Secured Transactions Assignment 7 Treatment of Secured Creditors

Secured Transactions Assignment 7 Treatment of Secured Creditors in Bankruptcy 1

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 2

What secured creditors get in bankruptcy $6 K $10 K 3

What secured creditors get in bankruptcy 1. Bifurcation of claim § 506(a) $6 K $10 K 4

What secured creditors get in bankruptcy 1. Bifurcation of claim § 506(a) $6 K $4 K unsecured claim $6 K $10 K secured claim 5

What secured creditors get in bankruptcy 1. Bifurcation of claim § 506(a) 2. Secured portion: payment in full $6 K $4 K unsecured claim $6 K $10 K secured claim 6

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 $6 K $4 K unsecured claim $6 K $10 K secured claim 7

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 $6 K $4 K unsecured claim $6 K $10 K 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 $6 K $4 K unsecured claim $6 K $10 K secured claim Secured creditor gets $6, 000 from sale; $4, 000 claim shares prorata in other assets, if any. 9

What secured creditors get in Chapter 13 § 1325(a)(5). With respect to each allowed secured claim. . . $6 K $4 K unsecured claim $6 K $10 K secured claim 10

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; $6 K $4 K unsecured claim $6 K $10 K 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; (B)(i)(I) the plan provides that the holder of such claim retain the lien securing such claim $6 K. . . and (ii) the 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 [$6 K]. . . orowed amount of such claim; or (C) the debtor surrenders the property securing such claim to such holder $4 K unsecured claim $6 K $10 K 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 $6 K. . . and (ii) the 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 [$6 K]. . . or (C) the debtor surrenders the property securing such claim to such holder $4 K unsecured claim $6 K $10 K secured claim 13

Interest on claims is important: Example: 30 -year loan at 6% 14

Interest on claims is important: Example: 30 -year loan at 6% 1. Over half of all payments will be interest 15

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 16

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 Is a creditor entitled to interest on its claim? Prepetition Pendency Post-confirmation Unsecured Undersecured Over secured 18

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 Is a creditor entitled to interest on its claim? Prepetition Pendency Post-confirmation Unsecured Undersecured Over secured Yes, § 502(b) 19

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 Is a creditor entitled to interest on its claim? Prepetition Unsecured Undersecured Over secured Pendency Post-confirmation No, § 502(b) Yes, § 502(b) 20

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 Is a creditor entitled to interest on its claim? Prepetition Unsecured Undersecured Over secured Pendency Post-confirmation No, § 502(b) Yes, § 506(b) 21

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 Is a creditor entitled to interest on its claim? Prepetition Unsecured Undersecured Over secured Pendency Post-confirmation No, § 502(b) Yes, § 502(b) No, Timbers Yes, § 506(b) 22

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 Is a creditor entitled to interest on its claim? Prepetition Unsecured Undersecured Over secured Pendency Post-confirmation No, § 502(b) Yes, § 502(b) No, Timbers Yes, § 506(b) For $167 million, 30 years, at 6%, payment is $1 million per month 23

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 Is a creditor entitled to interest on its claim? Prepetition Unsecured Undersecured Over secured Pendency Post-confirmation No, § 502(b) Yes, § 502(b) No, Timbers Yes, § 506(b) 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 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 Is a creditor entitled to interest on its claim? Prepetition Unsecured Undersecured Over secured Pendency Post-confirmation No, § 502(b) Yes, § 502(b) No, Timbers Yes, § 506(b) Yes § 1129(b)(2) 25

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 Is a creditor entitled to interest on its claim? Prepetition Unsecured Undersecured Over secured Pendency Post-confirmation No, § 502(b) Yes, § 502(b) No, Timbers Yes, § 506(b) Yes § 1129(b)(2) § 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 26 not less than the allowed amount of such claim. ”

Sale “subject to lien” v. “free and clear” $100 K $80 K What seller has 27

Sale “subject to lien” v. “free and clear” $100 K Price: $20 K 1. Lien goes with the property $80 K 2. Buyer is not liable for any deficiency unless buyer “assumes and agrees to pay” What seller has 28

Sale “subject to lien” v. “free and clear” $100 K Price: $20 K $100 K 1. Lien goes with the property $80 K What seller has 2. Buyer is not liable for any deficiency unless buyer “assumes and agrees to pay” $80 K What buyer gets 29

