Creating a Bankruptcy Plan

Creating a Bankruptcy Plan

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University Of Phoenix Online

BUS/422 - Contemporary Business Law II

Garth Ferrell, Instructor

December 3, 2007

Creating a Bankruptcy Plan

This paper discusses the simulation “Creating a Bankruptcy Plan”. This simulation involved deciding the best bankruptcy plan for Kelly Lloyd-Jones, owner of Cardew Printing. It will also give information as to the ratio of Chapter 7 vs Chapter 11 business filings, the time span for Chapter 11 filing, what debts may not be discharged under Chapter 7 and if a Chapter 13 plan can be modified.

Cardew printing has been at a loss for 2 years. They extended credit to their customers, decreasing their capital, and have lost two of their biggest accounts. In February 2005, the decision was which chapter of bankruptcy they should file. Chapter 11 was the better choice because the company could reorganize and create a repayment plan.

In June 2005, Cardew Printing out of the red and a decision of repayment needed to be decided upon. The order of repayment chosen was to first pay $307,820 annually to Steinway Commercial Bank by 2008, $40,000 annually for the outstanding wages and benefits by 2006 and $749,850 annually to Sawyer’s Printing Supplies by 2007.

In February 2007, a client of Cardew’s filed for Chapter 7, which forced Cardew to file as well. The reader was hired to help decide which chapter of bankruptcy to file because she has lost her savings when Cardew liquidated. It was decided it was best for her to file Chapter 7 to liquidate her non-exempt assets. This would allow her to keep her house and her car. Most of her unsecured debt would most likely be discharged however, it will stay on her credit for 10 years. In March 2007, it was decided that Kelly should file a claim for exemption under Minnesota law. The repayment to creditors should be her mortgage, vehicle then her unsecured non-priority taxes.

Once Kelly completed her Chapter 7 bankruptcy, the timeline to finish paying her Chapter 13 debts was first her home loan by 2010, then her vehicle loan by 2012. The repayment of her unsecured non-priority taxes with an extension of debts and 100% by 2012. This would give her $323 at the end of the month however, her credit rating is moderately high risk.

There are several reasons that a debtor may decide to file bankruptcy. Among these reasons are seriously overextended credit; become unemployed; experienced a reduction in income; suffered business reverses; significant