that the la+ stu.ent 1ets a pass 3ut the "oo) .oesn4t >uali,*E
o 8!
o 7! is it pri'aril* "onsu'er .e3t.
o %!
Re'in.er:
# Fe"ure. 8lai's
# Dnse"ure. 8lai's
o Priorit* "lai's ( so'eone +as su""ess,ul in "onvin"in1 8on1ress that their "lai's shoul.
"o'e 3e,ore all other unse"ure. "re.itors. ;AP8PA 'ove. domestic support up to
nu'3er 1. /hat is no+ a priorit* "lai' in the 3an)rupt"*. -ou "an4t approve a 8hapter
13 plan unless it pa*s all priorit* "lai's in ,ull.
9/6/06
p121#163
# <eans Test " %e2ie7
o ,n$i2i$uals only: the 'eans test applies only to individuals9 not "orporations.
o J7073!2!a!2!( +hen .oin1 a "al"ulation ,or the 'eans test9 *ou "an ta)e so'ethin1
,ro' the vehi"le 1 an. vehi"le 2. Let4s *ou ta)e a transportation "ost ,or up to 2 "ars.
o J7073!2!a!3! ( lets *ou ta)e out se"ure. .e3ts.
6eans test is to see +hether *ou "oul. 1o into 8hapter 13 an. "reate a plan
instea. o, ,ilin1 ,or 8hapter 7. /here,ore9 sin"e *ou have to pa* se"ure. .e3ts9
it is reasona3le to .e.u"t the a'ounts *ou +oul. pa* on a se"ure. .e3t.
p132 # <t is not in"re.i3l* "lear +hether *ou "an "ount *our "ar t+i"e un.er ea"h
o, these. /he authors sa* that pro3a3l* +ill not 3e the prevailin1 interpretation.
2-PA:
o Ftep 1: Avera1e 'onthl* in"o'e o, "lient ( ho+ .o *ou 1et the avera1e 'onthl* in"o'eE
/a)e the avera1e over the last si& 'onths.
o Ftep 2: 7e.u"t the e&penses *ou are allo+e. ,ro' the avera1e 'onthl* in"o'e an. 1et
net mont!ly income.
o Ftep 3: 6ultiple net mont!ly income 3* 60 ,ive *ears ( 3e"ause that is the a'ount o,
ti'e ,or a plan un.er 8hapter 13!.
Philip Larson Page 9
Intellectual Property: Class notes
o Ftep 4: $i1ure out +hether this nu'3er is 1reater than one o, three nu'3ers.
1! loo) at all the non#priorit* unse"ure. BeneralC! "lai's an. 'ultipl* 3* 25G
an. "o'pare to ?6000 loo)in1 ,or +hi"hever is reater. 8o'pare this value to
?109000 an. see +hi"h one is less. <, the .e3tors value is 6AR% than this9 the*
,ail the 'eans test.
Dnse"ure. "lai's are 1! priorit* an. 2! 1eneral.
<n a 8hapter 13 plan9 all priorit* "lai's 'ust 3e pai. in ,ull e.1. "ertain
ta&es an. .o'esti" support o3li1ations!.
# ,n$i2i$uals 2s. Antities
o 1resh (tart: 5e are not tal)in1 a3out 1ivin1 B,resh startsC ,or "orporations an.
partnerships. %ntities .on4t 1et a ,resh start. /here,ore9 the means test is not applie..
o 4Best interest5: 5hat is the in the 3est interests o, the "re.itorsE
o T7o rele2ant statutes
D3)E9a:91: ( A3stention ( 3an)rupt"* "ourt sa*s it +ill not ta)e the "ase. /he*
either .is'iss it or .on4t allo+ it at all.
D111>9b: ( Lu.1e a"ts su esponte sa*in1 this +as a 3a. ,aith ,ilin1. /his is a3out
+hether the ,ilin1 o, the 3an)rupt"* +as in 1oo. ,aith.
Biggest $ifference: 3an)rupt"* :u.1e has a lot o, .is"retion un.er J305a!. -ou
"annot appeal the 3an)rupt"* :u.1e4s .e"ision. A 'otion to .is'iss un.er J1112
is appeala3le.
o ,n re 3ohns#<an2ille Corp J 1112 # +as this a 1oo. ,aith ,ilin1E!
$a"ts: as3estos "ase ( "o'pan* +ante. to li'it lia3ilit* ,or as3estos 3* ,ilin1
3an)rupt"*.
<ssue: Lohns#6ansville sai. the* .i.n4t have the 'one* to pa* all the pro:e"te.
la+suits. 5as this a 1oo. ,aith ,ilin1E
Fa* Lohns#6ansville 1oes to a 3an) an. as)s ,or ?5006 i, the* 'a)e
"ertain (arrants and
2el.: /here +as not a 1oo. ,aith re>uire'ent ,or voluntar* 8hapter 11
;an)rupt"* ,ilin1. /he* .eter'ine. that the 1oal o, the 3an)rupt"* "ourt is to
provi.e ti'el* a""ess to the 3an)rupt"* "ourt. Lohns#6ansville nee.e. pro'pt.
7e3tors ( +ant to "ontinue a oin concern.
8re.itors ( +ant to 1et paid as 'u"h as possi3le.
5hat is in the 3est interests o, 3oth the .e3tors an. "re.itorsE
=otes: 3an)rupt"* :u.1es ten. to 3e .e3tor ,rien.l*.
Fhoul. *ou 3e allo+e. to use the 3an)rupt"* "o.e to ,oru' shop an.
prevent people ,ro' 1ettin1 a :ur* trialE
# ,n re ictoria Li'ite$ -artnership sin1le asset real estate ( FAR%!
o 1acts: sa* *ou have an o,,i"e 3uil.in1 an. *ou set up a partnership that o+ns the
3uil.in1. /he o,,i"e 3uil.in1 has 200 tenants an. all the rent 1oes to the partnership.
/he partnership also has a 'ana1e'ent "o'pan* that 'ana1es the 3uil.in1. /he tenants
pa* the partnership an. the partnership pa*s the a,,iliate. 'ana1e'ent tea'. /o 3uil.
the partnership9 the* +ent to the 3an) an. as)e. ,or ?506 to 3uil. a 3uil.in1. ;an) 1ave
the' the 'one* an. +as se"ure. 3* the 'ort1a1e on the 3uil.in1.
D1)1.513! ( Fin1le asset real estate "ases 3asi"all* .eal +ith this. <, *ou have a
sin1le asset9 real estate "ase.
=oo$ faith: 3an) ar1ues that this is not a 1oo. ,aith ,ilin1 3e"ause there are no
other "re.itors an. the onl* thin1 in .ispute is the ?506 o+e. to the 3an). <t is
ri.i"ulous ,or the' not to 3e a3le to ,ore"lose on the 3uil.in1.
%ace to the courthouse: +e +ant to treat unse"ure. "re.itors e>uall*. 5e +ant
to avoi. the ra"e to the "ourthouse. <n sin1le asset real estate9 there is no +orr*
o, ra"in1 to the "ourthouse 3e"ause there is onl* one "re.itor.
=oing concern: i, +e .on4t 1o into 3an)rupt"*9 the 3an) is 1oin1 to ,ore"lose.
;an)s .on4t li)e o+nin1 propert*. /he* .o have R%A real#estate o+ne.!
port,olios 3ut the* .on4t li)e it. <t is not their spe"ialt*. /he 3an) +ants to sell
Philip Larson Page 10
Intellectual Property: Class notes
the 3uil.in1 at ,ore"losure so that so'eone else o+ns the 3uil.in1. /here,ore9
+e .on4t reall* have a 1oin1 "on"ern pro3le' 3e"ause so'eone ne+ +ill 3e
usin1 the 3uil.in1. /here,ore9 +h* shoul. +e allo+ a 3an)rupt"* in this "aseE
/he ans+er is that 8on1ress .e"i.e. that FAR% 3an)rupt"ies shoul. 3e allo+e.
3ut there shoul. 3e so'e prote"tions ,or the 3an). /he prote"tions are in
D3F>9$:93: ( in an FAR%9 the 3an)rupt"* "ourt s!all eliminate t!e automatic
stay. /here,ore9 the 3an) is allo+e. to ,ore"lose9 unless +ithin 90 .a*s a,ter the
petition .ate9 the .e3tor 1! ,iles a ,easi3le plan sa*in1 ho+ it +ill reor1ani@e9 or
2! the .e3tor 'ust 'a)e pa*'ents o, at least the contract level of interest.
-etition +ate ( re'e'3er that i, *ou are in a FAR%9 *ou an. *our "lient have
90 .a*s to either pa* the "ontra"t level interest or .evelop a plan to reor1ani@e.
# %olle6 Corp. 2. 8ssociate$ <aterialsC ,nc. 9,n %e (uperior (i$ing G Win$o7C ,nc.:
o 1acts: "onversion vs. .is'issal # J 11123!
Who 7ante$ the case $is'isse$? /here +ere 8 suppliers. /he "re.itors +ho
+on the ra"e to the "ourthouse an. 1ot :u.1'ents +ith :u.1'ent liens. <, the*
.on4t 1et to sta* in 3an)rupt"*9 the* 1et to e&e"ute on their :u.1'ent liens.
Fin"e Rolle& .i. not have a :u.1'ent lien9 the* +ante. to sta* in 3an)rupt"*. <,
the* sta*e. in 3an)rupt"* the* +oul. all 3e "onsi.ere. eneral unsecured
creditors an. there,ore Rolle& +oul. 1et 'ore 'one*.
D EH! ( :u.1'ent liens 1o a+a* i, the* +ere "olle"te. 3* "re.itors +ithin 90
.a*s o, +hen the 3an)rupt"* +as ,ile.. /hen9 all unse"ure. "re.itors +oul. 3e
treate. the sa'e.
D EHIC an$ EHH ( "ollusion "an o""ur +here *ou 1ive pre,eren"e to so'e
"re.itors an. allo+ the' to 1et liens prior to a"tuall* 1oin1 into 3an)rupt"*.
# ,n re Colonial 1or$C ,nc. J 305!
o 1acts: .e3tors an. "re.itors9 outsi.e o, 3an)rupt"*9 "reate. a plan. 5hen the plan .i.n4t
+or)9 8olonial $or. ,ile. 3an)rupt"*. /he "ourt .is'isse. it.
o ;el$: the 8o.e en"oura1es out#o,#"ourt +or)outs. 5here the +or)out is "o'prehensive9
an. .esi1ne. to en.9 not perpetuate9 the "re.itor#"o'pan* relations9 .is'issal un.er
Fe"tion 305a!1! is appropriate.
,pso facto clauses: "lauses that sa* *ou enter into a "ontra"t =A/ to ,ile
3an)rupt"* are unen,or"ea3le. /here,ore9 isn4t the +or)out in 8olonial $or.
:ust an ipso ,a"to "lauseE
o Notes: /he .i,,eren"e 3et+een this "ase an. the last one is that ALL /2% 8R%7</ARF
5%R% <=HALH%7. /he* all parti"ipate. in the +or)out. /here,ore9 +hat is the value
o, a 3an)rupt"*. /he* alrea.* +or)e. out the .etails o, ho+ ever*thin1 shoul. +or).
/he :u.1e .i.n4t +ant the "ase 3e"ause it ha. alrea.* 3een resolve.. <n Rollex9 *ou
.i.n4t have all o, the "re.itors involve. in the 3an)rupt"*.
Chapter 3: -roperty of the Astate
# 3un.le o, ri1hts o, the propert* is 'ove. into the B3an)rupt"* estateC9 +hi"h is a ,i"titious
"reation o, the 3an)rupt"* "o.e. /he trustee "ontrols the estate in 8hapter 7 or 8hapter 13. <n
8hapter 119 +e have the debtor in possession %)*+&. J11011!. J1107 ( )*+ has all the sa'e
ri1hts that the trustee is 1iven un.er J323a!. ho+ever9 there are so'e investi1ative ri1hts a
trustee has that a 7<; .oesn4t have.
# J541 ( tells us +hat propert* interests are trans,erre. ,ro' the .e3tor to the trustee. J541a! is
interprete. ver* 3roa.l*.
# /+o >uestions ,or the "ases toni1ht:
o 1! 7oes the .e3tor have an* interest in the propert* as of t!e petition dateE
o 2! 5hat is the e#tent of t!e debtor,s interest in the propert*E 5hat is the alienability o,
the .e3tor4s interest in the propert*E
# Butner 2. .(
o $a"ts: 1ol.en enterprises o+ne. lan. in =8. /he plan ,aile. an. the* +ere 3oote. into
8hapter 79 li>ui.ation9 an. at that point a trustee +as appointe.. =o+ +e are in a
li>ui.ation rather than an arran1e'ent9 or plan. /he trustee 1! "olle"ts the rents9 2! has
Philip Larson Page 11
Intellectual Property: Class notes
the ,i.u"iar* .ut* to loo) out ,or the "re.itors. /here,ore9 the trustee puts the rents into
the estates +ith the intent o, .istri3utin1 that to unse"ure. "re.itors. 6oreover9 the
trustee 3e1ins to sell the propert*. ;utner 1ets the 'one* on the propert* 3e"ause he is
the 'ort1a1ee. /he propert* .i.n4t sell ,or the a'ount ;utner +as .ue9 so he +as still
o+e. ?1869000. 2e +ants the rents ,ro' the li>ui.ation phase. /he rents "olle"te.
.urin1 li>ui.ation. 7oes the .e3tor have an interest in the rent pa*'entsE
J541a! ( in"o'e 1enerate. ,ro' propert* o, the .e3tor 1oes into the estate.
2ere9 the .e3tor ha. an interest in the propert*. 5e have to as) the se"on.
>uestion9 to (!at e#tent is the .e3tor4s interestE /he 8ourt hel. that this +as
.eter'ine. 3* state la( not ban-ruptcy la(. -ou have to ,in. out +hat "reate.
the interest an. then loo) to the e&tent o, the interest. /he 8ourt punte. on the
issue o, +hat the state la+ is an. there,ore the* a,,ir'e. +ith the 8ourt o,
Appeals +hi"h a,,ir'e. +hat the ;an)rupt"* 8ourt hel.9 +hi"h +as that ;utner
.i. not have ri1hts to the interests. ;utner .i. not ,ollo+ the steps nee.e. to
esta3lish secured creditor ri!ts to t!e rents ,ro' the house.
o Rule: the i'portan"e o, ;utler is ho+ the Fupre'e 8ourt. /he ;an)rupt"* "o.e .oes not
.e,ine the propert* interests +e are loo)in1 at or the e&tent o, those interests. /he
;an)rupt"* 8o.e .e,ines ho+ these ri1hts are .istri3ute..
o =otes: this is an important case 3/" it tal)s a3out 3oth ,e.eral an. state la+.
/his "ase +an-ruptcy 'ct of 1898. /he A"t is .i,,erent ,ro' the +an-ruptcy
Code.
/here is not a lot pro"e.urall* that +oul. have happene. .i,,erentl* un.er the
8o.e.
5hat .i. the 3an)rupt"* :u.1e .oE /he 3an)rupt"* :u.1e approve. a plan
"onsoli.atin1 various liens an. appointe. a re"eiver to "olle"t the rents.
# Boar$ of Tra$e of City of Chicago 2. 3ohnson
o $a"ts: 8hi"a1o ;oar. o, /ra.e
o 2en.erson ,ile. to trans,er his seat. Prior to 1ettin1 approval9 he ,ile. 8hapter 7.
/here,ore9 the a"tual sale +as 1oin1 to ta)e pla"e post#petition.
o <ssue: <s this seat propert*E
Rule: ;utner sa*s to loo) to state la+ to see +hat the propert* interests are. <llinois
Fupre'e 8ourt sai. that this is Bnot propert*.C 2o+ever9 the 8ourt hel. that it +as
propert*. 5h* aren4t the* appl*in1 state la+E ;e"ause BMuestion 1: .oes the .e3tor
have interest in the propert*EC is .eter'ine. 3* ;an)rupt"* la+ +hereas BMuestion 2C is
a..resse. 3* state la+ to .eter'ine the e#tent of t!e interest.
o =otes: .on4t li'it *oursel, 3* +hat the state "ourt sa*s Bpropert*C is.
# 8bele 2. -hoeni6 (uns Li'ite$ -artnership 9,n %e ;arrell:
o $a"ts:
o =otes: there are 1! the ti")ets le,t in the e&istin1 season9 an. 2! the ri1ht to pur"hase ne&t
season4s ti")ets.
2e has 3oth an interest in the ti")ets le,t over an. the* are aliena3le the e&tent
to o, the interest!. /here,ore9 it 1oes in the trustees 3u")et.
/he "ourt hel. that there is no propert* interest in O29 the ri1ht to pur"hase ne&t
season4s ti")ets. /he "ourt sa*s that +hile this happens9 the Funs are not
"ontra"tuall* 3oun. to .oin1 it.
# (liney 2. Battley 9,n %e (ch'it&:
o $a"ts: ,isher'an ,ile. ,or 3an)rupt"* a *ear an. a hal, before re1ulations "reatin1 post#
,ilin1 ,ishin1 ri1hts 3ase. on the ,isher'an4s pre#,ilin1 "at"h histor*.
o 2el.: the "ourt hel. that the >uota ri1hts +ere not property of t!e ban-ruptcy estate
3e"ause the re1ulations .i. not e&ist at the ti'e the .e3tor ,ile. his petition an. 2!
althou1h the >uota ri1hts +ere "al"ulate. on the 3asis o, the .3etor4s pre#,ilin1 ,ishin1
histor*9 the* 1overn his post#,ilin1 ri1ht to ,ish.
o DEH19a:9F: ( future income is e#cluded from t!e estate # sa*s part o, the ,resh start +e
1ive in.ivi.uals is that startin1 at the petition .ate9 +hatever the person is 'a)in1 ,ro'
Philip Larson Page 12
Intellectual Property: Class notes
that .ate ,or+ar. is ./0 part of t!e estate. 2ere9 he is ,ishin1 ,or 2ali3ut per a ,ishin1
re1ulation a,ter the 3an)rupt"* "lose..
# Fo'e thin1s are e&"lu.e. ,ro' J 541 ,ro' the estate propert*.
o J5413!5!9 6!9 7!
7: e&"lu.e. ,ro' the estate are P. /his codifies t!e 1atterson case on p180.
# 8n$re7s 2. %iggs National Bank 9,n %e 8n$re7s:
o $a"ts:
o <ssue: .oes this "onstitute in"o'eE /he Bin"o'eC is ,or Bearnin1s ,ro' servi"es
per,or'e.C. An.re+s 1ot ?16 ,or si1nin1 a non#"o'pete a1ree'ent.
# /here is no 1oo. .e,inition ,or property of t!e estate. 2o+ever9 +hatever the .e3tor has at the
petition .ate 1oes into the 3u")et o, the estate. /he .e3tor has a ri1ht to ,uture in"o'e post#
petition .ate. /here is a t+o step anal*sis: 1! .oes the .e3tor have an interest in the propert*9 2!
+hat is the e&tent o, the interestE.
# 8uto'atic (tay
o -urpose: stop the ra"e to the "ourthouse so that all parties o, the 3an)rupt"* "an 3e
treate. e>uita3l*. 8re.itor e>ualit* an. reor1ani@ation poli"* +e have. $or entities 1oin1
into 3an)rupt"*9 +e +ant to preserve the on1oin1 1oin1 "on"ern! value o, that entit* so
that the* "an ,i1ure out ho+ to restru"ture the'selves. $or an in.ivi.ual9 it is part o, the
B,resh startC poli"* +e have. 5e +ant in.ivi.uals to 3e a3le to have a ,resh start +hi"h
re>uires that "re.itors 3a") o,,.
o What is the process: ver* si'ple pro"ess. 28 D.F.8. J1334e! ( 1ives e&"lusive
:uris.i"tion to the DF 7istri"t 8ourt +here the 3an)rupt"* is ,ile.. <, the ,e.eral "ourts
have e&"lusive :uris.i"tion9 that 'eans other "ourts "an4t "o'e in an. ta)e :uris.i"tion.
At 8/L9 that +as interprete. to 'ean that state "ourts "oul.n4t "o'e in an. tr* to ta)e
"ontrol over a pie"e o, propert* o, the 3an)rupt"* estate. J 362 "o.i,ies this. 5hen the
"ler) .atesta'ps the petition ,or 3an)rupt"*9 as o, that .ate an. ti'e the .e3tor is
prote"te. 3* an in:un"tion. /his )eeps all the "re.itors a+a* ,ro' the .e3tor u'3rella
e&a'ple!. Fe"ure. "re.itors are sta*e. ,ro' ,ore"losin1 on "ollateral. Dnse"ure.
"re.itors are sta*e. ,ro' e&e"utin1 their :u.1'ents.
o ,nJunction: the auto'ati" sta* is 3asi"all* :ust an in:un"tion. <t is auto'ati". 6oreover9
it is sel,#e&e"utin1. <t 1oes into e,,e"t re1ar.less o, +hether the "re.itor )no+s a3out it.
<, the "re.itor .oes )no+ a3out it an. still 1oes a,ter the "ollateral9 the* are su3:e"t to
san"tions.
o +uration: /he auto'ati" sta* starts on the petition .ate. <t en.s +hen the "ase is over.
/here,ore9 it is a te'porar* in:un"tion.
o %elief fro' stay: "re.itors "an 1et relie, ,ro' the sta* at an* ti'e .urin1 the 3an)rupt"*.
# Categories
o 8ctions against the $ebtor: the auto'ati" sta* applies to an* a"tions a1ainst the .e3tor.
An the P79 all the propert* o, the .e3tor is 'ove. into the 3an)rupt"* estate. Fo'e
interests the .e3tor is allo+e. to )eep e&e'ptions un.er J 5419 ,or instan"e!. J 362a!
6! sa*s people are prohi3ite. ,ro' ta)in1 any action no harass'ent9 no phone "alls9
et".!. 2o+ever9 the sta* a1ainst the .e3tor onl* applies to pre#petition "lai's. 8re.itors
"an ta)e a"tion ,or post#petition "lai's.
o -roperty of the $ebtor: J 362 sa*s *ou "an4t ta)e a"tion on the property of t!e debtor.
-ou "an4t 1o sei@e the propert* nor "an *ou phone the .e3tor. -ou "an4t tr* to en,or"e a
K a1ainst the .e3tor.
o 8ction against property of the estate: *ou "an4t ta)e a"tions post#petition a1ainst
propert* o, the 3an)rupt"* estate. 5e +ant to 1ive entities the "han"e to restru"ture or
,or in.ivi.uals9 the B,resh startC!. Ftop ever*thin1 so that +e "an ,i1ure out +hat is ,air
an. e>uita3le to ever*one.
# 8pplication
o 0nly applies outsi$e of bankruptcy court: it "reates a c!annelin in"unction. /his
'eans that all a"tions or .isputes .ealin1 +ith the .e3tor are all c!anneled into t!e
ban-ruptcy court. 7oesn4t 'atter i, it is a tort a"tion or so'ethin1 else.