Sale “subject to lien” v. “free and clear” $100 K $80 K What seller has 30

Sale “subject to lien” v. “free and clear” $100 K $80 K Price: $100 K $80 K lien is transferred to the proceeds What seller has 31

Sale “subject to lien” v. “free and clear” $100 K $80 K What seller has Price: $100 K $80 K lien is transferred to the proceeds What buyer gets 32

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Work Bill done sent Dec 15 Bankruptcy Now What items are included in Compu. Soft’s claim? $30, 000 Principal 33

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal Interest Feb 15 – Mar 15? 34

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. 35

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. Interest Mar 15 – Sep 15? 36

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. Interest Mar 15 – Sep 15. Rate? 37

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. $2, 700 Interest Mar 15 – Sep 15. Rate? 18% 38

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. $2, 700 Interest Mar 15 – Sep 15. Rate? 18% Interest Sep 15 – Dec 15, § 502(b)(2)? 39

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. $2, 700 Interest Mar 15 – Sep 15. Rate? 18% 0 Interest Sep 15 – Dec 15, § 502(b)(2) 40

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. $2, 700 Interest Mar 15 – Sep 15. Rate? 18% 0 Interest Sep 15 – Dec 15, § 502(b)(2) Attorneys fees for work in August? 41

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. $2, 700 Interest Mar 15 – Sep 15. Rate? 18% 0 Interest Sep 15 – Dec 15, § 502(b)(2) 0 Attorneys fees for work in August 42

Problem 7. 1, page 128 Feb Mar 15 15 Sep 15 Bankruptcy Work Bill done sent Dec 15 Now What items are included in Compu. Soft’s claim? $30, 000 Principal 0 Interest Feb 15 – Mar 15. $2, 700 Interest Mar 15 – Sep 15. Rate? 18% 0 Interest Sep 15 – Dec 15, § 502(b)(2) 0 Attorneys fees for work in August $32, 700 Amount of the unsecured claim 43

Problem 7. 2, page 128 Compu. Soft claim, $32, 700 Total claims, $1, 191, 500 Total amount available to pay claims, $59, 575 44

Problem 7. 2, page 128 Compu. Soft 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 Compu. Soft 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 Compu. Soft 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 Compu. Soft 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 Compu. Soft 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 =. 05 = All claims $1, 191, 500 49

Problem 7. 2, page 128 Compu. Soft 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 =. 05 = Compu. Soft distribution All claims $1, 191, 500 Compu. Soft claim 50

Problem 7. 2, page 128 Compu. Soft 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 =. 05 = Compu. Soft distribution All claims $1, 191, 500 Compu. Soft claim = $1, 635 $32, 700 51

Problem 7. 2, page 128 Compu. Soft 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 =. 05 = Compu. Soft distribution All claims $1, 191, 500 Compu. Soft claim = $1, 635 $32, 700 52

Problem 7. 3. a, page 129 6 months interest unpaid 3 months Bankruptcy Now $400 K What is in the claim? $340, 000 Principal $340 K Lien 53

Problem 7. 3. a, page 129 6 months interest unpaid 3 months Bankruptcy Now $400 K What is in the claim? $340, 000 Principal 6 months interest? $20. 4 K $340 K Lien 54

Problem 7. 3. a, page 129 6 months interest unpaid 3 months Bankruptcy Now $400 K What is in the claim? $340, 000 Principal $20, 400 6 months interest $20. 4 K $340 K Lien 55

Problem 7. 3. a, page 129 6 months interest unpaid 3 months Bankruptcy Now $400 K What is in the claim? $340, 000 Principal $20, 400 6 months interest $10. 8 K $20. 4 K 3 months interest? $340 K Lien 56

Problem 7. 3. a, page 129 6 months Interest unpaid 3 months Bankruptcy Now $400 K What is in the claim? $340, 000 Principal $20, 400 6 months interest $10. 8 K $20. 4 K $10, 812 3 months interest $340 K Lien 57

Problem 7. 3. a, page 129 6 months Interest unpaid 3 months Bankruptcy Now $400 K What is in the claim? $340, 000 Principal $20, 400 6 months interest $10. 8 K $20. 4 K $10, 812 3 months interest $340 K Lien $371, 212 Claim (secured) 58

Problem 7. 3. b, page 129 6 months interest unpaid If market rate 12% and plan confirmed today, how much? 3 months Bankruptcy Now $400 K What is in the claim? $340, 000 Principal $20, 400 6 months interest $10. 8 K $20. 4 K $10, 812 3 months interest $340 K Lien $371, 212 Claim (secured) 59

