notice to creditors default3

8/11/2019 Notice to Creditors Default3

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I. Sources of Limis o! Lia"i#i$ for De"

%. Commo! La& Limis'

1. Tort Theory:a. Intentional Infliction of Emotional Distress: some courts buy it. Maryland doesnt.b. Outright blackmail: prohibited.

c. Maryland common law intrusion on privacy: ot violated by creditors actions: !"hen the debtortakes creditor# the debtor implicitly agrees to reasonable repayment re$uests.% &'& Md. '( )*+,+-.

2. Lender Liabilitya. otice

i. Even without an obligation in the promissory notesecurity agreement# the good faith re$uiresthe lender must give !reasonable% notice before calling a loan. KMC v. Irving Trust# (/.

ii. 0he amount of !reasonable notice% is undefined.b. 1ender 1iability is generally enforcement of the covenant of good faith in the promissory note.

i. 2ased on ob3ective facts.ii. 4nd the lenders actual sub3ective intentbelief.

c. "atch for e5ercise of control in a bad faith manner by a creditor over a debtor.

(. Sauor$ Limis'

1. Fair Debt Collection Practices Act: 15 USC 162 et se!.a. 6cope

i. 4ttorneys are sub3ect to the 4ct# when debt collection is a regular part of their business.ii. 4ct does not apply to a creditor collecting its own debt. 0his means that the 4ct applies only

to collectors who have essentially sold their debt.b. 4 debt collector:

i. Must identify self as debt collector7ii. 4dvise the debtor that he or she has a right to identify or dispute the debt7 andiii. 4void harassment# false representation or third party communications.

c. "ithin five days of the first verbal communication# the debtor must be sent notice advising him ofhis rights.

d. 4fter violation# the debtor is entitled to reasonable damages# 8*#999 and attorneys fees. In class

action# fees are lesser of 8'99#999 or * of net worth of agency.e. Md. ;air Debt


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2. *0ec'tion:a. On written re$uest# a 3udgment creditor may re$uest a writ of e5ecution.


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b. Harnishing 2ank 4ccounts:i. "rit may attach to account with overdraft at the time of service.ii. "rit attaches to any funds received by the garnishee between service and 3udgment.iii. 2ank may be able to set off its own debts against the funds attached.

c. Harnishing wages:i. Aayment is in the order received by the employer. earner may e5empt 8*/' per week7 or (9

times federal minimum wage# for debtors in


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C. Sae La& %#er!aies o (a!ruc$

1. UCC Article 6 9 'l Sale )-or 'sinesses and Sole Pro#rietorshi#s/a. Arevent debtor from selling assets to one buyer without notice to creditorsb.


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2. Act'al Fra'd:a.


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III. e!era# (a!ruc$ Proisio!s'

%. uris,icio! e!ue'

1. en'e is #ro#er:a. "here the debtor is domiciledb. Cesidence# ppb# principal assets# had been located for *B9 days immediately prior# or the place

they were domiciled the most during the last *B9 days.

2. &'risdiction Borthern Pi#elinea. 2ankruptcy courts have only the limited 3urisdiction of 4rticle * 3udges. )0hey also have none of

the protections of an 4rt. ( 3udge.-b. District petition communications.

C. I!o#u!ar$ (a!ruc$'

1. *li$ibility o- Petitioners: 8)b/.a. 0hree creditors whose claims are not sub3ect to a bona fide dispute# and whose unsecured claims

e5ceed )in the aggregate- 8**#,&'.b. 6eparately incorporated parents ? subs are separate creditors. )i#ra&tor# /B.c. filing retain standing. In re %a#erge# /B'.d. If the debotor has fewer than *& non>insider creditors# one creditor whose unsecured claim

e5ceeds 8**#,&'.e. ;ewer than all )general- partners signing a partnership filing is automatically an involuntary case.


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2. *li$ible Debtors: 8)a/.a. 4ny eligible debtor: = *9+ )a person who resides# has a domicile# place of business in the G6#

and is not a railroad# insurance company# bank# 6?1# etc.-b. 4 person may only be forced into for>profits may not be put into involuntary bankruptcy.

. Proced're:a. On filing# automatic stay takes effect.b. Debtor will answer and a hearing will be held.

i. any creditor may force a


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. *0cl'sions -ro( Stay: 62)b/.a.


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. Sec'red Clai(sa. 4 secured creditors lien is allowed to the ;MS of the property on the date of filing. = '9,)a-.b. 0he lien is void to the e5tent that it is not an allowed secured claim. = '9,)d-.

i. Lowever# the lien flows through bankruptcy unaffected in


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. Po&ers of *e )rusee or De"or:i!:Possessio!'

