Question

Business Scenarios and Case Problems 22-1. Voluntary versus Involuntary Bankruptcy. Burke has been a rancher all her life, raising cattle and crops. Her ranch is valued at $500,000, almost all of which is exempt under state law. Burke has eight creditors and a total indebtedness of $70,000. Two of her largest creditors are Oman ($30,000 owed) and Sneed ($25,000 owed). The other six creditors have claims of less than $5,000 each. A drought has ruined all of Burke's crops and forced her to sell many of her cattle at a loss She cannot pay off her creditors. (See Chapter 7-Liquidation.) 1. Under the Bankruptcy Code, can Burke, with a $500,000 ranch, voluntarily petition herself into bankruptcy? Explain. 2. Could either Oman or Sneed force Burke into involuntary bankruptcy? Explain. acolf

Answer 1

Answer to 1 is as follows

Voluntary bankruptcy occurs when a debtor files a petition in the court to declare him/her bankrupt due to his/her inability to pay off outstanding debt.
Under the bankruptcy code, a debtor is PRESUMED to be insolvent when the DEBT owed exceeds the market value of the non exempt assets.

Even thought the value of her ranch is $500,000 she can still file a voluntary bankruptcy petition under the code

Answer to 2 is as follows

Under the Bankruptcy code, the involuntary bankruptcy petition CANNOT be filed against a farmer
A farmer is defined as a person who obtained more than 80% of his/her gross total income from a farming operation owned or operated by the same person. Farming includes ranching as well.

Given this case, Burke has been a rancher all her life. Evaluating the provisions and applying them here, the creditors Oman or Sneed CANNOT force Burke into involuntary bankruptcy.