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Bankruptcy & Creditors’ Remedies - Fall 2014

Professor Charles Shafer cshafer@ubalt.edu

(v):410 837 4623 (f):410 837 4492

Office Hours - Suite 1014 Tuesday 4:30 – 5:30 Thursday: 12:00-2:00

Required Reading Warren & Westbrook, 2013 Supplement ofThe Law of Debtors and Creditors Any 2014 edition Bankruptcy Code All additional statutes, additional problems, cases and other course materials are available on TWEN

Grading Policy

Per Cent of Final Grade

Final Exam Completely Open Book & Open Notes - Essay 80 -100 %

Class Participation

Please give me a note prior to class if you are unprepared to discuss the material assigned for that class.

0 - 15%

Additional Assignments.

I may give announced or unannounced quizzes regarding the day’s assignment. I may give homework assignments regarding the operation of some statute sections. These may be voluntary or required.

0-15%

Lateness Each time (above two) arriving after class begins 2% off

Cell phones Each time a cell phone or pager goes off audibly during class 2% off

Attendance Students with more than five absences might not be permitted to take the exam.

Use of electronic devices during class

The science is in: there is no such thing as multitasking. To avoid degrading your performance in class and distracting other students, please do not use electronic devices for any reason other than taking or reading notes or accessing class materials. Be sure that any computer is set so that you cannot receive messages. Violators will not be allowed to bring electronic devices to class.

Use of computers to store materials and to take notes.

In this class, you may have several types of materials to keep track of at the same time (e.g., your notes, casebooks, statutes, supplementary problems). However, if you have all of these materials on your laptop or phone, switching back and forth between these various items may be time consuming. It may make following the discussion difficult and waste class time if you are called upon to recite in class. You should determine how best to deal with that problem

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Topic Section of Materials Attached 8/19 No Class 8/21 Overview & Article 9 I & II 8/26 Property of the Estate III A 8/28 Special Problems III B & C 8/28 Judicial Liens: Real Property IV A 9/4 Judicial Liens: Personal Property IV B 9/9 Garnishments

Multiple Jurisdictions IV C & D

9/11 Prejudgment Remedies IV E 9/16 Lis Pendens, Statutory Liens IV F & G 9/18 & 9/23

Exemptions V A & B

9/25 Lien Avoidance V C 9/30 Automatic Stay VI 10/2 Fraudulent Conveyances VII 10/7 & 10/9

Claims & Distributions VIII

Week of October 6 – Mid Term – Students May Select Time to take the test

10/9 Discharge IX 10/14 Reaffirmation / Redemption /Ride Thru X 10/16 Abuse & The Means Test XI 10/21 Review Chapter 7 & Chapter 13

Overview No Assignment

10/23 Chapter 13 – Secured Claims – Part One XII 1-2 10/28 Chapter 13 - Secured Claims – Part Two XII 3-6 10/30 Chapter 13 – Unsecured Claims – Part

One XIII 1- 2

11/4 Chapter 13 – Unsecured Claims – Part Two

XIII 3-4

11/6 Chapter 13 - Discharge XIV 11/11 Trustee’s Lien Avoidance - Part One XV A & B 11/13 Trustee’s Lien Avoidance XV C 11/18 Bankruptcy Jurisdiction XVI 11/20 Review No Assignment

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Abbreviations Used in This Syllabus WW refers to pages in Warren & Westbrook 2013 Supplement Pages without attribution are for Warren & Westbrook PS or Problem Set refers to the problem sets in Warren & Westbrook. CJP refers to Maryland Courts & Judicial Proceedings CL refers to the Maryland Commercial Law MD Rule or Rule (without additional attribution) refer to the Maryland Court Rules BC refers to the Bankruptcy Code Sections without attribution are for the Bankruptcy Code. Other references are to cases or materials that are on TWEN.

Basic Concepts of Debtor Creditor law I.A. Overview of the Course

1. This course deals with the issue of how a person (remember that includes corporations) that is owed money can get that money from the debtor. There are three main avenues toward that goal:

a) Extralegal: (Note: not “illegal.”) Convince the debtor to pay. There are legal limitations on the techniques that may be used to achieve this. Each state and the federal government have debt collection statutes and there are common law tort remedies. We don’t discuss them in this class. But essentially creditors shouldn’t lie, harass, or threaten or engage in violence. These limitations, of course, take a lot of the fun out of collecting debts. b) Legal:

(1) Obtain an interest in the debtor’s property; sell that property, and take the debt out of the proceeds of that sale. This can be done in two ways:

(a) Voluntary: Obtain a security interest in some of the debtor’s property. This is largely governed by Article Nine of the Uniform Commercial Code as enacted in each state. (b) Involuntary: Get a judgment against the debtor. Then obtain a lien on the debtor’s property. Enlist the state to seize and sell the property subject to that lien.

c) Bankruptcy (either voluntary or involuntary). 2. There are two main issues that will come up in our discussion throughout the course:

a) How does a creditor get an interest in the Debtor’s property? b) How are conflicts among creditors resolved?

Security Interests Under Article Nine of the UCC II.A. Why study this

1. There is a course that covers this area of the law in great detail. But the Secured Creditor is an extremely important player in the material we cover in this course. So our goal is just to understand the basics of Article Nine to understand the interaction of the Secured Creditor and the statutes we cover. 2. Essentially this is also an overview of those two basic concepts involved in this course:

a) How does a creditor get an interest in the Debtor’s property?

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b) How are conflicts among creditors resolved? B. Reading

1. W&W: 44-49 2. Read through the following sections of Title Nine of the Maryland Commercial Law: 9-102(74),(75); 9-203; 9-308; 9-309; 9-317(a); 9-322; 9-516

C. Problem for class discussion 1. We will discuss the following facts in class in order to understand

a) How a lender gets a security interest in property. The security interest allows the lender on default to seize and sell the debtor’s property. b) How conflicts among a few types of secured parties are resolved.

Basic Documents

This questions in this part involve the following documents:

#1 Promissory Note #2 Security Agreement #3 Financing Statement

I promise to pay to the

order of Ed Norton, $100 on April 1, 2012.

Ralph Kramden February 1, 2012

I hereby grant to Ed Norton a security interest in my Magic Can Openers as collateral to secure the performance of my obligation to pay Ed Norton $100.

Ralph Kramden February 1, 2012

Basic Facts

Ralph Kramden had an idea for a new business venture involving the sale of a product called the “Miracle Kitchen Tool” However, Ralph was afraid that his wife would not approve. So without telling her, he took $100 out their piggy bank to purchase a thousand of the tools. He then became afraid that his wife would discover the money was missing before he would be able to replenish the piggy bank with the profits from the venture. So he asked his friend Norton to loan him $100 so that Ralph could replace the money in the family Piggy Bank.