Philip Larson Page 13
Intellectual Property: Class notes
# -roble' H.1 p1*E
o ;! "re.itor sei@e. the Leep 3e,ore ,ilin1 the 3an)rupt"*. 2e sells it one 'inute a,ter the
P7. /he "re.itor is in violation o, the auto'ati" sta*. /he Leep 1oes 3a") to the .e3tor.
o 8! the "re.itor is also in violation o, the auto'ati" sta* even thou1h he ha. the :u.1'ent
prior to the P7. -ou "an4t even continue an action a,ter it is starte..
o 7! J362 an. J 553 ( Ftru'p, "ourt sai. the 3an) "an ,ree@e the 3an) a""ount +ith the
?5) on it ,or a potential set o,,. <t 'a)es sense that +e +ant to preserve the status >uo. <,
*ou sa* the 3an) has to turn the ?5) over9 *ou are not 'aintainin1 the status >uo.
/here,ore9 the 3an) "an ,ree@e the a""ount an. .is"uss set#o,, ri1hts un.er J 553! +ith
the 3an)rupt"* "ourt. /his is ni"e 3e"ause it puts the' in the sa'e situation as a se"ure.
"re.itor.
o 2! Dniversit* re,uses to 1ive a .iplo'a 3e"ause o, par)in1 ti")ets.
/he Dniversit* is a critical vendor. <t is the onl* one that "an provi.e the
.iplo'a an. it is9 ar1ua3l*9 "riti"al to the .e3tor.
o <! "hiropra"tor patient 1ets 3ehin.. 8hiropra"tor re,uses to "ontinue to provi.e servi"es.
Loo) at the critical vendor ( is this so'ethin1 the .e3tor is entitle. to have. 5e
.on4t +ant the "hiropra"tor to have to 1ive servi"e 3e"ause the .e3tor "an ,in.
another "hiropra"tor post petition.
o 6! "re.itor loans ?5) to .e3tor an. re>uires 7e3tor4s 'other B6o'C! to "o#si1n the
note. 7e3tor .e,aults an. ,iles "hapter 7 an. "re.itor sues 6o'. J 362 sa*s the* "an4t
1o a,ter the .e3tor. <s there an*thin1 that sa*s the* "an4t 1o a,ter 6o'E =o9 6o' is not
1! the .e3tor9 2! propert* o, the .e3tor9 3! nor propert* o, the estate.
Partnership has pro3le's: J 105a! ( no3o.* "an 1o a,ter the "o#.e3tors as lon1
as the 3an)rupt"* pro"ee.in1 is 1oin1 on. 0ives the' a "han"e to reor1ani@e.
Fo'e "ourts .on4t invo)e the in:un"tion9 others .o.
# .nite$ (tates 2. Whiting -oolsC ,nc.
o Note: -oun1 sa*s these "ases shoul. 3other us.
o %ules: 242 is the turnover provision. <t sa*s that i, there is an* propert* +here the
.e3tor has so'e interest even thou1h the propert* is hel. as a thir. part*9 that propert*
has to 3e turne. over to the estate. 7isputes a3out +ho +ill o+n the propert* +ill 3e
.eter'ine. 3* the 3an)rupt"* "ourt.
o ;el$: J362 applies to the <RF :ust li)e an* other se"ure. "re.itor. J 362 applies to
everybody in"lu.in1 0overn'ent a1en"ies!.
o 3u$g'ent lien: <RF too) possession o, his propert* 3ase. on a :u.1'ent lien prior to
,ilin1 ,or 3an)rupt"*. 5h* .o the* have to 1ive the propert* 3a")E 5hitin1 Pools
nee.e. the propert* to "ontinue its B1oin1 "on"ernC. /he 3an)rupt"* "ourt thou1ht there
+oul. 3e 'ore value there than i, the <RF si'pl* li>ui.ate. it. Li>ui.ation value +as
?359000 an. 1oin1 "on"ern value is ?1609000. <, *ou 3rea) up this "o'pan* an. sell its
assets9 it is not as valua3le as i, *ou have the "o'pan* "apa3le o, 1eneratin1 in"o'e.
/he <RF 1ra33e. all this stu,, 3ut the "ourt 1ave it 3a") to 5hitin1 Pools.
o ->)1 " un.er the <RF4s o+n re1ulations9 it sai. that the* .on4t o+n the propert* until the
<RF a"tuall* li>ui.ates it. <t sa*s that the .e3tor still o+ns it. /here,ore9 J362 auto'ati"
sta*! applies 3e"ause it is still the propert* o, the .e3tor a""or.in1 to the <RF4s o+n
se"tions.
o Young: there are a lot o, le1al pro3le's +ith the "ourt4s anal*sis.
# Transouth 1inancial Corp. 2. (haron 9,n re (haron:
o 1acts: J362a!3! +as a..e. to the 3an)rupt"* "o.e prior to this "ase. 7e3tor 'a.e a
'ista)e 3* 'issin1 t+o pa*'ents. ;an) as)e. ,or the pa*'ents9 re"eive. the'9 an. then
sei@e. the "ar. Fhe 1ot pisse. an. ,ile. 8hapter 13 3an)rupt"* an. as)s ,or her "ar 3a").
o ,ssue: la+*er as)e. ,or the "ar 3a")9 the* re,use.. 7i. this violate the auto'ati" sta*E
/he "ourt sai. it is.
o ;el$: this violate. J 362. 2o+ is this .i,,erent ,ro'
o Notes: 7oes Fharon nee. the "ar to restru"ture her "onsu'er .e3tE Fhe .i.n4t nee. this
"ar. <t +as a sports "ar +ith t+o seats. 5h* .oes she nee. the "arE 5h* .i.n4t the
trustee raise the issues o, this :ust 3ein1 a to*.
Philip Larson Page 14
Intellectual Property: Class notes
Con2ersion: is there an*thin1 in J 362 that prevents the .e3tor ,ro' ta)in1
a"tionE =o9 it onl* prevents "re.itors ,ro' ta)in1 a"tions. /here is nothin1 that
sa*s the .e3tor "an4t 3rin1 a"tions9 ,or "onversion9 ,or instan"e.
o Young: a1rees +ith the .issent in this "ase. /he 'a:orit* o, "ourts ,ollo+ Fharon. Ather
"ourts have re,use. to ,ollo+ this. <n -oun14s opinion9 this is no .i,,eren"e than the 3an)
that is )eepin1 ?5) in Ftru'p,. 2is onl* rationale is that the* loo)e. at 3!itin 1ools
an. sai. that *ou "an 1o to thir. parties an. 3rin1 it 3a") into the 3an)rupt"* estate. /he
e>uit* po+er o, the :u.1e pla*e. a lar1er role than her nee. in the "ar.
*@1I@)F
# %e2ie7: +e )no+ +hat the DF /rustee is. 5e )no+ +ho "an ,ile un.er J 301. 5e )no+ a3out the
'eans test sa*in1 +ho else "an ,ile. 5e also )no+ a3out J 341. 5e also )no+ the 1reatest po+er
the .e3tor has9 the auto'ati" sta*9 in J 362.
# Tonight: +e +ill tal) a3out e#ceptions to t!e automatic stay.
o D 3F>9b: ( e&"eptions to the auto'ati" sta*.
-olicing -o7ers # Auto'ati" sta* .oes not prevent state9 "ount*9 et". to en,or"e
their poli"in1 po+ers not+ithstan.in1 the ,a"t that *ou have an auto'ati" sta*.
An* a"tion 'ovin1 to ,or"e *ou to pa* par)in1 ti")ets9 et". +ill 1o ,or+ar..
6oreover9 a polluter "an4t ,ile 3an)rupt"* an. then "ontinue to 3rea) pollution
la+s.
+o'estic support obligations ( are e&e'pte. ,ro' the auto'ati" sta*.
o 7e3tor is re>uire. to ,ile +ith the "ourt a list o, all "re.itors. /he "ler) o, the "ourt an.
the .e3tor are re>uire. to sen. noti"e to all "re.itors. /he .e3tor also has a noti"e to
an*one else that 'a* have an interest in the 3an)rupt"*. An"e the thir. part* re"eives
that noti"e9 the* are on notice. <, the* pro"ee. prior to 1ettin1 that noti"e9 it is voi. 3ut
the "re.itor is not hel. to 3e in "onte'pt ,or that. /he "re.itor "annot 3e san"tione.
unless the* ha. noti"e the 3an)rupt"* +as ,ile. an. the auto'ati" sta* +as in pla"e.
o D 3H> ( a "re.itor 'a* .esi1nate a parti"ular a..ress ,or all 3an)rupt"* noti"es to 3e sent.
/he .e3tor 'ust use this a..ress9 e&a"tl*. /here,ore9 ,ro' no+ on9 +hen *ou 1o into a
"re.it relationship9 *ou +ant to 'a)e sure *ou spe"i,* the lo"ation to sen. the noti"es in
the event o, 3an)rupt"*. <, the .e3tor sen.s to a .i,,erent a..ress9 it is not a,,e"te..
o ;o7 that co'pany is allo7e$ to go for7ar$ in co'petition 7ith other co'paniesE
Fhoul. the auto'ati" sta* 1ive a "o'petitive a.vanta1e to a "o'pan* that is in
3an)rupt"*. /here .e,initel* is an a.vanta1e9 3ut ho+ ,ar shoul. it 1o an. ho+ '
>I ..(.C. D *E* ( 8on1ress sai. *ou "an4t have a business advantae :ust 3*
,ilin1 3an)rupt"*. /he* 'ust 'ana1e the propert* or "o'pan* in a""or.an"e
+ith all appli"a3le la+s e.1. Dnite. still has to a3i.e 3* $AA re1ulations9
operations o, its ,a"ilities in 8hi"a1o9 et".!.
D *E*9a: - 7<P 'a* 3e sue. +ithout leave o, the 3an)rupt"* "ourt. /*pi"all*9
3an)rupt"* is han.le. in 3an)rupt"* "ourt +ithout :uries. 2o+ever9 J 959a! i,
a suit is 3rou1ht a1ainst the 7<P ,or ,ailin1 to .o so'ethin1 the* are suppose. to
.o9 At the ti'e o, the petition .ate9 there is an order for relief. 5hen a
3an)rupt"* "ase is ,ile.9 that 3rin1s all 3an)rupt"* 'atters in ,ront o, the :u.1e.
/hat "an 3e "han1e. i, the 7istri"t 8ourt +ith.ra+s the order of reference.
/here,ore9 i, there is a ri1ht to the :ur* trial9 it "an 3e +ith.ra+n.
# -roble' H.> p>)*
o A! J 3623!2!"! ( *ou "an "o'e a,ter the 'one* ,or .o'esti" support o3li1ations. /he
a"tions are =A/ sta*e..
o ;!
o 7! =LR; ( there is a .i,,eren"e 3et+een a 'onetar* :u.1'ent an. e#ecutin on a
'onetar* :u.1'ent.
o $! 8an the "it* ,or"e a .e3tor to 3rin1 an apart'ent into "o'plian"eE -es9 it is not a
'one* :u.1'ent an. the* are not tr*in1 to e&e"ute it. /he "it* "an en,or"e its "o.e
re1ulations. 2o+ever9 to "o'e in an. tear .o+n the 3uil.in1 is pro3a3l* 1oin1 too ,ar
3e"ause it is ta)in1 so'ethin1 a+a* ,ro' the state in violation o, J 341. J 959 prevents
Philip Larson Page 15
Intellectual Property: Class notes
3usinesses ,ro' 1ettin1 3usiness a.vanta1es 3* ,ilin1 3an)rupt"*. Dn.er J 3623!9 the
"it* has the ri1ht to en,or"e its "o.e re>uire'ents. 2o+ever9 the .e3tor pro3a3l* has a
ri1ht to prevent the' ,ro' .e'olishin1 the 3uil.in1.
o 2! an. <! ( )eep these in 'in. +hen +e 1et to 8hapter 99 +hether or not J 5463! an. e!
solve this pro3le'.
# -enn Terra Lt$. 2. +epart'ent of An2iron'ental %esources
o 1acts: +hen the %PA 3rin1s an a"tion ,or environ'ental violation9 a potentially
responsible party PRP! is so'eone +ho "oul. 3e responsi3le ,or the "lean#up in"lu.in1
an*one +ho o+ne. the propert* +hile the environ'ental pro3le' e&iste.!. ;an)s .on4t
li)e hol.in1 propert* 3e"ause the* "oul. 3e"o'e one o, those 141s. 0enerall*9 +hen
the* ,ore"lose on a propert* the* have an environ'ental assess'ent .one to ensure the*
+on4t have pro3le's.
o ,ssue: 8an Penn /erra en,or"e an or.er 1iven that it has to pa* so'e 'one*E
o 8nalysis: /he =L7%P relies on the /hir. 8ir"uitQs .e"ision in Penn /erra Lt.. v. 7ept. o,
%nviron'ental Resour"es9 733 $.2. 267 3. 8ir. 1984! RSS11T to ar1ue that the relie, it
see)s is in:un"tive in nature. <n Penn /erra9 the 7%R sou1ht to en,or"e an in:un"tion
or.er issue. 3* the 8o''on+ealth 8ourt re>uirin1 the .e3tor to ta)e "ertain "orre"tive
'easures at a 'ine it operate.. /he /hir. 8ir"uit "on"lu.e. that the 7%RQs a"tion +as
not an a"tion to en,or"e a 'one* :u.1'ent9 3ut rather an e>uita3le a"tion ai'e. at
preventin1 ,uture har'. <n rea"hin1 this .eter'ination9 2=50o to the .es"ription o, this
2ea.note.the /hir. 8ir"uit re"o1ni@e. that Uan RS343T i'portant ,a"tor in i.enti,*in1 a
pro"ee.in1 as one to en,or"e a 'one* :u.1'ent is +hether the re'e.* +oul.
"o'pensate ,or past +ron1,ul a"ts resultin1 in in:uries alrea.* su,,ere. or prote"t a1ainst
,uture har'.U <.. at 277.
o ;el$: %n,or"in1 that or.er is not the sa'e as en,or"in1 a 'one* :u.1'ent. /he* sai. the
a'ount Penn /erra +oul. have to pa* +as not "lear an. it +as not 1oin1 .ire"tl* ,ro'
one part* to another part*.
o %ule: 1! past/,uture har' .istin"tion9 2! it is not a 'one* :u.1'ent 3e"ause there is no
'one* involve'ent. 8o'pare +/ /!io v. 5ovacs.
# >))F ..(. +ist. LAK,(. 113HE ( 3/2006 # .e3tor .raine. 20 a"res o, lan.. /he* 1ot an or.er to
"reate 57 ne+ a"res o, +etlan.s9 provi.e ,or 'aintenan"e o, the +etlan.9 an. pa* a penalt* o,
?9). ;ase. on +hat +e rea. in Penn /erra9 .oes this 'a)e senseE
o 0A%,AW: /he =L7%P issue. the or.er a,ter ,in.in1 that the .e3tor ha. violate. the
$resh+ater 5etlan.s Prote"tion A"t $5PA!9 =.L. Ftat. Ann. JJ 13:9;#1 to ;#30. /he
.e3tor "hallen1e the or.erV the 'atter +as ,ile. as a "onteste. "ase. /he 3an)rupt"* "ourt
hel. that the .e3torQs o3li1ations un.er the $5PA +ere a 1eneral unse"ure. "lai' that
+as su3:e"t to its 8hapter 11 plan in:un"tion an. "on,ir'ation or.er. /he =L7%P
"onten.e. that it shoul. not have 3een or.ere. to .is'iss the a.'inistrative pro"ee.in1s
3e"ause the auto'ati" sta* e&e'ption set out in 11 D.F.8.F. J 3623!4! applie. to those
pro"ee.in1. <t also ar1ue. that the .e3torQs $5PA o3li1ations +ere not su3:e"t to the
3an)rupt"* "ourtQs or.ers. /he "ourt ,oun. no error. /he =L7%P "oul. not "lai'
prote"tion un.er J 3623!4! 3e"ause the auto'ati" sta* ha. ter'inate. on the planQs
e,,e"tive .ate. /he .e3torQs $5PA o3li1ations +ere a U"lai'U as .e,ine. in 11 D.F.8.F. J
1015!: 3e"ause .e3tor ha. "ease. operations9 the onl* +a* ,or the su""essor to "o'pl*
+ith the =L7%PQs or.er +as to ren.er a pa*'ent o, 'one*V the relie, sou1ht 3* the
=L7%P +as "o'pensator* in natureV an. no "ontinuin1 violation o, the $5PA +as
sho+n.
o 8nalysis: <n this "ase9 the =L7%P "on"e.e. at the 3an)rupt"* hearin1 that the
A.'inistrative Ar.er +as .ire"te. at past alle1e. violations o, the environ'ental la+s9
an. the =L7%P ,aile. to present an* evi.en"e o, "ontinuin1 .a'a1e. App. ;#174. As a
result9 the ;an)rupt"* 8ourt ,oun. that the A.'inistrative Ar.er an. the relate.
pro"ee.in1s 3* the =L7%P +ere .ire"te. at "o'pensation ,or past +ron1,ul a"ts.
;e"ause no "ontrar* evi.en"e +as presente. to the ;an)rupt"* 8ourt on this issue9 the
8ourt "annot "on"lu.e that the ;an)rupt"* 8ourtQs ,in.in1 o, no "ontinuin1 har' +as
"learl* erroneous.
Philip Larson Page 16
Intellectual Property: Class notes
o 0.TC0<A: /he "ourt a,,ir'e. the 3an)rupt"* "ourtQs or.er.
# (AC 2. Brennan
o 1acts: as.,
o ,ssue: Dn.er J 3629 "an the F%8 ta)e this a"tionE ho+ is this .i,,erent than Penn /erraE
/he F%8 has rules an. re1ulations an. an interest in en,or"in1 those rules.
o ;el$: the "ourt hel. that the F%8 +as tr*in1 to :u'p ahea. o, other "re.itors. 2o+ever9
the .issent sai. that the 'one* +oul. 1o into the 3an)rupt"* estate so this ar1u'ent
.oesn4t 'a)e a lot o, sense.
o Notes: 5hether the 3an)rupt"* "ourt or.ers the 'one* to 3e 3rou1ht in or the F%8 is
a3le to en,or"e its re1ulations9 there is 'ore 'one* ,or the estate. 2o+ever9 loo)in1 at it
,ro' the .e3tor4s perspe"tive9 is this propert* o, the estateE <t is a trust. <t reverts 3a")
to hi' in 10 *ears
Young: thin)s this is a J541 issue a3out +hether the propert* shoul. 3e 3rou1ht
3a") into the estate. -oun1 a1rees +ith the .issent. Ane o, the .istin"tions is
that this is a >uestion o, +hat is the propert* o, the state.
# (u''aryC 7hat are the e6ceptions to the auto'atic stay?
o
# 1or$ ;ypo: shoul$ 1or$ go into bankruptcy
o D 3F3 ( +hat "oul. $or. .o +ith the propert* it o+nsE
o D 3FE
*@>)@)F
# Ticket Night
# Clai's: i, *ou have a "lai' in the 3an)rupt"* estate 'eans *ou have a ti")et to parti"ipate in the
3an)rupt"* pro"ee.in1s.
# D 1)19E: ( +efinition of a Clai' ( it is a Bri1ht to pa*'entC or9 alternativel*9 Ba ri1ht to e>uita3le
re'e.* ,or a 3rea"h9 i, that 3rea"h results in an e>uita3le "lai'C. <t is )e* that 3oth re>uire there
3e a ri!t of payment. 5hat .oes this 'eanE J 1015! 1ives a 3un"h o, para'eters aroun. this.
<t "an in"lu.e "lai's that
o Not %e$uce$ to Ju$g'ent
o Li#ui$ate$ or unli#ui$ate$
o 1i6e$ or contingent
o +ispute$ or .n$ispute$
o (ecure$ or .nsecure$
# +ischarge: 8lai's that are not pai. at the en. o, the estate +ill 3e .is"har1e.. /his 'eans that
*ou "an4t "o'e a,ter the'.
o 7is"har1e in 8hapter 7: J 727
o 7is"har1e in 8hapter 11: J 1141.!
# What happens if you $on/t ha2e a clai' 9e.g. you $on/t ha2e a ticket to the bankruptcy:? <,
the "lai' arises prepetition9 it is a "lai' ri1ht +hen the 3an)rupt"* is ,ile.. A "lai' that arises
a,ter the P7 is =A/ part o, the 3an)rupt"* estate. 2o+ .o *ou )no+ i, the "lai' arose pre#
petition or post#petitionE
o ;Y-0: $a"ts: A loans ; ?100. ; sa*s he4ll pa* it 3a") in a *ear. Fa* 8 1uarantees the
loan. <n state la+9 A .oes not have a "lai' a1ainst ; until he 3rea"hes. 5hat i,9 instea.
o, 3rea"hin19 he 1oes into 3an)rupt"*. J 1015! sa*s B'ature.C or Bun'ature.C .e3t.
/here,ore9 in 3an)rupt"*9 *ou have a "lai' even ,or un'ature. .e3ts. /here,ore9 even
thou1h there is no state la+ "lai'9 there is a "lai' in 3an)rupt"*.
+o you ha2e a clai' against C as soon as B goes into bankruptcy? =o. -ou
"an4t .ra1 thir. parties.
Contingent clai's: +e 'a* have a "lai' that is contingent. 5h* .o +e "are
a3out +hether it is "ontin1ent or notE 8 +ants a ti")et to the 3an)rupt"* 3e"ause
he 'a* have to pa* the loan he 1uarantee.. /hen9 *ou 1et to parti"ipate in
votin1 plans9 et".
# =ra$y 2. 8.;. %obins Co.
Philip Larson Page 17
Intellectual Property: Class notes
o ,ssue: 7oes 6rs. 0ra.* have a "lai'E
o 8nalysis: un.er 8A state la+9 she +oul.n4t have ha. a "lai' until she ha. 1one to the
.o"tor4s o,,i"e.
o %ule: Contact Test ( i, the "lai'ant re1ar.less o, +here the* are in the ti'eline! ha.
"onta"t +ith the .e3tor pre#petition an. that "onta"t resulte. in the "lai' e.1. tort
.a'a1es!9 then that person has a claim un.er ban-ruptcy la(9 re1ar.less o, state la+.
o ;el$: /here is no ri1ht to i''e.iate pa*'ent o, 'one* on a""ount o, a "lai'9 the
e&isten"e o, +hi"h .epen.s upon a ,uture un"ertain event.
# Apstein 2. The 0fficial Co''ittee of .nsecure$ Cre$itors 9,n re -iper 8ircraft Corp.:
o %ule: -iper Test 9e.g. 4%elationship Test5: ( in a..ition to sho+in1 BContactC9 there
has to 3e so'e 4elations!ip to the .e3tor. An in.ivi.ual has a J 1015! "lai' i, 1!
events o""urrin1 3e,ore "on,ir'ation "reate a relationship9 su"h as "onta"t9 e&posure9
i'pa"t9 or privit*9 3et+een the "lai'ant an. the .e3tor4s pro.u"tV an. 2! the 3asis ,or
lia3ilit* is the .e3tor4s prepetition "on.u"t in .esi1nin19 'anu,a"turin1 an. sellin1
.e,e"tive or .an1erous pro.u"ts.
o 1acts: Piper +as 1oin1 to 1o a+a*. <t +as 1oin1 to "ease to e&ist.
# <, *ou .on4t 1et noti"e an. *ou .on4t )no+ *ou have a "lai' until a,ter the petition .ate e.1.
un3orn "hil.!9 it is un,air to .is"har1e their "lai's in 3an)rupt"*. /his is the .ue pro"ess issue in
C!emetron on pa1e 238.
