Question

Kelvin Company has $5, 000 in its checking account, but no other assets. Kelvin owes $4000 to a credit union, $3,000 to the landlord, $2500 to the construction company that remolded its offices a year ago and $1,000 to a metal supplier. On April 1, 2018 Kelvin paid $ 1,000 to the metal supplier. On August 1, 2018, Kelvin pays $2500 to the construction company, which left $1,500 for the $7,000 debt to the landlord and the credit union. On October 1, 2018 Kelvin filed for chapter 7 protection. Nilda Martinez ESQ was appointed as the chapter 7 trustee. Discuss what action if any Ms. Martinez is likely to take with respect to the payments.

Answer 1

Chapter 7 protection is a Bankruptcy protection that allows the debtors to get rid of most of their debts.

Its also called Liquidation.

When a company files a Bankruptcy protection (Chapter 7) ,the trustee appointed will take over all the asset of the company and sell them to pay off their debts and thus the case will be settled.

In this case Kelvin Company just have $5000 and no other assets.

His Debts are

1. Credit Union : $4000

2.Landlord : $3000

3.Construction

company : $2500

4.Metal supplier : $1000

Total __________

$10500

Before filing for Chapter 7 protection ,Kelvin paid to the Metal supplier and also to the construction company (2500+1000=3500)

So now he has a debt of $7000 and asset of just $1500

He filed for Chapter 7 protection

Ms Martinez was appointed as the companys trustee

What Ms Martinez is required to do is sell off his assets and pay to the creditors.

Here Ms Martinez has assets only worth $1500 and Debts worth $7000 out of which $4000 is to the credit union and $3000 to the Landlord.

Under Chapter 7 all debts incurred before filing for petition are Dischargeable debts.

So in this case both landlord due and credit loan have incurred before filing of petition so both are dischargeable debts.

Kelvin company will be discharged of all its dues by filing this petition.

Ms Martinez has $1500 to pay to landlord and credit union.

She can have a talk with both of them and can agree to a settlement or she may pay one of them and not the other.

Ms Martinez can do so what she deems fit after having a talk with both of them and agreeing to an amount.

Since Kelvin company doesnt have any other non exempt assets, Ms Martinez cannot take them and sell to pay off the dues.