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Santa Clara University School of Law Final Examination 6 essay questions Instructions 1. This examination is limited open book. You may bring to the examination and use all assigned course materials and any notes, outlines, or other work product that you have produced alone or together with other persons registered in the course. You may not refer to any other materials. 2. Answer each of the six questions in this examination. Provide analysis supporting your conclusions. Conclusions without supporting analysis will not receive credit. 3. If you believe that additional facts are needed before reaching a conclusion, describe the kind of facts or give examples of facts that you would seek. 5. Unless otherwise specifically instructed in a question, do not apply provisions of the pending bankruptcy reform bills or inflation adjustments to the existing bankruptcy law that took effect on April 1, 2001. Where appropriate, assume that California law governing the effect of recording of an Abstract of Judgment applies, but do not otherwise apply the law of any state other than the law of the state specified in a particular question.
State of Heaven ("Heaven") is a state in the United States. Dora Debtor ("Debtor") lives in a residence built on a parcel of real property located in Fortune County, Heaven. Debtor also owns a parcel of undeveloped real property located in Blissful County, Heaven. Debtor owns the Fortune County real property free and clear. Debtor purchased the Blissful County real property in 1998, largely with the proceeds of a bank loan secured by a purchase-money mortgage on the property. On January 2, 2001, Creditor A filed suit against Debtor for $75,000. On February 2, 2001, Creditor A obtained a court order for issuance of writ of attachment on the Blissful County real property. On February 3, 2001, the court clerk issued the writ of attachment, and on February 15, 2001, the levying officer levied Creditor A's writ of attachment on the Blissful County real property. On January 5, 2004, after litigation culminating in a jury verdict, Creditor A obtained a judgment against Debtor for $75,000. On February 1, 2004, Creditor A recorded an Abstract of Judgment in Fortune County, and on February 5, 2004, Creditor A recorded an Abstract of Judgment in Blissful County. On October 2, 2003, Creditor B filed suit against Debtor for $50,000. On November 15, 2003, Creditor B obtained a default judgment against Debtor for $50,000. On November 20, 2003, Creditor B recorded an Abstract of Judgment in Blissful County. On December 5, 2003, Debtor borrowed $15,000 from her brother and gave her brother a mortgage on the Blissful County real property. He recorded the mortgage in Blissful County on the same day. Among the statutes in Heaven governing enforcement of judgment are the following: Heavenly Procedure 2.345: A levy on property under a writ of attachment creates an attachment lien on the property from the time of levy until the expiration of the time provided by section 2.346. Heavenly Procedure 2.346: Unless sooner released or discharged, any attachment shall cease to be of any force or effect, and the property levied upon shall be released from the operation of the attachment, at the expiration of three years from the date of issuance of the writ of attachment under which the levy was made. Lien priority rules in Heaven are identical to general lien priority rules that we studied in the course. Exemptions in Heaven do not encompass undeveloped real property. The exemption on Debtor's residential real property consumes virtually all of the Debtor's equity in the property. In April 2005, the bank that held the mortgage on the Blissful County real property held a foreclosure sale on the real property because of Debtor's default in monthly payments. The property sold for $75,000 in excess of the amount owing the bank. Ignoring both costs of sale and interest accumulations on the amounts of debts listed above, how should the excess $75,000 be distributed? Question 2 Debtor is single. He is a part-time piano teacher and a part-time real estate agent. He gives lessons at his residence, a rented single family dwelling, on weekday afternoons and evenings. As a real estate agent, he schedules open houses on two weekdays each month. For each open house, he sets up and takes down open house signs that he carries in the trunk of his only car (a Mercedes), and shows the house to people who attend the open house. He also drives potential buyers to view houses by appointment (usually about twice each month). He spends more time giving piano lessons than working as a real estate agent, but he makes more money as a real estate agent. Debtor borrowed $10,000 from Fireside Thrift to pay uninsured medical expenses. Fireside Thrift took a security interest in Debtor's Mercedes to secure repayment of the loan. Theretofore the Mercedes was free and clear of any liens. Part A Debtor filed a Chapter 7 petition in