Avnet Inc v Catalyst Resource Group LLC Discussion Board Read Case 26.2 in your text. Research any additional information you need in the full opinion to a

Avnet Inc v Catalyst Resource Group LLC Discussion Board Read Case 26.2 in your text. Research any additional information you need in the full opinion to answer these questions.

Discuss the facts of this case
Explain how a personal guarantee impacts the protections provided by the particular business formations
What advantages do personal guarantees provide
What disadvantages are there for personal guarantees

Support your answers with information from this week’s learning segments.

Be sure to provide in text citation and source information in APA format including a working URL

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26.1 Case– Mortgages and Liens

•Case
–Old Republic National Title Insurance Company v. Fifth Third Bank
–2008 Ohio App. Lexis 4423 (2008)
–Court of Appeals of Ohio
•Issue
–What is the priority of the lien and two mortgages on McCarthy’s house? Business Law
Tenth Edition
Chapter 28
Bankruptcy and
Reorganization
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Learning Objectives
28.1 Describe bankruptcy law and list the types of bankruptcy.
28.2 Describe bankruptcy procedures, including filing petitions
for bankruptcy proceedings.
28.3 Describe how the bankruptcy estate is determined.
28.4 List and describe the exempt property that a debtor is
permitted to keep.
28.5 Describe the provisions of a Chapter 7 liquidation
bankruptcy.
28.6 Describe a Chapter 13 adjustment of debts of an
individual with regular income bankruptcy.
28.7 Describe how businesses are reorganized in Chapter 11
bankruptcy.
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Introduction (1 of 2)
• Goal: The goal of bankruptcy law is to balance the rights
of debtors and creditors and provide methods for debtors
to be relieved of some debt to obtain a fresh start.
• Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005
– Made it much more difficult for debtors to escape debts
– Creditor friendly
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Introduction (2 of 2)
Bankruptcy Reform Act of 1978
• Federal act that substantially changed federal bankruptcy
law
Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005
• Federal act that substantially amended federal bankruptcy
law
Bankruptcy code
• Name given to federal bankruptcy law, as amended
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Types of Bankruptcy
Chapter
Type of Bankruptcy
Chapter 7
Liquidation
Chapter 11
Reorganization
Chapter 12
Adjustment of Debts of a Family Farmer or Fisherman with Regular
Income
Chapter 13
Adjustment of Debts of an Individual with Regular Income
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Bankruptcy Courts
• U.S. Bankruptcy Courts: Special federal courts that hear
and decide bankruptcy cases
– Part of federal court system
– Judges appointed for 14-year terms
– Judges assisted by bankruptcy trustees
• U.S. Trustee: Federal government official who is
responsible for handling and supervising many of the
administrative tasks of a bankruptcy case
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Bankruptcy Procedure (1 of 7)
• Pre- and post-petition counseling
– Debtor must receive pre-petition counseling within 180
days prior to filing petition
▪ Types and uses of credit, budget analysis
▪ Provided by nonprofit credit counseling agencies
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Bankruptcy Procedure (2 of 7)
• Filing the petition
– Petition: Document filed with a bankruptcy court that starts
a bankruptcy proceeding
▪ Voluntary petition: Filed by a debtor that states that the
debtor has debts
▪ Involuntary petition: Filed by creditors of a debtor that
alleges that the debtor is not paying his or her debts as
they become due
• Attorney certification
– Attorney who represents a client in bankruptcy must certify
the accuracy of the information contained in the bankruptcy
petition and the schedules, under penalty of perjury
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Bankruptcy Procedure (3 of 7)
Order for relief
• Order that occurs upon the filing of either a voluntary petition or
an unchallenged involuntary petition, or an order that is granted
after a trial of a challenged involuntary petition
Meeting of the creditors
• Meeting of the creditors in a bankruptcy case must occur within
a reasonable time after an order for relief
Proof of claim
• Document required to be filed by a creditor that states the
amount of his or her claim against the debtor
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Bankruptcy Procedure (4 of 7)
Proof of interest
• Document required to be filed by an equity security holder
that states the amount of his or her interest against the
debtor
Bankruptcy trustee
• Legal representative of the debtor’s estate
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Bankruptcy Procedure (5 of 7)
• Automatic stay: Suspension of certain legal actions by
creditors against a debtor or the debtor’s property that
include:
– Instituting or maintaining legal actions to collect
prepetition debts
– Enforcing judgments obtained against the debtor
– Obtaining, perfecting, or enforcing liens against
property of the debtor
– Nonjudicial collection efforts
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Bankruptcy Procedure (6 of 7)
• Discharge of debts
– Court order that relieves a debtor of the legal liability to
pay his or her debts that were not paid in the
bankruptcy proceeding
– Some debts that aren’t dischargeable include:
▪ Income taxes accrued within 3 years prior to filing
▪ Certain fines and penalties owed to government
▪ Claims from liabilities related to willful or malicious
injuries to persons or property
▪ Alimony and child support
▪ Claims based on purchases of luxury goods made
90 days prior to order for relief
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Case 28.1: Bankruptcy Discharge
• Case
– Speedsportz v. Lieben
– 2013 Bankr. Lexis 3783 (2013)
– United States Bankruptcy Court for the Northern
District of Georgia
• Issue
– Did debtor Lieben’s defalcations result from fraud or
embezzlement and were therefore not dischargeable in
bankruptcy?