# 0hio 2. Bo2acs
o 1acts: 6r. Kova"s violate. all )in.s o, environ'ental la+s9 the state +ent a,ter hi'. 2e
entere. a settle'ent sa*in1 he +oul.n4t loot an. that he +oul. "lean up the site. /he*
.i.n4t .o it an. then the state "a'e a,ter hi' a1ain an. appointe. a receiver. Kova"s
,iles ,or 3an)rupt"*. 8an he .is"har1e his o3li1ations un.er the in"unctionE <s the
in:un"tion a claim in the 3an)rupt"*E
o ,ssue: <s an in:un"tion a "lai' o, the 3an)rupt"*E -es9 his o3li1ation to "lean up "oul. 3e
turne. into a 'one* :u.1'ent.
What is a recei2er? Re"eiver an. re"eivership is a state la+ pro"ess ( a
re"eiver is +here the "re.itor usuall* se"ure.! 1oes to state "ourt an. sa*s the
.e3tor is not pa*in1 their .e3ts as the* "o'e .ue. /he 3an) 1oes to the state
"ourt sa*in1 he +ants a re"eiver appointe. to either operate the propert* or
li>ui.ate it ,or the 3ene,it o, the se"ure. "re.itor. /he re"eiver 1oes in9 an. 'a*
even ta)e over operation o, the 3usiness. <, there is no 1oin1 "on"ern value9 the
re"eiver +ill li>ui.ate an. pa* ,irst the "re.itor +ho 3rou1ht the a"tion.
o 8rgu'ent:
Ftate: state sai. an in:un"tion re>uire. Kova"s to .o or not .o so'ethin1. /his
isn4t a Bri1ht o, pa*'entC this is si'pl* an o3li1ation to .o so'ethin1.
/here,ore9 the state .i. not +ant this to 3e a "lai' 3e"ause the* .i.n4t +ant it to
3e .is"har1e. 3* 3an)rupt"*. Kova"s +ante. it to 3e "onsi.ere. a "lai' so that
he +oul. have no o3li1ation to pa* a,ter .is"har1e.
Chapter F: (ecure$ Clai's
# Fe"urit* <nterest N Atta"h'ent W Per,e"tion.
# A1ree'ent to loan atta"h'ent! is not enou1h. -ou nee. per,e"tion 3* provi.in1 noti"e to the
+orl. that *ou have a se"urit* a1ree'ent +ith the .e3tor.
# Arti"le 9 o, the D88: .eals +ith se"urit* interests in personal propert*.
# <n or.er to un.erstan. a se"ure. "lai' in 3an)rupt*9 *ou have to .eter'ine i, there is a vali. lien
hel. 3* the "re.itor. /here,ore9 *ou have to loo) ,or atta"h'ent an. per,e"tion. /his is i'portant
3e"ause se"ure. "re.itors 1et pai. ,irst. Lust 3e"ause there is a "ontra"t 3et+een the len.er an. the
3orro+er sa*in1 that the len.er is se"ure. atta"h'ent!9 this is not enou1h. -ou have to noti,* the
+orl. throu1h either possession9 "ontrol or a ,inan"in1 state'ent.
o /rustees "an tr* to .e,eat liens: one +a* o, .e,eatin1 a lien is tr*in1 to prove that
atta"h'ent or per,e"tion +ere invali..
# Fo'e steps:
o 1! 0et the "ourt to allo+ the "lai'.
Philip Larson Page 18
Intellectual Property: Class notes
o 2! 7eter'ine +hat the "lai' hol.er is entitle. to re"eive. /his .epen.s on +hether the
"re.itor is oversecured or undersecured. 5hat happens +hen *ou are un.erse"ure.E J
506a! ( se"ure. "re.itor is entitle. to the part o, the "ollateral the* have interest in. <,
the value o, the "ollateral is less than the value o, the loan9 *ou have a bifurcated claim
3rea) it in t+o!. /he value o, the "ollateral is the se"ure. "lai' an. the 3alan"e o, the
loan 3e"o'es an unse"ure. "lai'.
o 3! 5hen the 3an)rupt"* is ,ile.9 +hat "an the se"ure. "re.itor .o a3out its "lai'.
1! 8re.itor "an as) to have the auto'ati" sta* li,te. # J 362 ( auto'ati" sta*
sa*s that a se"ure. "re.itor "an4t reall* .o an*thin1. J 362.! ( not+ithstan.in1
the auto'ati" sta*9 the "re.itor "an as) the :u.1e to li,t the sta* an. let the'
pro"ee. +ith state la+ re'e.ies a1ainst the .e3tor. $or J 362.!9 *ou nee. to
!ave cause or 3e a3le to sho+ that the .e3tor doesn,t need t!e property to
reorani6e in C!apter $ or 17.
2! /rustee or 7<; "an "hoose to abandon the propert* an. 1ive it 3a") to the
.e3tor. 2ere9 the "re.itor "an then pursue state la+ re'e.ies a1ainst the .e3tor
su"h as ,ore"losure9 et". 6oreover9 instea. o, ,ore"losure9 et". the .e3tor "an
.e"i.e it is not +orth ,i1htin1 an. si'pl* surrender the propert* to the "re.itor.
3! /he trustee "an .e"i.e to sell t!e property or collateral. /his o,ten happens
in 8hapter 79 3ut also "an in 8hapter 11 too.
4! Re.e'ption ( .e3tor sa*s B< +ant to )eep this propert* 3e"ause < nee. itC so
<4' :ust 1oin1 to pa* *ou o,,. 5hatever is o+e. on the propert*9 <4' :ust 1oin1
to pa* *ou. -ou +ill so'eti'es see re.e'ption in 8hapter 7 an. the .e3tor
+on4t 3e in a position to pa* the ,ull a'ount. J722
5! Rea,,ir'ation ( .e3tor an. "re.itor sit .o+n an. sa* the* +ant to "ontinue
the relationship. 8re.itor lets the .e3tor )eep the "ollateral assu'in1 the* still
'a)e so'e pa*'ents9 et". /he* rea,,ir' their relationship in a ne+ "ontra"t.
=ote: /he .e3tor "an reall* 1et s"re+e. in these throu1h lar1er interest rates9
,ees9 et".
# p297 Pro3le' 6.3
o ;Y-0: .e3tor in 3an)rupt"* has a "ar she o+es ?8) on that is +orth ?10). e.1. there is
an ?8) lien on the "ar that passes throu1h the 3an)rupt"*!. Fhe ,iles a state'ent o,
intention un.er J 521a!2!A! sa*in1 that she +ants to )eep the "ar an. +ill re'ain
"urrent on her pa*'ents to the 8re.itor. /he 7e3tor .oes not state an intention to either
re.ee' the "ar or rea,,ir' the .e3t to 8re.itor. A6e'ptions (i$enote: 7e3tors "an
e&e'pt so'e thin1s ,ro' the 3an)rupt"* estate. /his in"lu.es the "ar. /he "ar "an 3e the
.e3tor4s propert*9 not the estate4s propert*. /he auto'ati" sta* prote"ts the .e3tor4s
propert*9 the estates propert*9 et". 7e3tor ,ile. state'ent o, intention un.er J 521a!2!
A! to retain the "ar an. re'ain "urrent on her pa*'ents to 8re.itor.
o Can she keep her car? D E>19a:9>:98: ( 7e3tor 'ust provi.e a state'ent o, intent
re1ar.in1 an*thin1 the* +ant to re.ee' or rea,,ir'. J 521a! sa*s *ou have to re$ee' or
reaffir'. /he .e3tor 'a.e a 'ista)e 3* "hoosin1 not to re.ee' an. not to rea,,ir'.
# D !>> " %e$e'ption - .e3tor 'ust pa* the ,ull value o, the "re.itors lien at the ti'e o,
re.e'ption. 2o+ "an a 8hapter 7 .e3tor .o thatE 6ost o, the ti'e this .oesn4t happen.
2o+ever9 there has .evelope. an in.ustr* o, len.ers +ho +ill loan to people in 3an)rupt"* to
per,or' a re.e'ption. /he* +ill "har1e a ris) 3ase. interest rate.
# D E>H " %eaffir'ation " .e3tor )eeps the "ollateral9 3ut "re.itor 'ust assent to the rea,,ir'ation
an. it 'ust 3e approve. 3* the 3an)rupt"* :u.1e. 8ourt +ants to 'a)e sure the .e3tor is
in,or'e. o, +hat its options are. /he "re.itor has a ri1ht to re,use. /he +a* the "o.e is "urrentl*
+ritten9 this is a loophole. <, the "re.itor re,uses to "onsent to rea,,ir'ation even o, the e&a"t
sa'e "ontra"t!9 there "urrentl* is no re'e.*.
# D E>19a:9>: " Reinstate'ent .oes not +or) ( *ou 'ust provi.e an intention to either re.ee' or
rea,,ir'.
# =ote: -oun14s re"o''en.ation to .e3tor4s "ounsel is to 1et a rea,,ir'ation o, the ori1inal
"ontra"t.
Philip Larson Page 19
Intellectual Property: Class notes
# Non-recourse loan: ta)in1 a se"urit* interest in the loan +here the onl* re"ourse is the value o,
the "ollateral. /he 3an) a1rees to loan the 'one* an. is se"ure. 3* "ollateral 3ut the pro'issor*
note sa*s that the 3orro+er +ill never 3e as)e. to pa* a .e,i"ien"* i, the "ollateral is +orth less
than the loan. ;an)s +ill .o this +hen the* thin) that the value o, the "ollateral +ill in"rease over
ti'e.
o Bankruptcy: J 1022! a "lai' a1ainst a .e3tor is a "lai' a1ainst the proepr*t o, the
.e3tor. J 5023!1! ( tal)s a3out non#re"ourse loans. i, the a1ree'ent sa*s it is non#
re"ourse9 then *ou "an4t en,or"e the "lai' a1ainst the .e3tor in 3an)rupt"* "ourt. /his
1ives stren1th to the non#re"ourse loan.
# D E)F9a:91: ( Rash9 +as a Fupre'e 8ourt "ase sa*in1 that J 506a!1! re>uires appli"ation o, the
repla"e'ent#value stan.ar..C /he "ourt sai. the .e3tor ha. to pa* the "re.itor the repla"e'ent
value o, the "ollateral. 8on1ress .i.n4t li)e Rash9 an. "han1e. it in J 506a!2!. <t sa*s that
replate'ent value is the appropriate stan.ar. 3ut "osts o, sale or 'ar)etin1 are not to 3e .e.u"te..
Also9 i, the propert* is BpersonalC or ,or Bhousehol. purposesC9 the repla"e'ent value is +hat a
'er"han1e +oul. "har1e ,or so'ethin1 si'ilar in a1e an. "on.ition.Cthe value o, the tru") +as
the retail value. , $on/t un$erstan$ this 9p>**-3)):.
# Fe"ure. "re.itor ( is entitle. to interest as it +aits to 1et pai. .urin1 the 3an)rupt"* pro"ee.in1s.
As lon1 as the se"ure. "re.itor is overse"ure.9 it is a3le to 1et pai. on this 3ase. on +hatever the
"ontra"t "alls ,or. ;an)rupt"* "ourts .o =A/ allo+ default rates o, interest 3/" the .e3tor has
.e,aulte.! or penalties. 8ontra"t rates o, interest are o)a*9 3ut .on4t "all the' .e,ault or penalt*
rates.
# Till 2. (C( Cre$it Corp.
o ,ssue: 7hat type of interest rate shoul$ be use$ in bankruptcy?
o Types of %ates
1or'ula %ate ( pri'e rate o, interest is a pu3lishe. interest a'ount. -ou "an
.e,ine that *ou +ill ,ollo+ the pri'e rate W so'ethin1 to a""ount ,or the
a..itional ris).
-resu'pti2e Contract %ate " this assu'es the "ontra"t rate pre#petition is still
o)a*. /he pro3le' +ith this is that *ou aren4t loo)in1 at the situation o, the
.e3tor in 3an)rupt"*. -ou are loo)in1 at the relationship pre#3an)rupt"* +hi"h
'i1ht not 3e relevant.
Cost of 1un$s %ate " 3an)s 3orro+ 'one* ,ro' other 3an)s to have 'one* on
han. to loan to 3orro+ers o, the 3an). Ather "re.itors .o the sa'e thin1. /he*
+ill ta)e ,un.s so that the* "an loan to the 3u*er o, the "ar. /he pro3le' the
"ourt has +ith this is that *ou aren4t loo)in1 at the .e3tor to .eter'ine the "ost
o, ,un.s9 *ou are loo)in1 at +hat it "osts the "re.itor to loan this 'one*. /his is
,or"in1 the 3an)rupt"* "ourt to loo) at the "re.itor4s situation rather than the
3an)rupt"*4s rate.
N0TA: Fupre'e 8ourt "a'e out 4#1#4 ,or these .i,,erent t*pes o, rates. /he
onl* reason there +as a 'a:orit* is that one :u.1e a1ree. in the :u.1'ent9 3ut
not the reasonin1.
o ;el$: $or'ula rate is +hat *ou shoul. 3e usin1 in 3an)rupt"*9 3e"ause o, the 4W1
'a:orit*.
=ote: 80G o, 8hapter 114s ,ail an. 60G o, 8hapter 134s ,ail. -ou "an 'a)e a prett* 1oo. "ase that
3an)rupt"* .oesn4t +or).
10/4/06
# t+o pra"ti"al thin1s *ou .on4t usuall* learn in la+s"hool.
# 1! /here is ele"troni" "ase ,ilin1s %8$s!. -ou ,ile this stu,, online.
# Dn.erse"ure. "re.itor
# J 506a! sa*s un.erse"ure. "re.itors 1et bifurcated claim.
o 7e3tor 1oes into 8hapter 13 an. then crams do(n on the un.erse"ure. "re.itor to pa*
the se"ure. a'ount9 in"lu.in1 'ar)et interest on the present value o, the "lai'. Fe"on.
Philip Larson Page 20
Intellectual Property: Class notes
part o, the "lai' sa*s the 3an)rupt"* "re.itor "an 1et pai. on the unse"ure. portion ,or
the .e,i"ien"*.
o J 11253!5!
o J 11223!2!
o Strip do(n ( "re.itor 1ets strippe. .o+n to the value o, the "ollateral an. .
o 7e3tor "annot strip .o+n a ho'e 'ort1a1e. /here is a .i,,eren"e 3et+een allo+e.
"lai's an. allo+e. se"ure. "lai's.
o J 1123 an. J 1322 sa* that i, it is a ho'e 'ort1a1e9 the .e3tor 'ust pa* the ,ull a'ount.
<t also prevents the strip .o+n o, a P6F<.
o P6F< re>uires
1! loan 3* "re.itor ,or a specific purc!ase e.1. 3u*in1 a "ar!
# J 722 Re.e'ption
o P315 Pro3le' 6.4 # 5hat +oul. the .e3tor have to re.ee'E /he* +oul. have to re.ee'
the repla"e'ent value un.er J 506a!2!.
o J 722
o A! /his is "overe. un.er J 506a!2!. J 506a!2! ( the retail "ost 1iven the a1e an.
"on.ition. Fellin1 "osts are not .e.u"te..
5hat a3out the sellin1 "ostsE =ot .e.u"te.. 5hat a3out the +arrant*E Pro3a3l*
not. /he A'en.'ent is a little un"lear.
o ;! 5hat i, the 7e3tor ,iles 8hapter 13E /o "on,ir' a plan over 8re.itor4s o3:e"tion9
+hat prin"ipal a'ount 'ust the 7e3tor4s plan propose to pa* 8re.itor on a""ount o,
8re.itor4s se"ure. "lai'E /he ?18). /he value o, the se"ure. "lai'. =ot the value o,
the "ollateral. 5hat is the e,,e"t o, J 5063!E
J 1325a!
# +e7snup 2. Ti''
o (upre'e Court sai. *ou "an4t al+a*s use the strip .o+nP
o ,ssue: 8on"erns J 506.!. 6a* a .e3tor Bstrip .o+nC a "re.itor4s lien on real propert* to
the value o, the "ollateral9 as :u.i"iall* .eter'ine.9 +hen that value is less than the
a'ount o, the "lai' se"ure. 3* the lienE
o ;el$: as
o Note: +hat is the pra"ti"al result the F8 is tr*in1 to 1et to hereE
1oreclosure: 8lient 3u*s house. 6ar)et value o, real estate 1oes .o+n. /here
is a .e,ault on the 'ort1a1e 3ut the propert* is +orth less than +hat is o+e. to
the 3an). /he 3an) then ,ore"loses. $ore"losure 'eans the 3an) hol.in1 the
.ee. o, trust puts it up ,or sale. <t is au"tione. o,,. <, no one sho+s up9 the 3an)
+ill 3i. in +hatever it +ants an. ta)e the propert*.
Muestion:
8ien is supposed to pass t!rou! ban-ruptcy. <, the "ollateral appre"iates9 +ho
shoul. 1et the 3ene,it. 5ell9 i, the lien passes throu1h9 the se"ure. "re.itor
shoul. 1et the value. <n those situations +here *ou have propert* that
appre"iates9 *ou shoul.n4t strip .o+n the lien. /he se"ure. "re.itor is the one
+ho shoul. 1et the 3ene,it o, the value. /his is the state'ent in Dewsnup.
9uestion: "oul. 6rs. 7e+snup9 un.er J 7229 . J 722 onl* .eals +ith
in.ivi.uals +ith personal propert*. /he ,ar' is not personal propert*.
/here,ore9 she "an4t use J722 to re.ee' the propert* an. sell it.
# ;artfor$ .n$er7riters ,nsurance Co. 2. .nion -lanters BankC N.8.
o D E)F9c: -
1! Fe"ure. "lai's 1et pai. out on the ,ull value o, their "ollateral.
2! Dnse"ure. "lai's 1et pai. ne&t
a. Priorit* "lai's J 507!
i. A.'inistrative "lai's J 503!
3. 0eneral Dnse"ure. 8lai's
3! %>uit* 8lai's.
Philip Larson Page 21
Intellectual Property: Class notes
6<FF%7 A 5%%K A$ 8LAFF
10/23/06
# 8ssu'ption
o Pri'ar* e,,e"t o, assu'ption is that the 3an)rupt"* estate 3e"o'es part* to the e&e"utor*
K. /he .et3or4s 3an)rupt"* estate .oes not auto'ati"all* 3e"o'e a part* to an e&e"utor*
K o, the .e3tor. A,ter assu'ption9 the estate is su3stitute. ,or an. ta)es the .e3tor4s
pla"e un.er the K. /+o results ,ollo+:
1! the estate is entitle. to o3tain the 3ene,it o, the other part*4s per,or'an"e
un.er the K.
2! the estate pro'ises to per,or' in ,ull all o, the .e3tor4s o3li1ations un.er the
K. /his pro'ise to per,or' re>uires the estate to cure an* e&istin1 .e,aults
un.er the K an. provi.e ade:uate assurance o, a pro'pt "ure. J 3653!1!A!.
/his +ill have the e,,e"t o, pre,errin1 the non#.e3tor part*4s unpai. prepetition
"lai' over other unse"ure. "re.itors.
# Ti'eline
o Trustee 'ust 'a)e a .e"ision +hether to assu'e the K or lease.
o
o F) $ays: loo) at J 365.!1! an. J 365.!5!.
o 1>) $ays: loo) at J 365.!4!
o >1) $ays: e&tension allo+an"e un.er J 365.!4!
o -lan Confir'ation: loo) at J 365.!2! an. J 365.!3!.
o
o D 3FE9$:91: " 8ssu'ption G %eJection " ,or an in.ivi.ual in 8hapter 79 a trustee has 60
.a*s to .e"i.e +hether to assu'e or re:e"t an une&pire. lease o, resi.ential real propert*
or o, personal propert*. /he* "an as) ,or an e&tension. <, the trustee ,ails to a"t9 the K or
lease is deemed re"ected.
o Why 7oul$ the trustee choose to assu'e? /here 'a* 3e so'e value in the lease an.
*ou 'a* 3e a3le to 1et it out 3* sellin1 assi1nin1! the lease to so'eone else.
o D 3FE9$:9>: " 8ssu'ption G %eJection Ch 11 an$ 13 " ,or 8hapter 11 an. 139 ,or
residential real propert* or o, personal property at an* ti'e 3e,ore the "on,ir'ation o,
the plan.
/his provi.es a prote"tion to the in.ivi.ual that the* +ill not 3e )i")e. out o,
their house in 60 .a*s 3/, 'a)in1 the .e"ision +hether to assu'e or re:e"t. -ou
"an +ait the a'ount o, ti'e until the "on,ir'ation o, *our reor1 plan.
o D 3FE9$:93: " 8ssu'ption G %eJection " sa*s the trustee or 7<P! 'ust per,or' all
o3li1ations in a ti'el* 'anner until there is a .e"ision to assu'e or re:e"t an* une&pire.
lease o, nonresi.ential real propert*. /he "ourt 'a* e&ten. the ti'e ,or per,or'an"e o,
an* o3li1ation arisin1 +/< 60 .a*s9 3ut the ti'e ,or per,or'an"e shall not 3e e&ten.e.
3e*on. the 60#.a* perio..
o D 3FE9$:9H: " Non-resi$ential real property " instea. o, 60 .a*s9 *ou 1et 120 .a*s.
A,ter one e&tension o, 90 .a*s9 the .e3tor "an4t have an* 'ore e&tensions +ithout the
lan.lor.4s approval. /his 3asi"all* 'eans *ou have 7 'onths to put a plan to1ether. /he
lan.lor. +ants to )no+ 3/" he4ll onl* 1et pai. pro3a3l* ?.1 on the ?1.
o D 3FE9$:9E: - - co''ercial personal property leases ( .e3tor 1ets a 60 .a* ,ree
+in.o+ on .e"i.in1 +hi"h "o''er"ial leases it +ants to assu'e an. +hi"h to re:e"t. <,
it .e"i.es to re:e"t9 it still has to pa* an a.'inistrative "lai' ,or the a'ount o, ti'e it
)ept the propert*9 3ut it .oesn4t have to pa* it until plan "on,ir'ation. /rustee shall
timely perform all o, the o3li1ations o, the .e3tor ,irst arisin1 ,ro' or a,ter 60 .a*s a,ter
the or.er ,or relie, in a "ase o, 8hapter 11 o, this title un.er an une&pire. lease o,
personal propert*
# %eJection " re:e"tion is a .e"ision not to assume. /he trustee "an either re:e"t a K or assu'e a K.
/he trustee is not a part* to the K until the trustee 'a)es the .e"ision to assu'e. <, the trustee
re:e"ts9 it .e"i.es it +ill not 3e a part* to this K an. there,ore is not lia3le to per,or' un.er the K.
Philip Larson Page 22
Intellectual Property: Class notes
As soon as the trustee re:e"ts9 the estate has no ri1ht to the 3ene,its o, the K. Re:e"tion 3* the
trustee is treate. as a breac! of 5 at the ti'e i''e.iatel* prior to the ,ilin1 o, the 3an)rupt"*
petition. <s this an e&e"utor* K that "o'es un.er J 365E <s there still per,or'an"e re>uire. un.er
the KE /here,ore9 this is not an e#ecutory 5 3/" there is no re>uire. per,or'an"e on 3oth si.es.
