Accounting Ethics and Law Group Application Exercise #5 Bankruptcy

Type your name plus the date in the upper right-hand corner and upload your detailed response to Canvas.

Assume you are Carols advisor. Please answer the following questions so as to provide her with practical advice about whether filing for bankruptcy makes sense. Address each item individually as part of your response. Also advise Carol about whether it makes sense for her to keep her house.

Carols employer recently terminated her and other IT professionals from their employment. Carols job had provided her with access to health care benefits. Rather than seek a similar position with another employer, Carol decided to start consulting as an independent contractor for a couple of technology companies. Ironically, she is now working in her old office about twenty hours a week as an independent contractor. Losing her benefits was a hardship; however, Carol has not yet purchased replacement health insurance. Carol is 43 years old and relatively healthy. She currently nets $3,500 per month after expenses; however, she hopes to acquire new customers and increase her earnings. Her grocery bill is $550 per month and her average utility payment is $160 per month. Her car (that she owes no money for) has a fair market value of $5,000 and runs well.

Carol owns her own three-bedroom home in Iowa City, which has a fair market value of $265,000. Carol purchased the home three years ago for $225,000 and put $50,000 down. She is now making payments, including taxes and insurance of $1,200 per month, and is scheduled to do so for the next 27 years. Carol requires a home with at least two bedrooms because she has a child. Iowas homestead exemption permits a debtor to exempt real property to an unlimited value, not to exceed acre in town or 40 acres elsewhere.

Grading

For #s 1-8
# wrong	score	# wrong	score
1	4.45	5	2.25
2	3.9	6	1.76
3	3.35	7	1.15
4	2.8	8	.6
If fail to answer #9, take .5 point off

Carol has a $12,000 outstanding credit card bill. Is this debt dischargeable in bankruptcy?

Carols uncle, who is in poor health, has promised to leave her $450,000 in her will. If Carol files for bankruptcy and her uncle dies and leaves her money under his will within two months of Carol filing for bankruptcy, would this inheritance become part of the bankruptcy estate?

Carol owes the University Hospital $25,000 for an emergency room visit she made after she fell asleep at the wheel and drove her car into a guardrail. Her automobile insurance, which had lapsed at the time of the accident, did not cover this bill. Is this debt dischargeable in bankruptcy?

Carol has a $50,000 judgment against her because she drove while under the influence from alcohol three years ago and ran into a pedestrian who was injured and successfully sued her. Carol also pled guilty to First Offense Operating While Intoxicated. Carols insurance company refused to pay claiming that she had failed to make her monthly insurance premium payment at the time of the accident. Is this debt dischargeable in bankruptcy?

Carol, who is divorced, is required to pay $300 per month in her divorce decree for a personal loan (bank) she and her spouse took out to pay for a new lawn mower. The loan will not be paid off for one year. She is current on this loan. Is this debt dischargeable in bankruptcy?

Carol has a court order obligating her to pay $400 per month in child support and is three months behind in her payments. Is this debt dischargeable in bankruptcy?

Carol pays $325 per month for her student loans, which will not be paid off for 8 years. She is current on student loan payments. The new federal relief program for student loans will not help her. Is this debt dischargeable in bankruptcy?

Should Carol to keep her house if she files for bankruptcy? If Carol retains her home, must she continue making loan payments on it?

Based only on the facts presented and your answers to the above questions, how many of the individuals in your group would advise Carol to file for bankruptcy? What did group members consider in making their decision?