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Title: Secured Transactions Assignment 7


1
Secured TransactionsAssignment 7
  • Treatment of Secured Creditors in Bankruptcy

2
The Big Picture
  • Chapter 1. Creditors Remedies Under State Law
  • Chapter 2. Creditors Remedies in Bankruptcy
  • Assignment 6 Bankruptcy and the Automatic
  • Stay
  • Assignment 7 Treatment of Secured Creditors
  • in Bankruptcy

3
What secured creditors get in bankruptcy
10K
6K
4
What secured creditors get in bankruptcy
  • 1. Bifurcation of claim 506(a)

10K
6K
5
What secured creditors get in bankruptcy
  • 1. Bifurcation of claim 506(a)

4K un- secured claim
10K
6K
6K secured claim
6
What secured creditors get in bankruptcy
  • 1. Bifurcation of claim 506(a)
  • 2. Secured portion payment in full

4K un- secured claim
10K
6K
6K secured claim
7
What secured creditors get in bankruptcy
1. Bifurcation of claim 506(a) 2. Secured
portion payment in full 3. Unsecured portion
prorata payment with other unsecured claims
4K un- secured claim
10K
6K
6K secured claim
8
What secured creditors get in Chapter 7
1. Bifurcation of claim 506(a) 2. Secured
portion payment in full 3. Unsecured portion
prorata payment with other unsecured
claims Example Debtor files Chapter 7 trustee
sells the asset
4K un- secured claim
10K
6K
6K secured claim
9
What secured creditors get in Chapter 7
1. Bifurcation of claim 506(a) 2. Secured
portion payment in full 3. Unsecured portion
prorata payment with other unsecured
claims Example Debtor files Chapter 7 trustee
sells the asset
4K un- secured claim
10K
6K
6K secured claim
Secured creditor gets 6000 from sale 4,000
claim shares prorata in other assets, if any.
10
What secured creditors get in Chapter 13
1325(a)(5). With respect to each allowed
secured claim . . .
4K un- secured claim
10K
6K
6K secured claim
11
What secured creditors get in Chapter 13
1325(a)(5). With respect to each allowed
secured claim . . . (A) The holder of such claim
has accepted the plan
4K un- secured claim
10K
6K
6K secured claim
12
What secured creditors get in Chapter 13
1325(a)(5). With respect to each allowed
secured claim . . . (A) The holder of such claim
has accepted the plan (B)(i) the plan provides
that the holder of such claim retain the lien
securing such claim and (ii) the value, as of
the effective date of the plan, of property to be
distributed to under the plan on account of such
claim is not less than the allowed amount of such
claim or (C) the debtor surrenders the property
securing such claim to such holder
4K un- secured claim
10K
6K
6K secured claim
13
What secured creditors get in Chapter 13
1325(a)(5). With respect to each allowed
secured claim . . . (A) The holder of such claim
has accepted the plan (B)(i)(I) the plan
provides that the holder of such claim retain the
lien securing such claim and (ii) the value, as
of the effective date of the plan, of property to
be distributed under the plan on account of such
claim is not less than the allowed amount of such
claim or (C) the debtor surrenders the property
securing such claim to such holder
4K un- secured claim
10K
6K
6K secured claim
14
Interest on claims
Interest on claims is important Example
30-year loan at 6
15
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest
16
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
17
  • An oversecured creditor is presumptively entitled
    to its contractual default rate of interest,
    provided that the rate is enforceable under
    applicable nonbankruptcy law. General Elec.
    Capital Corp. v. Future Media Productions, Inc.
    (In re Future Media Productions, Inc.), 530 F.3d
    1178 (9th Cir. 2008). Such presumption can be
    rebutted on equitable considerations.

