Thursday, November 29, 2012

Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 25

Problem Set 25, p.519

  • May 14 file for bankruptcy;
  • On Feb 14, Chase is oversecured, no deficiency; on May 14, the debt is 4.6 million, and the inventory is 5.2 million, still oversecured.
  • Whether there is a preference? If yes, is there an exception?
  • Pottow: it depends. If Chase pays the new inventory before the inventory come in (no new value exception?), it may be a preference; but even if it is a preference, there is a floating lien exception which only looks at the 90th days and the date of filing for bankruptcy: whether there is an improvement in its position.
  • Here there is no improvement in its position (No reduction in underwateredness)
  • Oversecured, no preference; floating lien rule
  • No. There is a preference but there is also a floating lien exception.
  • The gold price jumped 42%, so we assume that at the date of filing, it is fully secured. It seems that the creditor was better off $200K. But the increase in value is not a preference.
  • No transfer here, only appreciation; so no preference
  • Before bankruptcy you can only set off the amount in the bank at the beginning of the 90 day period. After bankruptcy, the court will let you set off everything in the bank that you are owed. However, if you wait for bankruptcy you take the risk that there will be nothing left in the account at bankruptcy.
Problem Sets: Table of Contents

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