Unfortunately, your business has been struggling lately to make ends meet. The cost of products used in your business has risen dramatically primarily due to embargos, worker strikes, floods, and several wars.In addition, you have determined, based upon surveillance video, that one of your employees, Homer Simpson, has taken money from the cash register since he was employed four months ago. After you fired him, he has brought an employment discrimination action against your company.

Each of you have obtained personal loans totaling $100,000.00, in addition to the business loans. The business also has obtained a $10,000.00 loan. You payments of principle and interest on these loans total $20,000.00 per year.

The IRS has sent you a letter indicating that your tax preparer made an error in computing your company's taxes the previous tax year and therefore, your profits were underreported by $10,000.00.

You have a contract with the sister of one of the owners of your business, Marge Simpson. She has an outstanding invoice for $10,000.00 and is threatening to take you to Polk County Court unless you pay up.

You have entered into a contract with Polk County School District to provide products from your business. However, after the contract was entered into, the price of your products increased by 35% due to the above-mentioned embargos, worker strikes, floods, and wars.This means that if the contract with the school system is fulfilled, your company would lose $10,000.00. You have asked the school district to release your company from the contract and it has refused.

Your balance sheet as of August 1, 2021 is as follows:

Gross Receipts to date$150,000.00

Expenses:

- Cost of Goods Sold$300,000.00

- Employee Salaries and other costs$ 25,000.00

- Licenses and Fees$1,000.00

- Building Expenses (Rent, Utilities)$ 25,000.00

- Loans (Principle and Interest payments)$ 10,000.00

- Thefts by Homer Simpson$ 10,000.00

- Owners Draws$9,000.00

Total Expenses($380,000.00)

Based upon the above facts, you are considering your options for continuing your business, including closing it and filing for bankruptcy protection.

1. If you decide to file a petition in bankruptcy, under what Chapter of the Bankruptcy Code would you likely file and why?

2. If you decided to file abankruptcy petition, what schedules would you be required to file? What would you include on the schedules?

3. Based upon the form of business under which you selected to operate your business, what effect would filing a Chapter 7 bankruptcy petition by your business have on your personal assets and credit?

4. What is the "tools of the trade" exemption?How could it apply to your business?

5. Before filing for bankruptcy, you want to protect the company of the sister of one of your owners with whom you have outstanding invoice totaling $10,000.00. Can you make a payment for the invoice from your company's business account and then file for bankruptcy protection? Explain why or why not.

6. What alternative to bankruptcy might you consider pursuing? Explain.

7. Can the income tax debt be subject to discharge under the Bankruptcy Code?

8. Under what theory might your company obtain a release from your contract with the Polk County School District?