Deck 24: Bankruptcy and Reorganization

Question 1

Automatic Stay James F. Kost filed a voluntary peti­tion for relief under Chapter 11 of the Bankruptcy Code. First Interstate Bank of Greybull (First Interstate) held a first mortgage on the debtor's residence near Basin, Wyoming. Appraisals and other evidence showed that the house was worth $116,000. The debt owed to First Interstate was almost $103,000 and was increasing at a rate of $32.46 per day. The debtor had only an 11.5 percent equity cushion in the prop­erty. Further evidence showed that (1) the Greybull/Basin area was suffering from tough economic times, (2) there were more than 90 homes available for sale in the area, (3) the real estate market in the area was declining, (4) the condition of the house was seriously deteriorating and the debtor was not financially able to make the necessary improvements, and (5) the insurance on the property had lapsed. First Interstate moved for a relief from stay so that it could foreclose on the property and sell it. Should the motion be granted? In re Kost , 102 B.R. 829, Web 1989 U.S. Dist. Lexis 8316 (United States District Court for the District of Wyoming)

Answer 1

Facts of the Case
The case is related to the concept of automatic stay. There was a person naming JFK who filed a voluntary petition for relief under Chapter 11 of the bankruptcy code. FIBG was the creditor of the amount $103000 to JFK.This amount of debt was increasing at the rate of $32.46 per day. First interstate had underlying collateral in form of debtor's residence near Basin, Wyoming in lieu of loan amount. The current worth of the house was close to $116000.
The equity cushion of the debtor in the property was only 11.2 percent. More evidence with regard to property was mentioned below:
• The Basin was currently going through a recession mode.
• There was an ample supply of homes in the area, close to 90 odd homes were available for sale.
• The market for real estate was on downward slope.
• The condition of the house was going down day by day
• The insurance on the property had lapsed.
FIBG then moved for a relief from stay so that it could foreclose on the property and sell it.
Issue concerning the case
The issue is whether the court will grant a motion in favor of FIBG.
Findings and Decision of the Court
The district court ruled "that the Chapter 11 bankruptcy case should be dismissed ". The judge ruled that "the Court granted the motion to dismiss the Chapter 11 bankruptcy and an order of dismissal has or will be filed in that matter."
The bankruptcy court "concluded, as a matter of law, that upon entry of the order of dismissal of the Chapter 11 case, the court would lose subject matter jurisdiction over the bankruptcy".
The Court of Appeals further affirmed the decision of the district court.

Question 2

Student Loan Donald Wayne Doyle (Debtor) obtained a guaranteed student loan to enroll in a school for training truck drivers. Due to his impending divorce, Debtor never attended the program. The first monthly installment of approximately $50 to pay the student loan became due. Two weeks later, Debtor filed a voluntary petition for Chapter 7 bankruptcy. Debtor was a 29-year-old man who earned approximately $1,000 per month at an hourly wage of $7.70 as a truck driver, a job that he had held for 10 years. Debtor resided on a farm where he performed work in lieu of paying rent for his quar­ters. Debtor was paying monthly payments of $89 on a bank loan for his former wife's vehicle, $200 for his truck, $40 for health insurance, $28 for car insurance, $120 for gasoline and vehicular maintenance, $400 for groceries and meals, and $25 for telephone charges. In addition, a state court had ordered Debtor to pay $300 per month to support his children, ages four and five. Debtor's parents were assisting him by buying him $130 of groceries per month. Should Debtor's student loan be discharged in bankruptcy? In re Doyle , 106 B.R. 272, Web 1989 Bankr. Lexis 1772 (United States Bankruptcy Court for the Northern District of Alabama)

Answer 2

No, debtor's student loan shall not be discharged in bankruptcy.
As per strict government rules, a student is able to discharge in bankruptcy only in circumstances of "undue hardship". Undue hardship comprises of severe physical or mental ability, that too, properly proven.
By looking at the debtor's income and expenses it can be concluded that he is left with certain amount to pay off instalments of student loans even after satisfying his basic needs. His income amounts to $1,000, while his expenses sum up to $903. Of these expenses, $130 worth of groceries is supplied by the debtor's parents.
All the above evidences prove that nondischarge in bankruptcy is not going to cause "undue hardship" to the debtor. Thus, the debtor's student loan shall not be discharged in bankruptcy.