Property of the Estate III.A. Overview

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1. When a person files for Chapter 7 Bankruptcy, an “estate” is created. See §541. The trustee has the job of assembling, protecting, and selling that property. Please note that the Code refers to “interests of the debtor in property.” This is language that is absolutely crucial. We should never speak of the “debtor’s property” but rather the “debtor’s interest in property.” 2. Reading

a) WW 61-64 b) BC § 541 (a) & (b) c) PS 3: 3.1

3. Additional Problems a) Dorrit’s only property is Marshalacre which he owns free and clear of liens. Marshalacre is worth $100,000. If Dorrit files for Bankruptcy what will be the property of the estate and what will be the value of the estate. In this and in all subsequent problems ignore any possibility of exemptions. b) Assume the above facts except that:

(1) Dorrit owns the property as a tenant by the entirety with his spouse. (2) Dorrit owns the property as tenant in common with his daughter Amy. (3) Dorrit owns the property as joint tenant with his daughter Fanny

c) Suppose in the above examples, Spouse, Amy or Fanny died shortly before Dorrit filed his Bankruptcy petition. d) Suppose in the above examples, Spouse, Amy, or Fanny died shortly after Dorrit filed his Bankruptcy petition. e) Dorrit’s only property is his 1946 Marshal automobile worth $100,000. On March 1, 2010, Dorrit borrowed $50,000 from First London Bank & Distrust (FIRSTBANK) and gave FIRSTBANK a security interest in the Marshal. The security interest was properly perfected. If Dorrit filed for Bankruptcy on March 15, 2012 what is the property of the estate and what is the value of the estate? Base your answer on §541(a). f) Assume the above facts plus the following additional facts: On March 10, 2010, Dorrit borrowed $25,000 from SECONDBANK and gave SECONDBANK a security interest in the Marshal. The security interest was properly perfected. If Dorrit filed for Bankruptcy on March 15, 2012, what will be the property of the estate and what will be the value of the estate. To what will each party be entitled? Base your answer on both the UCC and §541(a). g ) Assume that the loan from FIRSTBANK was for $120,000. If Dorrit files for Bankruptcy what will be the property of the estate and what will be the value of the estate?

B. Allocation of Property 1. WW: 65-68 2. On March 1, Robert Cratchet, a charming but impecunious law teacher, filed for bankruptcy. On April 1 he won the $1,000 Teaching Excellence Award tor the school year. Who gets the $1,000?

C. Limitations on Transfers 1. 68-72 2. §541(c) 3. PS 3: 3.2 4. Harrell. v. Phoenix Suns 5. Problem:

Fanny Fan filed a Chapter 7 Bankruptcy on May 30, 2011. At the time of the filing, Fan was the holder of season tickets for the 2011–2012 game season of the Mississippi Mushers hockey team. For these tickets and an

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accompanying parking pass, Fan promised, pre-petition, to pay $2,000.00 by a down payment, followed by seven monthly installments of $100. The “Terms and Conditions regarding Mushers’ Tickets” as printed on the reverse of the ticket invoice provide, in pertinent part that:

1. Any Mushers ticket purchased under this invoice is a revocable license which may be withdrawn and admission to any Mushers game refused at any time, in the sole discretion of the Mushers upon refunding the purchase price printed on the face of the ticket less any discount the purchaser may have received. 2. Resale or attempted resale of any Mushers ticket at a price higher than that printed thereon, including tax, is grounds for seizure or cancellation without refund or other compensation. 5. The Mushers acceptance of payment for season tickets from any individual or entity who is not the account holder for such season tickets does not grant rights to such tickets to such individual or entity. 6. Season ticket holders have no right to transfer the seat locations designated by their tickets to any person or entity, whether by a request to transfer the account into another name, or by an attempt to transfer the seat locations by sale, gift, transfer by will or trust, property settlement, transfer to creditors or any other means. Therefore, any attempt to sell or otherwise transfer season ticket privileges may result in the cancellation of all season ticket privileges. Upon any court order directing the distribution of season tickets to a person or entity not listed as the season ticket holder, whether in bankruptcy or otherwise, will result in the Mushers’ right immediately to withdraw the license represented by the tickets, including any season ticket renewal privileges, upon refund by the Mushers of all amounts paid for games that have not yet been played. The Mushers will, however, generally recognize two exceptions to the above prohibition. First, the Mushers

will allow an individual season ticket holder to request transfer of season ticket privileges to members of the season ticket holder's immediate family. Second, if the season ticket holder is a business, it may request a change in the name of the contact person for its account

Can the Trustee sell Fan's season ticket rights by internet auction?

Judgment Creditors & Judicial Liens IV.A. Judgment Liens on Real Property

1. A creditor must get a lien on property in order to have the right to have the property sold and use the proceeds to satisfy the judgment. The first step is to get a judgment against the debtor. It then depends upon whether the property is real property or personal property. 2. McCartney v. Frost 3. Read CJP 11-402 4. Problem:

a) FACTS: Creditor sued Debtor on March 1, 2012 in the Circuit Court of Baltimore County. The trial ended on April 2, 2012. On April 15, 2012 the judge found the Debtor liable to Creditor for $10,000. On May 3, 2012 the clerk recorded and indexed the judgment. On June 1, 2012, Creditor recorded the judgment in the land records. b) Using 11-402

(1) When did the judgment lien arise? (2) What is deemed to be the effective date of the judgment lien

5. Dorrit’s only property is Marshalacre, in Baltimore County, which he owns free and clear of liens. Marshalacre is worth $100,000. On March 10, 2010, Clenman obtained a judgment against Dorrit in the Baltimore County Circuit Court for $50,000. If Dorrit files for Bankruptcy on March 30, what will be the property of the estate and what will be the value of the estate. Use CJP §11-402. 6. Assume the facts above except that on March 12, 2010, Dickens got a judgment against Dorrit for $60,000 in the Baltimore County Circuit Court. Dorrit filed for Bankruptcy on March 15. What will be the property of the estate and what will be the value of the estate. To how much will Clenman and Dickens be entitled? 7. Firstbank has a mortgage on Marshalacre for a $40,000 debt. Subsequently Dickens gets a judgment against Dorrit for $20,000 in the Baltimore County Circuit Court. What will be the

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property of the estate and what will be the value of the estate. To how much will Firstbank and Dickens be entitled? 8. Owen owns Landacre in Baltimore County worth $50,000. On January 1, 2012 Judith obtained a judgment against Owen for $20,000 in the Baltimore County Circuit Court. On March 15, 2012, Owen sold Landacre to Purdue for $50,000. To what is each party entitled? 9. Justin Fine owned a house in Baltimore city worth $100,000. On April 1, 2009, DragonInc. obtains a judgment against Fine for $200,000 in the Baltimore City Circuit Court. On June1, 2009, Fine spent $50,000 to build an addition onto his house which increased the value to$150,000. 10. Sandy and Pat are co owners of a large farm in Baltimore city, Maryland. Steven Mean obtains a judgment for $50,000 against Sandy in the Baltimore City Circuit court on July 5, 2011. On Augus 5, Sandy died. To what is Mean entitled, depending upon whether Sandy and Pat owned the property as

a) Tenants by the entirety? b) Tenants in common? c) Joint tenants?

11. In the above problem, suppose that instead of the judgment, Sandy filed for Bankruptcy on July 5, 2011. 12. Carol Chance owns a house in Baltimore County worth $100,000. On January 1, 2011 Chance granted LUCKBANK a mortgage on the property to secure an $80,000 loan. The mortgage carries an interest rate of 12% per year (i.e., 1% per month –$8,000 per month). On January 2, 2011 Fran Fate obtained a judgment against Chance for $200,000 in the Baltimore County Circuit Court., Assume that Chance makes no payments. To how much are Chance, Fate and LUCKBANK entitled if the property is sold (for $100,000) on

a) February 1, 2011? b) March 1,2011? c) April 1, 2011? d) January 1, 2012 e) September 1, 2013

13. Assume the facts of the above problem except that Chance files a Bankruptcy petition on February 1, 2011. To how much is each party entitled if the property is sold on the date above (except for 2/1/2011)?