An e&e"utor* "ontra"t is one in +hi"h so'ethin1 re'ains to 3e .one 3* one or 'ore o, the parties.
o Therefore: D E)1C D E)> clai' process ( these are not e&e"utor* K4s. these are J 5019 J
502 "lai's.
o What are $a'ages if you breach a B? 7a'a1es are the e&pe"tation value
# ,n %e Anron Corp.
o 1acts: K ha. a set pri"e on ele"tri"it*. %nron .e"i.es to re:e"t the K. 6uni"ipalit*
+ante. .a'a1es to 3e ,ro' +hen the K +as re:e"te.. %nron +ante. the .a'a1es
"al"ulate. ,ro' the .a* the* +ent into 3an)rupt"*. <, the .a'a1es +ere "al"ulate. prior
to 3an)rupt"*9 there are @ero .a'a1es. <, the* are "al"ulate. ,ro' +hen the K +as
re:e"te.9 the utilit* eats ?66.
o %ule: D 3FE9g: " i, there is a re:e"tion9 *ou 1o 3a") to the .a* 3e,ore the petition is ,ile.
to "al"ulate .a'a1es.
o <oral of Case: .on4t ever trust the .e3tor. -ou have to loo) at the situation in the "ase
,or *our "lient. -ou have to ,i1ure out i, the* are prote"te. un.er the K. -ou have to see
+hether *ou are lia3le un.er .i,,erent "ir"u'stan"es. 7o *ou nee. to 1o in +ith a
motion to compel the .e3tor to 'a)e a .e"ision. <, *ou +in9 then the .e3tor has to 'a)e
a .e"ision ri1ht then an. there.
o =ote: Dtilit* is pa*in1 'ore un.er the K than it +oul. have ha. to even thou1h %nron
+as in 3an)rupt"*. 5oul. it 3e ,air to sa* it +as +hen the .a* the 3an)rupt"* +as ,ile.E
8ourt sai. there is no real 1ap in the la+. 8on1ress inten.e. ,or the non.e3tor to 3e
3oun. 3* the o3li1ation.
Burger Bing Corp. 2. %o2ine Corp.
# 1acts: K has a "lause not to "o'pete in it. An"e .eter'ine. that the K +as an e&e"utor* K9 *ou
ha. to "hoose to assu'e or re:e"t the +hole K.
# ;el$: *ou "an4t pi") an. "hoose the portions o, the K *ou +ant to assu'e or re:e"t. -ou 'ust
assu'e or re:e"t the +hole K.
# ;el$: 8o.e e&"lu.es an e>uita3le re'e.* ,or 3rea"h o, per,or'an"e. <t onl* allo+s 'onetar*
.a'a1es. /here,ore9 it "oul. not en,or"e the "ovenant not to "o'pete.
# Note: <s this an e&e"utor* KE A lot o, ,ran"hise a1ree'ents are nothin1 'ore than 1rantin1 the
ri1ht to the ,ran"hisee the ri1ht to use tra.e'ar)s9 1oo.+ill9 et". Perhaps at the ,ront there is a
re>uire'ent the store 3e set up in a "ertain +a*. /here 'a* 3e trainin1 re>uire'ents. A lot o,
ti'es the ,ran"hisor has nothin1 le,t to .o 3ut 'onitor an. "olle"t ro*alties. 2ere9 it .i. have
o3li1ations. <t ha. to .o a.vertisin19 "ontinual trainin19 et".
o J 101 ( 8lai's ( a "lai' is a ri1ht to a pa*'ent or to per,or'an"e o, an e>uita3le ri1ht.
8an ever* e>uita3le re'e.* 3e re.u"e. to "ashE e.1. an in:un"tion sa*in1 *ou "an4t
"o'e +ithin 100 *ar.s o, 'e!. =o.
o 8riti"is' o, this opinion: the "ourt sa*s that ;ur1er Kin1 "oul. 3e "o'pensate. ,or non#
"o'pete provisions. 2o+ever9 state la+ sai. that en,or"e'ent o, non#"o'pete
provisions "oul. not 3e "o'pensate. +ith 'one* an. there,ore .on4t ,all un.er the
.e,inition o, "lai'. /here,ore9 the* "an 3e separate. out ,ro' the K even thou1h the rest
o, the K is re:e"te..
Lubri&ol AnterprisesC ,n2. 2. %ich'on$ <etal 1inishersC ,nc.
# $a"ts: this +as a patent li"ense "ase. /he .e3tor is the li"ensor o, a valua3le patent the li"ensee
nee.s to operate his 3usiness. Li"ensor 1oes 3an)rupt9 +ants to re:e"t the li"ense to li"ensee9 an.
then sell the li"ense to so'eone else or sell the patent. /here,ore9 the li"ensor re:e"ts the li"ense.
/he ;an)rupt"* 8ourt sai. that rea.in1 J 3659 the ;an)rupt"* 8o.e sa*s *ou "an re:e"t e&e"utor*
K4s an. a patent li"ense is an e&e"utor* K.
# 2el.:
Philip Larson Page 23
Intellectual Property: Class notes
# =ote: 8on1ress has solve. this +ith e&"eptions to J 365. <n situations +here there is a propert*
ri1ht9 8on1ress has e&"eptions that sa* the .e3tor "an4t prevent the non.e3tor ,ro' en:o*in1 their
propert* ri1ht.
o J 365n! ( i, a li"ensor re:e"ts the K in 3an)rupt"*9 the li"ensee "an a""ept the re:e"tion
an. ta)e .a'a1es or the* have a ri1ht to en:o* the li"ense ,or +hatever ter' is spelle.
out in the ter's o, the K. /he .e3tor .oesn4t have to per,or' un.er the K9 3ut the
li"ensee "an still use the li"ense.
10/25/06
AKAC.T0%Y C0NT%8CT(
# a trustee or 7<; "an assu'e or re:e"t a K. An"e assu'e.9 he "an then assi1n it to a thir. part*.
/hat is +hat J 365 is all a3out. /oni1ht +e are tal)in1 a3out so'e o, the e&"eptions
1e$eral %ealty ,n2est'ent Trust 2. -ark
# 1acts: Holuntar* 8hapter 11 petition 3* an in.ivi.ual. Dne&pire. lease that +oul. run ,or 5 'ore
*ears. /rustee .i. nothin1 +ith it an. there,ore it +as re:e"te.. 2o+ever9 .e3tor "ontinue. to pa*.
# ,ssue: +as it ter'inate. auto'ati"all* or "an the .e3tor "ontinue to pa* it an. )eep it in pla"eE
5as pa*in1 the 3ills 3asi"all* Brea,,ir'in1C the K i, it +as re:e"te.E
o ,((.A: Bthe sole .ispute. issue is +hether the re:e"tion o, the lease that o""urre. +hen
the trustee ,aile. to assu'e or re:e"t it +ithin the statutor* perio. ter'inate. the .e3tors4
ri1hts un.er the lease.C
# ;el$: K +as not ter'inate. :ust 3e"ause the trustee e,,e"tivel* re:e"te. it.
# %ule: /he 1eneral rule is that re:e"tion "onstitutes a 3rea"h o, a lease or e&e"utor* K9 3ut .oes not
ter'inate the K.
# %ule: p403 B3e"ause re:e"tion .oes not e,,e"t a ter'ination o, the lease9 'ost "ourts that have
"onsi.ere. the issue have hel. the re:e"tion to have the e,,e"t o, a3an.onin1 the lease 3a") to the
.e3tor. 99G o, the ti'e the propert* 1oes 3a") to the lan.lor. 3e"ause a "orporation in 8hapter 7
is 1oin1 to 3e )ille. o,,. $or an in.ivi.ual9 "han"es are that +hatever the trustee is re:e"tin19 the
in.ivi.ual +on4t 3e a3le to .o an*thin1 +ith an*+a*. 8ourt sai. it 'a)es 'ore sense to sa* that
re:e"tion .oesn4t ter'inate +hatever is le,t on the lease 1oes 3a") to the .e3tor. <, the .e3tor
"an 'aintain the pa*'ents9 he "an )eep the propert*. 8on1ress loo)e. at this in the A'en.'ents
last *ear an. "leane. it up.
o D 3FE9p:91: ( on the trustees re:e"tion or ,ailure to ti'el* assu'e. 3* the trustee9 the
lease. propert* is no lon1er propert* o, the estate an. the sta* un.er J 362a! is
auto'ati"all* ter'inate..
o D 3FE9p:9>:
o With a Chapter ! in$i2i$ualC if the trustee reJects there is re2ersion back to the
$ebtor an$ there is an opportunity un$er ;ederal 4ealty *nvestment 0rust v. 1ar- for
the $ebtor to continue 'aking pay'ents.
# Note: ,uture in"o'e is not part o, the estate. 2e "an 'a)e ,uture in"o'e an. pa* the lease.
2o+ever9 +hen the in.ivi.ual 1oes into 8hapter 79 all .e3ts an. o3li1ations +ill 3e .is"har1e.9
in"lu.in1 those un.er this lease. /he lan.lor. has a situation +here onl* +hen the .e3tor +ants to
sta* in the K.
+ata-Link (yste'sC ,nc. 2. Whitco'b
# +ebtor can force the non-$ebtor party to perfor'C post-petition. .ntil the trustee or +,B
'akes a $ecisionC they ha2e no $uty to $o anything on the B. ;o7e2erC the other party ,(
re#uire$ to perfor' until reJection or assu'ption. =ote: the .e3tor has to pa* ,or these
servi"es even thou1h this is not .ee'e. an assu'ption 3* the .e3tor. Assu'ption or re:e"tion
onl* o""urs +hen the "ourt approves the .e"ision o, the trustee. <n the 'eanti'e9 the .e3tor "an
en:o* the 3ene,its 3ut the* have to pa* ,or it.
# D 3FE " Ti'e Li'itations - J 365 has a nu'3er o, ti'e li'itations.
# Cre$itor/s options: "re.itor "an ,ile a 'otion to "o'pel the trustee to 'a)e a .e"ision no+ a3out
+hether to assu'e or re:e"t. 2o+ever9 "ourt is unli)el* to 1rant the 'otion unless so'ethin1
spe"ial is 1oin1 on.
# Co''ercial %eal Astate Leases
Philip Larson Page 24
Intellectual Property: Class notes
o 2-PA: Post#petition9 .e3tor nee.s lease o, o,,i"e spa"e in or.er to 'a)e 'ore +i.1ets.
5here in the 3an)rupt"* "o.e .oes it sa* that the lessor is entitle. to pa*'ent ,or the
spa"eE
o J 365.!3! an. J 365.!4! ( the 3asis ,or the lessor to 3e pai. is that it is an a"tual an.
ne"essar* e&pense un.er J 5033!.
J 5033! ( A.'inistrative e&penses are Ba"tual an. ne"essar*C e&penses use. to
'aintain the estate an. are entitle. to priority status upon .istri3ution o, the
estate.
o J 365.!5! ( -ersonal -roperty Leases ( .e3tor .oesn4t use 3ull.o@er 3ut .oesn4t +ant
to pa* ,or it sin"e it is not a"tual or ne"essar*. 8on1ress 3asi"all* sai. that the .e3tor
1ets 60 .a*s to 'a)e a .e"ision on personal propert* leases. /hat 60 .a*s is a ,ree
perio.. /he .e3tor .oesn4t have to pa* lease pa*'ents .urin1 those 60 .a*s. A,ter the
60 .a*s9 he has to 3e1in 'a)in1 the pa*'ents.
# =ote: on"e the trustee assu'es9 a ,e+ thin1s happen:
o 1! the estate +ill pa* +ith +hatever assets are in the state.
o 2! the estate 'ust "ure all .e,aults as soon as the assu'ption ta)es pla"e. An*thin1
prepetition that is a 'onetar* .e,ault 'ust 3e pai..
o 3! there 'ust 3e ade:uate assurance that the estate +ill "ontinue to per,or' 'ovin1
,or+ar..
Car2e out: *ou "an "reate a "arve out to sho+ that the pa*'ents +ill 3e 'a.e.
/he len.er +ill pro3a3l* a1ree 3/" the len.er +ants the e'plo*ees out +ith their
laptops so that the* "an .o their +or).
# 8ssu'ption
o Astate takes on obligations
o Astate 'ust cure all 'onetary $efaults. 9J 365 pre"lu.es non#'onetar* .e,aults:
o Astate 'ust pro2i$e 8+AL.8TA 8((.%8NCA that it is going to be able to
continue to perfor'.
# D E)39b:9!: " 'o$ifie$ the use of 5lein v. .ostras by li'iting the $a'ages. <t sa*s that i, there
is a post#assu'ption 3rea"h9 the* 1ive the lan.lor. t+o *ears o, ,uture rent. 2o+ever9 an*thin1
3e*on. t+o *ears 1oes 3a") to J 5023!6! +oul. 3e "appe. un.er J 5023!6!.
# <, a lan.lor. has to 1o un.er J 5023!6!9 the lan.lor. +ill have unse"ure. "lai's "appe. at one
*ear4s +orth o, ,uture rent.
# 8ssign'ent
o D 3FE9k: " assi1n'ent relieves 7<P9 trustee an. estate o, an* lia3ilit*. An* re'ainin1
"lai's are .is"har1e.. An* 3rea"h or pro3le' that o""urs later is on the assi1nee.
=ote: this is .i,,erent than t*pi"al assi1n'ent +here the assi1nor has so'e
lia3ilit* even a,ter the assi1n'ent is 'a.e e.1. in 1eneral "ontra"t an. propert*
la+!. /his is not the "ase in 3an)rupt"*.
Non$ebtor: 'oreover9 the non.e3tor "an4t prohi3it assi1n'ent in the K. Anti#
assi1n'ent "lauses are invali. in 3an)rupt"*.
o 8ssign'ent an$ 8ssu'ption: 3e,ore a trustee "an assi1n a K9 it 'ust ,irst assu'e the
"ontra"t. All o, this is su3:e"t to the "ourts approval.
# (hopping Centers: J 3653!3! ( i, *ou have a shoppin1 "enter9 the rationale is that this is 'an*
entities a part o, one 3i1 entit* an. there is a "o'3ine. interest to ensure all these "o'panies "an
+or) to1ether. /here,ore9 use clauses +ill 3e en,or"e.. /he issue is that the 3an)rupt"* "o.e
.oesn4t tell us +hat a shoppin1 "enter is. p439.
# B for personal ser2ices is e6clu$e$ fro' the estate:
# -erl'an 2. Catapult Antertain'entC ,nc. 9none6clusi2e patent license " these are .i,,erent
than e&"lusive patent li"enses!
o D 3FE9c:91: G D 3FE9f:91:: hypothetical test vs. the actual test. 8ourts9 ,or the 'ost part9
a.here to the !ypot!etical test. 5here *ou have a situation +here there is a prohi3ition
a1ainst assi1n'ent9 *ou have to use the h*potheti"al test 3e"ause it sa*s the trustee "an4t
Bassu'e or assi1nC not Bassu'e an. assi1n.C
Philip Larson Page 25
Intellectual Property: Class notes
o <, the state la+ sa*s that the in.ivi.ual .oesn4t have to a""ept per,or'an"e9 then it "an4t
3e assi1ne.. 2ere9 the patent la+ sa*s that patents are non.ele1a3le. /here,ore9 there is
a statute that is personal.
# %eisner 2. The +ayton Country Club
o 1acts: this is the sa'e "!1! an. ,!1! pro3le' e&"ept it sa*s that .
o 9f:91: " 1eneral rule a3out ri1ht to assi1n.
o 9c:91: " i, the other person .oesn4t personall* a""ept9 then it "an4t 3e assi1ne..
#
# T;A +,- 0% T%.(TAA can reco2er through a2oi$ance po7ers things that 7ere
transferre$ prior to the petition $ate.
o /his is a 2#Ftep pro"ess
1! Prove that the trans,er prior to the petition .ate is voi.a3le.
2! Prove that the propert* "an 3e re"overe..
o $or all the avoi.an"e se"tions9 this pro"ess applies. An* ti'e *ou are tal)in1 a3out tr*in1
to void a prepetition transfer9 *ou have to prove 3oth that it is voi.a3le an. that it "an 3e
re"overe..
# $irst >uestion
o J 547 # 5hat happene. in the 90 .a*s prior to the petition .ate. J 547 .eals +ith
pre,eren"es. An* trans,ers the .e3tor 'a)es +ithin 90 .a*s is presumed to be a
preference. <, the trans,er +as 'a.e to an insider9 then the 90 .a*s e&ten.s out to 1 *r.
/here,ore9 an*thin1 3et+een 90 .a*s an. 1 *r prior to the petition .ate is presumed to be
a preference.
o J 548 ( ,rau.ulent trans,ers
<, *ou "an prove all the ele'ents o, ,rau.ulent trans,ers +ithin 2 *rs o, the
petition .ate9 *ou "an 1et those 3a").
o J 544 ( 1ives the trustee to step into the shoes o, an a"tual "re.itor an. e&er"ise +hatever
ri1hts that "re.itor +oul. have ha. un.er state la+. /*pi"all* states allo+ 1oin1 3a")
a3out 4 *rs.
# /hese are the thin1s +e have to tr* an. 'a)e the estate 3u")et as lar1e as possi3le. 5hat are the
e&"eptionsE
o 2 *rs ,ro' the .ate the petition is ,ile. the trustee 'ust .eter'ine +hether to see)
re"over* un.er J 5479 J 548 an. J 544. /his "an 3e e&ten.e. 3ase. on (!en t!e trustee
is appointed. Dsuall* this .oesn4t "o'e into pla* 3e"ause the trustee is usuall* assi1ne.
+hen the petition is ,ile.. 2o+ever9 so'eti'es *ou 1et a "ase +here *ou have a 8hapter
11 "onverte. over to a 8hapter 7. <n situations +here a se"on. trustee is appointe.9 these
statutes o, li'itations 1et "han1e. 3ase. on the .ates the ne+ trustee 1ets appointe..
o <n a 8hapter 79 +hen it is ,ile.9 a panel trustee is appointe.. <n Ale&an.ria9 ,or instan"e9
there is a panel o, la+*ers that o,,er their pro,essional ti'e to a"t as trustees in 8hapter 7
an. 13. 2o+ever9 the "re.itors have a ri1ht to "o'e in an. sa* the* .on4t +ant a "ertain
trustee an. that the* +ant so'eone else.
# J 548 ( $rau.ulent /rans,ers
o 0enerall*9 +hat < .o +ith '* propert* is '* 3usiness. 8re.itors .on4t reall* have
an*thin1 to .o +ith it. <, < ,l* to Paris ,irst "lass9 that is '* 3usiness. A "re.itor "an4t
"all up an. sa* < "an4t .o that. 2o+ever9 i, it turns out that < a' spen.in1 this 'one* in
or.er to 1et ri. o, +hat "ash < have 3e"ause < )no+ <4' 1oin1 to ,ile ,or 3an)rupt"* an.
.on4t +ant that 'one* to 1o to "re.itors. /hen9 a "re.itor "oul. "o'e in an. "o'plain.
/he Dni,or' $rau.ulent /rans,ers A"t provi.es the' a +a* to .o that i, the* "an sho+
that < too) a"tion to defraud my creditors. Dn.er this a"t9 the* "an tr* to 1et the 'one*
3a") into the trustee pot.
2-PA: .e3tor is houn.e. 3* "re.itors. Fhe sells ,or no'inal "onsi.eration all
o, her non#e&e'pt propert*. Fhe 1ives it a+a* or sells it. Fhe has an
un.erstan.in1 +ith ,rien.s an. relatives that +hen the "oast is "lear9 she +ill 1et
it all 3a"). <n the interi'9 she 1ets to "ontinue to use the propert*. e.1. 1ives
"ar to 3rother an. 3rother lets her use it ,or +or)!. $rau.ulent /rans,ers A"t
sa*s that "re.itors "an 1et that "ollateral 3a").
Philip Larson Page 26
Intellectual Property: Class notes
o /+o 3asis ,or 1ettin1 a trans,er voi.e. 3ase. on ,rau.
A"tual $rau. ( have to prove the .e3tor actually committed fraud. 2e 'a.e the
trans,er +ith the actual intent to hin.er9 .ela* or .e,rau. "re.itors. 2o+ .o *ou
prove a"tual intentE -ou "an prove a"tual intent 3* the circumstances
surroundin t!e transfer.
8onstru"tive $rau.
# -H!E -roble' *.1
o 8: .e3tor re'ove. an. "on"eale. assets9 trans,er o""urre. shortl* 3e,ore or shortl* a,ter
a su3stantial .e3t +as in"urre.9 .e3tor is insolvent9 trans,er +as su3stantiall* all o, the
.e3tor4s assets. 8an the* there,ore ta)e the paintin1 a+a* ,ro' Art 6annE
D EHI9c: " this is a bona fi$e purchaser acting in goo$ faith.
o B: +hat i, Art 6ann 3u*s the paintin1 ,or ?20) an. 1ives it to his .au1hter.
8onsi.eration pai. +as not reasona3l* e>uivalent to the value o, the asset
trans,erre. or the a'ount o, an o3li1ation in"urre.. 7oes the J 548"! .e,ense
+or) ,or hi' hereE =ot "lear9 this is a ,a"tual issue. 8ourts +ill +ant to see
'ore than one 3a.1e.
-ou are loo)in19 as the trustee9 ,or a +a* to prove a lac- of ood fait!.
o 5ho "an the trustee 1o a,terE
8an the* 1o a,ter Art 6ann i, he .oesn4t have the paintin1 an*'oreE
J 550a!1! sa*s the trustee "oul. 1et a 'one* :u.1'ent a1ainst Art
6ann.
8an the trustee 1o a,ter Art 6ann4s .au1hterE
J 5503!2! ( trustee "an4t re"over ,or any immediate or mediate ood
fait! transferee of suc! transferee. /here,ore9 the* pro3a3l* "an4t 1o
a,ter Art 6ann4s .au1hter. 2o+ever9 in so'e "ases the su3se>uent
trans,eree nee.s to have trans,er as +ell.
<s there "onsi.eration i, the ,ather 1ives a paintin1 to his .au1hterE
/here is so'e "o''on la+ that sa*s there is "onsi.eration +hen *ou
1ive a 1i,t to a ,a'il* 'e'3er.
# F"ha,er v. Las He1as 2ilton p463!
o $a"ts: Arl*nn is presi.ent o, Hi.eo 7epot. 2e is in.e3te. to 2ilton ,or ?225) o,
1a'3lin1 .e3t. 2e provi.e. ?65) "ashier4s "he") ,ro' Hi.eo 7epot an. a personal
"ashier4s "he") o, ?10) to "over so'e o, the .e3t. 2e has never pai. his 1a'3lin1 .e3t
in this +a* 3e,ore. Hi.eo 7epot 1oes 3an)rupt an. the* sue to 1et the ?65) 3a") sa*in1
it +as a fraudulent transfer.
o 2el.: trustee "an re"over ,ro' 2ilton an. provi.e. t+o reasons. 1! %ven thou1h he +as
the prin"iple9 he .i. not have the ri1ht to use the ,un.s ,or his o+n purpose.
Ar1u'ent: "ourt sai. that Hi.eo 7epot never trans,erre. the ?65) to Arl*nn an.
then to 2ilton. <, that o""urre.9 there 'a* 3e an e&e'ption un.er J 5503!.
