Eastern Oregon University Bankruptcy Petition Business Law Questions

Donald has declared chpt 7 bankruptcy. Which of the following transactions (payment, sale or lien) would be considered preferential or fraudulent and as such can be invalidated by the bankruptcy trustee and returned to Donald’s estate?

1. Donald purchases a lawn tractor from Sears for $3000, and Sears attaches a security interest to the lawn tractor. 60 days after the purchase, Donald files for bankruptcy. Can the lien (security interest) be invalidated? Explain why or why not.

1. Over a year ago, Donald had the engine in his car rebuilt, and Donald owes his mechanic $4600 for the repair work. His pay agreement requires him to pay $400 a month plus interest. 70 days before Donald files for bankruptcy, he pays his mechanic $2000 on the debt. Can payment to the mechanic be invalidated by the trustee? Explain why or why not.

1. Donald owes his uncle Joe $8,500 on a personal loan he took out to purchase an automobile. The loan requires that he pay his uncle $500 a month until the balance is paid off. Six months before filing bankruptcy, he makes a payment of $3000 on the loan. Can this payment be invalidated? Explain why or why not.

1. Donald rents an apartment and his monthly rent payment is $1200. He makes the rent payment in April, May and June. During the first week of July, Donald files for bankruptcy. Can his rent payments be invalidated by the trustee? Explain why or why not.

1. Donald owes his attorney, Michael, $6000 for representing him in his divorce. Because he has been unable to collect the debt, Michael is threatening to sell the debt to the Kneecap Collection Agency. To reassure Michael that he will repay the debt, Donald gives Michael a security interest in Donald’s Rolex watch. 82 days later Donald the files for bankruptcy. Can the trustee invalidate the lien (security interest) in the Rolex watch? Explain why or why not.

1. Donald owns a painting by Edward Hopper that has an appraised value of $75,000. Nine months before he declares bankruptcy, Donald sells the painting to his business partner, Daphne for $25,000. Can the trustee invalidate this transaction? Explain why or why not.

1. Donald hires Greenworks Landscaping to install an automatic lawn irrigation system, and he pays Greenworks $2700 for the system. 28 days later Donald files for bankruptcy. Can the trustee invalidate the payment to Greenworks? Explain why or why not.

II. Carol has filed a chpt 7 bankruptcy petition. Trustee has separated Carol’s exempt assets from the non-exempt assets. The non-exempt assets are a coin collection, 200 shares of Texaco stock and an antique clock. Trustee sell the coin collection for $4000, the Texaco stock for $2200 and the clock for $800.

Carol’s creditors are:

Secured Creditor: $6000 debt. Secured Creditor has a security interest in Carol’s coin collection.

Priority Creditor: $2600. The limit on the priority claim is $1000.

Aunt Shirley: $1000 debt.

Nordstrom’s: $1400 debt.

How much will each creditor be paid from the distribution of Carol’s estate? Please be sure to explain your answer.