Exam 34: Bankruptcy

Debtor's exemptions are provided under federal law and thus are the same in each state.

Creditors who hold security for payment, such as a lien or a mortgage on the debtor's property, are less affected by the debtor's bankruptcy.

An automatic stay:

Jurisdiction over bankruptcy proceedings is vested in the federal district courts.

A discharge releases the debtor from the unpaid balance of most debts including federal taxes and tax penalties.

After all the creditors have been paid by the trustee, any balance is turned over to the debtor.

A debtor may recover damages against any creditor who filed an involuntary bankruptcy petition against the debtor in bad faith.

Chapter 7 bankruptcy is:

A court can dismiss a Chapter 7 petition and convert it to a Chapter 13 bankruptcy if the debtor does not satisfy the means test.

By operation of law, the trustee automatically becomes the owner of all of the debtor's property in excess of the property to which the debtor is entitled under exemption laws.

A payment by a debtor in the ordinary course of business, such as the payment of a utility bill, will not be set aside by the bankruptcy trustee.

Arthur was involuntarily petitioned into bankruptcy by three of his creditors. When the trustee reviewed Arthur's books and records, the trustee discovered the following transactions: (a) Three weeks before the filing of the petition, Arthur paid cash for $17,000 worth of inventory for his store; and (b) Twelve days before the filing of the petition, Arthur paid $300 in full satisfaction of his store's most recent electric bill.?The trustee is considering attempting to set aside both of these transfers as preferential transfers. Discuss the advisability of the trustee's attempt to set aside these transfers.

The holder of a claim that is the subject of a bona fide dispute may be counted as a petitioning creditor.