18
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
19
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
20
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
21
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
22
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
23
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
167 million loan, 30 yrs, 6 interest, mo.
payment 1 million. .
24
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
167 million loan, 30 yrs, 6 interest, mo.
payment 1 million. Timbers In one-year
bankruptcy, secured loses 10 million.
25
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
26
Interest on claims
Interest on claims is important Example
30-year loan at 6 1. Over half of all payments
will be interest 2. In first year, 10/12th (83)
of payments will be interest
1325(a)(5) The value, as of the effective
date of the plan, of property to be distributed
under the plan on account of such claim is not
less than the allowed amount of such claim.
27
Sale subject to lien v. free and clear
100K
80K
What seller has
28
Sale subject to lien v. free and clear
100K
  • Price 20K
  • Lien goes with the property
  • 2. Buyer is not liable for any deficiency unless
    buyer assumes and agrees to pay

80K
What seller has
29
Sale subject to lien v. free and clear
100K
100K
  • Price 20K
  • Lien goes with the property
  • 2. Buyer is not liable for any deficiency unless
    buyer assumes and agrees to pay

80K
80K
What seller has
What buyer gets
30
Sale subject to lien v. free and clear
100K
80K
What seller has
31
Sale subject to lien v. free and clear
100K
80K
Price 100K 80K lien is transferred to the
proceeds
What seller has
32
Sale subject to lien v. free and clear
100K
100K
80K
Price 100K 80K lien is transferred to the
proceeds
What seller has
What buyer gets
33
Sale subject to lien v. free and clear
100K
100K
80K
Price 100K 80K lien is transferred to the
proceeds
What seller has
What buyer gets
34
Secured TransactionsAssignment 7
  • Treatment of Secured Creditors in Bankruptcy

35
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
36
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
37
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
38
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
39
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
40
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
41
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
42
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
43
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
44
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
45
Problem 7.1, page 128
Mar 15
Feb 15
Dec 15
Sep 15
Now
Bank- ruptcy
Work done
Bill sent
46
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575

47
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575
  • Prorata distribution Each creditor will get the
    same percentage of its claim

48
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575
  • Prorata distribution Each creditor will get the
    same percentage of its claim
  • What percentage will that be?

49
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575
  • Prorata distribution Each creditor will get the
    same percentage of its claim
  • What percentage will that be?

All distributions 59,575 All claims
1,191,500
50
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575
  • Prorata distribution Each creditor will get the
    same percentage of its claim
  • What percentage will that be?

All distributions 59,575 All claims
1,191,500
51
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575
  • Prorata distribution Each creditor will get the
    same percentage of its claim
  • What percentage will that be?

All distributions 59,575 All claims
1,191,500
.05
52
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575
  • Prorata distribution Each creditor will get the
    same percentage of its claim
  • What percentage will that be?

All distributions 59,575 All claims
1,191,500
CompuSoft distribution CompuSoft claim
.05
53
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575
  • Prorata distribution Each creditor will get the
    same percentage of its claim
  • What percentage will that be?

1,635 32,700
All distributions 59,575 All claims
1,191,500
CompuSoft distribution CompuSoft claim
.05

54
Problem 7.2, page 129
  • CompuSoft claim, 32,700
  • Total claims, 1,191,500
  • Total amount available to pay claims, 59,575
  • Prorata distribution Each creditor will get the
    same percentage of its claim
  • What percentage will that be?

1,635 32,700
All distributions 59,575 All claims
1,191,500
CompuSoft distribution CompuSoft claim
.05