7oes it 'a)e an* .i,,eren"e that Arl*nn si1ne. the "he")E =o. 2e is si1nin1 it
in his role as presi.ent o, Hi.eo 7epot. /here,ore9 the trans,er +ent .ire"tl*
,ro' Hi.eo 7epot to 2ilton. 2o+ever9 +hat a3out the ,a"t that he pai. the ?65
3a")E <sn4t this a loan +here he "learl* re"eive. the ,un.s ,ro' Hi.eo 7epot
prior to the trans,erE <, this +ere the "ase9 the trustee 'i1ht have a fraudulent
transfer "lai' to Arl*nn. J 548a! no+ sa*s that ,rau.ulent trans,ers in"lu.e
trans,ers as part o, an e'plo*'ent K. /here,ore9 1ettin1 a 3onus pa*'ent un.er
the K 'ust in"lu.e so'e reasona3le value in e&"han1e.
5h* "oul.n4t 2ilton use the J 548"! .e,enseE 7i.n4t the* a"t in 1oo. ,aith an.
there,ore have a lien or interest in the trans,erE 5ere the* put on noti"e that
the* +ere pai. ,or the .e3t 3* a "orporation rather than an in.ivi.ualE /his
+asn4t reall* part o, the "ase. /he >uestion is raise. a3out +hether 2ilton a"te.
in 1oo. ,aith in a""eptin1 pa*'ent ,ro' a "o'pan* that .i.n4t o+e the'
an*thin1.
Philip Larson Page 27
Intellectual Property: Class notes
o 8an the trustee 1o a,ter Arl*nn ,or the 'one*E 2o+ a3out the ,a"t that Arl*nn has
alrea.* pai. the ?65) 3a") to Hi.eo 7epot9 .oes that pre"lu.e the a3ilit* to 1o 3a") to
2ilton.
/rustee "an4t 1o 3a") to 1et a fraudulent transfer 'ore than on"e. /here,ore9
here9 that .oesn4t
o <s there an* "onsi.eration +hen *ou put 'one* into a slot 'a"hineE <s it reasona3l*
e>uivalent value that people have a "han"e o, +innin1 'one*E <, the "asino "an sho+
there is a 97G "han"e the* +ill +in9 is that reasona3l* e>uivalent valueE Pro3a3l*.
# Lones v. 7avisEEE
o
# J 548a!1!A! ( 8ctual 1rau$ # is .i,,i"ult to prove. -ou have to prove a .e3tor +ith actual
intent trie. to .e,rau. "re.itors. <, *ou are tr*in1 to su""ee. un.er J 548 to 3rin1 3a") so'e
trans,er into the estate 3u")et9 *ou pro3a3l* +ant to ,in. an easier +a* to .o that.
# J 548a!1!;! ( Constructi2e 1rau$ ( .e3tor has to 1! have re"eive. less than a reasona3l*
e>uivalent value in e&"han1e ,or the propert*9 2! +as either insolvent9 en1a1e. in 3usiness +ith
unreasona3l* s'all "ollateral9 or inten.e. to in"ur .e3ts that +oul. 3e 3e*on. the .e3tor4s a3ilit*
to pa*.
o ,nsol2ency: .e3ts e&"ee. assets.
o Co'pany +ocu'ents
Balance sheet: tells *ou *our assets an. *our debts or lia3ilities!.
,nco'e state'ent: this tells *ou *our revenue an. e#penses.
o Note: *our revenue "an e&"ee. *our e&penses even i, *our assets .on4t e&"ee. *our
.e3ts. /here,ore9 an insolvent "o'pan* "an still ,un"tion. -ou +ant to loo) at all o,
these thin1s +hen tr*in1 to prove ele'ent t+o o, J 548a!1!;!. <, *ou are loo)in1 to
prove this ele'ent9 an. *ou represent the "re.itor tr*in1 to reverse this9 +hat "oul. *ou
.oE
$e.. R. 8iv. P. 269 349 33 ( +isco2ery ( 1et .o"u'ent re>uests to 1et the
3alan"e sheets an. in"o'e state'ents. 5hen tal)in1 a3out constructive fraud9
it is 'u"h easier to 1et in an. 1et these .o"u'ents.
=ote: this is 'u"h easier than tr*in1 to prove actual fraud +here *ou have to .o
a 3un"h o, .epositions an. hope *ou 1et the ri1ht ans+ers an. *ou have to prove
multiple bades of fraud per p474!. SSSS
# B1- 2. %esolution Trust Corp. 9pHII:
o 1acts: Petitioner ar1ues that sin"e the ho'e sol. ,or ?433) an. +as +orth ?725) that it
+as a fraudulent transfer.
o ,ssue: 7oes "onsi.eration re"eive. ,ro' a real estate 'ort1a1e ,ore"losure sale
"on.u"te. in a""or.an"e +ith state la+ "on"lusivel* satis,ies the ;an)rupt"* 8o.e4s
re>uire'ent that trans,ers o, propert* 3* insolvent .e3tors +ithin one *ear prior to the
,ilin1 o, a 3an)rupt"* petition 3e in e&"han1e ,or a Breasonably e:uivalent value.C
o ;el$: "ourt hel. this +as Breasonably e:uivalent value.C /he* .e,ine $6H
pro"e.urall* 3ase. on state la+ pra"ti"es. e.1. a.vertise'ents9 noti"e9 et". i, those
steps9 as .eter'ine. 3* state la+9 are ,ollo+e.9 then 3* .e,inition it +as sol. at ;<=
value.!
o 8nalysis: <n Durrett v. Washington9 the "ourt ha. to .eal +ith the pro3le' +here a len.er
,ore"loses an. has an in"entive to
o Notes: +hat happens at a ,ore"losureE Fhoul. +e 3e .e,inin1 Breasona3l* e>uivalent
valueC 3ase. on $6H or 3ase. on the 3est *ou "an .o in the "onte&t o, 3an)rupt"*9 1iven
that *ou nee. to .o these sales >ui")9 et".
Young/s Take: F"alia is 3asi"all* sa*in1 it is 3etter to rel* on state la+ than
have :u.1es 'a)in1 .e"isions a3out +hi"h e&pert he 3elieves re1ar.in1 the
appraisal or the $6H o, the propert*.
# D EHH9b: " Trustee 8cts in (hoes of %eal Cre$itor
Philip Larson Page 28
Intellectual Property: Class notes
o Re>uires there a"tuall* 3e a "re.itor that hol.s an unse"ure. "lai' allo+a3le un.er J 502
esta3lishin1 +hen there is a "lai'!. -ou have to have this "re.itor. /he "re.itor 'ust
still 3e e&istin1 at the ti'e the 3an)rupt"* is ,ile. he "an4t have 3een pai. o,,!.
Present "re.itors: a"tuall* e&ist at ti'e o, trans,er an. still e&ist.
Pri'ar* usa1e o, this statute: to use the Dni,or' $rau.ulent /rans,ers A"t to 1et
to loo) 3a") 4 *rs rather than 2 *rs.
# D EHH9a: - Trustee gets to 8ct as a ;ypothetical Cre$itor
o SSS Rea.:
o Lien "re.itor (
o 1riority is set on t!e 1etition )ate. 5ill a trustee +ith a :u.i"ial lien on that .ate .e,eat
so'eone +ith :ust a re1ular unse"ure. "re.itorE -es. /he trustee +ants to 3e a3le to sa*
that he has a 3etter "lai' an. there,ore 3e a3le to 3rin1 ,un.s into the estate as the
pre,erre. "re.itor.
# -roble' *.F
o Trustee stan$s in the shoes of Cre$itor 8 97ho has a M1)) clai':. ThereforeC the
trustee has rights un$er the .1T8 to try to un$o that M1Ik frau$ulent transfer.
2o+ever9 he is 3rin1in1 the a"tion un.er J 5443! on 3ehal, o, the estate not on 3ehal, o,
8re.itor A. /here,ore9 he 3rin1s the ?18) into the estate ,or the 3ene,it o, all t!e
creditors. All the unse"ure. "re.itors9 in"lu.in1 A9 +ill 1et to share the ?18) as a
.istri3ution.
# -roble' *.!
o A! se"urit* interest has 3oth attac!ment an. perfection. 8re.itor has a se"urit* interest
that atta"hes to so'e "ollateral 3ut it is =A/ per,e"te.. /his 'eans that i, so'eone else
1ets a se"urit* interest in the sa'e propert* an. then per,e"ts9 their interest tru'ps. 8an
the trustee avoi. un.er J 544a!1!E Ftate la+ sa*s that the trustee tru'ps the se"ure. 3ut
unper,e"te. "re.itor. /he "re.itor "annot ta)e the "ollateral out o, the estate. /he
trustee4s Bh*potheti"al per,e"te. se"urit* interestC tru'ps the se"ure. "re.itor. /he
"re.itor then 1ets .u'pe. in +ith all the unse"ure. "re.itors.
o ;ona,i.e pur"haser (
o J 544a! is tr*in1 to 1et ri. o, secret liens that no one )no+s a3out. 5e .on4t +ant
secret liens. /o .is"oura1e .e3tors ,ro' usin1 se"ret liens9 +e 1ive the trustee the po+er
to trump secret liens. <, *ou .on4t re"or. a .ee. o, trust or per,e"t *our se"urit* interest
un.er Arti"le 99 *ou .on4t 1et pre,erre. status in 3an)rupt"*.
# R%H<%5 J 5449 J 5479 an. J 548.
# .ne6pire$ leases of personal property:
o <, *ou are the .e3tor9 +h* .o *ou "are i, it is a leaseE $irst 60 .a*s o, leases on personal
propert*9 *ou .on4t have to pa* an*thin1. /hen *ou have to pa* i, *ou +ant to use it.
2o+ lon1 "an the .e3tor put o,, assu'in1 an unassi1ne. leaseE
o 2-PA: sa* *ou have a .o"u'ent that "alls itsel, a lease. A .e3tor +ants thin1s to 3e a
lease9 not a ,inan"in1 state'ent. As a "re.itor9 *ou +ant it to 3e a ,inan"in1 state'ent.
/he .e3tor then .oesn4t 1et to .e"i.e +hether to assu'e or re:e"t it. J 506a! sa*s a
se"ure. "re.itor is treate. 'u"h 3etter than a lessor.
;ein1 a se"ure. "re.itor is 6D82 3etter than 3ein1 a lessor.
# -references
o Theory: +e +ant to treat all "re.itors e>uall*. 5e .on4t +ant the ra"e to the "ourthouse.
All unse"ure. "re.itors shoul. 3e treate. the sa'e9 re1ar.less o, +hether the* 1ot pai.
ri1ht 3e,ore the 3an)rupt"* an. not.
o Luestion: +h* .o +e onl* treat "re.itors 90 .a*s 3a") e>uall* or insi.ers 1 *r!E /hese
ti'e,ra'es have "han1e. over ti'e. /hese t+o .ates are entirel* ar3itrar* .eter'ine. 3*
le1islators on "apital hill. /he .i,,eren"e 3/+ 90 .a*s an. 1 *r has to .o +ith +hat +e
are tr*in1 to "ure. <, the .e3tor is 1oin1 to pre,er so'eone9 that is +hat +e +ant to "ure.
90 .a*s is a3out the ri1ht a'ount o, ti'e that a .e3tor shoul. )no+ he is 1oin1 to 1o into
Philip Larson Page 29
Intellectual Property: Class notes
3an)rupt"*. /he .i,,eren"e +/ insi.ers9 is that i, *ou are the presi.ent o, the "o'pan*9
*ou pro3a3l* )no+ there is a pro3le' +ell ahea. o, 90 .a*s.
# D EH!9b: - -references
o (i6 Ale'ents: 7e3tor 3rin1in1 a pre,eren"e a"tion to 1et ,un.s 3a") ,ro' a "re.itor into
the 3an)rupt"* estate 'ust prove 6 ele'ents.
1! /rans,er o, an interest o, the .e3tor in propert*.
2! /rans,er 'ust 3ene,it a "re.itor J 110 ( .e,inition o, a "re.itor ( so'eone
o+e. so'ethin1 3* .e3tor
3! 6ust 3e on a""ount o, an ante"e.ent 3e,ore! .e3t prior to the petition 3ein1
,ile.
4! 7e3tor +as insolvent at the ti'e o, the trans,er
J 547,! "reates a re3utta3le presu'ption that the .e3tor +as insolvent
in the 90 .a*s prior to the petition .ate. /he i'portant thin1 a3out this
is that a "re.itor "an tr* to )no") out this ele'ent. <, *ou "an sho+ that
the .e3tor +as not insolvent9 then the .e3tor has no pre,eren"e a"tion
a1ainst *our "re.itor.
J 5471! ( sharin1 o, 3ur.en o, proo, ( .e3tor 3rin1in1 the pre,eren"e
a"tion has the 3ur.en o, provin1 these 6 ele'ents. 2e has to prove it
+as .e3tors propert* trans,erre.9 in 90 .a*s9 an. that "re.itor 1ot 'ore
than it +oul. have un.er 8hapter 7.
5! $or non#insi.ers9 it is +/i 90 .a*s. $or insi.ers9 it is +/i 1 *r.
6! /rans,er to "re.itor has to 3e 'ore than "re.itor +oul. have re"eive. i,
.e3tor +ent into a 8hapter 7 li>ui.ation.
# 2-PA: hol.in1 "o'pan* 2 has su3si.iaries F19 F29 F3 an. operatin1 su3si.iar* AF. Fa* all
revenue ,ro' F19 F29 an. F3 roll up to AF as +ell as all invoi"es an. other .e3ts. All these
"re.itors sen. 3ills to F19 F29 an. F3. AF sen.s "he")s to the "re.itors. Fa* the AF .oes not ,ile
3an)rupt"*9 :ust 2 an. F19 F29 an. F3. <n that +a*9 the* +ant to )eep AF assets out o, the estate.
5ho is 1oin1 to ,ile the pre,eren"e a"tionE
o Saety !leen ( the* +oul. "olle"t use. oil9 3atteries9 et". ,ro' in.ustrial sites an. e&pose
o, it. /he* en.e. up in 3an)rupt"* +ith this stru"ture. 5hen Fa,et* Kleen trie. to ,ile
hun.re.s o, pre,eren"e a"tions9 the* .i.n4t )no+ ho+ to set it upP<t sets up a 'a:or
.e,ense ,or the "re.itors 3e"ause *ou .on4t have the ri1ht .e3tor pa*in1 the 3ill. -ou
.on4t have the ele'ents.
# " #$%&c' ( )xceptions ( "re.itor has the 3ur.en o, provin1 one o, these e&"eptions in or.er to not
1ive 3a") the pre,eren"e ,un.s.
o 1! <, trans,er ,ro' .e3tor to "re.itor +as a contemporaneous e#c!ane for ne( value.
o 2! or$inary course of business ( +as the trans,er +hat the* or.inaril* +oul. have 3een
.oin1 1iven their relationship an. the in.ustr* the* +ere inE
o 3! .i. the trans,er "reate a security interest in the propert* a">uire. 3* the .e3tor.
o 4! trans,er to the "re.itor 1ave ne( value to the .e3tor after t!e transfer.
o 5! "reates a per,e"te. se"urit* interest in inventor* or re"eiva3les.
o 6! ,i&in1 o, a statutor* lien
o 7! trans,er +as a 3ona ,i.e pa*'ent o, a .e3t ,or a .o'esti" support o3li1ation.
o 8! i, the a'ount is ,or "onsu'er .e3t o, X ?6009 it is not a pre,eren"e.
o 9! i, it is not "onsu'er .e3t9 an. is X ?500009 that is not a pre,eren"e.
# J 547.! ( %&"eption ( %n"oura1e'ent to see) "ounselin1
# 2-PA: Presi.ent o, .e3tor 1uarantee4s loan
# J 550"! ( the 7<P "an4t 1o a1ainst the non#insi.er "re.itor9 he "an onl* 1o a1ainst the personal
1uarantor.
# -al'er Clay -ro$ucts 2. Bro7n
o 1acts: 90 .a*s 3/, petition .ate9 Pal'er 1ets a 3un"h o, over.ue pa*'ents. 2e 1ets pai.
less than the ,ull .e3t. 2e asserts the* aren4t pre,eren"es 3/" he sa*s he .i. not 1et 'ore
than he +oul. have 1otten in a 8hapter 7.
Philip Larson Page 30
Intellectual Property: Class notes
o %ule: ;ro+n sa*s that +hen the trans,er ta)es pla"e9 that4s +hen *ou shoul. loo) at +hat
ppl +oul. 1et in li>ui.ation. /he rule is that *ou loo) at t!e petition date.
# Cunningha' 2. Bro7n
o 1acts: P*ra'i. s"he'e. %ver*one 1ets s"re+e. e>uall*.
# 8$a's 2. 8n$erson
o 1acts: re'e'3er 7ean v. 7avis. Bear'ar)in1C .o"trine ( *ou nee. to have the ri1ht
,a"ts to +in on this .o"trine. 5hat .istin1uishes this ,ro' 7ean v. 7avisE 7e3tor a1ree.
to sell o,, the "oin "olle"tion an. 1ive the 'one* to A.a's. ;an) "a'e in an. .i.
so'ethin1 the* shoul. not have .one. /he* 1ot involve. in the .a* to .a* operations.
/hen9 it has the ne+ ris) o, 3ein1 responsi3le ,or ho+ it runs the operations. ;an) sai.
the* +oul. ,un. the pa*'ents to A.a's an. the* +oul. "over an* short,all. /here,ore9
;an) sent 'one* to .e3tor ear'ar)e. to 1o to A.a's.
o ;el$: this +as a .e,ense to a pre,eren"e a"tion 3e"ause o, the ,irst ele'ent. /he "ourt
hel. that this +as not a trans,er o, property of t!e debtor 3e"ause he ha. no "ontrol over
the propert*. <t +as ear'ar)e. ,or A.a's. /he e>uita3le ear'ar)in1 .o"trine sa*s that
the 'one* +as "learl* ear'ar)e. to 1o only to A.a's. /his +as not a preference
3e"ause the .e3tor never ha. an interest in the propert*.
o Luestion: +h* isn4t this un,air to all the other "re.itorsE /he 3an) steps into the shoes o,
a "re.itor. /he 3an) is no+ o+e. the 'one* o+e. to A.a's. <t .oesn4t "han1e the
a'ount o+e. 3* the .e3tor.
o Note: in 7ean v. 7avis9 the 1u* 1ave the 'one* to the 3an) .ire"tl*.
# 1ree$o' =roupC ,nc. 2. Lapha'-;ickley (teel
o 1acts: as.,
o ,ssue: 0arnish'ent is +here *ou 1o to a thir. part* an. sa* *ou have to pa* the "re.itor9
not the .e3tor *ou o+e it to. /he e'plo*er has the opportunit* to 1o into "ourt an.9
3e,ore an or.er is 'a.e to en,or"e the 1arnish'ent9 raise .e,enses. Dntil the "ourt issues
an or.er9 no en,or"e'ent is in pla"e. /here,ore9 the ,a"t that the en,or"e'ent too) pla"e
insi.e the 90 .a*s is +hat 'a)es this a pre,eren"e.
# ,n re Tolona -i&&a -ro$ucts Corp or.inar* "ourse o, 3usiness!
o Note: 3/, 8on1ress a'en.e. the 8o.e9 *ou ha. to prove three thin1s: 1! or.inar* "ourse
o, 3usiness 3/+ "re.itor an. .e3tor9 2! or.inar* "ourse o, ,inan"ial transa"tions 3/+
.e3tor an. "re.itor9 3! or.inar* "ourse o, 3usiness in the in.ustr*. /his +as so'e+hat
"on,usin1. 8on1ress "han1e. this ,ro' an A=7 to an AR. =o+9 *ou "an .e,en. as a
"re.itor 3ase. on an* o, these three .e,enses.
,ssue of (cope: +hat is the s"ope o, the Bin.ustr*C ter'E <s it the in.ustr* o,
sellin1 pi@@aE /he in.ustr* o, ,ast ,oo.E /he in.ustr* o, restaurants 1enerall*E
<ain -oint: =o+9 *ou onl* have to prove one +a* or the other that there is
ordinary course of business. /here,ore9 'ore e&perts are 3ein1 hire..
# 8rro7 Alectronics
o Note: *ou "an 1et an e&pert to sa* that in this in.ustr*9 it is entirel* nor'al ,or III to
happen.
# D EE3 " (etoff ( .e3tors an. "re.itors have .e3ts 3a") an. ,orth.
# (etoff 2ersus %ecoup'ent - NNN un$erstan$ the $ifference
11/8/06
# +ischarge
o People +ant to 1et ri. o, their .e3ts an. not have to pa* the' an*'ore. 5hen .o *ou 1et
to .is"har1eE 5hat is the ti'in1E
o ;Y-0: To' gra$uate$ fro' la7school 7@ M1Ek cre$it car$ $ebt an$ M!Fk stu$ent
loans.
Chapter !: ver* >ui"). Assu'in1 he >uali,ies9 a 3an)rupt"* trustee is
appointe. an. .oes ever*thin1 ,ro' then on out. /he trustee revie+s the papers9
li>ui.ates the assets9 .istri3utes the pro"ee.s to the "re.itors9 an. that is the en.
o, it. /his "an 3e as ,ast as 60 .a*s. /his is assu'in1 he .oesn4t have an*
pro3le's +ith e&e'ptions.
Philip Larson Page 31
Intellectual Property: Class notes
Chapter 13: trustee is also appointe.9 3ut he :ust 'a)es sure the .e3tor puts
to1ether a plan to pa* as 'u"h as he "an. e.1. +hat is his ,uture in"o'e9 +hat
are the e&penses he has to pa* to live9 an. the .i,,eren"e is .isposa3le in"o'e.
/hat in"o'e is then use. to pa* o,, "re.itors over the ne&t 5 *ears.! /he .e3tor
.oes not 1et disc!are until the en. o, the 5 *ear perio.. At the en. o, the plan9
the .e3tor 1oes 3a") into "ourt an. as)s the' to .is"har1e an* .e3ts not pai.
3a") in the plan. <t .is"har1es an* .e3ts treate. in the plan that are le,t over an.
have not 3een pai..
o ;Y-0 >: ;Y; ;oo)s has 5 retail leases9 ven.or .e3t9 3 .eliver* tru")s9 an. 3an) loans.
;Y; +ants to 1et out o, 3 o, the leases9 1et ri. o, a "ouple .eliver* tru")s9 et". 5hen
"an +e 1et a .is"har1e ,or all o, these .e3ts he "an4t pa*.
Chapter 11: ;Y; has to put to1ether a plan .es"ri3in1 ho+ these .e3ts +ill 3e
treate.. 2e puts out ho+ 'u"h the "re.itors +ill 3e pai. an. +hen. /here is no
set point +here the plan has to 3e "on,ir'e.. 7is"har1e ,or ;Y; is .i,,erent
3e"ause the .is"har1e ta)es pla"e (!en t!e plan is confirmed9 not a,ter the plan
is "o'plete.. A..itionall*9 the .e3tor4s plan not onl* .eals +ith .e3ts ,ro' the
prepetition perio.9 3ut it "an also in"lu.e an* post-petition "lai's9 in"lu.in1 an*
a.'inistrative "lai's. Perhaps ;Y; ;oo)s "an4t survive an. the* reali@e the*
+ill have to li>ui.ate. /heir plan 3e"o'es a li>ui.ation plan. An* "lai's +ill
3e .is"har1e. at plan "on,ir'ation.
o +ischarge is not a2ailable to e2erybo$y
D !>!9a: ( +hat .is"har1es +ill 3e .enie.E
/here +on4t 3e a .is"har1e i, the .e3tor is not an individual.
<, there is a lien on propert* o, the .e3tor9 that lien .oes not 1et
.is"har1e.. Liens pass throu1h .is"har1e +/o 3ein1 e,,e"te..
