Lowell recently graduated from college with a degree in business administration, but has been unable to find a job. He decided to file a Chapter 7 petition with the Bankruptcy Court. He has the following assets:
a. $1,200 in equity in a new car which he purchased with a loan from the bank.
b. $5,000 in equity in his residence, a condominium secured by a mortgage.
c. $100 a week in unemployment benefits after being laid off from his job as a burgermaker at a local restaurant.
d. $750 in business administration books including a hardly used copy of Mann and Roberts, Essentials of Business Law and the Legal Environment.
e. a $1,000 retainer for his teeth prescribed by his orthodontist.
His debts are as follows:
a. $10,000 in student loans.
b. $20,000 to the bank for his car, which is secured by the car.
c. $5,000 in unsecured credit card debts.
Under federal exemptions, what can he keep? What will each of the creditors receive? Explain.
Assets-Lowell can keep up to $21,625 in equity in property used as a residence plus up to $10,825 of any unused amount of this exemption. Thus, Lowell can keep the equity in the condominium as part of the homestead exemption in the federal statute. The $100 per week in unemployment benefits is exempt. If the books are classified as tools of Lowell's trade, he can keep all of them. The retainer for his teeth is exempt as a professionally prescribed health aid. The $1,200 in equity in a motor vehicle is exempt. Debts-The student loans are nondischargeable unless the court finds that they would impose an undue hardship on Lowell. Because the car secures the debt, the bank will be entitled to the return of the vehicle. The debt will be discharged, but it is likely that the bank will get most of the money owed to it. The credit card company is a general creditor. The $5,000 in unsecured credit card debt will be discharged.
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