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Secured Transactions Assignment 7

Secured Transactions Assignment 7. Treatment of Secured Creditors in Bankruptcy. 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

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Secured Transactions Assignment 7

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  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 $6,000 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)(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 claimis not less than the allowed amount of such claim [$6K]. . . orowed 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 claimis not less than the allowed amount of such claim [$6K]. . . 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, 83% of payments will be interest

  17. 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, 83% of payments will be interest

  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, 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, 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, 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, 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, 83% of payments will be interest For $167 million, 30 years, at 6%, payment is $1 million per month

  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, 83% of payments will be interest For $167 million, 30 years, at 6%, payment is $1 million per month Timbers: In one-year bankruptcy, secured loses $10 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, 83% of payments will be interest

  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, 83% of payments will be interest §1325(a)(5): “[T]he 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.”

  26. Sale “subject to lien” v. “free and clear” $100K $80K What seller has

  27. 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

  28. 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

  29. Sale “subject to lien” v. “free and clear” $100K $80K What seller has

  30. Sale “subject to lien” v. “free and clear” $100K $80K Price: $100K $80K lien is transferred to the proceeds What seller has

  31. 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

  32. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  33. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  34. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  35. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  36. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  37. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  38. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  39. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  40. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  41. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  42. Problem 7.1, page 128 Feb 15 Mar 15 Sep 15 Dec 15 Now Bank- ruptcy Work done Bill sent

  43. Problem 7.2, page 128 CompuSoft claim, $32,700 Total claims, $1,191,500 Total amount available to pay claims, $59,575

  44. Problem 7.2, page 128 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

  45. Problem 7.2, page 128 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?

  46. Problem 7.2, page 128 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

  47. Problem 7.2, page 128 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

  48. Problem 7.2, page 128 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 =

  49. Problem 7.2, page 128 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 =

  50. Problem 7.2, page 128 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 = =

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