/here,ore9 i, *ou have a per,e"te. se"urit* interest on personal
propert*9 J 506a! sa*s *ou 'i1ht have a 3i,ur"ate. "lai'. /he lien
re'ains the sa'e all the +a* throu1h.
7is"har1e .oesn4t appl* i, .e3tor has entere. into a rea,,ir'ation. <,
.e3tor rea,,ir's the .e3t in or.er to )eep the "ar9
7e3tor "an .e"i.e on its o+n that it is 1oin1 to pa* a .e3t9 even i, it has
3een .is"har1e.. 2e 'a* +ant to .o this i, he +ants to. Ane 3ene,it is
to tr* to use that to tr* to "lean up *our "re.it. <, *ou 1o throu1h
3an)rupt"*9 that +ill sho+ up on *our "re.it ratin1. /here are +a*s to
reesta3lish "re.it a,ter 3an)rupt"*.
D 11H1 ( provi.es the .is"har1e ,or "o'panies in 8hapter 11.
# Local Loan 2. ;unt
o 1acts:
o <ssue: 8an the .e3tor9 3e,ore ,ilin1 3an)rupt"*9 +aive the prote"tions the 3an)rupt"*
"o.e 1ivesE 8an he enter an a1ree'ent 1uaranteein1 ,uture earnin1sE
o 2el.: /he 3an)rupt"* "ourts have sai. no. -ou "an4t +aive a person4s ri1hts un.er the
;an)rupt"* "o.e. -ou "an4t si1n a K sa*in1 that *ou +aive *our ri1hts to the auto'ati"
sta*9 ,or instan"e. /hat is unenforceable. -ou in"lu.e this stu,, in K4s ,or reasons other
than e&pe"tin1 to 3e a3le to en,or"e the'. -ou put the' in so that *ou "an sho+ that
,ilin1 3an)rupt"* is a .e,ault.
o =ote: the "ourt is sa*in1 that the .is"har1e in 3an)rupt"* is a .is"har1e ,ro' personal
lia3ilit* on these .e3ts. Pre#,ilin1 +aiver o, these ri1hts are unen,or"ea3le. 2unt4s ,uture
in"o'e is not part o, the 3an)rupt"* estate.
# <n re Latano+i"h
o $a"ts:
o Rule: Rea,,ir'ation is +hen the .e3tor rea,,ir's the .e3t so he "an )eep the "ar9 or
+hatever.
o <ssue: Dsuall*9 the ppl ,ilin1 3an)rupt"* are not sophisti"ate.. /he 'a:orit* o,
3an)rupt"ies are in.ivi.uals ,ilin1 8hapter 7 an. 8hapter 13.
Philip Larson Page 32
Intellectual Property: Class notes
# %ver*thin1 runs ,ro' the petition .ate.
# J727a!8! # -ou "an onl* ,ile 3an)rupt"* an. 1et .is"har1es i, *ou haven4t ha. one in the last 8
*ears.
# Lans$o7ne 2. Co6
o ,ssue: +here are the 3oo)s an. re"or.sE < .on4t )no+9 '* hus3an. too) "are o, that an. <
.i.n4t )no+ +hat +as 1oin1 on. <s it ri1ht ,or her to plea. i1noran"e an. rel* on her
hus3an. to ta)e "are o, ever*thin1E Fhoul. she have 3een .enie. a .is"har1eE
o D !>!9a:: sa*s that i, *ou hi.e the 3oo)s an. re"or.s or .ispose o, the' then a .is"har1e
shoul. 3e .enie.. <, *ou "an sa* that all the o,,i"ers in %nron are responsi3le9 +h*
.oesn4t that "arr* over to a hus3an. an. +i,eE
D !>!9a:: you can/t hi$e an$ $estroy your recor$s.
# 1okkena 2. Tripp
o 1acts: .e3tors arreste. an. "har1e. +/ 'anu,a"turin1 'ari:uana. /rustee4s a.versar*
"o'plaint re>uests .enie. .is"har1e un.er J 727a!2! an. J 727a!4! 3ase. on 7e3tor4s
,ailure to .is"lose their o+nership o, the 'ari:uana on their 3an)rupt"* s"he.ules.
# +ischarge A6ceptions
o D E>3 " A6ceptions to +ischarge
-ou "an4t .is"har1e stu.ent loans.
-ou "an4t .is"har1e uns"he.ule. .e3t.

o an$ D E>1

# (ears 2. 3ohannsen 9lu6ury ite's an$ running up cre$it car$ $ebt prior to bankruptcy:
o 1acts: 6s. Lohannsen 3ou1ht a 3un"h o, ;ar3ie .olls ,or her .au1hter. Fhe sai. it +as an
invest'ent. Fo'e ;ar3ie .olls are a reall* 1oo. invest'ent. Fhe sai. she ha. ever*
intent to pa* Fears ,or the .olls. 2o+ever9 she 3ou1ht the' ri1ht 3e,ore ,ilin1
3an)rupt"*.
o Ne7 %ules: ne+ rules a..e. to 3an)rupt"* sa* that "ertain a'ounts "har1e. i''e.iatel*
prior to 3an)rupt"* +on4t 3e .is"har1e.. /his prevents people ,ro' 3u*in1 e&e'pt ite's
ri1ht 3e,ore 3an)rupt"* an. then havin1 that .e3t .is"har1e..
o ,ssue: shoul. she have 3een a3le to .o thisE
o ;el$: the ?1000 ,or the ;ar3ie .olls "oul. 3e .is"har1e. 3/" the "ourt sai. there +as no
fraudulent intent. Fhe .i. not inten. to ,ile 3an)rupt"* 3ut onl* .i. it a,ter+ar.s.
o Note: "ourts are loo)in1 ,or ,rau.ulent intent ( )no+in1 *ou are 1oin1 to ,ile 3an)rupt"*
an. 3u*in1 a 3un"h o, stu,,. /here,ore9 .i. she have an intent to pa* this 3a") an. then
3an)rupt"* "a'e alon1E /his is the essential ,a"tual >uestion.
# Ba7aauhau 2. =eiger
o 1acts: intentional torts are not .is"har1ea3le. 7o"tor 1oes into 3an)rupt"* an. as)s that
a ?500) 'alpra"ti"e suit 3e .is"har1e..
o %ule: <ntentional torts are not .is"har1ea3le. Re")less an. ne1li1en"e are .is"har1ea3le.
2e .i. not inten. to in:ure the +o'an.
11/13/06
# %&e'ptions appl* ,or in.ivi.uals9 not ,or "orporations or other or1ani@ations that ,ile 3an)rupt"*.
# <n.ivi.uals 3ene,it ,ro' the ,resh start "on"ept in a "ouple +a*s.
o All propert* 3e"o'es the propert* o, the estate. 5hen a 3an)rupt"* is ,ile.9 ever*thin1
1oes into the 3u")et. /hen9 the .e3tor "o'es out an. sa*s that he +ants to e&e'pt so'e
o, the thin1s ,ro' that 3u")et. 2e ar1ues ,or thin1s that he nee.s in or.er to 1et his ,resh
start.
o 5e .on4t thro+ *ou out o, 3an)rupt"* na)e. as the .a* *ou +ere 3orn an. e&pe"t *ou to
start over. 8lothes9 househol. 1oo.s9 utensils9 +e..in1 rin1s9 so'e heirloo's an.
:e+elr*9 reli1ious 3oo)s9 et". ( +e sa* the .e3tor "an ta)e these out o, the 3u")et an.
then pro"ee. +ith 8hapter 7. <, the .e3tor sa*s he +ants to e&e'pt these 25 ite's9 +e
.on4t :ust sa* o)a*. /he .e3tor 'ust ,ile a s"he.ule o, the propert* he +ants to e&e'pt.
Philip Larson Page 33
Intellectual Property: Class notes
/his has to 3e ,ile. +ithin a "ouple .a*s o, +hen the 3an)rupt"* +as ,ile.. /he "re.itors
then 1et to loo) at this list an. then 'a)e ar1u'ents ,or +h* so'e propert* liste. on the
s"he.ule 'i1ht not 3e e&e'pte.. -ou 'i1ht have evi.entiar* hearin1s a3out this. <,
no3o.* o3:e"ts to this list o, e&e'ptions9 the issue is over. <, there is no o3:e"tion9 the
.e3tor 1ets to )eep an*thin1 liste. on the e&e'ption list. F8 has sai. there is an absolute
ri!t to +hat is e&e'pte.. <, there is a "hallen1e9 *ou 1o to "ourt to .eter'ine +hat is
e&e'pti3le.
# 5hen +e tal)e. a3out propert* o, the .e3tor un.er J 541
o J 541a!6! ( .oes not in"lu.e Bearnin1s ,ro' servi"es per,or'e. 3* an in.ivi.ual .e3tor
a,ter the "o''en"e'ent o, the "aseC
o J 727 ( +ischarge ( .e3tor "an4t hin.er9 .ela* or .e,rau. "re.itors.
o %&e'ptions 'ean the propert* is ta)en out o, the 3u")et9 3ut is ta)en out su3:e"t to
e&istin1 liens. <, e&e'ptions are su3:e"t to a non-avoidable lien9 then the lien passes
throu1h 3an)rupt"*. $or e&a'ple9 i, *ou )eep *our ho'e9 *our 'ort1a1e is not
.is"har1e.. /he lien "arries throu1h an. "ontinues to atta"h to the e&e'pt propert*.
/here are so'e other t*pes o, liens +here the .e3tor "an void t!e lien.
T7o things $ebtor 'ust $o:
1! .is"lose all o, his or her assets. Fo'e .e3tors su11est the .e3tor pa* o,, a
"re.it "ar.9 put it in a .ra+er9 an. not .e"lare it sin"e there is no .e3t. 2o+ever9
*ou have to 3e honest to ever*one in 3an)rupt"*.
2! .e3tor 'ust ans+er >uestions pose. 3* "re.itors
J 341 ( +ithin a "ertain perio. o, ti'e a,ter the petition is ,ile.9 .e3tor
'ust su3'it to a 'eetin1 +ith "re.itors. /he DF /rustee sets up this
B341 'eetin1C +hi"h usuall* ta)es pla"e in the ,irst 90 .a*s o, the
petition.
#
# ,n re 3ohnson
o 1acts: as.
o ,ssue: "an a .e3tor e&e'pt a 60 passen1er 3us an. sa* the 3us is not su3:e"t to
li>ui.ation ,or the 3ene,it o, the "re.itorsE Lan1ua1e sa*s *ou "an e&e'pt one vehi"le ,or
value not to e&"ee. ?2500. /his .oesn4t ne"essaril* 'ean *ou 1et to )eep the 3us. /he
3us is theoreti"all* +orth less than ?2500.
o ;el$: a 60#passen1er 3us "an 3e e&e'pte. un.er the ter' B'otor vehi"leC.
# ,n re Laube
o 1acts: 6r. Lau3e has 3een a tru") .river. 2e sleeps9 eats an. entertains in the tra"tor.
2e uses the tra"tor ,or haulin1 'il) in 5is"onsin. 2e has no in"o'e e&"ept that
pro.u"e. +ith his tra"tor. <t is his pri'ar* shelter. A ,e+ .a*s a 'onth9 +hen o,, .ut*9
he sleeps in his sister4s house. 2e o""asionall* sta*s at a hotel9 +hen he nee.s to sho+er.
o ,ssue: "an a tru") "a3 3e a ho'estea.E
o %ule: J 5223! ( an in.ivi.ual .e3tor 'a* e&e'pt ,ro' the 3an)rupt"* estate propert*
"lassi,ie. as e&e'pt un.er either ,e.eral or state la+. Dn.er 5is"onsin9 *ou "an Ban
e&e'pt ho'estea.P.shall 3e e&e'pt ,ro' e&e"ution9 ,ro' the lien o, ever* :u.1'ent
an. ,ro' lia3ilit* ,or the .e3ts o, the o+ner to the a'ount o, ?40).
o 8nalysis: a B.+ellin1C appears to 3e 3roa. enou1h to in"lu.e a "a3#tra"tor use. as a
pri'ar* resi.en"e. /rustee ar1ues that Lau3e4s "a3 is not a ho'estea. 3/" it la")s a
3athroo' an. "oo)in1 ,a"ilities.
o Note: "oul. he use his ho'estea. e&e'ption to prote"t 3oth his tra"tor#"a3 an. the house
that his soon to 3e .ivor"e. +i,e is livin1 inE 5oul. it 'a)e sense to appl* the ?40) to
3oth e>uit* valuesE <s the state statute +or.e. in su"h a +a* to tal) a3out real or personal
propert*. ?500) e&e'ption in HA "an 3e applie. to real or personal propert*. Dsuall* it
is onl* applie. to real propert*. <n al'ost all state e&e'ptions9 there is a separate
e&e'ption ,or 'otor vehi"les. HA is not ver* 1enerous in ter's o, e&e'ptions.
D E>>9f: " *ou 1et the ho'estea. e&e'ption re1ar.less o, +hether it is a ,or"e.
sale or a voluntar* sale.
# AKA<-T,0N -L8NN,N= 9pFF1:
Philip Larson Page 34
Intellectual Property: Class notes
o %&e'ption plannin1 ,or an in.ivi.ual is no .i,,erent than ,or 3i1 "orporations. ;i1
"orporations spen. 'onths i, not *ears plannin1 the 3an)rupt"* to 3e a3le to ta)e the
'ost out o, the s*ste' as possi3le as a .e3tor.
o J 522o! li'its "onversion o, an* non#e&e'pt propert* i, the "onversion +as 'a.e
+ithin 10 *ears o, the petition .ate. <, it +as .one +ith the intent to hin.er9 .ela* or
.e,rau. a "re.itor9 *ou "an4t "lai' that as an e&e'ption.
o J 522p! puts a "ap on +hat ho'estea. e&e'ptions "an 3e. /he "ap is ?125)9 i, the
ho'estea. *ou are tr*in1 to e&e'pt +as 3ou1ht in the last 1215 .a*s rou1hl* 3.3 *rs!.
o Nor7est Bank Nebraska 2. T2etan
1act: /vetan +as a ph*si"ian +ho o+e. "rei.tors al'ost ?1969 'ostl* in the
,or' o, personal 1uaranties. 2e "onverte. a 3un"h o, propert* +ith a value o,
a3out ?700) into e&e'pt propert* that "oul. not 3e rea"he. 3* his "re.itors.
,ssue: are +e 1oin1 to let hi' .is"har1e the ?196 he o+es a,ter he "onverts
?700)9 /he "ourt sai. he "oul. not have the .is"har1e 3e"ause he ha. actual
intent to defraud !is creditors. Per'ittin1 so'eone 'a)in1 ?600)/*ear to
"onvert propert* into e&e'pt propert* on the eve o, the 3an)rupt"* is not +hat
+as inten.e..
o ;anson 2. 1irst National Bank in Brookings 9;o7 is T2etan reconcile$ 7ith
;anson:
1acts: ;rother leaves all househol. 1oo.s in the .e3tors house. ;an) "o'es in
an. sa*s these are "lassi" 3a.1es o, ,rau.. ;rother sol. propert* to ,a'il* an.
"ontinues to use the propert*. /here are 3a.1es o, ,rau. 3ut the "ourt
nevertheless lets 2anson ta)e this as an e&e'ption.
o ,n re Bane 9>))F ruling:
1acts: house in He1as +orth ?318) +/ 'ort1a1e o, ?158)9 ,or e>uit* o, ?160).
8an the* "lai' the ,ull e&e'ptionE /he >uestion is +hether the* live. in the
house ,or over 3.3 *ears 1215 .a*s!.
,ssue: J 522p! an. the ?125) li'it on ho'estea. e&e'ption. <, the .e3tor
ele"ts to ta)e the state e&e'ptions9 then the* are li'ite. to ?125). 2ere9 the
.e3tor sa*s the* aren4t 'a)in1 an ele"tion 3e"ause =eva.a re>uires the' to ta)e
the state e&e'ptions. /he statute sa*s Bele"tin1C to "hoose the state e&e'ptions.
/he "ourt +ants to )no+ i, the +or. Bele"tin1C is a .ra,tin1 'ista)e9 a
Bs"rivener4s errorC that +oul. allo+ the "ourt to "orre"t it. 2e applies F"alia4s
test that is that 1! the plain 'eanin1 o, the statute un.er "onsi.eration 'ust la")
an* rational purpose an* plausi3le rational purpose!9 an. 2! the inten.e.
'eanin1 'ust have 3een o3vious.
D E>>9$: " .e3tor "an ta)e the ,e.eral e&e'ptions or the state
e&e'ptions. /he .e3tor "an "hoose 3et+een the t+o. Ftates "an sa*
that .e3tors 'ust ta)e the state e&e'ption.
6<FF%7 8LAFF
11/20/2006
# 8hapter 11
o /hese happen 'u"h less than 8hapter 7s an. 8hapter 13s.
# Last +ee) +e set up the pla*ers
o 7e3tor
o /rustee
o 7e3tor in possession
o 8ourt
o 8re.itors
Fe"ure. "re.itors
8o''ittee
o %>uit*
Philip Larson Page 35
Intellectual Property: Class notes
# Philosoph*: +e +ant to 1ive the "o'pan* a se"on. "han"e to 3e an a"tive part o, the e"ono'*.
5e .on4t +ant to put people out o, +or)9 et". <n 8hapter 119 +e thin) the "urrent 'ana1e'ent
shoul. have the opportunit* to ,i& +hat it 3ro)e.
o Pro3le': C!apter 11 is very e#pensive. <t has to pa* the "o''ittees9 the la+*ers9 the
trustee9 the trustee4s a.visors9 et". /here is a 3i1 "ost that 1ets a..e. +hen *ou 3rin1 in a
trustee.
o <onosphere .eter'ines the ,a"tors involve. in .eter'inin1 +hen a trustee is re>uire.
rather than 7<;.
#
# ,n %e ,onosphere Clubs 9p!1):
o 1acts: *ou "an pi") venue 3ase. on +here the "o'pan*4s assets or prin"ipal pla"e o,
3usiness. -ou "an also ,ile in the sa'e pla"e as an a,,iliate or su3si.iar* 3e"ause o, the
a.'inistrative 3ene,it o, "o'3inin1 the "ases. %astern airlines +as in 3an)rupt"*.
o When shoul$ a trustee be appointe$? J 1104a!2! ,a"tors in"lu.e 1! trust+orthiness o,
the .e3tor9 2! the 7<P4s past an. present per,or'an"e an. prospe"ts ,or the .e3tor4s
reha3ilitation9 3! the "on,i.en"e or la") thereo,! o, the 3usiness "o''unit* an. o,
"re.itors in present 'ana1e'ent9 an. 4! the 3ene,its .erive. 3* the appoint'ent o, a
trustee9 3alan"e. a1ainst the "ost o, the appoint'ent.
o %ule: Puttin1 a trustee in pla"e is so'ethin1 that shoul. 3e rare. 2ere9 the "ourt sai. it
+as nee.e. 3e"ause the 'ana1e'ent +as losin1 lots o, 'one* an. the* "oul.n4t pre.i"t
+hat +oul. happen in the ,uture. D 11)H
o 8nalysis: %astern has "ontinuall* ,aile. to a"hieve
o Note: the trustee o+es a ,i.u"iar* .ut* to ever*one involve.9 in"lu.in1 the .e3tor an. all
"re.itors. 2o+ .o *ou 3alan"e all these ,i.u"iar* .utiesE
o Trustee: trustee sa*s this is a ta)e#it#or#leave#it situation +ith the settle'ent. /he "ourt
si.e. +ith F*.ne* 3e"ause it loo)e. li)e the trustee +asn4t pa*in1 an* ,i.u"iar* .ut* to
the .e3tor. /rustee +as not allo+e. to .o +hat +as 3est ,or ever*one 3ut F*.ne*9 the
.e3tor. /rustee o+es a ,i.u"iar* .ut* to the .e3tor as +ell as all the "re.itors. Fi'ilar to
the trust fund doctrine. 5here9 3oar. o, .ire"tors o+e a ,i.u"iar* .ut* to sharehol.ers.
5hen *ou 3e"o'e insolvent9 the .ire"tors un.er the trust ,un. .o"trine not onl* have
.ut* to the sharehol.ers9 3ut the* also have a ,i.u"iar* .ut* to the "re.itors 3e"ause no+
there is no e>uit* ,or the sharehol.ers. /here,ore9 the* have to 'ana1e the assets to not
lose the value ,or the "re.itors.
# 1ulton (tate Bank 2. (chipper
o 1acts: lan.
o Note: this "ase 3others -oun1. 2o+ "o'e $ulton Ftate +asn4t entitle. to )no+ a3out the
prior o,,er.
# <an2ille Corp. 2. The A#uity (ecurity ;ol$ers Co''ittee
o 1acts: plan "alle. ,or the e>uit* sharehol.ers not to 1et an*thin1.
o Note: there are li'its on +hat the e>uit* sharehol.ers "an .o. 8hapter 11 is not
liti1ation9 it is 3usiness ne1otiation. Fhoul. +e put li'its on +hat the e>uit* hol.ers "an
.oE
o (tan$ar$: e>uit* hol.ers "an4t use B"lear a3useC to prevent a 8hapter 11 plan in the 120
.a*s.
o Note: there is no+ an 18 'onth a3solute! "uto,,. /he :u.1e "annot e&ten. e&"lusivit*
past 18 'onths to "reate a plan. /his 'eans t+o thin1s: 1! prior to petition .ate9 there
+ill 3e a lot 'ore plannin1 3e,ore 1oin1 into 8hapter 11. *ou have to have *our .u")s in
a ro+ prior to 3an)rupt"*9 there,ore9 .e3tors that other+ise +oul. ,ile 3an)rupt"* are
hol.in1 o,, to plan!9 2! a,ter the 18 'onths9 the e>uit* "o''ittee9 the se"ure. "re.itors
"o''ittee9 et". "an all "o'e in an. ,reel* propose a plan ,or the "o'pan* in 8hapter 11.
/he* "an start "onta"tin1 the "re.itors9 et". an. sa* B< )no+ ho+ to ,i& the "o''ittee.C
/he %>uit* 8o''ittee si'pl* +ante. their shot at tellin1 ever*one their thou1hts a3out
restru"turin1.
What is the role of the court?
# Curle7 alley 8ssociates
Philip Larson Page 36
Intellectual Property: Class notes
o 1acts:
o %ule: D 11)I ( trustee4s .is"retion to run the 3usiness has a prett* hi1h threshol.. /here
isn4t a lot o, re"ourse ,or the .e3tor to "hallen1e these .e"isions.
o 8nalysis: the reor1ani@ation pro"ess is not a.versarial9 it is a pro"ess o, "ontrolle.
ne1otiation. /he "ourt 3asi"all* sa*s that the business "udment rule applies to trustee4s
an. 7<P4s. /here,ore9 unless *ou "an reall* sho+ so'eone is s"re+in1 up9 the "ourt isn4t
reall* 1oin1 to se"on. 1uess thin1s.
