BANKRUPTCY
I. Basics
A. Filing of Petition for Bankruptcy
1. Title reverts automatically to Bankruptcy estate. Section 541
2. Automatic Stay – the “shield of sanctuary”. Section 362
3. Appointment of Trustee
4. Notice to Creditors
B. Chapter 13- Reorganization for Individuals
1. Appointment of Trustee (Detroit – Ruskin, Terry, Carroll)
2. Confirmation of Plan of Reorganization (cram down)
3. Role of Trustee – take in payments, disburse to creditors
C. Chapter 11 – Reorganization for Companies
1. Appointment of Trustee or “Debtor in Possession”. Sections
1106 and 1107
2. Court Orders requiring selling property “out of the ordinary
course of business”. Section 363 (c) (2) (B)
3. Confirmation of Plan - (cram down)
D. Chapter 7 – Liquidation
1. Appointment of Trustee
2. 2. Role of Trustee – determination of assets and
liabilities/payoff of creditors: cents on the dollar/ final report
3. close the estate
II. Bankruptcy Searches
A. No name searches on buyer/borrowers on sales – “purchase money
mortgage” argument.
III. Where is title? From whom do you get a deed/ mortgage? Based upon
what authority.
A. Petition passes title to Estate. Section 541
B. Title reverts back to Debtor under the following circumstances:
1. Chapter 13
a. Confirmation of Plan (Detroit exception)
b. Court Order authorizing Debtor to deed/mortgage
c. Exempt property claim of $18,350. Section 522
d. Closing of the estate
2. Chapter 11
a. Debtor in Possession who sells in the ordinary “course of
business”.
b. Court Order authorizing debtor to sell/mortgage
c. Closing of the estate
3. Chapter 7
a. Court Order of Abandonment
b. Rejection of an Executory Contract (land contract or
lease). Section 744
c. Exempt property. Section 744
d. Closing of the estate
e. “Red Herrings”
i. “Discharge of Debtor Order” –secured interests
ii. Final Report – “no asset” estate
IV. Foreclosures
A. Confirmation of Sale Order dated prior to Petition for Bankruptcy
1. Title passed to lender at Confirmation Sale and execution of
the sheriff’s deed.
2. Foreclosed property not a part of the estate
B. Petition for Bankruptcy filed prior to Confirmation of Sale Order
1. Common Pleas foreclosure action is stayed
2. Lender/Bidder at sale must secure a Lift of Stay Order from
the Bankruptcy Court.
3. Lender/Bidder at sale must secure an Abandonment Order
from Bankruptcy Court.
4. Lender/Bidder at sale may then resume Common Pleas
foreclosure action.
V. Powers of the Trustee
A. Bona fide purchaser for value without notice. Section 544 (1) (3)
1. Mortgage dated prior to, but recorded after the Petition
a. “Safe Harbors” – 30 days for purchase money
mortgages and refinance mortgages. Section 547 (c)
(3) (B)
B. Recording notice of bankruptcy at register of deeds