Question: Please describe what type of claim each creditor has (secured, unsecured, priority, etc.) and the amount that each creditor will receive upon distribution. Be careful to explain how a bankruptcy court would determine the amount of each distribution. (Hint: Chapter on Bankruptcy).

Max is a building contractor who isnt always the best at paying his bills on time. He purchased materials on his credit cards to complete some jobs for which he never got paid. Additionally, Max had two employees, Billy Ray and Jim Bob, to whom he was way behind in paying. In fact, Max owed Billy Ray and Jim Bob $17,850 each for work they did on a project in April, May and June. On July 1, Max was petitioned by Bank One into bankruptcy under Chapter 7. Bank One and AmeriBank are unsecured creditors of Max, owed $5,000 and $10,000 respectively. Max also owed Caterpillar $45,000, secured by a valid perfected security interest on Maxs machinery, valued at $20,000. Max has no other debts, except his prior years income tax liability of $6,000. Shortly after the filing, Hunt was appointed Trustee over Maxs bankruptcy estate. Hunt gathered and sold Maxs non-exempt property (including Maxs machinery for $20,000, to which Max consented) and now the sole asset of the estate is $80,700 cash. Hunt has administrative expenses of $4,000 and is ready to distribute the $80,700 to satisfy the following claims:

Income tax liability $6,000

Caterpillars claim $45,000

Bank Ones claim $5,000

Administration expenses $4,000

Billy Ray $17,850

Jim Bob $17,850

AmeriBanks claim $10,000

*PLEASE NOTE - As you complete Question 2, you will notice that two employees in the question (Billy Ray and Jim Bob) have claims for unpaid wages. Employees with claims for unpaid wages receive a priority for the first $12,850 (updated in the Bankruptcy Code). Any remainder of unpaid wages may be included, but will be considered as a regular, unsecured debt.*