Thursday, November 29, 2012

Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 19

  • Problem Set 19, p.427

  • What is the value of the tools? Can we just use the tax depreciation? It is not relevant to the real value of the property, and it is only standard depreciation.
  • Is the bank oversecured? Is there any equity cushion in the property? What is the possible depreciation during the reorganization?
  • Under §§361 and 362, the bank can ask for the adequate protection or to lift the stay.
  • What is the feasibility for the debtor to go through the reorganization? The bank may also want the money now and force the debtor into Ch 7.
  • The problem is that even if it won’t depreciate much, the debtor has no equity on the jet. §362(d)(2).
  • Is it necessary for the effective reorganization? I am not convinced of this.
  • So the creditor can ask to lift the stay under §362(d)(2).
  • As the debtor, we can argue that the policy behind the adequate protection is that the value of the collateral may drop during the reorganization period.
  • We have the appraiser expert’s testimony that the jet won’t depreciate much if it can be maintained well. We can prove that we have a good maintenance on the jet.
  • We would like to pay a small sum or buy additional insurance for the jet.
  • The jet is dispensable for the reorganization

  • The filing for Ch. 11 will have an automatic stay on Sam’s litigation. The debt to Sam is contingent and unliquidated, so he cannot ask for the adequate protection; and he cannot get the post-petition interest; it is also hard for Sam to ask to lift the stay. So how to fight?
  • §1112(b) – San can ask the court to convert to Ch. 7, if Sam can establish that the conversion is not the best interest of the creditor and the estate.
  • §1129(a)(3) – The reorganization should be proposed in good faith; here is not the business problem; zero problem about his business; it is not for his business, only for the litigation stay; so RRI filed in bad faith
  • Who will determine the amount of the plaintiff’s claim? The jury or the court? No jury; the judge decides it. §105 – power of the court.
  • PMSI will be paid first.
  • 362(d) is the gatekeeper, screen for the Ch 11
  • §362(d)(1) HM can ask to lift the stay by lack of adequate protection
  • §362(d)(2) HM can argue that the American Slide has no equity on the collateral and it is not necessary for an effective reorganization.
  • Slide rule: what is his reorganization plan? What is the feasibility to be success? Is it filed in bad will?
  • Can the first creditor claim this property? Are the collateral calculated together or separately? Yes, the first creditor can get the property. But if the debtor still has any equity, even if it is very small, the debtor can still keep the property, because the trustee has the control of the estate
  • Pottow: the HM should petition to convert it to Ch 7.
  • To lift the stay: §362(d)(3) against the background that too many debtors park in the bankruptcy as a free option, so file the plan or make the payment
  • §362(d)(3) whether the debtor have timely filed a plan or have commenced to make a payment? The interest at the K rate
  • What is the nature of the payment? Interest? Compensation for the depreciation or others? Or payment for the debt?
  • §506(b) oversecured claims.
Problem Sets: Table of Contents

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