55
Problem 7.3.a, page 129
6 months Interest unpaid
3 months
Now
Bank- ruptcy
400K
340K Lien
56
Problem 7.3.a, page 129
6 months Interest unpaid
3 months
Now
Bank- ruptcy
400K
20.4K
340K Lien
57
Problem 7.3.a, page 129
6 months Interest unpaid
3 months
Now
Bank- ruptcy
400K
20.4K
340K Lien
58
Problem 7.3.a, page 129
6 months Interest unpaid
3 months
Now
Bank- ruptcy
400K
10.8K
20.4K
340K Lien
59
Problem 7.3.a, page 129
6 months Interest unpaid
3 months
Now
Bank- ruptcy
400K
10.8K
20.4K
340K Lien
60
Problem 7.3.a, page 129
6 months Interest unpaid
3 months
Now
Bank- ruptcy
400K
10.8K
20.4K
340K Lien
61
Problem 7.3.b, page 129
6 months Interest unpaid
If market rate 12 and plan confirmed today, how
much?
3 months
Now
Bank- ruptcy
400K
10.8K
20.4K
340K Lien
62
Problem 7.3.b, page 129
6 months Interest unpaid
If market rate 12 and plan confirmed today, how
much? 371,212 plus interest
3 months
Now
Bank- ruptcy
400K
10.8K
20.4K
340K Lien
63
Problem 7.3.c, page 129
6 months Interest unpaid
3 months
12 months
Now
Bank- ruptcy
43.2K
400K
10.8K
20.4K
340K Lien
64
Problem 7.3.c, page 129
6 months Interest unpaid
3 months
12 months
Now
Bank- ruptcy
14.4K
400K
28.8K
10.8K
20.4K
340K Lien
65
Problem 7.3.c, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
14.4K
400K
28.8K
10.8K
20.4K
340K Lien
66
Problem 7.3.c, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
14.4K
400K
28.8K
10.8K
20.4K
340K Lien
67
Problem 7.3.c, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
400K
28.8K
10.8K
20.4K
340K Lien
68
Problem 7.4, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
43.2K
If the value is only 325K?
10.8K
20.4K
340K Lien
69
Problem 7.4, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
43.2K
If the value is only 325K?
10.8K
20.4K
325K Lien
70
Problem 7.4, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
43.2K
If the value is only 325K?
10.8K
20.4K
15.0K
325K Lien
71
Problem 7.4, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
43.2K
If the value is only 325K?
10.8K
20.4K
15.0K
325K Lien
325K Lien
72
Problem 7.5, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
43.2K
No security agreement exists
10.8K
20.4K
340K
73
Problem 7.5, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
43.2K
No security agreement exists
10.8K
20.4K
340K
74
Problem 7.5, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
43.2K
No security agreement exists
10.8K
20.4K
340K
75
Problem 7.5, page 129
6 months Interest unpaid
3 months
12 months
Now
Confir- mation
Bank- ruptcy
43.2K
No security agreement exists
10.8K
20.4K
340K
76
Problem 7.6, page 129
Six months
Sale for 1 million
Now
1million
77
Problem 7.6, page 129
Six months
Such estate is composed of . . . all legal and
equitable interests of the debtor in property .
. .
Now
Sale for 1 million
1million
78
Problem 7.6, page 129
Six months
Now
Sale for 1 million
1million
850,000 Mort
79
Problem 7.6, page 129
Six months Interest unpaid
Now
Sale for 1 million
1million
42,500
850,000 Mort
80
Problem 7.6, page 129
Six months Interest unpaid
Now
Sale for 1 million
1million
10k
60,000
42,500
850,000 Mort
81
Problem 7.6, page 129
Six months Interest unpaid
Now
Sale for 1 million
1million
10k
60,000
42,500
850,000 Mort
82
Problem 7.6, page 129
Six months Interest unpaid
506(c). Can trustee recover the costs of sale
from the secured creditors share?
Now
Sale for 1 million
1million
10k
60,000
42,500
850,000 Mort
83
Problem 7.6, page 129
506(c). The trustee may recover from property
securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or
disposing of, such property to the extent of any
benefit to the holder of such claim . . . .
10k
60,000
42,500
850,000 Mort
84
Problem 7.6, page 129
506(c). The trustee may recover from property
securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or
disposing of, such property to the extent of any
benefit to the holder of such claim . . . . Does
1st Capital benefit from this sale?
10k
60,000
42,500
850,000 Mort
85
Problem 7.6, page 129
506(c). The trustee may recover from property
securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or
disposing of, such property to the extent of any
benefit to the holder of such claim . . . . Does
1st Capital benefit from this sale? What does 1st
Capital do if trustee abandons the house?
10k
60,000
42,500
850,000 Mort
86
Problem 7.6, page 129
506(c). The trustee may recover from property
securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or
disposing of, such property to the extent of any
benefit to the holder of such claim . . . . Does
1st Capital benefit from this sale? What does 1st
Capital do if trustee abandons the
house? Forecloses, adds interest, fees to debt,
sells house to stranger or self (cheap)
10k
60,000
42,500
850,000 Mort
87
Problem 7.6, page 129
506(c). The trustee may recover from property
securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or
disposing of, such property to the extent of any
benefit to the holder of such claim. . . . Does
1st Capital benefit from this sale? What does 1st
Capital do if trustee abandons the
house? Forecloses, adds interest, fees to debt,
sells house to stranger or self (cheap) How does
1st Capital come out?
10k
60,000
42,500
850,000 Mort
88
Problem 7.6, page 129
506(c). The trustee may recover from property
securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or
disposing of, such property to the extent of any
benefit to the holder of such claim. . . . Does
1st Capital benefit from this sale? What does 1st
Capital do if trustee abandons the
house? Forecloses, adds interest, fees to debt,
sells house to stranger or self (cheap) How does
1st Capital come out? Recovers entire amount
owing?
10k
60,000
42,500
850,000 Mort
89
Problem 7.6, page 129
506(c). The trustee may recover from property
securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or
disposing of, such property to the extent of any
benefit to the holder of such claim. . . . Does
1st Capital benefit from this sale? What does 1st
Capital do if trustee abandons the
house? Forecloses, adds interest, fees to debt,
sells house to stranger or self (cheap) How does
1st Capital come out? Recovers entire amount
owing? If so, 1st Capital gets no benefit from
sale and trustee pays the expenses of sale
10k
60,000
42,500
850,000 Mort
90
Problem 7.6, page 129
  • If we sell in exactly six months, how much money
    to the estate? 37,500 to 107,500
  • What if it takes longer to sell? Interest is
    accruing against us
  • Can First Capital prevent us from
  • selling? 554(b)