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B. Execution Liens on Personal Property 1. Statutes

a) CL §§ 2-403, 9-317, 9-324 b) CJP § 11-403 c) MD RULES 2641,2-642,2-643,3-641, 3-642,3-643 d) WW: Pages 45-51

2. Problems a) In each of the following scenarios Debtor has a computer worth $10,000. Assume A obtains a judgment for $7,000 and B obtains a judgment for $8,000Determine how much each party should obtain upon a sale for $10,000.

Date SECNARIO 1 SCENARIO 2 SCENATIO 3 January 1 A obtains Judgment B obtains Judgment A obtains Judgment February 1 B obtains Judgment A obtains Judgment A obtains writ of execution

from court March 1 A obtains writ of execution

from court A obtains writ of execution from court

A delivers writ to sheriff

April 2 B obtains writ of execution from court.

B obtains writ of execution from court.

B obtains Judgment

May 1 A delivers writ to sheriff B delivers writ to sheriff B obtains writ of execution from court.

June 1 B delivers writ to sheriff A delivers writ to sheriff B delivers writ to sheriff July 1 Sheriff levies on the

computer on B’s writ. Sheriff levies on the computer on A’s writ.

Sheriff levies on the computer on B’s writ.

August 1 Sheriff levies on the computer on A’s writ.

Sheriff levies on the computer on B’s writ.

Sheriff levies on the computer on A’s writ.

A gets B gets

b) As creditor, what action would you instruct the sheriff to take to effect a levy upon:

(1) The animals for sale by Debtor Pet Shop (2) The dental equipment of Dr. Debtor (most of which is built-in) (3) Bernie Madoff’s prison blog [more facts]

c) C wins a judgment against the D Lumber Yard. C gets a writ of execution against D's property and has the sheriff levy on D's electric saw. Before the sheriff actually seizes the saw, D sells it to P. What are the rights of the parties? §2-403. d) Which lien has priority? §9-317(a)(2)

Date SECNARIO 4 SCENARIO 5 SCENATIO 6 January 1 S obtains a security interest

on D’s printing press J obtains a judgment against D

J obtains a judgment against D

March 1 The security interest is perfected.

S obtains a security interest on D’s printing press

S obtains a security interest on D’s printing press

May 1 J obtains a judgment against D.

The security interest is perfected

The security interest is perfected

July 1 J has the sheriff levy on the property.

J has the sheriff levy on the property.

The security interest is perfected

Who has priority?

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C. Garnishment 1. WW: 51-55 2. RULE 3-645 3. Flat Iron Mac Associates v. Foley 4. Aesop Andreas had his checking account at Mythic State Bank (MSB). As of Februaruy 1,2012 the account was overdrawn by $10. Consider the following facts.

2/1/2012 Bugs Finance Company (BFC) obtained a $3,000 judgment against Aesop Andreas

2/2/2012 Leonardo Finance Company (LFC) obtained a $3,000 judgment against Andreas 2/3/2012 Andreas had written and delivered a $500 check to the telephone company. 2/5/2012 MSB was served with a writ of garnishment regarding LFC’s judgment 2/7/2012 MSB was served with a writ of garnishment regarding BFC’s judgment 2/10/2012 The bank paid the telephone company check. 2/8/2012 On February 8, Andreas deposited $5,000 in the account 2/11/2012 Andreas deposited $200 in the account. 2/15/2012 MSB answered the garnishment writs. 2/17/2012 Andreas's employer made an automatic electronic deposit to Andreas’ account

of his weekly wages of $300 2/19/2012 The court held a hearing regarding both garnishments. 2/20/2012 Andreas deposited $100 in the account. 2/21/2012 The court issued it’s judgment. 2/24/2012 Andreas's employer made an automatic electronic deposit to Andreas’ account

of his weekly wages of $300 D. Multiple Jurisdictions

1. Maryland judgments a) Here is the rule in Maryland.

(1) CIRCUIT COURT JUDGMENTS: A judgment creates a lien on all the debtor’s land in the county in which the judgment. (2) DISTRICT COURT (Except Baltimore City): A judgment lien arises only after the judgment is recorded in the district court. (3) BALTIMORE CITY: A judgment creates a lien on all the debtor’s land in Baltimore city. (4) OTHER COUNTIES: A judgment from one county creats a judgment lien only after the judgment is recorded in the Circuit Court of the county in which the land is.

b) Multiglomerate, Inc. owns the Multiglomerate Building in Towson in Baltimore County, Maryland. The building is worth $2,000,000,000. March 15, 2012 was not a good day for Multiglomerate. On that day the following plaintiffs obtained the following judgments against Multiglomerate. MegaBank obtained a $50,000 judgment in the Baltimore, City Circuit Court. Widow Wilkins obtained a $4.86 judgment in Baltimore County District Court. On November 1, Multiglomerate will file a Chapter 7 Bankruptcy petition.

(1) What will be property of the state? (2) To how much will each party be entitled? (3) What must each party do to improve their position?

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2. Foreign State & Foreign Country Judgments: a) Vocabulary

(1) What is the difference between “full faith and credit” and “comity?” (2) Where can the requirement of “full faith and credit” be found? (3) To what courts must the Maryland courts give full faith and credit? (4) To what courts may the Maryland courts extend comity?

b) What must the following parties do to obtain debtor’s property in Maryland? (1) Maryland Courts & Judicial Proceedings §11-801, et. seq. .Dominik Kinimod obtained a $1,999,999,912.50 judgment in the New Jersey District Court. §11-801, et. Seq. (2) 28 U.S.C. §§ 1962, 1963. Fred Fed obtained a $500,000 judgment in the Federal District Court in New Jersey. 28 U.S.C. §§ 1962, 1963

c) In 1975 Hastings borrowed $10,000 while in Belgium from SPROUTBANK at 120% interest (a legal rate in Belgium).In 2012, SPROUTBANK sued Hastings. Assume the statue of limitation on a loan in Belgium is 40 years. SPROUTBANK obtained a $400,000 judgment in the appropriate court in Belgium. Hastings had returned to the US in 1985. Pursuant to Belgian law, SPROUTBANK mailed a summons to Hastings at Hasting’s office in Towson. The court rendered a default judgment against Hastings. Can SPROUTBANK enforce the judgment in Maryland? Maryland Courts & Judicial Proceedings §10-701, et. seq. d) Rupert Murdoch obtained a $1,000,000 libel judgment in the appropriate court in London England. This suit resulted from statements Manuel Multi, the CEO of Multiglomerate, made while visiting in England. He stated that Rupert Murdoch had surreptitiously placed listening device in one of the fillings of his (Multi’s) teeth. Murdoch sued Multiglomerate in England for libel under English law after Multi had returned to the United States. Pursuant to English law, Murdoch mailed a summons to Multiglomerate at Multiglomerate’s office in Towson. The court rendered a default judgment against Multiglomerate. Can Murdoch enforce the judgment in Maryland. Maryland Courts & Judicial Proceedings §10-701, et. seq.