Problem 7. 3. b, page 129 6 months interest unpaid If market rate 12% and plan confirmed today, how much? $371, 212 plus interest 3 months Bankruptcy Now $400 K What is in the claim? $340, 000 Principal $20, 400 6 months interest $10. 8 K $20. 4 K $10, 812 3 months interest $340 K Lien $371, 212 Claim (secured) 60

Problem 7. 3. c, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now $400 K $43. 2 K Confirmation If plan not confirmed for year? $340, 000 Principal $20, 400 6 months interest $10. 8 K $20. 4 K $10, 812 3 months interest 12 months interest? $340 K Lien 61

Problem 7. 3. c, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now If plan not confirmed for year? $340, 000 Principal $20, 400 6 months interest $400 K $14. 4 K Confirmation $28. 8 K $10. 8 K $20. 4 K $10, 812 3 months interest $28, 788 12 months interest $340 K Lien 62

Problem 7. 3. c, page 129 6 months Interest unpaid 3 months Bankruptcy 12 months Now If plan not confirmed for year? $340, 000 Principal $20, 400 6 months interest $400 K $14. 4 K Confirmation $28. 8 K $10. 8 K $20. 4 K $10, 812 3 months interest $28, 788 12 months interest $400, 000 Claim (secured) $340 K Lien 63

Problem 7. 3. c, page 129 6 months Interest unpaid 3 months Bankruptcy 12 months Now If plan not confirmed for year? $340, 000 Principal $20, 400 6 months interest $400 K $14. 4 K Confirmation $28. 8 K $10. 8 K $20. 4 K $10, 812 3 months interest $28, 788 12 months interest $400, 000 Claim (secured) $340 K Lien Claim (unsecured)? 64

Problem 7. 3. c, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now If plan not confirmed for year? $340, 000 Principal $20, 400 6 months interest Confirmation $400 K $28. 8 K $10. 8 K $20. 4 K $10, 812 3 months interest $28, 788 12 months interest $400, 000 Claim (secured) $340 K Lien 0 Claim (unsecured) 65

Problem 7. 4, page 129 6 months Interest unpaid 3 months Bankruptcy a. What is in the claim? Secured claim ? 12 months Now $43. 2 K Confirmation If the $10. 8 K value is $20. 4 K only $325 K? $340 K Lien 66

Problem 7. 4, page 129 6 months interest unpaid 3 months Bankruptcy Now a. What is in the claim? $325, 000 Principal (secured) $325, 000 Secured claim 12 months $43. 2 K Confirmation If the $10. 8 K value is $20. 4 K only $325 K? $15. 0 K $325 K Lien 67

Problem 7. 4, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now a. What is in the claim? $325, 000 Principal (secured) $325, 000 Secured claim Unsecured claim? $43. 2 K Confirmation If the $10. 8 K value is $20. 4 K only $325 K? $15. 0 K $325 K Lien 68

Problem 7. 4, page 129 6 months interest unpaid 3 months Bankruptcy 12 months Now a. What is in the claim? $325, 000 Principal (secured) $15, 000 Principal (unsecured) $20, 400 6 mo. interest (unsec) 0 3 mo. interest $325, 000 Secured claim $35, 400 Unsecured claim $43. 2 K Confirmation If the $10. 8 K value is $20. 4 K only $325 K? $15. 0 K $325 K Lien 69

Problem 7. 5, page 129 6 months interest unpaid No security agreement exists 3 months Bankruptcy 12 months Now $43. 2 K Confirmation a. What is in the claim? $10. 8 K $20. 4 K Unsecured claim? $340 K 70

Problem 7. 5, page 129 6 months interest unpaid No security agreement exists 3 months Bankruptcy 12 months Now $43. 2 K Confirmation a. What is in the claim? $340, 000 Principal $20, 400 6 mo. interest $10. 8 K $20. 4 K 0 3 mo. interest $360, 400 Unsecured claim $340 K 71

Problem 7. 5, page 129 6 months interest unpaid No security agreement exists 3 months Bankruptcy 12 months Now $43. 2 K Confirmation b. How much do we get? $340, 000 Principal $20, 400 6 mo. interest $10. 8 K $20. 4 K 0 3 mo. interest $360, 400 Unsecured claim At 10¢ on the dollar $340 K 72

