Thursday, November 29, 2012

Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 15

Problem Set 15, p.324
  1. First, is CH 7 a better choice than CH 13? Does she have something to keep?
Second, for CH 13, 23K should be below the median, so we don’t care the means test here. We apply the “reasonably necessary” test for disposable income projections.
    • Is the piano class or orthodontic threat the reasonably necessary expense?
    • What is the difference for the expense under the scrutiny under CH 7 or 13?
Third, we have a 3-year repayment plan.
Fourth, the malpractice insurer encourages the lawyers to deduct more expenses. If the lawyer is too conservative to calculate the expense, the client may sue the lawyer for the malpractice.

  1. First, Todd is over the median income, so he is subject to a five-year plan and pays the amounts equal to the surplus by the means test.
Second, what is the surplus of the means test? We know that the means test allows the full deduction of the secured debts and here most of Todd’s debts are secured debts, so he likely passes the means test with a surplus below $100. For the below-$100 surplus debtors, we still judge the disposable income test:
    • Whether he should send his children to the public schools
Third, since he has a high gross income but only pays 3% to unsecured claims, is he an abuser of the CH 13? §1325(a)(7): CH 13 should be filed in good faith.
    • It seems that the unsecured creditors will be screwed, so what is the policy for this system? The Congress encourage the secured debts
    • §1325(a) (4) the best interest test is not very relevant here, because under CH 7 unsecured debtors will basically get nothing.
    • The means test can force some debtors from CH 7 to CH 13, because they are not qualified for the liquidation; but it can also induce some debtors from CH 13 to the CH 7, if they pass the means test, they don’t have to complete the 3 or 5 years plan and can get rid of the debts.
    • PMSI car can't be discharged at all. Unsecured creditors are hurting. Chapter 13 supposed to be good for unsecured creditors, but this isn't always great
    •  There's a conflict in representing both
  1. First, what is the applicable median income? One-person household or two-person household? His GF should not be counted in, though they live together. So we apply the one-person household median income. I think he will be over the median income.
Second, which should he file Ch 7 or Ch 13? He will likely fail the means test with an income of $60K. So he has to file for Ch 13. Because his income is above the median, he has to file a 5-year plan.
Third, for the means test surplus under Ch 13, is the medical expense a deductible expense? Yes, it is deductible. But here is different; here it is a debt, not the medical care expense.

  1. First, what is her income for Ch 13? Her base salary or base salary plus the overtime payment? Her base salary is below the median; plus the overtime, she will above the median. So it is important to include the overtime or not.
Second, CH 13’s earnings are projections of the future earnings under 1322(a)(1), very different the means test in CH 7 which counts the income from the preceding 6 months. For the future projections, why do we count the overtime in? If the debtor knows that the overtime payment will be distributed to the debtors, why does she work over time? If you represent her, you can argue that the overtime should not be included. So she is under the median income, and pays $400 disposable income to her debtors.
Third, the debtor or creditors can modify the plan; the creditors can also request the debtor to file the financial updates to the court.

  1. §1325(b)(2)(A)(ii): the charitable contribution should be less than 15%; here 425 per month multiplied 12 is less than 12% of 45K; but it may be made in bad faith; but the debtor can argue the contribution to the church is not made in bad faith, but just the timing problem.
  1. First, her creditors may request to modify the plan
Second, could it be bad faith if she keeps silent? She cannot keep silent, because she has to file the financial report every year.
Finally, her best move is to tell the employer to postpone her income; but this may be regarded as fraud; so she can negotiate with the creditor to lower the payment, if not, she won’t take the job or postpone the salary.

Problem Sets: Table of Contents

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