Laws 2325

Kim Huggins

Module 3

                                                                                                                                      1-3-22

Topic Questions:

1. Charles could file for bankruptcy under Chapter 7; however, this would not be in his best interest to pay off his bills. By electing to use Chapter 7 to alleviate his bankruptcy situation, this would entail liquidating all his assets to pay off his bills. While it is not mentioned what he owns, by choosing Chapter 7 Charles would choose to liquidate ownership in his home or any other personal assets he possessed. Rather than Chapter 7, I believe the best choice for Charles would be to file Chapter 13. Additionally, if Charles were to file a Chapter 7 Bankruptcy claim of the Code, the following would apply “A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.” - https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

If Charles chose to file Chapter 13 of the Bankruptcy Code instead, this would entail Adjustment of Debts of a Person with A Regular Income. As a teacher, Charles has a regular income, thus, this chapter of the Bankruptcy Code could apply in this scenario. Ho1wever, this is only available when the following applies “available  only  to  individuals  with  regular  income  who  owe  debts  of  less  than $360,475* unsecured and $1,081,400.” – (Introduction to Bankruptcy Law - Frey, Martin A.; Swinson, Sidney K.)

2. With Wilma and Walter, I think it would be best to avoid filing under Chapter 7 of the Bankruptcy Code. By doing so, they would need to use assets of the couple’s pension funds and Social Security benefits to pay off Walter’s medical bills. Additionally, it would not be in the couple’s best interest to file a join petition, as then funds would be pulled not only from Walter’s pension fund or Social Security, but from Wilma’s as well. Since these medical bills only applied to Walter, it would be in the couple’s best interest to file an individual petition to prevent this from happening.

As far as which chapter of the Code that Walter should file his individual petition, I believe it would be in his best interest to file to file under Chapter 11 of the Bankruptcy Code – Reorganization. In this case “such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment or may seek a more comprehensive reorganization.” - https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics.

While I do know Chapter 7 of the Bankruptcy Code, is designed to help pay of medical bills, it seems by if this couple were to do so, they would be liquidating funds from Social Security and their pension funds. Thus, that is why I chose Chapter 11 – Reorganization of the Code for this case scenario.

3. For Mary and Cynthia, as a business partnership that has chosen to go out of business, the best choice to file would be Chapter 7 of the Bankruptcy Code - Liquidation. The two business owners have chosen to close their interior decorating business, and by liquidating or selling off all their business assets (including merchandise, property, etc.) this could be used to pay off debts to their creditors.

I think it would be in the business owners’ best interest to file as a partnership, since the interior decorating business is owned by both women; therefore, the debt belongs to the business itself (or both business owners). However, this is not a case where the two women could file as a joint petition. Under 1 U.S.C.A. § 302, a joint petition can only be filed if the debtor is an individual and he/she is filing for both themself and his/her spouse. (Introduction to Bankruptcy Law - Frey, Martin A.; Swinson, Sidney K.)

Reflection Questions:

1. The main topic I found of interest in this module is the process of an Automatic Stay. I was completely unaware that such a process existed when it came to bankruptcy. After reading about this, I chose to read up more about it online, to discover as much information as I could. Having done so, I can see why this process was put into place when it came to bankruptcy court. I can see how this process works to aid both the debtor and the creditor(s) in a bankruptcy case.

“Another objective of the automatic stay is to put all creditors on a level playing field and prevent one creditor from seizing a debtor’s assets before others have had the opportunity to do so.” - https://www.investopedia.com/terms/a/automaticstay.asp

Besides the information I have quoted above, the other topic of interest when it came to the automatic stay, involves how a creditor can ask for relief of the automatic stay from the Court to have an automatic stay revoked. I wondered about this, since it seems like an automatic stay would be an “effortless way out” for a debtor when it came to a bankruptcy filing. Thus, the creditors would then receive no (or almost no) money due to them. By filing this motion, the creditors would still receive compensation from the debtor that is due to them. “A court may grant relief from an automatic stay “for cause, including the lack of adequate protection of an interest in property....”^{1 - https://www.investopedia.com/terms/a/automaticstay.asp}

2. When it came to social issues involving bankruptcy, I remembered when a telephone company I had years ago filed for bankruptcy. The company was called WorldCom. In college I had a phone card with this company, which at the time was called LDDS Communications. The company kept growing and eventually became WorldCom, later MCI WorldCom and then back to WorldCom in 2000. The company kept growing and eventually it was discovered there were several cases of accounting fraud by inflating earnings within the business. In 2002 WorldCom filed for bankruptcy. All this time I had remained with the company for my phone card, until I read up on all the underhanded and unethical dealings that had occurred within the company. WorldCom did emerge from bankruptcy in 2004. However, prior to that I chose to discontinue business with the company. I agree with the following paragraph when it come to the social/ethical issues involving bankruptcy laws and a business.

“Bankruptcy laws are designed to deal with a single firm’s isolated problems. But giant firms like WorldCom affect the prosperity of giant competitors like AT&T and Sprint, as well as vendors, customers, and communities. It is far from obvious that a rapid emergence from bankruptcy for WorldCom represents good economic or social policy. And it is even less obvious that laws designed in simpler times, when fraud was not rampant, make good sense in every case today.” - https://hbr.org/2003/12/the-social-cost-of-fraud-and-bankruptcy

3.) The most challenging aspect of this chapter was going through all the documents which need to be filed in a bankruptcy case, dependent upon the situation. I did read the PowerPoint presentation as well as the book to try to receive a better understanding as to what needed to be done with each type of bankruptcy case. However, I still find some of the documents to be a little confusing.

This is a part of bankruptcy that I need to study more in-depth to clearly see how each document leads to another. I do plan to read back over this chapter, prior to moving on to the next module, so I can receive a better understanding of the bankruptcy process and how bankruptcy law works overall.