Bankruptcy

Katrina, a risk manager for State Farm Insurance, filed a petition in bankruptcy under Chapter 7, seeking to discharge $55,000 in credit-card debts and $35,000 in student loans. Katrina's husband died and left her with two children, Paula, who attended college, and Dean, who was fifteen years old. According to Katrina, Dean was an "elite" runner who practiced ten to fifteen hours a week and placed first or second at more than forty competitive events. Dean was homeschooled with academic achievements that were average for his grade level. Katrina's petition showed monthly income of $5,400 and expenses of $5,100. The expenses included annual homeschool costs of $6,200 and annual running expenses of $7,500. The expenses did not include college costs for Paula, or airfare for her upcoming summer trip to Italy, and other items. The trustee allowed monthly expenses of $4,400, with nothing allocated for running expense and asked the court to dismiss the petition.

• If Katrina qualified for Chapter 7, which debts would be discharged? Which debts would not be discharged? Why?
• Using the median income from your state, does Katrina qualify for Chapter 7? Remember to count the number of people in the household.
• Should the court grant the trustee's request? Does Katrina have other options if the Chapter 7 petition is dismissed?
• Explain your answers and support them with relevant scholarly sources.