1. Priority o- the Tr'stee: 5 @1G.a. 0rustee takes the bankruptcy estate as though the 0rustee obtained an e5ecuted 3udicial lien on

all property. = '//i. 4 security interest is subordinate to a person who becomes a lien creditor before the earlier

of:)a- Aerfection7)b- One of the conditions in = +>&9()b- PattachmentQ is met and a financing statement is filed.

E.g.# the security agreement is signed and a financing statement filed# but the credit hasnot yet been used.

ii. 4 AM6I takes priority over lien creditors who e5ecutes between the debtors receipt of thegoods and the AM6I>holders filing.

b. 0rustee is a !bona fide purchaser% of real property.i. Even if debtor was aware of problems# DIA is a 2;A. "onder-Bo '+9 )4lthough debtor

was aware of un>filed lien on real property# DIA takes free of lien-.ii. /thcircuit says that actual knowledge of the debtor is imputed in the DIA.

c. 4 AM6I holder may perfect within its &9>day period# regardless of bankruptcy:i. 0he automatic stay does not prevent an act to perfect a security interest if the act is permitted

by = '/,)b- or = '/)e-)&-)a-. = (,&)b-)(-.ii. 0he 0I2 may not take action under = '// to avoid a lien that state law provides for retroactive

perfection and priority )AM6Is- or continuation of a security interest )re>filing-. = '/,)b-.iii. 6tates that a transfer )perfection of a security interest- is deemed to occur on the date it takes

effect between the debtor and creditor )attachment- if the transfer is perfected within*9 daysof attachment# or &9 days# if the transfer is a AM6I. = '/)e-)&-)a-.

iv. 0he trustee takes all of the rights of an e5ecuted 3udicial lien creditor who e5ecuted onbankruptcy day. = '//. 4 perfected AM6I holder has priority over lien creditor who e5ecuteswithin the &9 day period. = +>(*)e-.

v. 0he transfer of a AM6I is not a preference under = '/)c-)(-.

2. Po=er to H#erate the Debtor?s b'siness. BAs #er(itted by G217 118%718.

i. DIA may take action to sell# lease# etc. property of the estate in the ordinary course ofbusiness without the approval of the


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c. 4dditional unsecured credit with priority over administrative e5penses# with authoriation of the


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i. 6tudent 1oans.


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C. -ecuor$ Co!racs Leases'

1. The tr'stee (ay ass'(e or reect any e0ec'tory contracts or leases. 65)a/.a. Even if the terms of the leasecontract prohibit assumption or assignment after bankruptcy. =

(,')e-7 In re Kr/sta& Cadi&&a$# ,/+# In re 3amesa/# ,'( )0erm providing that tenant shall paylandlord '9 of profits from assignment invalid-.

b. 4 contract is e5ecutory ifi. ;ailure of either party to perform would be a material breach. )


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2. Certain transactions =ill loo lie #re-erences b't are not:a. ;ully secured debt: "here the debt is fully secured# additional payments do not improve the

position of the oversecured creditor.b. 4ntecedent Debt: "here the transfer of a security interest is on account of a debt that was not

more than *9 days old on the date of transfer# the transfer )perfection- was deemed to take placeon the same day as attachment# and thus the transfer was not on account of antecedent debt. ='/)e-.

c. 0ransfers from a bank on a letter of credit are not transfers by a debtor.. Date o- Trans-er:

a. 0he !transfer% of a security interest is deemed to take place on the date of attachment if it isperfected within *9 days of attachment. = '/)e-.

b. conforming provision# this definition

prevails.d. 0ransfer for ew Salue:

i. 4 transfer to a creditor is not a preference to the e5tent that the creditor gave new value thatis unsecured or secured by an avoidable lien# on account of which the debtor did not make anotherwise unavoidable transfer to the creditor.

ii. In other words# if a creditor delivers supplies on a weekly basis# each new delivery e5tends

new unsecured credit# new value# and !covers% payment for last weeks transfer.e. ;loating 1iens

i. 4ttachment of security interests to after>ac$uired collateral during the preference period isonly a preference to the e5tent that it improves the position of the creditor. = '/)c-)'-.

ii. 0he transfer does not relate back to the date of perfection under = '/.f. 5e 6a&ue7 Money or moneys worth in goods# services# new credit# or release of property

previously transferred to the creditor. Does not include the substitution of one obligation for a pre>e5isting obligation.