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Bankruptcy Procedure (7 of 7)
• Reaffirmation Agreement
– Entered into by a debtor with a creditor prior to
discharge, whereby the debtor agrees to pay the
creditor a debt that would otherwise be discharged in
bankruptcy
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Bankruptcy Estate (1 of 2)
• Debtor’s property and earnings that comprise the estate of
a bankruptcy proceeding
– Includes interest of debtor and the debtor’s spouse in
community property
• Exempt property: Retained by the debtor pursuant to
federal or state law that does not become part of the
bankruptcy estate
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Bankruptcy Estate (2 of 2)
• Fraudulent Transfer of Property Prior to Bankruptcy
– Bankruptcy court may void certain transfers made by
the debtor within two years prior to filing bankruptcy
petition
– In order to void a transfer or an obligation, court must
find that:
▪ The transfer was made with the actual intent to
hinder, delay, or defraud a creditor, OR
▪ The debtor received less than a reasonable
equivalent in value
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Exempt Property
• State exemptions – States may:
– Give debtors the option of choosing between federal
and state exemptions
– Require debtors to follow state law
• Homestead exemption: Equity in a debtor’s home that
the debtor is permitted to retain
– Exemption equals $23,675
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Exhibit 28.2: Federal Exemptions from the
Bankruptcy Estate (1 of 3)
• The following debts are not dischargeable in bankruptcy:
– Interest up to $23,675 in the equity used as a
residence or burial plot
– Interest up to $3,775 in value in one motor vehicle
– Interest up to $600 per item in household goods and
furnishings, wearing appear, appliances, books,
animals, crops, or musical instruments, up to $12,625
for all items
– Interest in jewelry up to $1,600
– Interest in any property debtor chooses up to $1,250,
plus up to $12,625 of any unused portion of the
homestead exemption
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Exhibit 28.2: Federal Exemptions from the
Bankruptcy Estate (2 of 3)
• The following debts are not dischargeable in bankruptcy:
– Interest up to $2,375 in tools used in debtor’s trade
– Any unmatured life insurance policy owned by the
debtor
– Professionally prescribed health aids
– Many government benefits including social security
– Certain rights to receive income (e.g. alimony, child
support)
– Interest in wrongful death or life insurance proceeds to
the extent necessary to support the debtor or his or her
dependents
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Exhibit 28.2: Federal Exemptions from the
Bankruptcy Estate (3 of 3)
• The following debts are not dischargeable in bankruptcy:
– Personal injury awards up to $23,675
– Retirement funds that are in a fund or an account that
is exempt from taxation
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Chapter 7–Liquidation (1 of 7)
• Chapter 7–Liquidation: Form of bankruptcy in which the
debtor’s nonexempt property is sold for cash, the cash is
distributed to the creditors, and any unpaid debts are
discharged
– Also termed as straight bankruptcy
– Debtor’s future income cannot be reached
• Qualifications for Chapter 7 Bankruptcy
– Must satisfy either the median income test or the
means test
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Chapter 7–Liquidation (2 of 7)
• Median income test: If a debtor’s median family income is
at or below the state’s median family income for a family
the same size as the debtor’s family, the debtor can
receive Chapter 7 relief
– Categories
▪ Median family income equal to or below the state’s
median family income
▪ Median family income higher than the state’s
median family income
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Chapter 7–Liquidation (3 of 7)
• Means test: Applies to a debtor who has a median family
income that exceeds the state’s median family income for
families the same size as the debtor’s family
– Disposable income – Determined by taking the debtor’s