E. Prejudgment Attachments 1. CJP §§3-303, 3-304 2. Ephraim Frisch operated a dry cleaning shop at 1420 North Charles Street, Baltimore, MD. On September 1, 2010, Frisch and Martha Onslo entered into an oral agreement whereby Onslo would remodel a portion of Frisch's building. The agreement provided that Frisch would pay Onslo $5.00 per hour for all work done plus 115% of the cost of materials installed. Onslo kept no written record of hours spent and has lost some receipts for materials installed but claims to have installed $200 in fixtures and to have spent two 8-hour days doing the work. On February 1, 2011, Onslo mailed Frisch a bill. On March 1, Onslo called the store but was informed the phone was disconnected. Onslo went to visit the store but it was closed with a note on the door stating "pick up dry cleaning at Dairy Queen on corner." Onslo returned the next day and found the same situation. Onslo went to Frisch's home but no one answered the doorbell and there was no car in the driveway. Onslo returned to the store the next day but found the same sign. Onslo went to the Dairy Queen. The woman on duty said she didn't know where Frisch was but that she thought Frisch was in Florida

a) Can Onslo obtain a prejudgment attachment? b) Suppose Onslo's lawyer filed the necessary papers to obtain a prejudgment attachment of the equipment in Frisch's store. Frisch, although he disputes the debt, immediately pays. He is unable to carry on his business without

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use of the equipment and feels he cannot afford a lawyer to resist. What are the rights and liabilities of the parties?

3. At all relevant times, the only nonexempt property owned by D is Greenacre, which is worth $4,000, and miscellaneous personal property worth $3,000.

1/10 X sues D Corp. for $5,000. X obtains a writ of attachment that is directed to the sheriff.

1/13 Y sues D for $6,000. Y also obtains a writ of attachment, which is delivered to the sheriff.

1/14 Y instructs the sheriff to levy on Greenacre, which the sheriff does 1/16 The sheriff levies on Greenacre pursuant to X's writ of attachment. 4/15 X obtains a $5,000 judgment against D. 4/18 Y obtains a $6,000 judgment against D.

a) Whose judgment will be satisfied first: X's or Y's? b) Suppose D files for Bankruptcy on 4/01? c) Suppose D files for Bankruptcy on 4/16

4. On February 2, C sues D for $2,000, obtains a writ of attachment, and causes the sheriff to levy on D's horse, Fido. On March 3, B, who does not know of the attachment line, buys Fido from D for $3,000 without asking to see the horse. On April 4, C obtains a $2,000 judgment against D. Who has greater rights to Fido: creditor C or buyer B? 5. Ed Eaton has come to you with the facts listed below. He wants to satisfy his judgment by executing on the property. What are the priorities of the various parties to the property? Is any additional information needed?

4/10/12 Harriet and Wilber Jones own property as tenants by the entirety in Baltimore County. 1/10/13 Charles Cole obtained a judgment in a contract action against Harriet Jones in

the Baltimore County Circuit Court. 2/10/13 Donna Drake sued both Harriet and Wilber Jones, claiming that they (the Joneses)

defrauded her (Donna) of $20,000 in the sale of vacationland in Arizona. 2/20/13 Donna obtained a prejudgment attachment of the Jones' land in Baltimore County.

3/10/13 Ed Eaton obtained a judgment against the Joneses in a tort action in the Baltimore County Circuit Court.

4/10/13 Harriet Jones became depressed by her legal troubles and decided to throw in the towel. She settled with Drake and confessed judgment in the Baltimore County Circuit Court. Wilber has proved feistier; So, Drake is still pursuing him.

F. Lis Pendens 1. 12-102 2. Weston Builders & Developers, Inc. v.. Mcberry In a business transaction, A gave B a note promising to pay B $10,000 and a mortgage on A's property called Downsland. Considering the following facts who has priority to the property? 1.

February 14 A discovers that B engaged in fraud March 3 A sues B to rescind the note and mortgage. April 4, B forecloses and sells Downsland to X. May 5, A gets a judgment against B.

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G. Statutory Liens 1. CL §§ 9-333,16-301, 16-302 2. Simon has given First Bank a security interest in his collection of photographs by Mark Lens. On June 18, 2011, Simon noticed that the frames were cracked on two of the photographs, "The Carrot Tree" and "The Noodle Harvest." Simon took them to Art's Repair Shop. Simon picked up "The Carrot Tree" when it was ready. When the time came to pick-up "The Noodle Harvest," Simon was unable to pay the bill and Art refused to surrender the photograph. Simon also defaults in his loan to First Bank. Who has priority to the photographs? What argument would you make if you were First Bank as to both photographs?

EXEMPTIONS V.A. Exemption Statutes

1. CJP § 11-504 2. 11 USCA 522(b),(d) 3. WW: 83-107 4. Debtor and Spouse live in state X. State X has the same rules regarding tenancy by the entirety as Maryland has. The exemption law of State X reads as follows:

§101 Exemptions From Execution: A judgment debtor may exempt any property with an aggregate value of no more than $25,000.

a) Debtor and spouse own LuxAcre as tenants by the entirety. It’s value is $100,000. Debtor(s) file bankruptcy. In the chart below indicate how much debtor(s) will be able to exempt.

Debtor and Spouse file jointly Only Debtor files Debtors decide to use State X exemptions.

Debtors decide to use Bankruptcy [§552(d)] exemptions.

b) Debtor’s only property is $30,000 home and a car worth $10,000 (both of which he owns free and clear of any liens). Using §522(b), what choices does Debtor have with regard to exemptions.

5. PS 4: 4.1, 4.2, 4.3 [Use Texas, Wyoming & Maryland statutes] B. Exemption Planning

1. 113-130 2. PS 5: 5.1, 5.2, 5.3

C. Lien Avoidance 1. 106-09 2. PS 4: 4.4 3. Fill in the following tables using §522(f)

a) TABLE I – Determine the amount of the lien that may be avoided b) TABLE II Use 522(f)(2) formula to determine that amount of each linen that can be avoided.

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Table I

A B C D E F G Type Of Lien PMSI Non- purchase money, non-possessory security interest. Execution Lien 1 Property Furniture Furniture Furniture Furniture Auto Furniture Auto 2 Value $4,000 $4,000 $4,000 $8,000 10,000 $800 10,000 3 Potential Exemption $2,000 $2,000 $2,000 $2,000 $5,000 $5,000 $5,000 4 Debt $8,000 $8,000 $5,000 $8,000 $12,000 $12,000 $12,000 5 Secured Claim 6 Unsecured Claim 7 Amount Of Exemption

Impaired By Lien

8 Can Debtor Avoid Lien?

If yes: 9 Amount Of Lien That

Debtor Can Avoid

10 Resulting Secured Claim 11 Resulting Unsecured Claim

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Table II (1) (2) (3) (4) (5) (6) (7) (8) Lien Type Amount (i) lien (ii) other

liens (iii) exempt TOTAL TOTAL -

VALUE AVOID?