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-. rau,u#e! Co!e$a!ces.

1. eca'se the tr'stee taes the #osition o- an e0ec'ted lien creditor7 thetr'stee (ay 'se state la= to a,oid -ra'd'lent con,eyances. 5)b/.

2. Tr'stee is $ranted the #o=er to a,oid 5% -ra'd'lent con,eyances. 5)b/.

. A -ra'd'lent con,eyance is a trans-er7 (ade =ithin one year o-anr'#tcy Day7 5%)a/)1/a. "ith actual intent to hinder# delay or defraud any entity.b. Made for less than a !reasonably e$uivalent value%:c. "hile the debtor was insolvent#d. If the debtor became insolvent as a result of the transaction#e. If the debtor was operating with an unreasonably small amount of capital#f. If the debtor intended to incur debts beyond its ability to pay.

. A trans-eree =ho taes in $ood -aith -or ,al'e has a lien on or (ay retainany interest trans-erred to the e0tent that the trans-eree $a,e ,al'e tothe debtor. 5%)c/.a. Salue includes an antecedent debt# but does not include an unperformed promise.b. 0he trustee may recover the property or the value of the property transferred from the initial

transferee. = ''9)a-.c. 4ny transferee has a lien for the lesser of the cost of any improvements or increase in value due

to improvements. = ''9)e-.d. 0he trustee may not recover from the transferee of an initial transferee that takes in good faith# for

value# without knowledge of the avoidability of the transaction. = ''9)b-.


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. C*. 7'

%. -#igi"i#i$'

(. -emio! a!, %oi,a!ce'

1. Federal *0e(#tions: 522

a. Only individuals may take e5emptions.b. Most )(+- states have opted>out of the federal e5emptions. In other states# a debtor may chosethe state or federal e5emptions. 4 few states re$uire a debtor to claim the federal e5emptions.

c. @oint debtors may each claim their own e5emptions.d. "aiver# e5cept in favor of secured creditors# is ineffective. = '&&)e-.e. Otherwise# state e5emptions apply.f. E5emption Alanning: "here the debtor clearly takes actions in order to take advantage of state

e5emptions# to the surprise of creditors# the bankruptcy court may avoid the e5emption on thee$uities.

2. Hbections to e0e(#tions.a. Must be filed within (9 days of the = (/* meeting.b. If ob3ection is not filed# debtor may e5empt the property regardless of whether the e5emption is

otherwise impermissible.

. A,oidin$ liens on *0e(#t Pro#erty. 522)-/.a. 0he 0I2 may avoid:b. @udicial liens or nonpossessory non>AM6Is#c. In the items listed in = '&&)f-. )Lousehold goods# furniture# clothes.-d. 0o the e5tent that:e. 0he sum of liens and the amount of e5emption that the debtor could take in the property e5ceeds

the value of the debtors interest in the property )not counting liens-.f. In other words# the amount that can be avoided is: 1ien you want to avoid# plus all other prior

liens# plus e5emptions# minus value of the property.g. E5ample: 1ien is 8+/# 4voidable 1ien is 8*,# E5emptions are 8'# ;MS is 8*9'. +/T*,T'>

*9'N*9. 0hus 8*9 of the 8*, avoidable lien can be avoided.h. 0his permits the debtor to take all e5emptions possible in the property# to the e5tent of the

avoidable lien. Essentially# the e5emption goes into the priority list above the avoidable lien.

C. >eei!g Proer$' ?ea@rmaio! ?e,emio!'

1. 3eneral Conce#ts: Debtors lie to ee# #ro#erty.a. ;irst# the property must be abandoned by the trustee or e5empted from the general creditors.b. Debtors then may avoid liens to the e5tent they impair the e5emption.c. ;inally# the debtor may redeem or reaffirm the debt.

2. "ede(#tion: G22a. 4pplies to tangible personal property of individual people# in


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. "eaJr(ation: 52a. Must be signed prior to discharge and filed with the court. = '&/)c-.b. May be rescinded within ,9 days after filing or discharge. = '&/)c-.c. Debtors attorney must provide an affidavit that reaffirmation is in the best interests of the client.

i. o court approval re$uired for reaffirmation of real property of a represented client.ii. If the debtor is pro se# the court will have a reaffirmation hearing to determine if the

agreement is in the best interests of the debtor.d. 0his is voluntary on each side.

i. 4 debtor may want to reaffirm for several reasons:)a- 0o protect co>debtors.)b- 0o keep the collateral.)c- 0o keep some credit history.

ii. 4 creditor may want to reaffirm because the debt e5ceeds the value of the collateral.)a- Lowever# the creditor must not demand payment on a dischargable debt.)b- 4 creditor may promise or withhold future credit.

e. "hile reaffirmation must comply strictly with the re$uirements of '&/)c-# a debtor may voluntarilyrepay without incurring liability on the discharged debt. '&/)s-.