# %ules
o D 3F3 " useC sell or lease " 7<P/trustee has a 3u")et o, assets .u'pe. on hi' +hen the
petition is ,ile.. 2e "an use those assets9 sell the' or lease the' as lon1 as it is in the
or.inar* "ourse o, 3usiness ,or the "o'pan*. 2e .oesn4t nee. "ourt approval ,or an* o,
that. <t is "overe. 3* the 3usiness :u.1'ent rule. 2o+ever9 i, it is not in t!e ordinary
course of business9 he .oes nee. to 1o 1et "ourt approval. -ou "an use9 sell or lease
assets even outsi.e o, the or.inar* "ourse o, 3usiness 3ut *ou have to use 1oo. 3usiness
:u.1'ent an. *ou 'i1ht run into the Lionel issue e.1. i, there is no e'er1en"*9 put it in a
plan an. 1et it approve.!.
o D 3FH " financing " there is 3i1 3usiness in 7<P ,inan"in1. 7<P/trustee "an 3orro+
'one* an. 1ive lien on other unen"u'3ere. assets o, the "o'pan*. <, *ou "an4t .o that
3e"ause there aren4t unen"u'3ere. liens9 *ou "an 1ive the 3an) a 2
n.
lien. <n so'e "ases9
*ou "an even 1et a super priority lien an. tru'p the others.
o D 3FE " leases an$ contracts " .e3tor has a3ilit* to assu'e leases an. Ks.
o D E)39B: - ??? AK-AN(A(
# Co''ittee of A#uity (ecurity ;ol$ers 2. Lionel Corp.
o 1acts:
o 8nalysis: A 3an)rupt"* :u.1e 'ust have su3stantial ,ree.o' to tailor his or.ers to 'eet
.i,,erin1 "ir"u'stan"es. /his is e&a"tl* the result a li3eral rea.in1 o, ;an)rupt"* 8o.e9
11 D.F.8.F. J 3633!9 +ill a"hieve. /here 'ust 3e so'e arti"ulate. 3usiness :usti,i"ation9
other than appease'ent o, 'a:or "re.itors9 ,or usin19 sellin1 or leasin1 propert* out o, the
or.inar* "ourse o, 3usiness 3e,ore the 3an)rupt"* :u.1e 'a* or.er su"h .isposition
un.er ;an)rupt"* 8o.e9 11 D.F.8.F. J 3633!.
o Notes: the "ourt ,oun. three thin1s la")in1. 1! it +as pre'ature +h* not put a plan
to1ether that sai. B+e are 1oin1 to sell this propert* an. use the'one* to pa* the
"re.itors. 5h* the nee. to 'ove so >ui")l*E!9
11@>!@>))F
# What can a Chapter 11 $ebtor $o?
o D 3F> " stay
o D 3F3 " useC leaseC sell
o D 3FH " financing
o D 3FE " contracts@leases
o D EHHC EH!C EHI " recei2e property
o D EEH " aban$on
o D 11>3C 11>H " reorgani&e e2erything
o D 11H1 " $ischarge $ebts
# (hapiro 2. (aybrook
o 1acts: the* as)e. the "ourt to sta* pen.in1 the appeal. /he 3an)rupt"* :u.1e sai. he
+oul. not sta* the or.er pen.in1 the appeal. 7oes this 'a)e the appeal 'ootE Fe"on.
>uestion is +hether it is o)a* ,or 'anu,a"turer 2anover to len. an. there3* se"ure its
prepetition "lai's. 2anover has a ?106 se"ure. "lai' an. ?246 unse"ure. "lai'.
2anover a1rees to provi.e ?36 'ore in e&"han1e ,or 1ettin1 a se"ure. "lai' on the ?36
and the ?246.
o ;el$: *ou "an4t .o this 3e"ause it is s"re+in1 over the other unse"ure. "re.itors. J
364a! sa*in1 .e3tor "an enter into an* )in. o, "re.it or loan arran1e'ent that is
unse"ure.!9 J 3643! an. "! allo+s se"urin1 .e3t i, there is "ollateral that .oesn4t have
Philip Larson Page 37
Intellectual Property: Class notes
an* liens on it. -ou "an use 3! an. "! to 1et a post#petition se"urit* interest on assets
that aren4t other+ise se"ure.. 2o+ever9 sin"e *ou are .oin1 this +ith propert* o, the
.e3tor it re>uires "ourt approval. J 364.! 1ives superpriorit*. /he len.er +ants a
priorit* above even secured "re.itors prepetition. /he len.er sa*s he +ill len. the 'one*
3ut the* +ant a superpriorit* position. /he* "an .o this i, 1! .e3tor sho+s the* have no
+a* to 1et this loan ,ro' an*one else un.er an* other "ir"u'stan"es9 an. 2! .e3tor 'ust
sho+ there is ade:uate protection ,or the "re.itor that alrea.* has a lien. /here,ore9 even
thou1h the ne+ len.er is 1ettin1 superpriorit*9 the .e3tor 'ust sho+ that it +ill 3e a3le to
pa* the se"ure. position an*+a*.
o 8nalysis: un.er J 364.!9 Fa*3roo) .i. not sho+ that the* +oul. 3e a3le to pa*. J
105a! 3asi"all* sa*s the trustee "an .o +hat the* +ant. <t 1ives the 3an)rupt"* :u.1e a
lot o, lenien"*. 2o+ever9 the 3an)rupt"* :u.1e "an4t .o thin1s that are not in a""or.an"e
+ith other provisions o, the "o.e.
o Notes: re'e'3er 2 thin1s: 1! as a len.er9 *ou are prote"te. i, *ou a"te. in 1oo. ,aith an.
it isn4t in violation o, the "o.e9 2! J 364.! 1ives the .e3tor a lot o, opportunit* to 1et
'ore 'one* .urin1 3an)rupt"*.
o D 3FH9e: ( t*pi"all* a .e3tor ,iles on 6on.a*. An that sa'e .a*9 the .e3tor ,iles first day
motions that in"lu.es a 3un"h o, thin1s su"h as "han1in1 3an) a""ounts9 et". so that *our
"he")s sa* debtor in possession. /rustee re>uires this so that ever*one )no+s that *ou
are in 3an)rupt"*. Ane o, the t*pi"al 'otions on the ,irst .a* is a 'otion to (aive that
re>uire'ent. /o "han1e all 3an) a""ounts9 all ,or's9 et". ,or Dnite. Airlines9 ,or
instan"e9 +oul. 3e prohi3itivel* e&pensive. /he "ourt also o,ten approves ,inan"in1 on a
,irst .a* 'otion in or.er to pa* "re.itors that are no+ .e'an.in1 "ash no+ that the
.e3tor is in 3an)rupt"*. )*+ financin (
o D 3FH9e: sa*s that an* e&tension o, "re.it or len.in1 o, 'one* .urin1 this perio. ,or
debtor in possession financin is prote"te.. 5hatever a'ount a.van"e. to the .e3tor is
prote"te.. /he* have a se"ure. position ,or at least that a'ount o, 'one*.
# +octrine of Necessity
o 3ust for 1eet 9p!EH: " sa*s it is o)a* to let the "riti"al ven.ors have their prepetition
unse"ure. "lai's pai.. K'art 5 *ears later 3asi"all* sa*s *ou "an4t .o this.
+octrine of necessity: "ourt applie. the .o"trine o, ne"essit* an. allo+e. the
"riti"al ven.ors to have their prepetition unse"ure. "lai's pai.. 7e3tor 'ust
sho+ that the payments are critical. -ou have to 'a)e a ,in.in1 o, need 3e,ore
invo)in1 this .o"trine.
o ,n re B'art 9p!F): " 2330 "riti"al "re.itors the* +ante. to pa* an. then others that 1ot
?.10 on the ?1. /he* "an4t survive the holi.a* unless the* "an 1et per,or'an"e ,ro'
these "riti"al ven.ors.
+octrine of necessity: a ,an"* na'e ,or a po+er to .epart ,ro' the 8o.e. =o
'atter ho+ *ou rea. J 3633!1! to .o the least .a'a1e possi3le to priorities
esta3lishe. 3* K.
D 3F> - Auto'ati" sta* sa*s that *ou "an4t .o an*thin1 a1ainst the .e3tor. As
lon1 as the .e3tor +ants to a3i.e 3* the K9 post#petition the ven.or +ill 3e pai.
,or an*thin1 .elivere. post#petition. /here,ore9 so'e o, these 3i11est ven.ors
"an4t +al) a+a*. /he* 'a* threaten not to .eliver9 3ut i, the* have a K9 the*
"an4t .o that 3e"ause the* are in violation o, J 362 o, the 3an)rupt"* "o.e.
6oreover9 so'e o, these ven.ors are not 1oin1 to +al) a+a*. K'art is a 3i1
retailer.
o Note: Lust ,or $eet an. <n re K'art "an 3e re"on"ile.. <n Lust ,or $eet9 the .e3tor
su""ess,ull* sho+e. the nee. ,or pa*in1 these "riti"al ven.ors. <n K'art9 the .e3tor
,aile. to sho+ the nee. an. there,ore the .o"trine o, ne"essit* .oes not appl*.
o %ecla'ation clai': *ou are entitle. to en,or"e
# Confir'ation of a -lan of %eorgani&ation
o Top Ten Things a La7 (tu$ent Nee$s to Bno7 8bout Confir'ation
Philip Larson Page 38
Intellectual Property: Class notes
1: Affect ( a "on,ir'e. plan sets ,orth all o3li1ations o, the reor1ani@e. entit*9
.is"har1es all prior o3li1ations9 an. is 3in.in1 on all parties9 in"lu.in1
.issenters.
>: Contents ( a plan 'a* in"lu.e :ust a3out an*thin19 as lon1 as the parties
a1ree.
J 1123a! ( 'an$atory pro2isions of plan # spe"i,ies the 'an.ator*
parts o, the plan.
J 11233! ( per'issi2e pro2isions of plan - lists so'e e&a'ples o,
+hat *ou "an .o in the plan9 su"h as li>ui.ation.
3: Who <ay -ropose or 1ile a -lan ( the .e3tor has the initial e&"lusive ri1ht
to propose a plan9 3ut eventuall* other parties in interest 'i1ht 3e allo+e. to
propose a plan.
J 1121 sa*s .e3tor has e&"lusive ri1ht to ,ile a plan ,or 120 .a*s an.
"an soli"it votes in ,avor ,or another 60 .a*s. /his e&"lusivit* perio.
has 3een liberally e#tended over an. over a1ain 3* 3an)rupt"* "ourts
,or *ears. 8on1ress sai. that this is not ,air an. put an absolute limit o,
18 mont!s. >#clusivity is sub"ect to an 18 mont! limit. /he :u.1e has
no .is"retion to e&ten.. /his 1oes to 20 mont!s to solicit acceptances.
An"e e&"lusivit* e&pires9 an* part* o, interest "an "o'e in an. propose
their o+n plan.
H: 4Class5 structure is $o'inant ( "lai's an. interests 'ust 3e "lassi,ie.9 onl*
su3stantiall* si'ilar "lai's/interests 'a* 3e put in the sa'e "lass9 all
"lai's/interests in the sa'e "lass 'ust 3e 1iven the sa'e treat'ent9 an. "lasses
vote.
J 1123 ( *ou have to .esi1nate +hether ea"h "lass is impaired or
unimpaired. <'paire. "lasses 'ean the* are not 1oin1 to 3e pai.
ever*thin1 the* are o+e.. Dni'paire. 'eans *ou are 1oin1 to 1et pai.
ever*thin1 *ou are o+e.. An uni'paire. "lass does not et to vote on
t!e plan. /he* are .ee'e. to have voted in favor of t!e plan. <, there
is a "lass that is paid not!in9 the* are .ee'e. to have vote. aainst
t!e plan. 8re.itors tr* to 1err*'an.er the "lasses to "reate votin1
3lo")s that are "on.u"ive to their interests. /he .e3tor 'a*
1err*'an.er to ensure that at least one "lass votes in ,avor o, the plan.
J 11293! ( "ra' .o+n ( to "ra' the plan .o+n9 *ou have to have at
least one i'paire. "lass that votes ,or the plan. /here,ore9 .e3tors nee.
to ,in. at least one impaired class that +ill vote in ,avor o, the plan.
/here,ore9 .e3tors have 3een )no+n to 1err*'an.er the "lasses so that
the* "an 1et a "lass that +ill vote ,or the plan. 2o+ever9 an*one +ith a
si'ilar "lai' 'ust 3e in the sa'e "lass an. 'ust 3e treate. fairly and
e:uitably.
/he point o, .ivi.in1 into "lasses is that se"ure. an. unse"ure.
"re.itors have .i,,erent interests. Dnse"ure. "re.itors are 1oin1 to . J
507a! priorit* unse"ure. "lai's 1et pai. ahea. o, 1eneral unse"ure.
"re.itors.
/here,ore9 +e .ivi.e into "lasses 1! se"ure.9 2! priorit* unse"ure.
"re.itors9 3! 1eneral unse"ure. "re.itors9 4! su3or.inate. "lai's9 5!
e>uit* hol.ers.
E: oting - 8re.itors an. interest hol.ers 1et to vote on a plan9 3* "lass unless
the "lass is Bi'paire.C9 in +hi"h "ase the "lass is .ee'e. to a""ept the plan!9
+ith 'a:orit* rule a"tuall*9 'a:orit* in nu'3er an. 2/3 in ? a'ount!.
-ou .on4t 1et to vote as an in.ivi.ual9 *ou vote as a plan. -ou have to
have at least one i'paire. "lass vote in ,avor o, the plan to cram it
do(n ever*one4s throat.

Philip Larson Page 39

Intellectual Property: Class notes
F: Hotin1 is pre"e.e. 3* ,ull .is"losure.
8$e#uate infor'ation " 'eans enou1h ,or the avera1e Loe to )no+
+hether to vote ,or the plan.
!: Best interest test ( .issentin1 "re.itors are prote"te. 3* the B3est interestsC
test9 +hi"h 'enas that the plan 'ust 1ive ever*one at least as 'u"h as the*
+oul. have 1otten in a 8hapter 7 li>ui.ation9 even i, their "lass a""epts the plan.
D 11>*9a:9!:
I: 1easibility " "ourt 'ust al+a*s ,in. that the plan is ,easi3le.

*: Cra' +o7n ( i, a "lass votes a1ainst the plan9 the plan still 'i1ht 3e
"on,ir'e.9 un.er the B"ra' .o+nC rules.
D 11>*9b: ( pro3a3l* the 'ost po+er,ul tool in the reor1ani@ation
pro"ess. /he "re.itors )no+ that plan ter's "an 3e "ra''e. .o+n on
the'. /his 1ives the .e3tor levera1e to have the' sit .o+n an. +or)
+ith the' 3e"ause o, the threat o, ,or"in1 so'ethin1 .o+n their throat.
1): 8bsolute -riority %ule ( si'pl* 'eans that se"ure. the "lasses 1et pai. in
the or.er o, their "lass nu'3er. B8ra' .o+nC re>uires ,ull pa*'ent o, se"ure.
"lasses9 an. in"orporates the Ba3solute priorit*C rule ,or unse"ure. an. e>uit*
"lasses. /he unse"ure. an. e>uit* "lasses .on4t 1et pai. an*thin1 until the
priorit* "lass is pai. in ,ull. <, the priorit* "lass votes a1ainst the plan an. the*
are i'paire.9 the* "an invo)e the Ba3solute priorit*C rule to re>uire that the* 1et
pai. in ,ull 3e,ore the 1eneral "re.itors 1et an*thin1. <n so'e +a*s9 this is in
e&"han1e ,or the "ra' .o+n po+er. -ou "an +aive *our ri1ht to the Ba3solute
priorit*C rule.
;Y-0: so'eti'es the se"ure. "re.itors +ill 1ive up a little 'one* to
so'e o, the other "lasses so that the* +ill vote in ,avor o, the plan.
11@>*@)F
# 1,N8L %A,AW
# AK8<
o Fa'e ,or'at as the e&a'ple ,ro' last *ear
o /+o ,a"t patterns ( >uestions 3ase. on the ,a"t patterns. %a"h >uestion tells *ou ho+
'an* points it is +orth.
o 3 hours to .o the e&a'. Dse the ,irst hour to rea. the e&a'. <t is a3out 6 pa1es lon1.
# ;an)rupt"* is not a 3a. thin1. ;an)rupt"* is a 1oo. thin1.
# Philosoph*: 1ive the in.ivi.ual a ,resh start. $or entities9 it is to 1ive the entities a *reathing spell
to catch its *reath and igure out how to reorgani+e to stay in *usiness. /he su1ar "oatin1 is that
3an)rupt"* is suppose. to 3e ,air an. e>uita3le to 3oth the .e3tors an. the "re.itors. /o
un.erstan. 3an)rupt"*9 *ou have to un.erstan. +hat happens 3e,ore.
# Priorities are i.enti,ie. 3* state la+.
# Re'e.ies ,or "re.itors are ,ro' state la+. replenish'ent9 1arnership9 et".! these re'e.ies are
either "onsensual "re.itor an. .e3tor a1ree! or :u.i"ial "re.itor pursues one o, these re'e.ies
an. 1ets a :u.1'ent ,ro' the state "ourt a1ainst the .e3tor!. Autsi.e 3an)rupt"*9 the dilient
creditor prevails. /he ni"e "re.itor that 1ives the .e3tor 'ore ti'e loses. /he .ili1ent "re.itor
1ets the 1arnish'ent9 the :u.i"ial lien9 et".
# 7e3tor # J 10113! an. J 109.
o 7e3tor 'a* 3e9 in 8hapter 119 a 7<;. J 1107
# 8re.itors J 10110 ( se"ure. "re.itors J 506 overse"ure. or un.erse"ure.!. Ftatus o, a se"ure.
"re.itor .eter'ines ho+ the* "an 1et their stu,, 3a").
o Dnse"ure. "re.itors "an have priorit* J 503 an. J 507
o EEE
# ;an)rupt"* trustee is al+a*s appointe. in 8hapter 7 an. 13. <t 'a* 3e9 3ut not usuall*9 in 8hapter
11. Dnite. Ftates /rustee 28 D.F.8 J 581.
# ;an)rupt"* :u.1e.
# $irst >uestion: "an this person ,ile 3an)rupt"*E 5ho "an ,ile 3an)rupt"*E
Philip Larson Page 40
Intellectual Property: Class notes
o 1! it 'ust 3e a person an. that person 'ust have "onne"tions to the Dnite. Ftates. /his is
a .is"ipline +here *ou have to learn the vo"a3ular*.
o J 101 1ives *ou 'ost o, the vo"a3ular*. BPersonC .oesn4t ne"essaril* 'ean an
in.ivi.ual. Dn.er J 10141! it in"lu.es entities an.
o J 1093! +ho "an ,ile 3an)rupt"*. An in.ivi.ual 'ust 'eet the 'eans test. J 7073! <,
the in.ivi.ual .oesn4t pass the 'eans test9 the* 'a* 1o to 8hapter 13 3ut the* "annot ,ile
8hapter 7.
o A'en.'ents 'a.e it 'ore .i,,i"ult ,or in.ivi.uals to ,ile 8hapter 7 to ,unnel 'ore into
8hapter 13.
o All .e3tors 'ust ,ile pre#,ilin1 "ounselin1. /he onl* e&"eption is i, there is no
"ounselin1 availa3le. Dn.er 99G o, the situations9 *ou nee. a "erti,i"ate o, "ounselin1
3e,ore ,ilin1 in an* o, the 8hapters as an in.ivi.ual. Credit counselin is not re:uired
for entities or "orporations.
# 5ho "an ,ile "hapter 13
o J 109e! ( an in.ivi.ual "an ,ile 8hapter 13. Anl* in.ivi.uals "an ,ile. ;ut the* 'ust
have unse"ure. .e3t less than III an. se"ure. .e3t less than III
# 5ho "an ,ile un.er "hapter 11E
o J 109.! an*one un.er 8hapter 7 "an ,ile "hapter 11.
# 5here .o *ou ,ileE
o Prin"ipal pla"e o, 3usiness or pla"e +ith the prin"ipal assets. -ou "an have a "orporation
in HA 3ut all its assets lo"ate. in /I. /hat "orporation has a "hoi"e o, ,ilin1 in HA or
/I. /he ,a"t that it sells thin1s throu1hout the DF .oes not 1ive it the option o, ,ilin1
an*+here. <t is +here the assets are.
# J 301 # $ile a voluntary petition. /hen9 *ou nee. to ,ile a s"he.ule o, assets an. lia3ilities9 *ou
have to pass the 'eans test9
o ;an)rupt"* 3e1ins +hen or.er ,or relie, is entere.. /his is entere. 3* the "ler) (!en t!e
petition is filed. An"e the .ate sta'p is "reate.9 3an)rupt"* 3e1ins.
#
# J 303 ( <nvoluntar* petitions ( i, there are 'ore than 12 "re.itors9 *ou nee. at least 3 that have at
least ?12300 o, unse"ure. un.ispute. "lai's
o Ar.er o, relie, is entere. 3* the :u.1e a,ter a hearin1 to ensure the 3an)rupt"* is
+arrante..
# J 541 ( 3an)rupt"* estate is "reate..
o /his "reates the .e3tors 3u")et an. the estate4s 3u")et. %ver*thin1 in the .e3tors 3u")et
is 'ove. to the estate4s 3u")et ,or the trustee or 7<P to 'ana1e. Propert* an. interests
are .e,ine. 3* ,e.eral la+9 state la+ or lo"al la+. /here is no .e,inition in the 3an)rupt"*
"o.e.
o An the petition .ate9 the auto'ati" sta* "o'es into pla* enJ 362 en:oinin1 all a"tions
a1ainst the .e3tor ,ro' the "re.itors. /his stops t!e race to t!e court!ouse. /he
auto'ati" sta* stops the ra"e. <t stops all a"tions a1ainst the .e3tor in"lu.in1 ,ore"losure.
5hether the 3an) )no+s a3out the ,ilin1 or not9 the ,ore"losure is stoppe.. /he
auto'ati" sta* is part o, the ,resh start. /he in.ivi.ual .e3tor at that point is relieve. o,
all o, the pro3le's 1oin1 on an. is allo+e. to start ,resh. <n"o'e a,ter petition .ate is
not part o, the 3an)rupt"* estate in 8hapter 7. Auto'ati" sta* also helps "orporations
an. entities preserve the value o, the entit*. /he 3an)rupt"* ,ilin1 allo+s the entit* not to
have to 'a)e pa*'ents on prepetition .e3t an. have a 3reathin1 spell.
o Auto'ati" sta* is a te'porar* in:un"tion that lasts until the en. o, the "ase unless the
auto'ati" sta* is li,te.. J 3623! "re.itor "an sho+ there is "ause to li,t the sta* or that
the .e3tor has )no+ e>uit* in the propert* an. the propert* is not nee.e. 3* the
3an)rupt"*.
o Auto'ati" sta* .oes not stop "ri'inal pro"ee.in1s or prevent 1overn'ent pro"ee.in1s
,or thin1s li)e tra,,i" violations. <t .oes not stop .o'esti" support o3li1ations "hil.
support9 et".!.
Philip Larson Page 41
Intellectual Property: Class notes
o 7e3tor i, it is an entit*! 'ust "ontinue to operate in 3an)rupt"* in ,ull "o'plian"e +ith
all la+s an. rules that "o'petin128 D.F.8. J 559. /here,ore9 an airline in 3an)rupt"*
still has to .o re1ular 'aintenan"e on air"ra,t9 et".
