The Case Study

Johnny Bigbucks is 58 years old and lives in rural Mississippi.He has been very successful in several business ventures, but with the downturn in the economy he finds his business interests quickly on the demise.The businesses are all separate legal entities, but as many small business owners, Johnny guaranteed many of the business debts.With the businesses all but shut down and without funds to meet their obligations, creditors of the businesses are now turning to Johnny on the guarantees they have.Several creditors, SmallBiz Bank and Littleguy Bank, have sued Johnny and obtained default judgments for the obligations and are about to attempt to collect those debts from Johnny.Overall, however, the majority of Johnny's debts are consumer.

Fortunately for Johnny, he has accumulated substantial wealth ($1.5 million) in creditor protected retirement accounts.All of his other valuable assets, including his $600,000 home, custom pontoon boat, luxury car and other items have equity.Equity pertains the value over and above the debt owned.

His house, boat and car all are collateral for a loan, i.e. secured debts.Even after Johnny considers his exemptions and pays the secured debtors, there would be money available to repay some creditors if these assets were liquidated.Johnny is concerned that he may lose these assets in a bankruptcy.

Johnny got lucky and found a job consulting and he nets over $7,000.00 per a month.Johnny uses these funds to contribute to his household, as his wife has recently retired and earns a small state pension.When Johnny pays the large mortgage payment on his house and other personal obligations of the household, including keeping custom pontoon in tip top shape, as well as paying for his adult daughter Suzi's convertible and condo at college, he has very little to repay his creditors on an ongoing basis.However, if he engaged in some belt tightening, he could likely generate some funds on a monthly basis to repay some of his debts over the next five years.

Johnny has sought the advice of the most prominent bankruptcy firm in the state.Johnny is desperate for relief under the Bankruptcy Code.

Discussion Questions:

1.Johnny has heard about Chapter 7 and Chapter 13, but does not understand the key differences.As his attorney explain to him the primary (three) legal distinctions between Chapter 7 and Chapter 13.Be detailed.

2.Johnny has heard about the "means test."Explain to Johnny the "means test" and the role it may play in his case.

3.You are concerned about Johnny's "good faith."Explain to Johnny what role "good faith" may play if he files for bankruptcy relief under Chapter 7 and Chapter 13.