Bankruptcy & Creditor Rights Flashcards

Under the Bankruptcy Code, a 'preference payment' under Section 547 allows the trustee to avoid transfers made to a creditor within 90 days before bankruptcy if the transfer:

Answer: Allowed the creditor to receive more than it would in a Chapter 7 liquidation

A preference is avoidable when the creditor received more than it would have in a Chapter 7 liquidation, disrupting the principle of equal treatment among similarly situated creditors.

The automatic stay under Bankruptcy Code Section 362 immediately halts which of the following upon a bankruptcy filing?

Answer: Most collection actions, lawsuits, and enforcement of judgments against the debtor

Section 362 broadly stays collection and enforcement actions but has exceptions, including criminal proceedings and certain domestic support enforcement.

Under Bankruptcy Code Section 548, a trustee can avoid a fraudulent transfer made within 2 years before the petition if the debtor received:

Answer: Less than reasonably equivalent value while insolvent or rendered insolvent by the transfer

Constructive fraudulent transfer requires both inadequate consideration and financial distress (insolvency, unreasonably small capital, or inability to pay debts).

In a Chapter 11 reorganization, a 'cramdown' confirmation under Section 1129(b) allows a plan to be confirmed over a rejecting class of creditors if the plan:

Answer: Does not discriminate unfairly and is fair and equitable with respect to the rejecting class

Cramdown requires the plan to be fair and equitable to the rejecting class, which for secured creditors means they retain their lien or receive the present value of their collateral.

The absolute priority rule in Chapter 11 liquidations requires that:

Answer: Senior creditors must be paid in full before junior creditors or equity holders receive anything

The absolute priority rule prevents equity from retaining value in a cramdown plan if senior creditors are not being paid in full.

A financial litigator representing a creditors' committee in Chapter 11 would primarily focus on which objective?

Answer: Maximizing the recovery for unsecured creditors in the reorganization plan

Creditors' committees represent general unsecured creditors and work to maximize their collective recovery through the reorganization process.