H

1st Mortgage $50,000

2nd Judgment $5,000

3rd NONE ------

I

1st Mortgage $75,000

2nd Judgment $20,000

3rd NONE ------

J

1st Mortgage $70,000

2nd Judgment $ 7,000

3rd Judgment $50,000

K

1st Mortgage $75,000

2nd Judgment $25,000

3rd Mortgage $25,000

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Automatic Stay VI.1. 11 USC §§362(a),(b),(c)(1)&(2),(k),(l),(m)(n), 366 2. 72-78 3. Problem Set 3:3.4, 3.5, 3.6

Fraudulent Conveyances VII.A. State Law - Reading

1. CL, Title 15, Subtitle 2 2. Uniform Fraudulent Transactions Act 3. Fraudulent Conveyances and Shielding Debtor Assets

B. State Law - Problems 1. Answer questions with regard to the Uniform Fraudulent Transfer Act and the Maryland Uniform Fraudulent Conveyance Act. 2. Adrienne Leiske is insolvent. She owes $50,000 to Family Finance. In order to raise money so she can make her rent payments and eat, she sells her grand piano. Although the piano is valued at $40,000, she runs a want ad asking $20,000. When offered $15,000, Adrienne accepts. Can Family Finance successfully claim a fraudulent conveyance? See UFTA §§4, 5, 8. 3. Bonney O'Hare is insolvent, and she feels the tightening web of creditors. She decides to sell her coin collection to her cousin, Susan Mallow. Although the collection would bring $75,000 if she sold it to a dealer, Bonney sells it to Susan for $5,000 so that "it will stay in the family." Bonney also knows that Susan has no real interest in the collection and will undoubtedly be willing to sell it back when Bonney's financial troubles are over. The day after her conveyance to Susan, Bonney uses her American Express card to purchase $25,000 in new furnishings. Can American Express successfully claim a fraudulent conveyance? See UFTA §§4, 5. 4. Ginsberg owns Howlacre, land in Baltimore County valued at $100,000. Afraid that his creditors will seize the property, Ginsburg gives his friend Chantilly Om a mortgage in the property allegedly stating that it is for a $100,000 debt. There was no such debt. 5. Ginsberg owns Howlacre, land in Baltimore County valued at $100,000. He is afraid that his creditors will seize the property. Therefore when Chantilly Om sues him for $100,000 in Baltimore County Circuit Court, Ginsberg does not contest the law suit and Om obtains judgment. In fact, Ginsburg owed Om nothing. 6. Jeremiah Stoke owns a homestead free and clear worth $200,000. His other assets total $55,000; his debts, all unsecured, total $75,000. He knows that under state exemption law his homestead is safe from his creditors. He has made a mess of his own affairs, but his favorite son has just married, and Jeremiah would like to do just one thing right. So he conveys the homestead to his son as a gift and settles down to await the battles with his creditors over his debts. Can Jeremiah's current creditors reach the homestead conveyed to the son? See UFTA §§1, 2, 5.

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7. S. R. Wilson is insolvent. His chief creditor is Lo-Cost Credit Union, to which he owes $100,000. Wilson sells his mobile home, valued at approximately $160,000, to his neighbor Sam for $80,000 cash. Sam moves into the home, cleans it up, spends $10,000 for repairs, and enhances the value of the mobile home by 20 percent. Lo-Cost successfully claims that the conveyance was fraudulent. What can Lo-Cost recover from Sam? See UFTA §8. 8. Mr. and Mrs. Young are members of the Crystal Evangelical Free Church. They are active in their church, attending services regularly with their children, serving as officers, and contributing their time. They tithe regularly, following the biblical injunction to contribute 10 percent of their income to the church. Last year, their church contributions totaled $13,450, all made while the Youngs were legally insolvent. They have filed for Chapter 7, and their trustee has asked the church to return the contributions. You represent the church; what do you advise? 9. On January 15, 2010 Ernie Doe borrowed $40,000 from his mother in law. Debtor had read an advertisement stating that he could purchase live vinellas, the animal whose fur is used to make vinyl clothing with the hopes of raising the animals in his basement. January 15, 2011 Does paid his mother in law back. Can Tony Toussaint, a creditor of Doe’s, set aside the payment as a fraudulent conveyance? 10. Could the sale described in McCartney v. Frost be set aside as a fraudulent conveyance?

C. Bankruptcy Law 1. 11 U.S.C. §548 2. What result if Adrienne Leiske sold her piano, and then files for Bankruptcy?

Claims & Distributions VIII.A. Allowed Claims

1. Pages 141-164 2. Owen has borrowed $5,000 from Lenny. Owen has given Lenny a security interest in his robot which Owen calls Myron. Owen has filed a Chapter 7 bankruptcy. Assume Owen’s unsecured claims will be paid at a rate of 10% in the bankruptcy distribution. Using ONLY §506(a)(1), complete the following chart.

VALUE OF MYRON

(A) LENNY’S ALLOWED SECURED CLAIM

(B) LENNY’S ALLOWED UNSECURED CLAIM

(C) AMOUNT LENNY WILL RECEIVE FOR THE UNSECURED CLAIM

(D) AMOUNT LENNY WILL RECEIVE FOR THE SECURED CLAIM

(1) $1,000 (2) 4,000 (3) 6,000 (4) 7,000

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3. Owen has borrowed $5,000 from Lenny at 120% interest. Owen has given Lenny a security interest in his robot which Owen calls Myron. Owen files a Chapter 7 bankruptcy on 2/15/2011. Assume Owen’s unsecured claims will be paid at a rate of 10% in the bankruptcy distribution. Myron is worth $5000,using ONLY §506 and , §502(a)(2,) complete the following chart.

DATE EVENT

(E) LENNY’S

ALLOWED SECURED

CLAIM

(F)

LENNY’S UNSECURED

CLAIM 1/1/2011 $500 interest accrues 2/1/2011 $500 interest accrues

(5) 2/15/2011 BANKRUPTCY (6) 3/1/2011 $500 interest accrues

(7) 4/1/2011 $500 interest accrues

(8) 5/1/2011 $500 interest accrues

(9) 6//1/2011 Lenny’s lawyer does work billable at $600.

4. Debtor filed bankruptcy on July 1, 2011. Using section 502 indicate the amount of the allowed unsecured claim.

(G) (10) Debtor borrowed $1,000 from A, Debtor’s brother. On 1/1/2011. The

contract provides for no interest.

(11) Debtor fulfilled contract with B to murder C for $10,000. (12) Debtor borrowed $5,000 from E on January 1, 2010. The contract

provides for interest at the rate of 10% per month. Assume that means $500 per month.

(13) Debtor bought a Timex computer from F for $500 on 1/1/2000 and has not yet paid for the computer.

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B. Distribution Priorities 1. 167 2. How much will each creditor get in a Chapter 7 Bankruptcy filed on 2/16/2011. Use §§ 507 & 726.

(H) (I) The Bankruptcy estate has this amount for

distribution for allowed unsecured claims. $1,060 $2,000

( 14) The trustee has had expenses

protecting the property of the estate.

$1,000

(15) The debtor did not pay worker W1 for work done on 2/1/2011.

$100

(16) The debtor did not pay worker W2 for work done on 2/15/2011

$200

(17) The debtor did not pay worker W3 for work done on 2/1/2009

$1,000

(18) The debtor has not paid his bill to the Shop & Shop grocery story for groceries bought on 3/1/2009

$400

3. PS 7:

Discharge IX.1. 169-198 2. PS: 8: 8.1, 8.2, 8.3, 8.4, 8.5

a) In Problem 8.1 (1) Be sure to answer all three questions. (2) Suppose Mr. Loyman had been a successful physician until a year prior to filing the bankruptcy? Are there additional facts necessary and why?

b) Problem 8.5 In addition to the charges listed in the problem, the Lujans obtained cash advances from FirstBank MasterCard ($600) and SecondBank Visa ($500). Instead of the question in the problem answer the following questions:

(1) Prior to the charges indicated in the second paragraph of the problem Maria was told that she would get her old job back and that her income would be increased. Would the credit card debts be nondischargeable under §523(a) (2) (A)? §523(a) (2) (B)? (2) Prior to the charges indicated in the second paragraph of the problem Maria developed a serious physical disability and was told she would not be able to work for several years. At the same time Reynaldo lost his job. Would the credit card debts be dischargeable under §523(a) (2) (A)? §523(a) (2) (B)? (3) When applying for her credit cards Renaldo gave the following information. Would any of the items be grounds for nondischargeability under §523(a) (2) (a)? §523(s)(2)(B)

(a) He was a professional dancer when in fact he was a prostitute/ (b) He was President of the United States.