Question 3

Discharge Margaret Kawaauhau sought treatment from Dr. Paul Geiger for a foot injury. Dr. Geiger examined Kawaauhau and admitted her to the hospital to attend to the risks of infection. Although Dr. Geiger knew that intrave­nous penicillin would have been a more effective treatment, he prescribed oral penicillin, explaining that he thought that his patient wished to minimize the cost of her treatment. Dr. Geiger then departed on a business trip, leaving Kawaauhau in the care of other physicians. When Dr. Geiger returned, he discontinued all antibiotics because he believed that the infec­tion had subsided. Kawaauhau's condition deteriorated over the next few days, requiring the amputation of her right leg below the knee. Kawaauhau and her husband sued Dr. Geiger for medical malpractice. The jury found Dr. Geiger liable and awarded the Kawaauhaus $355,000 in damages. Dr. Geiger, who carried no malpractice insurance, filed for bankruptcy in an attempt to discharge the judgment. Is a debt arising from a medical malpractice judgment that is attributable to negligent or reckless conduct dischargeable in bankruptcy? Kawaauhau v. Geiger , 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90, Web 1998 U.S. Lexis 1595 (Supreme Court of the United States)

Answer 3

Discharge from Debts:
A person will be discharged from debt liability only at the time of bankruptcy and the bank accepts the bankruptcy petition. However, there are certain cases in which the debts will not be discharged and they are given below:
1. When the person owes taxes payable to the government.
2. Fines or other duties payable to the government.
3. When the Creditor claims of intentional harm by the debtor to the person or to the property.
The person M went to a hospital for treatment to her injured leg and the Doctor G instead of giving a penicillin injection gave her oral penicillin as he thought that the patient wants to minimize her treatment costs.
G discontinued the antibiotics after returning from a trip which worsened the patient's condition. Ultimately they have to amputate her leg. The patient and her Husband filed a suit against the Doctor for damages. G had no malpractice insurance filed a bankruptcy to discharge the judgment.
In this case, a debt occurred because of the negligent and recklessness in profession which is considered as a malpractice. The recklessness and the negligence shown by the doctor resulted in loss of a limb of the patient and caused irreparable injury to the person and her morale.
The doctor becomes responsible for causing both financial and personal injury to the person and is indebted to the person. Thus, it can be concluded that this debt is non-dischargeable by filing for bankruptcy.

Question 4

Executory Contract The Record Company, Inc. (The Record Company), entered into a purchase agreement to buy certain retail record stores from Bummbusiness, Inc. (Bummbusiness). All assets and inventory were included in the deal. The Record Company agreed to pay Bummbusiness $20,000 and to pay the $380,000 of trade debt owed by the stores. In exchange, Bummbusiness agreed not to compete with the new buyer for two years within a 15-mile radius of the stores and to use its best efforts to obtain an extension of the due dates for the trade debt. The Record Company began operating the stores but shortly thereafter filed a petition for Chapter 11 bankruptcy. At the time of the bankruptcy filing, (1) The Record Company owed Bummbusiness $10,000 and owed the trade debt of $380,000, and (2) Bummbusiness was obligated not to compete with The Record Company. Can The Record Company reject the purchase agreement? In re The Record Company , 8 B.R. 57, Web 1981 Bankr. Lexis 5157 (United States Bankruptcy Court for the Southern District of Indiana)

