B-128
ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 30
BANKRUPTCY LAW
30-1A. Chapter 7 liquidations
(Chapter 30—Pages 583–584)
The court dismissed Busbin’s petition. The court concluded that the primary purpose for the
“substantial abuse” provision of Chapter 7 was to provide for the dismissal of cases of debtors who can
pay their debts from their excess disposable income. The court discussed “a long line of cases which
uniformly hold that a debtor’s ability to pay his debts defines substantial abuse.” The court noted that
Busbin’s “excess disposable income would allow him to pay off the entire remaining balance due to Bank
South in less than five months. [He] could pay the entire debt of $1,450 in less than twelve months.”
The court pointed out, however, that “while courts have focused on the debtor’s ability to pay as the
30-2A. Property of the estate
(Chapter 30—Page 587)
APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 30 B-129
30-3A. Reorganization
(Chapter 30—Page 595)
Without a reasonable amount of assets and an operating business, there is no logic in proceeding with a
Chapter 11 reorganization. Chapter 11 allows for rehabilitation when there is a reasonable likelihood
30-4A. Preferences
(Chapter 30—Page 588)
The court concluded that Itano Farms was a “creditor” for purposes of the preference provisions of the
Bankruptcy Code, and that therefore, the payments it received under the restitution order were
avoidable as preferences. The court explained that the term creditor is defined by the Code to include
any “entity that has a claim against the debtor that arose at the time of or before the order for relief
concerning the debtor.” The filing of the bankruptcy petition constituted an order for relief. A claim as
defined by the Code to mean a “right to payment,” which includes a right to payment under a restitution
2005, but the result under that act would likely have been the same.
30-5A. Voidable preference
(Chapter 30—Page 588)
The court allowed RSW to remain as counsel for First Jersey, concluding that the stock transfer was not a
B-130 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 30
court reasoned that “First Jersey incurred a debt to RSW when the law firm performed legal services on
the debtor’s behalf. * * * [A]n antecedent debt owed by [a] debtor occurs when a right to payment
arises—even if the claim is not fixed, liquidated, or matured.” In other words, a debt can arise before a
bill is presented. Thus, “RSW had a claim at the time it performed legal services for First Jersey. Its claim
was ‘antecedent’ for purposes of [the Bankruptcy Code].” To determine whether a transfer is “ordinary”
requires considering such factors as the timing of the payment, and the amount and manner in which
30-6A. Discharge in bankruptcy
(Chapter 30—Pages 592–593)
Student loan debts are dischargeable “to the extent that they constitute an ‘undue hardship’ upon the
debtor or his dependents.” The court stated that the “essential starting point [is] one simple question: Is
there a reasonable prospect that the debtor will ever be able to repay these loans? . . . If the debtor has
done everything he can to minimize expenses and maximize income, there is no basis for refusing to
discharge the student loans.” In this case “the Court has no other choice but to conclude that he has
30-7A. Automatic stay
(Chapter 30—Pages 585–587)
The court entered a judgment for DPW for the amount in Sisco’s account, and Tinker appealed. The
intermediate state appellate court held in part that the federal bankruptcy automatic stay prevented
30-8A. Discharge in bankruptcy
(Chapter 30—Pages 592–593)
The bankruptcy court concluded that repaying the loans would impose an undue hardship on Goulet and
discharged the loans. The creditor appealed to a federal district court, which reversed this decision.
30-9A. Automatic stay
(Chapter 30—Pages 596–597)
The court refused to terminate the automatic stay, reasoning that Moffett’s right of redemption was
part of the bankruptcy estate, and ordered the car returned to Moffett. The court required adequate
B-132 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 30
permits a debtor to redeem collateral by tendering fulfillment of all obligations secured by the collateral.
* * * Moffett’s modified reorganization plan facilitates the exercise of this right of redemption by
30-10A. Discharge in bankruptcy
(Chapter 30—Pages 592–593)
The bankruptcy court granted ECMC’s motion, and on Hanson’s further appeals, a federal district court
and the U.S. Court of Appeals for the Seventh Circuit affirmed this ruling. The U.S. Court of Appeals for