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(c) He earned $400,000 a year when in fact he earned only $40,000 a year. (d) He promised to repay the debts according to the terms of the credit plan. In fact he was crossing his fingers when signing the agreement. He never intended to pay back any of the money he borrowed.

3. Discuss whether the following student loans are dischargeable. a) Ed has a student loan debt of $24,000. Ed has an undergraduate degree in physics and a graduate degree in science education. He is unemployed, suffers from post-traumatic stress disorder resulting from his service in Iraq, and has a daughter from a prior marriage he is required to support. Ed’s wife makes $12,000 a year but he claims he cannot rely on that income for support since the marriage is troubled. Ed received $220 a month from the Veterans Administration for a 30% disability due to the post-traumatic stress disorder. Ed’s psychiatrist testified that Ed might improve within a year. Discuss whether Ed’s student loan is dischargeable b) Sheila has student loans of approximately $69,000 incurred to finance medical school tuition. Sheila is married with 2 children, aged 2 and 4 years old. Since dismissal from medical school for academic failure, Sheila has worked in a small town as a chimney sweep, a bartender, a satellite dish salesperson, with an average income of only $2,000 per year. Sheila received a disability check from the government for a psoriasis problem that developed while she was in the Army. Currently she operates a tire business which is losing money and is pessimistic as to whether there would be any substantial increase in her income in the near future. Sheila’s husband works for the police department earning approximately $7,000 a year and the family is in good health.

4. Clara filed for Chapter 7 Bankruptcy and received her discharge. None of her creditors objected to her discharge. Several months later, the following creditors asked the court to deny her discharge for the following debts. What result? (Indicate where more facts are needed and why.) See §523(c).

a) Edubank for (1) Student loans. (2) Credit card debts

b) Dr. Needle for medical treatment. c) Clara’s ex-husband for

(1) unpaid alimony (2) Property settlement payments.

d) Maryland for (1) Unpaid taxes. (2) Parking fines

e) Myron Meek for injuries suffered when Clara (1) Hit him over the head with a Whiskey bottle. (2) accidentally ran over him in the parking lot of the bar

f) Clara’s son for using money in his trust fund to pay for her clothes.

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5. Simon works for the United States Good People Administration, an agency of the Federal Government. Simon filed a Chapter 7 Bankruptcy petition. After receiving his discharge, Simon was called into the office of Director Nice and told that Rush Limbaugh had complained that many of the employees of the Good People Administration were not good at all and had, in fact, filed Bankruptcy to stiff their creditors. Director Nice fired Simon. Can he do that? §525 6. PS 9.6

Abuse & Means Test X.1. 273-299 2. Go to the web sites referred to in the text for Income and Expense standards 3. PS 12:12.1,12.2,12.3,12.5

Reaffirmation/Redemption/Ridethrough XI.1. Problem Set 9: 9.1, 9.2, 9.3, 9.4, 2. Ridethrough Problems

a) For the following problems use: (1) § 362(h), (2) 365(a), (b); (3) 521(a)(2)&(6), (d) & (i).

b) For the following questions consider Debtors A & B: (1) Debtor A has a 1960 Edsel valued at $25,000. Debtor owes FIRSTBANK $30,000 on the Edsel. Debtor is not behind on payments. The Promissory Note contains the following language

I promise to pay$500 per month. If I don’t pay you can keep the car.

(2) Debtor B filed for Bankruptcy. Debtor has a banjo valued at $80,000. Debtor owes SECONDBANK $40,00 on the Banjo. Debtor is not behind on payments. The promissory note contains the following language.

I promise to pay$500 per month. If I don’t pay you can keep the car. If I file Bankruptcy that is a default.

c) What options do Debtors A, B ,FIRSTBANK, & SECONDBANK have? (1) Can Debtors cannot avoid under 522(f) (2) Can Debtors can redeem? (3) Can Debtors reaffirm? (4) Can Debtors just keep the property and continue making payments? (5) Can Debtors repossesses the property? (6) Can Debtors assume the contracts under 365? (7) Suppose the parties do nothing prior toA & B receiving discharges. Then A & B begin to fall behind in their payments. What options will the creditors have? Suppose B accidentally leaves the banjo in a A’s car and the car is subsequently destroyed in a fire?

d) PS 9: 9.5

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Chapter 13 Plan – Secured Claims XII.1. 223-235 2. PS:10 – 10.1, 10.2 3. 235-240 4. PS:10-10.4 5. 240-246 6. PS 10: 10.5, 10.6

Chapter 13 Plan – Unsecured Claims XIII.1. 249-253; 263-269 2. PS 11: 11.1 11.2 11.3, 11.5 3. 253-263, 299-301 4. PS 11: 11.4, PS 1: 12.4

Chapter 13 – Discharge XIV.1. Clara filed for Chapter 13 Bankruptcy. Here plan was confirmed. None of her creditors objected to her discharge. Several months later, the following creditors asked the court to deny her discharge for the following debts. What result? (Indicate where more facts are needed and why.) See §§ 523(c), 1328

a) Edubank for (1) Student loans. (2) Credit card debts

b) Dr. Needle for medical treatment. c) Clara’s ex-husband for

(1) unpaid alimony (2) Property settlement payments.

d) Maryland for (1) Unpaid taxes. (2) Parking fines

e) Myron Meek for injuries suffered when Clara (1) Hit him over the head with a Whiskey bottle. (2) accidentally ran over him in the parking lot of the bar

f) Clara’s son for using money in his trust fund to pay for her clothes.

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Interest Rate Table

MONTHS YEARS

1 2 4 5 6 1 2 3 5 10 15 20 30

APR

2% $100.17 50.13 25.10 20.10 16.76 8.42 4.25 2.86 1.75 0.92 0.64 0.37

3% $100.25 50.19 25.16 20.15 16.81 8.47 4.30 2.91 1.80 0.97 0.69

0.42 5% $100.42 50.31 25.26 20.25 16.91 8.56 4.39 3.00 1.89 1.06 0.79 0.54 6% $100.50 50.38 25.31 20.30 16.96 8.61 4.43 3.04 1.93 1.11 0.84 0.60 7% $100.58 50.44 25.37 20.35 17.01 8.65 4.48 3.09 1.98 1.16 0.90 0.67 8% $100.67 50.50 25.42 20.40 17.06 8.70 4.52 3.13 2.03 1.21 0.96 .84 0.73 9% $100.75 50.56 25.47 20.45 17.11 8.75 4.57 3.18 2.08 1.27 1.01 .90 0.80