Question 5

Bankruptcy Estate Dr. Morris Lebovitz and Kerrye Hill Lebovitz, husband and wife, were residents of the state of Tennessee. Dr. Lebovitz filed for bankruptcy protection as a result of illness. Mrs. Lebovitz (Debtor) filed for bank­ruptcy because she had co-signed on a large loan with Dr. Lebovitz. The Debtor is the owner of the following pieces of jewelry: a Tiffany 5-carat diamond engagement ring (pur­chase price $40,000-$50,000), a pair of diamond stud ear­rings of approximately 1 carat each, a diamond drop necklace of approximately 1 carat, and a Cartier watch. All of these items were gifts from Dr. Lebovitz.
Tennessee opted out of the federal bankruptcy exemption provisions and adopted its own bankruptcy exemption provi­sions. Tennessee does not provide for an exemption for jewelry. Tennessee does provide for an exemption for "necessary and proper wearing apparel." Debtor claimed that her jewelry was necessary and proper wearing apparel and was therefore exempt property from the bankruptcy estate. The bankruptcy trustee filed an objection to the claim of exemption, arguing that the Debtor's jewelry does not qualify for an exemption and should be part of the bankruptcy estate. Does Debtor's jewelry qualify as necessary and proper wearing apparel, and should it thus be exempt property from the bankruptcy estate? In re Lebovitz , 344 B.R. 556, Web 2006 Bankr. Lexis 1044 (United States Bankruptcy Court for the Western District of Tennessee)

Question 6

Ethics Case Peter and Geraldine Tabala (Debtors), hus­band and wife, purchased a house in Clarkstown, New York. They purchased a Carvel ice cream business for $70,000 with a loan obtained from People's National Bank. In addition, the Carvel Corporation extended trade credit to Debtors. Two years after getting the bank loan, Debtors conveyed their residence to their three daughters, ages 9, 19, and 20, for no consideration. Debtors continued to reside in the house and to pay mainte­nance expenses and real estate taxes due on the property. On the date of transfer, Debtors owed obligations in excess of $100,000. Five months after conveying their residence to their daughters, Debtors filed a petition for Chapter 7 bankruptcy. The bank­ruptcy trustee moved to set aside Debtors' conveyance of their home to their daughters as a fraudulent transfer. Did the Debtors act ethically in this case? Who wins? In re Tabala , 11 B.R. 405, Web 1981 Bankr. Lexis 3663 (United States Bankruptcy Court for the Southern District of New York)

Question 7

Ethics Case UAL Corporation is the parent company of United Airlines, which was the largest scheduled passen­ger commercial airline in the world. On a daily basis, the airline offered more than 1,500 flights to 26 countries. The airline also offered regional service to domestic hubs through United Express carriers. Eventually, low-cost airlines such as Southwest Airlines began taking business from United. In response, United lowered fares to compete with the aow-cost airlines. However, United's cost structure could not support its new strategy, and the company began losing sub­stantial money on its operations.
UAL filed for Chapter 11 reorganization bankruptcy. At the time of filing the petition, UAL owned or leased air­planes, equipment, trucks and other vehicles, docking space at airports, warehouses, office space, and other assets. In many cases, UAL had borrowed the money to purchase or lease these assets. Most of the lenders took back mortgages or secu­rity interests in the assets for which they had loaned money to UAL to purchase or lease. In addition, UAL owed unsecured creditors money that it could not repay, and it had execu­tory contracts and unexpired leases that it also could not pay. What should UAL propose to do in its plan of reorganization that it files with the bankruptcy court? In re UAL Corporation

Question 8

Why did Hoang conceal her ownership interests in the undisclosed businesses, real property, and diamonds? Did Hoang's activities warrant the criminal proceeding?

Question 9

Petition Daniel E. Beren, John M. Elliot, and Edward F. Mannino formed Walnut Street Four, a general partner­ship, to purchase and renovate an office building in Harrisburg, Pennsylvania. They borrowed more than $200,000 from Hamilton Bank to purchase the building and begin renova­tion. Disagreements among the partners arose when the renovation costs exceeded their estimates. When Beren was unable to obtain assistance from Elliot and Mannino regarding obtaining additional financing, the partnership quit paying its debts. Beren filed an involuntary petition to place the partner­ship into Chapter 7 bankruptcy. The other partners objected to the bankruptcy filing. At the time of the filing, the partner­ship owed debts of more than $380,000 and had approximately $550 in the partnership bank account. Should the petition for involuntary bankruptcy be granted? In re Walnut Street Four , 106 B.R. 56, Web 1989 Bankr. Lexis 1806 (United States Bankruptcy Court for the Middle District of Pennsylvania)