# Fe"ure. "re.itors
# 5hat "an happen to a se"ure. "lai'E
o J 363 /rustee "an sell the propert* to pa* o,, the "re.itor
o J 554 ( /rustee "an a3an.on the propert* in 8hapter 7 or 11 i, the propert* is a 3ur.en.
o 7e3tor "an e&e'pt propert*9 in"lu.in1 propert* that is se"urin1 a se"ure. "re.itor. /he
se"ure. "re.itor4s lien sti")s +ith the propert* i, the .e3tor ta)es it out o, the trustee
3u")et throu1h e&e'ption.
o 7e3tor or estate "an "hoose to pa* o,, the "re.itor in so'e other 'eans. As lon1 as the
"re.itor is pai. the value o, the "ollateral9 the .e3tor or estate "an :ust pa* the' o,, an.
1et the' out o, the "ase. /he* 'i1ht .o this 3* 1ettin1 7<; ,inan"in1 an. use the loan to
pa* prepetition "re.itors. =o+9 the ne+ len.er +oul. have a lien.
o J 362.! Fe"ure. "re.itor "an 'ove to li,t the auto'ati" sta*.
o 7e3tor "an tr* to prevent the li,tin1 o, the sta* 3* sho+in1 a poli"* reason or 3* sho+in1
the "re.itor is a.e>uatel* se"ure.. J 361 "ash pa*'ent9 1rantin1 a lien on other
"ollateral9 or 1ivin1 the' the e>uivalent o, the "re.itor4s interest!
# <, .e3tor +ants to )eep the "ar9 +hat "an he .oE
o J 722 re.e'ption ( re>uires the .e3tor to ,in. out so'e +a* to pa* o,, the "re.itor. 2e
"an re.ee' the "ar 3* ta)in1 a loan to pa* o,, the loan to 1et the' out o, the 3an)rupt"*.
/he ne+ len.er pro3a3l* +ill +ant a lien on the "ar.
o Rea,,ir'ation ( .e3tor 1oes to "re.itor an. sa*s he +ill "ontinue 'a)in1 pa*'ents on
the "ar. /he* "an rene1otiate the ter's +ith the "re.itor 3ut the .e3tor. J 524"! (
rea,,ir'ation re>uires ,ull .is"losure to the .e3tor o, his ri1hts 3* either the "ourt or the
.e3tor4s attorne*.
5e +ant to 'a)e sure the* have ,ull .is"losure 3e"ause it 'i1ht not 3e the 3est
thin1 ,or the' to .o.
A rea,,ir'ation has to 3e approved by t!e court. /he .e3tor an. "re.itor "an4t
.o this o,, to the si.e. Sears. Rea,,ir'ation 'ust 3e approve. 3* the "ourt.
o Reinstate'ent ( .e3tor +ill "ontinue to 'a)e pa*'ents an. not 3e in .e,ault an.
"ontinue to 1o ,or+ar.. /here is no rea,,ir'ation9 it is :ust the sa'e ol. .e3t.
/here is no su"h thin1 as reinstate'ent in the 3an)rupt"* "o.e. /here,ore9 *ou
'ust .o either re.e'ption or rea,,ir'ation.
o %&e"utor* "ontra"ts an. une&pire. leases. J 365 1ives a lot o, po+er to the .e3tor to
"ontrol +hat happens in the ,uture +ith lots o, Ks an. leases.
%&e"utor* K is +here there is still 'aterial stu,, that has to happen on 3oth si.es
o, the K. A loan t*pi"all* is not one 3e"ause the len.er has .one ever*thin1.
Dne&pire. lease is a lease that has not e&pire. nor ter'inate. before t!e petition
date. <, it is ter'inate. 3e,ore the petition .ate9 it is =A/ an une&pire. lease
an. .oes not "o'e un.er J 365. <, it .oes9 the .e3tor has a ,e+ options 1!
assu'ption an. 2! re:e"tion.
Loo) at the lease an. see i, it is a 3ene,it to the .e3tor an. estate or a 3ur.en
3e"ause o, +hat the .e3tor still has to per,or'. 7e"ision +hether to assu'e or
re:e"t 'ust 3e approve. 3* the "ourt. <t +ill 3e 3ase. on business "udment.
/here,ore9 *ou nee. to have a 3usiness :u.1'ent reason 3ase. on +hether it is a
3ene,it or a 3ur.en to the .e3tor or the estate.
/i'in1 .epen.s on +ho an. +hat. 8hapter 7 trustee has 60 .a*s . <n all other
8hapters9 .e3tor has until "on,ir'ation to a"t in 'ost "ases. Resi.ential9 real
propert* lease +ill 3e .ee'e. re:e"te. i, not .is"usse. in . J 365.!4!.
Personal propert* leases e.1. "o'puters! ( 7<P or trustee has 60 .a*s .urin1
+hi"h it is a ,ree perio. to .e"i.e +hat to .o +ith the leases J 365.!5!. A,ter
60 .a*s9 the 7<P or trustee 'ust per,or'. /he "re.itor "an 'ove at an* ti'e to
Philip Larson Page 42
Intellectual Property: Class notes
"o'pel a .e"ision on assu'ption or re:e"tion. <, the 7<P or the trustee "hooses
to re:e"t9 several i'portant thin1s happen.
Ks an. leases .o not 3e"o'e o3li1ations o, 7<P or trustee. 7<P is a
,i"titious entit* 3/" the* are per,or'in1 the a"tivities o, the trustee.
7<P or trustee is not o3li1ate. un.er the K 3e"ause it is not a part* to
the lease. <, there is a re:e"tion9 there is no o3li1ation o, the 7<P or
trustee. /he estate9 ho+ever9 no lon1er re"eives an* 3ene,its ,ro' that
lease or K. $or e&a'ple9 i, *ou re:e"t real estate9 *ou "an4t use it
an*'ore.
Re:e"tin1 a K or lease is the sa'e as a 3rea"h o, K. <t is a 3rea"h o, K
or lease. Lust li)e in "ontra"ts9 this results in .a'a1es to the other
part*. /hese are re"ection damaes. Re:e"tion .a'a1es 3e"o'e an
unsecured claim. <t is treate. as i, the re:"tion too) pla"e as o, the
petition date even i, it a"tuall* happens 'onths later.
7e3tor "an assi1n the lease to a thir. part*. /he* 'i1ht .o this 3e"ause
there 'i1ht 3e value in assu'in1 the lease an. then assi1nin1 it to
so'eone else an. 1ettin1 so'e a'ount o, 'one* ,or the assi1n'ent.
/he trustee then 'i1ht 3e a3le to 3uil. up the trustee 3u")et 'ore. <,
the .e3tor +ants to .o aPit relieves the estate o, all lia3ilit*. /he
assi1nor trustee or 7<P!9 has no a..itional lia3ilit*.
o Antiassi1n'ent "lauses are 1enerall* invali. in 3an)rupt"*.
o /he onl* part* lia3le ,or ,uture per,or'an"e is the assi1nee
the person .oin1 3usiness +ith the trustee!. /he* are ,ull*
lia3le ,or ,uture per,or'an"e.
o /he "re.itor is not le,t out o, +hat is ,air an. e>uita3le. /he
non#.e3tor is prote"te. 3* a.e>uate assuran"e o, ,uture
per,or'an"e 3* the assi1nee. /he .e3tor 'ust present proo,
o, ade:uate assurance o, ho+ the thir. part* +ill 3e a3le to
per,or' in the ,uture. ,inan"ial state'ents9 testi'on* 3* the
thir. part*9 et".!
o 7<P or trustee tr*in1 to ,ill up the 3u")et +ith 'ore assets:
8hapter 5 avoi.in1 po+ers ( t+o issues: 1! 'a&i'i@e assets o, the estate9 an. 2!
'a)e sure +hat *ou are .oin1 is ,air an. e>ual treat'ent ,or all "lasses o,
"re.itors.
J 541 sa*s +hat propert* o, the estate "onsists o,
J 542 sa*s an*one hol.in1 propert* o, the estate 'ust turn it over to the estate.
7<P or trustee "an loo) to these parties an. tell the' to 1ive it 3a"). <RF too)
"o'panies assets to tr* to pa* o,, ta& o3li1ations. ;ut 3* ta)in1 the assets9 the
"o'pan* "oul.n4t "ontinue to 3e pro.u"tive. <t nee.e. to 3e allo+e. to
"ontinue to 3e a 1oin1 "on"ern. Fin"e the <RF ha. not *et sol. the propert*9 the
"ourt use. J 542 to 1et the' to 1ive the propert* 3a").
J 5449 5479 5489 550 ( authori@ation ,or 7<P or trustee to avoi. trans,ers o,
propert* that o""urre. prior to the petition .ate. 90 .a*s prior to petition .ate is
"alle. the preference period J 547. A pre,eren"e is a trans,er o, the .e3tors
propert* 3* the .e3tor to a "re.itor on a""ount o, an ante"e.ent .e3t o+e. to
that "re.itor. /he .e3tor 'ust 3e insolvent at the ti'e9 +hi"h is assu'e. to 3e
true un.er J 547. /his is re3utta3le. /he e&"eptions are 1! it is a
contemporaneous e#c!ane9 2! it +as 'a.e in the ordinary course of business
this 'eans *ou loo) at the histor* o, the relationship o, the t+o parties (
pa*'ent histor*9 et". ( i, *ou sho+ the sa'e relationship +as si'pl* 1oin1 on9
then these are not preferences!9 3! pa*'ent in e#c!ane for ne( value
'enain1 "re.itor 1ave ne+ value to the .e3tor a,ter the .e3tor 'a.e pa*'ent
to the "re.itor!.
o $rau.ulent trans,ers J 548 ( an* trans,ers 'a.e +ithin t+o *ears o, petition .ate.
Philip Larson Page 43
Intellectual Property: Class notes
A"tual ,rau. ( 'ust sho+ actual intent there +as an a"tive atte'pt to .ela* or
.e,rau. "re.itors.
;a.1es o, ,rau. ( lots o, "ase la+ a3out 3a.1es o, ,rau..
J 548 # 8onstru"tive ,rau.. ( .e3tor re"eive. less than reasona3l* e>uivalent
value in e&"han1e at a ti'e the .e3tor +as insolvent or 3e"a'e insolvenet as a
result o, the transa"tion!. Reasona3l* e>uivalent value at a ,ore"losure is
+hatever +as re"eive. as lon1 as the ,ore"losure ,ollo+e. the re>uire'ents o,
state la+. As lon1 as the ,ore"losure +as .one properl*.
J 544 allo+s 7<P or trustee to use state la+s po+ers to 1et lon1er loo) 3a")
perio.s. Dn.er the ,rau.ulent trans,ers in 'ost state la+s9 the rea"h3a") 1oes 4
*ears. /here,ore9 i, there is state la+ *ou "an use J 544 to reverse a ,rau.ulent
trans,er as ,ar 3a") as 4 *ears.
o 8re.itors
8re.itors ri1hts ( it is not an o&*'oron. 8re.itors .o have ri1hts. ;ein1 a
"re.itor 1ives *ou a ti")et to parti"ipate in the 3an)rupt"*. -ou 1et to vote on
the plan in 8hapter 11. -ou 1et to re"eive part o, the .istri3ution o, +hat is in
the estate 3u")et. 2o+ever9 *ou nee. a "lai'.
J 1015! "lai' is a ri1ht to a pa*'ent or a ri1ht to an e>uita3le re'e.* ,or
3rea"h o, per,or'an"e that 1ives rise to a ri1ht to pa*'ent.
8lai's "an 3e 'ature. or un'ature.. <t "an 3e .ispute. or un.ispute..
$or that ti")et to 3e +orth an*thin19 J 502 re>uires *ou to 1et *our
"lai' allo+e.. -ou 'i1ht 3e a3le to 1et the "lai' allo+e. ,ro' the
.e3tor4s s"he.ules i, there is no .ispute!. -ou "an ,ile the "lai' an. i,
there is a .ispute the :u.1e .e"i.es the value o, the "lai'.
Halue o, the "lai' is set as o, the petition .ate.
Fo'e "lai's have statutor* "aps on the'. /he lan.lor. that has a
re:e"te. lease . J 5023!6! ( sa*s a lan.lor.s "lai' ,or 3rea"h o,
.a'a1es on a lease is li'ite.. 2e "an4t sa* it is all the rent ,or the ne&t
ten *ears. <t is 1 *r or 15G o, K .a'a1es not to e&"ee. the a'ount that
+oul. 3e 3 *rs.
o 5ho 1ets priorit*E
Fe"ure. "re.itors 1et priorit*. 6ost i'portant re"o''en.ation is to 'a)e sure
the "lient is a se"ure. "re.itor. /he* 1et pai. the ,ull value o, their "lai' up to
the value o, the "ollateral. J 506 se"ure. "re.itors.
J 507 ( priorit* "re.itors are unse"ure. "re.itors that statutoritl* have priorit*.
8on1ress .e"i.es +ho is on this list. 8on1ress in"lu.es 1! .o'esti" support
o3li1ations spouses an. "hil.ren!9 2! a.'inistrative "lai's an. a.'inistrative
e&penses J 507&&9! ( these are the ne"essar* e&penses to preserve the estate9
"ertain ta&es.
J 330 are in"lu.e. as a.'inistrative e&penses. %&penses o, people
+ho re"over propert* ,or the estate are a.'inistrative e&penses.
La+*ers ,ees are a"tual an. ne"essar* to preserve the estate so the* are
a.'inistrative.
5a1es o+e. to e'plo*ees .urin1 the 180 .a*s prior to 3an)rupt"*
3ein1 ,ile. are li'ite. to ?10) per e'plo*ee. Dnpai. 3ene,its to
e'plo*ee 3ene,its plans are li'ite. to ?10). 8onsu'er .eposits +ith
so'e "o'pan* are treate. as a priorit* "lai'. 7eath an. personal
in:ur* "lai's arisin1 ,ro' ,ault "ause. 3* .rivin1 un.er the in,luen"e.
/hese "lai's +ill have priorit* un.er J 507.
o Dlti'ate purpose o, 3an)rupt"* is to .is"har1e .e3ts.
7is"har1e onl* applies to .e3ts9 not to o3li1ations.
<n 8hapter 79 .is"har1e applies to .e3ts 3e,ore the petition .ate.
<n 8hapter 119 J 1141 applies to .e3ts in"urre. prior to "on,ir'ation .ates.
/here,ore9 .e3ts .urin1 3an)rupt"* pro"ee.in1.
Philip Larson Page 44
Intellectual Property: Class notes
8hapter 139 .is"har1e is onl* ,or .e3ts in"lu.e. in the plan an. are onl*
.is"har1e. a,ter the plan is "o'plete.. A,ter the 5 *r perio. i, the .e3tor has
'a.e all the pa*'ents un.er the plan.
7is"har1e is not availa3le to ever*one. 8on1ress .e"i.es. Liens are not
.is"har1e.. Liens pass throu1h 3an)rupt"*. <t .oes not appl* to a
reaffirmation. /hat is +h* there is the ,ull .is"losure re>uire'ent. <, *ou
rea,,ir'9 the a'ounts o+e. +ill not 3e .is"har1e. in 3an)rupt"*.
7is"har1e .oes not appl* to non#.e3tors. Partners are not .is"har1e.. <, *ou
1uarantee *our sons .e3ts.
-ou "an4t .is"har1e ,rau.ulent "lai's.
-ou "an4t .is"har1e +ill,ul in:ur* or 'ali"ious in:ur* "lai's.
-ou "an4t .is"har1e .o'esti" support o3li1ations9 stu.ent loans9 7D< "lai's9 or
"ri'inal "lai's.
o 7e3tor 1ets to loo) in the 3u")et an. ta)e thin1s 3a") ,a'il* 3i3le9 +e..in1 rin1s9
"lothes!. All these are e#emptions. 7e3tor is entitle. to 1o into estate 3u")et an. sa*
this propert* is e&e'pt an. ta)e it out o, the 3u")et so the trustee .oesn4t have it to .eal
+ith. %&e'ptions are su3:e"t to unavoidable liens. <, *ou +ant to e&e'pt *our "ar9 *ou
"an .o that up to ?2)! 3ut it is still su3:e"t to the ori1inal ,inan"in1 arran1e'ent.
%&e'ptions are onl* availa3le to people +ho are honest an. 'a)e ,ull .is"losures. 6a)e
sure the "lient has 3een ,ull* .is"losin1 ever*thin1 to the 3an)rupt"* "ourt.
o 6antra in 3an)rupt"* is disclosure? disclosure? disclosure.
$rau. in 3an)rupt"* is a "ri'e investi1ate. 3* the DF Attorne*4s A,,i"e.
7e3tor is entitle. to ta)in1 a.vanta1e o, e&e'ptions i, there is ,ull .is"losure
an. he is honest.
o 7e3tor 1ives up all none&e'pt propert* ,or li>ui.ation in e&"han1e ,or insulation ,ro'
,uture in"o'e 1oin1 to "re.itors. <n 8hapter 79 insulation he 1ets 3* 1ivin1 up his non#
e&e'pt propert* is that an* in"o'e he 'a)es post#petition "annot 3e 1one a,ter 3*
"re.itors. <n 8hapter 139 the* "an. 2o+ever9 a,ter the 5 *ear 8hapter 13 plan is
"o'plete.9 an* unpai. .e3ts are .is"har1e. an. an* ,uture in"o'e "an4t 3e ,or"e. to 3e
use. to "over pre3an)rupt"* .e3ts.
# 8an *ou 'eet +ith .e3tor an. ,i1ure out ho+ to 'ove so'e thin1s aroun. to 'a)e sure the value
is in e&e'pt propert*E 5hen is e&e'ption plannin1 a ,air e&er"ise o, ri1hts un.er the 3an)rupt"*
"o.e an. +hen is it a ,rau. a1ainst "re.itors. /here is nothin1 +ron1 +ith e&e'ption plannin19 as
lon1 as it is not hin.erin19 .ela*in1 or .e,rau.in1 "re.itors.
o 2-PA: sellin1 all assets an. puttin1 ever*thin1 into a resi.en"e in $L +here the
ho'estea. e&e'ption +as unli'ite.. /his is "onsi.ere. to 3e ,rau. on "re.itors.
8on1ress put in so'e li'itations on this t*pe o, e&e'ption. =o+9 *ou "an4t put all *our
assets in a house in $L until .e3ts are .is"har1e. an. then sell.
# /here is a "hoi"e on e&e'ptions 3et+een 3an)rupt"* "o.e or state la+ +ho 'a)es this "hoi"eE!.
Ftate la+ .eter'ines +hether .e3tor has that "hoi"e. HA opts out o, the e&e'ptions in the
3an)rupt"* "o.e. <, *ou 'ove to a state 9 J 5223!1! an. .!.
o J 522.!2! ( pull *our 3oo) o, HA statutes an. loo) at 34#19 34#26 ( lists the state
e&e'ptions in HA.
8hapter 11
# 8hapter 11 is the 'eans ,or an entit* or in.ivi.ual to reha3ilitate or restru"ture9 reor1ani@e9 that
BpersonC +ithout 1oin1 throu1h li>ui.ation in 8hapter 7.
o <, *ou +ent to a 3usiness s"hool to 1et an 6;A9 there is a "ourse to stu.* 3an)rupt"* as
one o, the 3usiness 'eans ,or solvin1 so'e 'a:or 3usiness pro3le's. <nstea. o, sellin1
sto")9 issuin1 3on.s9 et". one o, *our options is 8hapter 11.
o 8hapter 11 .e3tor 'ust .o t+o thin1s:
1! a.'inister "lai's ( 'ini'i@e "lai's a1ainst the estate to re.u"e lia3ilities.
Dse J 502 to ,i1ht the allo+an"e o, "lai's. -ou +ant to 'ini'i@e the lia3ilities
a1ainst the estate. -ou also +ant to use *our s"he.ules to la* out +hat *ou thin)
is the realit* on the petition .ate.
Philip Larson Page 45
Intellectual Property: Class notes
2! avoi.an"e a"tions ( ,rau.ulent trans,ers an. pre,eren"es are all +a*s to 3rin1
transa"tions that too) 'one* or propert* out o, the estate 3u")et 3a") into the
3u")et. /hese "lai's then 3e"o'e unse"ure. "lai's that pro3a3l* +on4t 3e
pai. in ,ull.
o -ou "an avoi. the 3ur.en o, "ostl* Ks or "ostl* leases 3* usin1 J 365 provisions ,or
re:e"tin1 an. assu'in1 Ks.
o J 363 allo+s *ou to use9 lease or sell assets. <, it is outsi.e +hat *ou +oul. or.inaril* 3e
.oin19 *ou have to 1et "ourt approval.
o -ou "an 1o out an. 1et a 3an) to loan *our .e3tor 'one* an. that len.er "an 3e se"ure.
+ith "ollateral that is ,ree o, liens. -ou "an also 1et a super priority lien on propert*
alrea.* se"ure. i, *ou "an sho+ the other se"ure. "re.itor +ill 3e pai. in ,ull.
o All o, these tools "an 3e use. to a""o'plish the 3usiness solution *ou +ant.
# 10 thin1s to re'e'3er a3out "on,ir'in1 a plan in 3an)rupt"*.
o %,,e"t ( ever*one is 3oun. 3* the plan +hether the* vote. ,or it or nto. /hat is +hat
'a)es 3an)rtup"t* so .i,,erent than ne1otiations an. +or)outs outsi.e o, 3an)rupt"*.
o 8ontent ( plan or reor1ani@ation "an "ontain an*thin1 *ou +ant. -ou "an 3e ver*
"reative so'eti'es. An*thin1 *ou an. the other parties a1ree on "an 3e in"lu.e..
o 5ho "an propose a planE $or the ,irst 18 'onths9 onl* the .e3tor. /he "o.e onl* sa*s
120 .a*s9 3ut the .e3tor "an 1et e&tensions. /he 8o.e li'its e&tentions to 18 'onths.
7urin1 that e&"lusivit* perio. onl* the .e3tor "an propose a plan.
o 8lass stru"ture ( +e +ant to treat all "re.itors e>uall* +ithin their "lasses. All the
'e'3ers o, the "lass 'ust 3e treate. e>uall* an. ,airl* an. e>uita3l*.
o Hotiin1 3* "lass ( the votin1 is .one 3* "lass. A "lass vote 'ust 3e Z50G o, the 'e'3ers
an. represent Z 2/3
r.
s o, the a'ount.
o $ull .is"losure ( *ou have to ,ull* .is"lose enou1h in,or'ation so that the parties9
"re.itors9 have enou1h in,or'ation to 'a)e a reasona3le :u.1'ent a3out +hether to vote
,or the plan or not. /his is not the sa'e as a se"urities .is"losure. -ou nee. enou1h
in,or'ation
o ;est interests test ( .e3tor 'ust sho+ that "re.itors +ill 1et 'ore than the* +oul. 1et i,
there +as a 8hapter 7 li>ui.ation.
o $easi3ilit* ( +hat is ,easi3ilit*E Lu.1e has to 3e "onvin"e. that the plan has a reasona3le
possi3ilit* o, +or)in1 +ithin a reasona3le a'ount o, ti'e.
o 8ra' .o+n # J 11293! ( *ou .on4t have to have ever*one in the "ase a1reein1 +ith the
plan. -ou have to have at least one unse"ure. "lass vote in ,avor o, the plan. /hen *ou
"an "ra' the plan .o+n.
o A3solute priorit* ( i, *ou have a .issentin1 "lass9 no one 3elo+ that "lass 1ets pai.
an*thin1P7issentin1 "lasses 3ene,it ,ro' the a3solute priorit* rule sa*in1 the* 1et pai.
3e,ore an* lo+er "lasses 1et pai. a .i'e.
Philip Larson Page 46