10k
60,000
42,500
850,000 Mort
91
Problem 7.6, page 129
  • If we sell in exactly six months, how much money
    to the estate? 37,500 to 107,500
  • What if it takes longer to sell? Interest is
    accruing against us
  • Can First Capital prevent us from
  • selling? 554(b)

10k
60,000
42,500
850,000 Mort
92
Problem 7.6, page 129
  • If we sell in exactly six months, how much money
    to the estate? 37,500 to 107,500
  • What if it takes longer to sell? Interest is
    accruing against us
  • Can First Capital prevent us from
  • selling? 554(b)

10k
60,000
42,500
850,000 Mort
93
Problem 7.6, page 129
  • If we sell in exactly six months, how much money
    to the estate? 37,500 to 107,500
  • What if it takes longer to sell? Interest is
    accruing against the estate at 7,083.30 per
    month
  • Can First Capital prevent us from
  • selling? 554(b)

10k
60,000
42,500
850,000 Mort
94
Problem 7.6, page 129
  • If we sell in exactly six months, how much money
    to the estate? 37,500 to 107,500
  • What if it takes longer to sell? Interest is
    accruing against the estate at 7,083.30 per
    month
  • Can First Capital prevent us from
  • trying to sell?

10k
60,000
42,500
850,000 Mort
554(b). On request of a party in interest and
after notice and a hearing, the court may order
the trustee to abandon any property of the estate
that is burdensome to the estate or that is of
inconsequential value and benefit to the estate.
95
Problem 7.6, page 129
  • If we sell in exactly six months, how much money
    to the estate? 37,500 to 107,500
  • What if it takes longer to sell? Interest is
    accruing against the estate at 7,083.30 per
    month
  • Can First Capital prevent us from
  • trying to sell?

10k
60,000
42,500
850,000 Mort
362(d)(1). On request of a party in interest .
. . the court shall grant relief from the stay .
. . for cause, including the lack of adequate
protection of an interest in property of such
party in interest.
96
Problem 7.6, page 129
  • If we sell in exactly six months, how much money
    to the estate? 37,500 to 107,500
  • What if it takes longer to sell? Interest is
    accruing against the estate at 7,083.30 per
    month
  • Can First Capital prevent us from
  • trying to sell?
  • d. We are advising the trustee. Is selling
  • the house the right thing to do?

10k
60,000
42,500
850,000 Mort
97
Problem 7.7.a, page 128
98
Problem 7.7.a, page 128
99
Problem 7.7.a, page 128
100
Problem 7.7.b, page 128
101
Problem 7.7.b, page 128
102
Problem 7.7.b, page 128
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