9.59

1.3

.94 .85 10% $100.83 50.63 25.52 20.50 17.16 8.79 4.61 3.23 2.12 1.32 1.07 .97 0.88 11% $100.92 50.69 25.58 20.55 17.21 8.84 4.66 3.27 2.17 1.38 1.14 0.95 12% $101.00 50.75 25.63 20.60 17.25 8.88 4.71 3.32 2.22 1.43 1.20 1.03 13% $101.08 50.81 25.68 20.65 17.30 8.93 4.75 3.37 2.28 1.49 1.27 1.11 14% $101.17 50.88 25.73 20.71 17.35 8.98 4.80 3.42 2.33 1.55 1.33 1.18 15% $101.25 50.94 25.79 20.76 17.40 9.03 4.85 3.47 2.38 1.61 1.40 1.26 20% $101.67 51.25 26.05 21.01 17.65 9.26 5.09 3.72 2.65 1.93 1.76 1.67 25% $102.08 51.57 26.32 21.27 17.90 9.50 5.34 3.98 2.94 2.27 2.14 2.08 30% $102.50 51.88 26.58 21.52 18.15 9.75 5.59 4.25 3.24 2.64 2.53 2.50 48% $104.00 53.02 27.55 22.46 19.08 10.66 6.56 5.29 4.42 4.04 4.00 4.00

Trustee’s Avoiding Powers XV.A. § 544(a)

1. Reshaping The Estate 2. Suppose Larry Lean is owed $400 by Oscar Owen. Lean has a properly perfected security interest in Owen’s LadderAll brand utility ladder that is worth $300. Assume that in a Chapter 7 bankruptcy all of Owen’s unsecured claims are paid 10 cents on the dollar.

a) Given the above facts what is the amount of Lean’s unsecured and secured claims. b) How much should Lean receive for the unsecured and secured claims.

3. Suppose that Lean had failed to file the financing statement and that, therefore, the security interest is unperfected..

a) Can the trustee using 544(a) avoid Lean’s lien on the LadderAll? b) What would then be the amount of Lean’s unsecured and secured claims. c) How much should Lean receive for the unsecured and secured claims.

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B. §544(b) and §548 1. All parties live and events take place in Maryland. Boris filed a chapter 7 bankruptcy petition on September 1, 2009. 2. On January 1, 2008, Dudley obtained a judgment against Boris for $1,000. On February 1, 2007, Boris gave his daughter Natasha his (Boris’) a gold watch because Boris wanted to prevent Dudley from having the sheriff seize the property to satisfy a judgment.

a) What is “applicable law” referred to in §544(b)(1)? b) Under the ‘applicable law’ is there a creditor that has an unsecured claim? c) Who is that creditor? d) Has the statute of limitations expired on that creditor’s claim? e) Does that creditor have the right to avoid the transfer under the applicable law? f) Under §544(b)(1), may the trustee avoid the transfer? g) Under §548, may the trustee avoid the transfer? h) If the transfer of the watch had been on January 1, 2008, may the trustee avoid the transfer under §548.

3. On January 1, 2008, Dudley obtained a judgment against Boris for $1,000. On August 9, 2008, Boris gave his daughter Natasha his (Boris’) gold watch. On January 1, 2009, Boris paid Dudley back. Because of the payment, Boris had no creditors. Then, on February 1, 2009, Boris borrowed $10,000 from Rocky. Boris was unable to pay Rocky back.

a) May the trustee avoid the transfer of the gold watch under §544(b). b) May the trustee use §548 to avoid the transfer of Boris to Natasha.

4. On January 1, 2008, Dudley obtained a judgment against Boris for $1,000. On August 9, 2008, Boris gave his daughter Natasha his (Boris’) gold watch because Boris wanted to prevent Dudley from having the sheriff seize the property to satisfy the judgment. However, On January 1, 2009, Boris was able to pay Dudley back. Because of the payment, Boris had no creditors. On February 1, 2009, Boris borrowed $10,000 from Rocky. Boris was unable to pay Rocky back.

a) Could the trustee avoid the transfer under §544(b)? b) Could the trustee avoid the transfer under §548?

5. Assume Bernard Madoff made a sizable contribution to the Madoff Foundation to Support Incarcerated Financiers, protected by §501(c)(3), shortly before filing a bankruptcy petition.

a) Could the trustee avoid the donation under §544(b)? b) Could the trustee avoid the donation under §548?

C. Preferences 1. Basics of 547

This is designed to walk you through §547, the preference provision of the Bankruptcy Code. Essentially, this provision attempts to reverse a particular type of conveyance that may not be fraudulent in terms of the UFTA, but that also defeats the purpose of Bankruptcy by favoring some creditors above others. The basic scenario is this: Debtor owes many debts and knows he will be in the bankruptcy. Therefore, he pays off some creditors before filing.

For example, if Debtor owes creditors $1,000,000 and has $10,000 in assets, each creditor will get paid 10% of their claim. One of Debtor’s creditors is Knuckles Kaboon. Debtor owes Kaboon $5,000. Fearing what might happen to him if he does not pay Kaboon in full, Debtor pays Kaboon in full $5,000. If Debtor hadn’t done this Kaboon, would have obtained only $500 in the bankruptcy distribution. However, Kaboon got $5,000. In addition, there is now only $5,000 in assets for the other

BK F14 SYL.DOCX 8/5/2014 24

creditors with claims of $995,000. Thus, now each creditor will get only about 5% of their claims. It doesn’t seem fair that Kaboon gets so much more (percentage wise) than the other creditors.

Therefore, bankruptcy law considers that payment a preference. Kaboon has to give the money back, get in line like everybody else, and get his measly 10%. Section 547 of the code provides for the avoidance of preferences. Below are the relevant provisions of §547 with notes indicating the application of the facts.

§ 547. Preferences (b) Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property--

Giving Kaboon the money was a transfer of property.

(1) to or for the benefit of a creditor; It was to the benefit of Kaboon (2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

It was on account of an antecedent debt. Kaboon was owed the money before the transfer was made.

(3) made while the debtor was insolvent; [see presumption in §547(f)] (4) made--

(A) on or within 90 days before the date of the filing of the petition; or

This transfer was made within 90 days.

B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and

(5) that enables such creditor to receive more than such creditor would receive if--

This transfer enabled Kaboon to receive $500.

(A) the case were a case under chapter 7 of this title;

.

(B) the transfer had not been made; and (C) such creditor received payment of such debt to the extent provided by the provisions of this title.

In a Chapter 7 case, Kaboon would have received $500. Therefore, the transfer enabled Kaboon to receive more than he would have received in the Chapter 7 distribution.

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2. Problems on §547(b) a) Debtor filed a Bankruptcy petition on June 1. On that day, Debtor had the following debts and property.

Nonexempt Property Debts Cash $100,000

Bank A $10,000

Store B 40,000 Neighbor N 50,000 Florist F $100,000

(1) ALTERNATIVE I: On May 1, Debtor pays Neighbor $50,000. (a) What percent of their claims would each creditor have received if the transfer had not been made? (b) Therefore, how much would Neighbor have received if the transfer had not been made? (c) As a result of the transfer, did Neighbor receive more that he would have received had the transfer not been made?

(2) ALTERNATIVE II: On May 1, Debtor pays Neighbor $30,000 of Neighbor’s claim. Debtor now only owes Neighbor $20,000

(a) What percent of their claims would each creditor have received if the transfer had not been made? (b) Therefore, how much would Neighbor have received if the transfer had not been made? (c) After the transfer was made, what percentage of each remaining claim would be paid (d) As a result of the transfer, how much will Neighbor receive? (i.e., combine the amount Neighbor received before bankruptcy and the amount Neighbor will receive after bankruptcy) (e) As a result of the transfer, did Neighbor receive more that he would have received had the transfer not been made?

b) Debtor filed a Bankruptcy petition on June 1. On that day, Debtor had the following debts and property.