actual income and subtracting expenses for a typical
family the same size as the debtor’s family
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Chapter 7–Liquidation (4 of 7)
• Statutory distribution of property
– Over-secured secured creditor
▪ Value of the collateral securing the secured loan
exceeds secured interest
– Under-secured secured creditor
▪ Value of collateral securing the secured loan is less
than the secured interest
• Chapter 7 discharge: Termination of the legal duty of an
individual debtor to pay unsecured debts that remain
unpaid upon the completion of a Chapter 7 proceeding
– Debtor is not responsible for paying prepetition debts
out of post-petition income
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Exhibit 28.3: Priority of Unsecured Creditor
Claims (1 of 3)
• Unsecured claims for domestic support obligations
• Fees and expenses of administering the estate
• Secured claims of “gap” creditors who sold goods or
services on credit to the debtor in the ordinary course of
the debtor’s business between the date of filing and the
date of the appointment of the trustee or issuance of the
order for relief
• Unsecured claims for wages, salary, commissions,
severance pay, and sick leave pay earned by the debtor’s
employees within 180 days immediately preceding the
filing of the petition
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Exhibit 28.3: Priority of Unsecured Creditor
Claims (2 of 3)
• Unsecured claims for contributions to employee benefit
plans based on services performed within 180 days
immediately preceding the filing of the petition
• Farm producers and fishermen against debtors who
operate grain storage facilities or fish storage or
processing facilities
• Unsecured claims for cash deposited by a consumer with
the debtor prior to the filing of the petition in connection
with the purchase, lease, or rental of property or the
purchases of services that were not delivered or provided
by the debtor
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Exhibit 28.3: Priority of Unsecured Creditor
Claims (3 of 3)
• Unsecured claims for unpaid income and gross receipts
taxes owed to governments incurred during the three years
preceding the bankruptcy petition and unpaid property
taxes incurred within one year preceding the bankruptcy
petition
• Commitment by the debtor to maintain the capital of an
insured depository institution such as a commercial bank
or savings bank
• Claims against the debtor for personal injuries or death
caused by the debtor while she was intoxicated from using
alcohol or drugs
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Chapter 7–Liquidation (5 of 7)
• Chapter 7 discharge: Termination of the legal duty of an
individual debtor to pay unsecured debts that remain
unpaid upon the completion of a Chapter 7 proceeding
– Debtor is not responsible for paying prepetition debts
out of post-petition income
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Chapter 7–Liquidation (6 of 7)
• Acts that bar discharge
– Discharge of unsatisfied debts is denied if the debtor:
▪ Made false representations about his or her financial
position when he or she obtained an extension of
credit
▪ Transferred, concealed, removed, or destroyed
property of the estate with the intent to hinder, delay,
or defraud creditors within one year before the date of
the filing of the petition
▪ Falsified, destroyed, or concealed records of his or her
financial condition
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Chapter 7–Liquidation (7 of 7)
• Acts that bar discharge (cont.)
– Discharge of unsatisfied debts is denied if the
debtor:
▪ Failed to account for any assets
▪ Failed to submit to questioning at the meeting of the
creditors (unless excused)
▪ Failed to complete an instructional course
concerning personal financial management, as
required by the 2005 act (unless excused)
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Case 28.2: Bankruptcy Fraud
• Case
– Husky International Electronics, Inc. v. Ritz
– 136 S.Ct. 1581 (2016)
– Supreme Court of the United States
• Issue
– Is Ritz’s debt to Husky dischargeable in bankruptcy?
