Quiz 35: Bankruptcy

Business

Refer to the case In re Lee Case Issue The facts to this case are: • Creditor, a supplier of the bankrupt debtor, received a $100,000 cashier's check from debtor, but did not ship out anymore goods. • Trustee of bankrupt estate claim the cashier's check is voidable preference. The issue is whether this check is voidable preference. Relevant Terms, Laws, and Cases Voidable Preferences - Preferences are transfers of assets by the debtors, voidable preferences are transfers of assets that a trustee of a bankrupt estate may reverse or cancel. Transfers of property within or on 90 days are generally voidable. See Title 11, section 547 of the US Code for preferences in bankruptcy cases. Opinion The court held for the trustee. The court argued that: • The cashier's check was made within 90 days of the bankruptcy petition. • Thus, it fell under the voidable preferences of Title 11, section 547. • There is an exception, for the check to not be voidable the creditor must have given new value for the check. • However, the creditor did not give new value as they haven't made new shipments to debtor. • The exception then doesn't apply to the creditor. Hence, the cashier's check is voidable preference.

Refer to the case In re Orso Case Issue The issue is whether the pending claims for a bankrupt debtor's liability suit is considered assets to be included in the bankrupt's estate. Relevant Terms, Laws, and Cases Exemptions of assets - some assets of a bankrupt may be exempt from being listed in the estate. These exempted assets typically cannot be claimed on by creditors. See Title 11, section 522 of the US Code for the exemption, these include but not limited to, social security, unemployment, and public assistance benefits. However, the debtor may alternatively pick exemptions from their State's exemption list. Opinion The court held that the annuities were non-exempt. The court argued that: • State law held for the exemptions of annuities. • Some annuities were exempt while others were non-exempt. • Annuities are non-exempt if the creditor of the annuity (the bankrupt) has a claim against the debtor of the annuity. • The bankrupt had a claim against the debtor of the annuity, as it was a result of a tort suit and bankrupt may state claim in case of failure to pay. Thus, the court held the annuity is non-exempt.

Refer to the case McClellan v Cantrell Case Issue The facts to this case are: • Plaintiff had a security interest in a machine sold to defendant's brother. • The brother later sold the machine to his sister (defendant). • The sister filed for bankruptcy and the machine was sold to a third party. The issue is whether the transfer of the machine can be set aside for the plaintiff. Bankruptcy court and district court held for the defendant, plaintiff appealed. Relevant Terms, Laws, and Cases Exceptions to discharge - are debts that can't be discharged through bankruptcy. These are usually debts incurred by fraud or malicious intent. See Title 11, section 523 of the US Code. Opinion The appeals court held reversed for the plaintiff. They argued that: • The plaintiff has a security interest on the machine and the debt is owed by the defendant's brother. • The defendant was not a good faith purchaser of the machine, thus the plaintiff's security interest on the machine remained. • However, she sold the machine to a third party. • Because there was some intent to prevent plaintiff and injure his chance of recovery, the debt cannot be discharged an exception to discharge under Title 11, section 523. Hence, the debt cannot be discharged by the debtor in bankruptcy.

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