Identifying the Facts and Issues

Lee Park was an executive for a large corporation. His base salary, which was calculated on a formula tied to the company income, averaged $338,500 over a five-year period. Because of a recent divorce (within the last year), Lee owed his ex-wife $4,350 per month in spousal support. Lee owed back taxes to the IRS of $210,000, which required him to pay $2,800 per month in addition to current tax payments. Lee owed $150,000 in student loan debt. As a result of his divorce, Lee became the sole owner of his home, which was worth $900,000 and had a $600,000 mortgage on it with Bank of the US.

In this case, Lee Park (the debtor) filed a Chapter (a- 7 b- 11 c-13) bankruptcy. Under this type of bankruptcy, the debtor is required to file a list of secured and unsecured creditors as well as several other lists, known as(a- anticipated income statements b- schedules c- creditors). Lee's payments to his wife generally (a- would b- would not) be dischargeable in bankruptcy. Student loans generally(a- are b- are not) dischargeable in bankruptcy.

Under the federal exemptions, Lee normally (a- would b- would not) be allowed some portion of equity in his home. Because Lee (a- did not b- did) become the sole owner of the house (with responsibility for the mortgage) within the last three years, Lee(a- did not b- did) have a federal maximum equity exemption. According to the federal limit in the book, Lee (a- should not b- should) be able to claim a homestead exemption for the full amount of the equity in his home.

If the median income in Lee's state for a single person was $47,000, there (a- would be b- would not be) a presumption of bankruptcy abuse by Lee. If Lee had to complete the means test, the Court would deduct(a- actual b- formula-based c- living) expenses from his monthly disposable income to decide whether Lee could pay any of his(a- secured b- unsecured) debt. In this situation, given Lee's income, it(a- is b- is not) likely that he would have his case dismissed or converted to a Chapter 13.

What If the Facts Were Different?

Assume that Lee Park was not an executive but instead was a line worker making $41,000 per year. His spousal support was $1,000 per month and his home was worth $365,000 with a $290,000 mortgage. He did not have student loans and did not owe any back taxes. The state median income was still $47,000.

In this case, Lee's income(a- was b- was not) higher than the state median. Because of this, there(a- would not be b- would be) a presumption of bankruptcy abuse. Lee's equity in his house would be (a- $290,000 b- $75,00). This amount of equity(a- is b- is not) lower than the federal limit. Lee (a- would b- would not) receive the entire amount of equity in his home.