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Chapter 13 – Adjustment of Debts of an
Individual with Regular Income (1 of 6)
• Rehabilitation form of bankruptcy that permits bankruptcy
courts to supervise the debtor’s plan for the payment of
unpaid debts in installments over the plan period
• Advantages
– Debtor may avoid stigma, retain more property, incur
fewer expenses
– Creditor may recover greater percentage of debts
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Chapter 13 – Adjustment of Debts of an
Individual with Regular Income (2 of 6)
• Filing a Chapter 13 petition
– Individual with regular income: Sufficiently stable
and regular to enable the individual to make payments
under a Chapter 13 plan
– Cannot be filed involuntarily by a creditor
– Debts must be primarily consumer debt
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Chapter 13 – Adjustment of Debts of an
Individual with Regular Income (3 of 6)
• Limitations on Who Can File for Chapter 13 Bankruptcy
– Amount of debt must not exceed certain dollar amounts
▪ $394,725 in unsecured debts
▪ $1,184,200 in secured debts
• Property of a Chapter 13 Estate
– All nonexempt property of debtor at commencement of
case
– Nonexempt property acquired before case is closed
– Earnings and future income
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Chapter 13 – Adjustment of Debts of an
Individual with Regular Income (4 of 6)
• Chapter 13 Plan of Payment
– Must be filed within 90 days after the order for relief
– Must be accepted by secured and unsecured creditors
or approved by the court
– During the plan period, unsecured creditors might not
receive full payment of the debt owed to them
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Chapter 13 – Adjustment of Debts of an
Individual with Regular Income (5 of 6)
• Confirmation of a Chapter 13 plan of payment
– Conditions
▪ Plan was proposed in good faith
▪ Plan passes the feasibility test
▪ Plan is in the best interests of the creditors
▪ Debtor has paid all domestic support obligations
owed
▪ Debtor has filed all applicable federal, state, and
local tax returns
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Chapter 13 – Adjustment of Debts of an
Individual with Regular Income (6 of 6)
• Chapter 13 Discharge: Discharge in a Chapter 13 case
that is granted to the debtor after the debtor’s plan of
payment is completed
– Cannot be discharged under Chapter 13 if the debtor
has received discharge under:
▪ Chapter 7, 11, or 12 within 4 years, or
▪ Chapter 13 within 2 years
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Chapter 11 – Reorganization (1 of 6)
• Bankruptcy method that allows the reorganization of the
debtor’s financial affairs under the supervision of the
bankruptcy court
– For partnerships, corporations, limited liability
companies, and other business entities
– Debtor reorganizes with new capital structure
▪ May be relieved of a portion of debts, burdensome
executory contracts, and unexpired leases
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Chapter 11 – Reorganization (2 of 6)
Debtor-in-possession
• Debtor who is left in place to operate the business during
the reorganization proceeding
Creditors’ committee
• Committee of unsecured creditors that is appointed by the
court to represent the class of unsecured claims
– Committee may be appointed to represent secured
creditors and equity holders
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Chapter 11 – Reorganization (3 of 6)
Automatic Stay in Chapter 11
• Chapter 11 petition stays (suspends) actions by creditors
to recover debtor’s property
Executory contract
• Contract or lease that has not been fully performed
– Unexpired lease
– Debtor may reject executory contracts and unexpired
leases in bankruptcy
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Chapter 11 – Reorganization (4 of 6)
Discharge of debts
• Debtor proposes to reduce its unsecured debt so that it
can come out of bankruptcy with fewer debts to pay than
when it filed for bankruptcy
Chapter 11 plan of reorganization
• Sets forth a proposed new capital structure for a debtor to
assume when it emerges from Chapter 11 reorganization
bankruptcy
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Chapter 11 – Reorganization (5 of 6)
• Confirmation of a Chapter 11 plan of reorganization:
Bankruptcy court’s approval of a plan of reorganization
– Acceptance method: Court confirms a plan of
reorganization if the creditors accept the plan and if
other requirements are met
– Cram-down provision: Court confirms a plan of
reorganization over an objecting class of creditors if
certain requirements are met
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Chapter 11 – Reorganization (6 of 6)
• Small business bankruptcy – Provides an efficient and
cost-saving method for small businesses to reorganize
under Chapter 11
– Total debts of less than $2,566,050
– Fast-track form of Chap…
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