D. Or,er of Pa$me!'

1. Sec'red clai(s.

2. 58G)a/ #riority 'nsec'red clai(s )in order/. G26)a/)1/. G26 clai(s )in order/:

a. 4llowed unsecured claims filed on time.b. 4llowed unsecured claims filed late.c. )-.i. e5empt assets to e5empt assets is permissible. Lowever# doing so with

fraudulent intent is may be a basis for denial of discharge.ii. 0he debtor may be denied discharge for truly awful recordkeepting.iii. 0he party trying to prevent discharge bears the burden of proof.

d. R6ubstantial abuseR is a debtor with high income# high debt and no assets. 0he


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I. C*aer 13

%. -#igi"i#i$'

1. Ch. 1 is only a,ailable to:a. Individual debtors# )sole props may file ch. *( but other business debts may not.-b. "ith regular income#

i. @ust needs to be RCegular enough to fund a plan.R Murphy# /9&.ii. 6ome courts will be much stricter# and prohibit unmarried cohabitates from providing income

for each other.c. Owing noncontingent unsecured li$uidated debts of less than 8&,+#&'9 and noncontingent

li$uidated secured debt of less than 8B9#'9.i. 4 guarantee is a contingent liability after the first payment is missed# before the creditor goes

after the debtor.ii. 1i$uidated 3ust means a sum certain.iii. 0he limits apply to both single and 3oint debtors. "hile e5emptions double# debt limits do not.

d. Debtor M4 have filed ort$a$es: 122)b/)5/.a. Lome mortgages may not be bifurcated and crammed>down. *(&&)b-7 obleman v. 4merican

6avings 2ank# **( 6.


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b. 8, debt on 8''#999 residence# , monthly payments of 8&'9 missed. 0o keep the home:i.


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D. Disc*arge' < 1328.

1. Ch. 1 S'#erdischar$e.M 12%)a/.a. 4vailable if the debtor makes all payments.b. Discharges all debt EU


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II. C*aer 11

%. -#igi"i#i$

(. De"or:i!:Possessio!

1. Po=ers

a. 4 DIA has all powers of a trustee. = **9)a-. P4ttack fraudulent conveyances under = '//# '/B#preferences under = '/.Qb. DIA may not take compensation for service as DIA. = **9)a-. Lowever# DIA may be paid for

services rendered to the debtor.c. DIA has authoriation to operate the debtors business# unless the court orders otherwise. =

**9B.

2. A##oint(ent o- a Tr'stee: 118a. On re$uest of the G6 0rustees office or a party>in>interest# after notice and a hearingb. ;or cause# including fraud# dishonesty# incompetence or gross mismanagement by current

managementi. Either pre> or post>petition.ii. value>of>

money payments.)b- Debtor will not receive interest.)c- 6uch elections must be made by class.)d- "here the secured property does not need to be sold# the debtor may stretch payments

over a very very long time. Lowever# if the debtor has another reason to release the lien#the creditor might get more money.


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D. ?e;uireme!s of *e P#a!

1. *li$ibility to ;le a Plan: 1121.a. Debtor has the e5clusive right to file a Alan within *&9 days of petition.

i. If the debtor does so# the debtor has *B9 days to get the petition approved.ii. 0he court may e5tend or terminate the time limits# for cause.iii. ;ailure to file a plan within the court>ordered time period is grounds for dismissal. = ***&.

b. If the debtor does not file a Alan within *&9 days# or get their plan confirmed within *B9 days# any

creditor or party>in>interest may file a Alan.

2. Classi;cations: 1122.a.


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)c- "hat happens is that where e$uity gives new value in money or moneys worth# they mayretain thier e$uity interest. ew value must not be sweat e$uity. Case v. Los 'nge&esLum#er

-. Disc*arge' Sec. 1141.

1. A bindin$ contract:a. Must be included in the Alan.b. Is granted as the contractual result of fulfillment of the debtors obligations under the Alan.c. May be granted to partnerships or other business entities.

2. Sco#e:a. = '&()a- debts may not be discharged.b. Discharge will be denied if:

i. 0he plan provides for li$uidation#ii. 0he debtor does not continue in businessiii. 4ny of the = &)a- factors for denial of a

notice to creditors default3

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