Problem 7. 5, page 129 6 months interest unpaid No security agreement exists 3 months Bankruptcy 12 months Now $43. 2 K Confirmation b. How much do we get? $340, 000 Principal $20, 400 6 mo. interest $10. 8 K $20. 4 K 0 3 mo. interest $360, 400 Unsecured claim $36, 040 At 10¢ on the dollar $340 K 73

Problem 7. 6, page 129 Six months Now Sale for $1 million $1 million a. How much to the estate? § 541 $1, 000 Sale proceeds 74

Problem 7. 6, page 129 “Such estate is composed of. . . all legal and equitable interests of the debtor in property. . . Six months Now Sale for $1 million $1 million a. How much to the estate? § 541 $1, 000 Sale proceeds 75

Problem 7. 6, page 129 “Such estate is composed of. . . all legal and equitable interests of the debtor in property. . . Six months Now Sale for $1 million $1 million a. How much to the estate? § 541 $1, 000 Sale proceeds $850, 000 Secured claim $850, 000 Mort 76

Problem 7. 6, page 129 Six months Interest accrued Now Sale for $1 million “Such estate is composed of. . . all legal and equitable interests of the debtor in property. . . $1 million a. How much to the estate? § 541 $42, 500 $1, 000 Sale proceeds $850, 000 Secured claim $42, 500 Six months of interest $850, 000 Mort 77

Problem 7. 6, page 129 Six months Interest accrued Now Sale for $1 million “Such estate is composed of. . . all legal and equitable interests of the debtor in property. . . $1 million a. How much to the estate? § 541 $60, 000 $42, 500 $10 K $1, 000 Sale proceeds $850, 000 Secured claim $42, 500 Six months of interest $60, 000 Broker $850, 000 Mort $10, 000 Costs, property taxes 78

Problem 7. 6, page 129 Six months Interest accrued Now Sale for $1 million $1 million a. How much to the estate? § 541 $60, 000 $42, 500 $10 K $1, 000 Sale proceeds $850, 000 Secured claim $42, 500 Six months of interest $60, 000 Broker $850, 000 Mort $10, 000 Costs, property taxes $37, 500 Net to the estate 79

Problem 7. 6, page 129 Six months Interest accrued Now Sale for $1 million Can trustee recover the costs of sale from the secured creditor’s share? $1 million a. How much to the estate? § 541 $60, 000 $42, 500 $10 K $1, 000 Sale proceeds $850, 000 Secured claim $42, 500 Six months of interest $60, 000 Broker $850, 000 Mort $10, 000 Costs, property taxes $37, 500 Net to the estate 80

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . a. How much to the estate? § 541 $60, 000 $42, 500 $10 K $1, 000 Sale proceeds $850, 000 Secured claim $42, 500 Six months of interest $60, 000 Broker $850, 000 Mort $10, 000 Costs, property taxes $37, 500 Net to the estate 81

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . Does 1 st Capital benefit from this sale? a. How much to the estate? § 541 $60, 000 $42, 500 $10 K $1, 000 Sale proceeds $850, 000 Secured claim $42, 500 Six months of interest $60, 000 Broker $850, 000 Mort $10, 000 Costs, property taxes $37, 500 Net to the estate 82

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . Does 1 st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1 st Capital paid in full $60, 000 $42, 500 $10 K 1 st Capital: Hires counsel $850, 000 Mort 83

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . Does 1 st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1 st Capital paid in full $60, 000 $42, 500 $10 K 1 st Capital: Hires counsel Lifts stay $850, 000 Mort 84

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . Does 1 st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1 st Capital paid in full $60, 000 $42, 500 $10 K 1 st Capital: Hires counsel Lifts stay Forecloses in state court $850, 000 Mort 85

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . Does 1 st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1 st Capital paid in full $60, 000 $42, 500 $10 K 1 st Capital: Hires counsel Lifts stay Forecloses in state court Buys property at sale? $850, 000 Mort 86

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . Does 1 st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1 st Capital paid in full $60, 000 $42, 500 $10 K 1 st Capital: Hires counsel Lifts stay Forecloses in state court Buys property at sale? $850, 000 Mort Hires broker 87

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . Does 1 st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1 st Capital paid in full $60, 000 $42, 500 $10 K 1 st Capital: Hires counsel Lifts stay Forecloses in state court Buys property at sale? $850, 000 Mort Hires broker Sells property 88