Nonexempt Property Debts Household Goods $ 40,000 Bank A $ 10,000 A has a security interest in BMW Stamp Collection $ 10,000 Store B $ 40,000 BMW $ 30,000 Neighbor N $ 50,000 N has a security interest in the stamp collection Log Cabin $ 10,000 Florist F $ 100,000 Cash 10 $10,000

(1) Bank A has a $_______ unsecured claim and a secured claim and a $_____ (2) Neighbor has a $_____unsecured claim and a secured claim and a $_____ (3) ALTERNATIVE III: On May 1, Debtor pays Neighbor $10,000. Now how much will each creditor get?

(a) What percent of their unsecured claims would each creditor have received if the transfer had not been made? (b) Therefore, how much would Neighbor have received if the transfer had not been made? (Total secured claim and unsecured claim)

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(c) After the transfer was made, what percentage of each remaining unsecured claim would be paid (d) As a result of the transfer, how much will Neighbor receive? (i.e., combine the amount Neighbor received before bankruptcy and the amount Neighbor will receive after bankruptcy) (e) As a result of the transfer, did Neighbor receive more than he would have received had the transfer not been made?

(4) ALTERNATIVE IV: On May 1, Debtor pays Bank A $10,000 of A’s claim.

(a) What percent of unsecured claims paid if no transfer? (b) How much would A receive if no transfer? (c) After transfer what percent of unsecured claims paid? (d) As a result of the transfer, how much will A receive? (e) Did A receive more than if transfer not made?

(5) ALTERNATIVE V: On May 1, Debtor grants F a security interest in his Household Goods. Note the definition of transfer.

(a) What percent of unsecured claims paid if no transfer? (b) How much would F receive if no transfer? (c) After transfer what percent of unsecured claims paid? (d) As a result of the transfer, how much will F receive? (e) Did F receive more than if transfer not made?

3. Problems involving §547 (c)(1), (2), (7), (8), (9) a) Debtor purchases heating oil from Carbona. Carbona’s invoices state that bills must be paid within 5 days of delivery. Unfortunately Debtor has been unable to pay the heating bills promptly and has paid each bill for the last 5 months 28 days after delivery. Can the trustee recover the payments to Carbona as preferences?

Delivery Amount Payment 11/01/09 $1,000 11/28/09 12/01/09 $600 12/28/09 1/01/09 $400 1/28/09 2/01/09 $400 2/28/09 3/01/09 $800 3/15/09 Bankruptcy Petition Filed

b) Debtor went to Lawyer and engaged her services to file his bankruptcy petition, agreeing to pay her $800 for handling his case. She insisted on payment up front, and he told her he could borrow that amount from his brother and have it in her hands the next day. That same day the two of them sat in her office and filled out the schedules using the computer program she had devised for this purpose, though he was missing certain records that he had failed to bring with him. The next day he brought in those records, along with a check for $800, and she finished filling out his schedules. The petition was filed later that afternoon, immediately after she had cashed his check. On learning this, the trustee in bankruptcy wanted Angelina to cough up the $800, on the theory that she had received a preference. Is the trustee right? c) Suppose a week before filing the petition Debtor paid his ex-wife the amount he owed on their divorce court order.

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Jurisdiction1 XVI.

1 This material is taken from Howard, Bankruptcy, Cases & Materials (2012)

Subsections (a) and (b) of 28 U.S.C. § 1334 govern the basic grant of jurisdiction in bankruptcy cases: (a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive

jurisdiction of all cases under title 11. (b) Except as provided in subsection (e)(2) and notwith standing any Act of Congress that confers exclusive

jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.

The apparent contradiction in these subsections (one providing that jurisdiction is exclusive and the other that it is not) is explained by understanding the distinction between "cases" and "proceedings" in bankruptcy. The "case" is the entire bankruptcy that adjudicates the whole financial relationship between a debtor and all of its creditors. A "proceeding" is a subset of a case—a civil dispute that deals with particular legal issues and often involves the debtor and only an individual creditor. Each bankruptcy "case" may involve many "proceedings."

"Note that the grant of jurisdiction is to district courts and not to bankruptcy courts. Bankruptcy courts originated as an administrative branch of district courts, governed by "referees." Bankruptcy judges today are Article I judges; they do not have the life tenure and protection from diminution in salary that is enjoyed by Article III judges, such as those appointed to the district and appellate courts.

This distinction was critical in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), in which a debtor-in-possession brought suit in bankruptcy court for breach of a prepetition contract. The defendant asserted that the bankruptcy court lacked jurisdiction and that Congress could not authorize the bankruptcy court to hear such cases. The Supreme Court agreed, holding that the Constitution does not allow bankruptcy judges, who lack life tenure, to hear and determine cases such as the one at bar. The suit was neither directly related to the bankruptcy proceeding, nor a case in which a third party was suing the bankruptcy estate.

For practical purposes, Marathon voided bankruptcy court jurisdiction under the 1978 Bankruptcy Code. Congress had to amend the Code to revive the bankruptcy courts' power to hear bankruptcy cases. Simply making bankruptcy judges Article III judges—the easiest solution—was not a politically viable option. Congress, therefore, solved the Marathon dilemma by granting jurisdiction to the Article III judges of the district courts rather than to bankruptcy courts. Congress then provided, in 28 U.S.C. § 157(a), that district courts can delegate jurisdiction to the bankruptcy courts in "cases under" the Bankruptcy Code and in "proceedings arising under * * * or arising in or related to" the Code.

Subsection 157(b)(l) permits a bankruptcy judge to "hear and determine * * * all core proceedings arising under title 11, or arising in a case under title 11." Subsection 157(b)(2) provides a nonexclusive list of "core proceedings." The proceedings in the list, such as allowance of claims and objections to discharge, are ones that invoke substantial rights under the Code or can only arise in conjunction with a bankruptcy case. In other words, a core proceeding is "inextricably linked" to the bankruptcy case.

If a proceeding is "noncore," a bankruptcy judge may "hear and determine" it only if the parties consent. 28 U.S.C. § 157(c)(2). Otherwise, the bankruptcy judge may "hear" the matter, but cannot "determine" it; the bankruptcy judge must submit proposed findings of fact and conclusions of law to the district judge, who may enter those findings and conclusions "after consideration." The district judge must make a de novo review upon the record, or, if additional evidence is submitted, of any part of the bankruptcy judge's findings of fact or conclusions of law to which a party objected in accordance with Bankruptcy Rule 9033. The district judge may accept, reject, or modify the proposed findings of fact or conclusions of law, receive further evidence, or recommit the matter to the bankruptcy judge with instructions.

Congress determined that neither the district court nor the bankruptcy court should handle state law causes of action that are related to a bankruptcy case but that do not arise under title 11. Accordingly, 28 U.S.C. § 1334(c)(2) provides that a party to a proceeding based on a state law claim or cause of action may move the district court to abstain from hearing the proceeding if an action is commenced and can be timely adjudicated in an appropriate state forum. Section 1334(c) has been interpreted as a "clear congressional policy * * * to give state law claimants a right to have claims heard in state court." Piombo Corp. v. Castlerock Properties (In re Castlerock Properties), 781 F.2d 159, 163 (9th Cir. 1986).

READ: Wood v. Wood