Problem 7. 6, page 129 § 506(c). The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. . Does 1 st Capital benefit from this sale? Trustee sells (house) Trustee does not sell 1 st Capital paid in full $60, 000 $42, 500 $10 K 1 st Capital: Hires counsel Lifts stay Forecloses in state court Buys property at sale? $850, 000 Mort Hires broker Sells property Paid in full? 89

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against us $10 K $60, 000 c. Can First Capital prevent us from $42, 500 selling? § 554(b) $850, 000 Mort 90

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against us $10 K $60, 000 c. Can First Capital prevent us from $42, 500 selling? § 554(b) $850, 000 Mort 91

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against us $10 K $60, 000 c. Can First Capital prevent us from $42, 500 selling? § 554(b) $850, 000 Mort 92

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against the estate at $7, 083. 30 per month $10 K $60, 000 c. Can First Capital prevent us from $42, 500 selling? § 554(b) $850, 000 Mort 93

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against the estate at $7, 083. 30 per month $10 K $60, 000 c. Can First Capital prevent us from $42, 500 trying to sell? § 554(b). On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate. $850, 000 Mort 94

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against the estate at $7, 083. 30 per month $10 K $60, 000 c. Can First Capital prevent us from $42, 500 trying to sell? § 362(d)(1). On request of a party in interest. . . the court shall grant relief from the stay. . . for cause, including the lack of adequate protection of an interest in property of such party in interest. $850, 000 Mort 95

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against the estate at $7, 083. 30 per month $10 K $60, 000 c. Can First Capital prevent us from $42, 500 trying to sell? § 362(d)(1). On request of a party in interest. . . the court shall grant relief from the stay. . . for cause, including the lack of adequate protection of an interest in property of such party in interest. 1 st Capital must show risk of loss from collateral value decline $850, 000 Mort 96

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against the estate at $7, 083. 30 per month $10 K $60, 000 c. Can First Capital prevent us from $42, 500 trying to sell? d. We are advising the trustee. Is selling the house the right thing to do? $850, 000 Mort 97

Problem 7. 6, page 129 a. If we sell in exactly six months, how much money to the estate? $37, 500 to $107, 500 b. What if it takes longer to sell? Interest is accruing against the estate at $7, 083. 30 per month $10 K $60, 000 c. Can First Capital prevent us from $42, 500 trying to sell? d. We are advising the trustee. Is selling the house the right thing to do? Harms the secured to help the unsecureds $850, 000 Mort 98

Problem 7. 7. a, page 130 If Friendly’s lien is on the Piper aircraft $214, 000 Piper aircraft $150, 000 Less Friendly Credit $64, 000 Net to the estate, aircraft $26, 000 $2, 200 $92, 200 Coin collection Cash Total available for distribution 99

Problem 7. 7. a, page 130 If Friendly’s lien is on the Piper aircraft $214, 000 Piper aircraft $150, 000 Less Friendly Credit $64, 000 Net to the estate, aircraft $26, 000 $2, 200 $92, 200 Coin collection Cash Total available for distribution $300, 000 General unsecured claims 100

Problem 7. 7. a, page 130 If Friendly’s lien is on the Piper aircraft $214, 000 Piper aircraft $150, 000 Less Friendly Credit $64, 000 Net to the estate, aircraft $26, 000 $2, 200 $92, 200 . 3073 Coin collection Cash Total available for distribution $300, 000 General unsecured claims Cents per dollar 101

Problem 7. 7. b, page 130 If Friendly’s lien is on the coin collection $214, 000 Piper aircraft $26, 000 Coin collection $26, 000 Less Friendly Credit secured 0 $2, 200 $216, 200 0 Net to the estate Cash Total available for distribution 102

Problem 7. 7. b, page 130 If Friendly’s lien is on the coin collection $214, 000 Piper aircraft $26, 000 Coin collection $26, 000 Less Friendly Credit secured 0 $2, 200 $216, 200 0 Net to the estate Cash Total available for distribution $300, 000 General unsecured claims $124, 000 Plus Friendly unsecured $424, 000 Total unsecured claims 103

Problem 7. 7. b, page 130 If Friendly’s lien is on the coin collection $214, 000 Piper aircraft $26, 000 Coin collection $26, 000 Less Friendly Credit secured 0 $2, 200 $216, 200 0 Net to the estate Cash Total available for distribution $300, 000 General unsecured claims $124, 000 Plus Friendly unsecured $424, 000 Total unsecured claims. 5099 Cents per dollar 104