the State of Utopia (a state in the United States) and thereafter filed a motion to avoid the lien of Fireside Thrift. Fireside Thrift opposed the motion. The State of Utopia law governing enforcement of money judgments grants debtors a $2,500 exemption in a car and a $5,000 exemption in tools of the trade. The State of Utopia has not opted out of the federal bankruptcy exemptions. Assume that the Mercedes was worth $15,000 at the time of the hearing on the motion. How should the court rule on Debtor's motion to avoid the lien? Part B Fireside Thrift also timely filed a complaint objecting to Debtor's discharge under section 727 of the Bankruptcy Code (not section 523), claiming that Debtor, while insolvent, had given one of his grand pianos to his brother and sister-in-law as a wedding gift six months before filing the petition. Debtor timely filed an answer to the complaint denying that the wedding present gave any ground to deny the debtor a discharge. How should the court rule on Fireside Thrift's complaint? Part C Having learned about the debtor's gift of the piano (see Part B), the bankruptcy trustee appointed in Debtor's Chapter 7 proceeding has contacted the Debtor's brother and sister-in-law and demanded that they surrender the grand piano to the trustee. Is the bankruptcy trustee entitled to the requested surrender of the grand piano? Question 3 Dan Debtor is single. He is a full-time public school teacher. He owns a home worth $200,000 subject to a mortgage securing a debt of $100,000. Debtor lives in the State of Nirvana (a state in the United States). Nirvana law governing enforcement of a money judgment grants a single debtor an exemption of $75,000 in a home and also grants exemptions in other property that would exempt all of Dan Debtor's other property from enforcement of a money judgment. Nirvana has opted out of the 522(d) federal bankruptcy exemptions. Last year, debtor injured Cindy Creditor in an automobile accident. Debtor caused the accident because he was driving his car while intoxicated, an offense for which he pleaded guilty to a misdemeanor. Cindy obtained a civil judgment against Debtor for $50,000 in excess of Debtor's insurance coverage. To abort Cindy's garnishment of his wages, Dan Debtor filed a Chapter 13 petition and a plan in which he proposed to pay unsecured creditors a total of $15,000 over the life of the plan. Part A Based solely on the facts related above, what grounds, if any, does Cindy have for objection to confirmation of the plan? Part B Assume that no one filed an objection to confirmation of Dan Debtor's plan, that the bankruptcy court confirmed the plan, and that the court granted Dan a discharge following his completion of payments under the plan three years later. Assume that plan payments to Cindy totaled $10,000 of the $15,000 that was distributed to unsecured creditors. Following the discharge, may Cindy properly renew garnishment of Dan's wages and/or record an Abstract of her judgment in the county in which Dan's home is located? Question 4 Doris Debtor owns a home subject to a mortgage in favor of Creditor A, some undeveloped real property in the mountains subject to a mortgage in favor of Creditor B, and a car subject to a security interest in favor of Creditor C. She filed a Chapter 7 petition, protected her home from the trustee because of a relevant exemption, and purchased the trustee's interest in the undeveloped real property with some post-petition lottery winnings. Creditors A and B did not request nor did Doris sign a reaffirmation agreement. She simply kept making her mortgage payments. The trustee abandoned her interest in the car because the amount of the debt exceeded the value of the car. The debtor reaffirmed the debt on the car by signing a reaffirmation agreement that included a right to rescind and all relevant disclosures. Creditor C filed the reaffirmation agreement with the bankruptcy court, but the reaffirmation agreement was not accompanied by the affidavit of the debtor's attorney (even though the debtor's attorney had represented Doris Debtor during the course of negotiating the reaffirmation agreement). Six months after the discharge, Doris Debtor missed two monthly payments on both mortgages and two monthly payments under the reaffirmation agreement. Each of the three creditors consulted a lawyer to find out whether they may contact Doris by telephone or letter to inquire about the arrearages. May each do so (i.e. analyze each separately) and, if not, what, if anything, may each creditor do? In answering this question, limit your reading and analysis to sections 524(a)(1), 524(a)(2), and 524(c) of the Bankruptcy Code, plus the following amendment to section 524 (drawn from a pending bankruptcy reform bill) that you should assume has become part of the Bankruptcy Code: "Section 524 of title 11, United States Code, is amended by adding at the end the following: '(j) Subsection (a)(2) does not operate as an injunction against an act by a creditor that is the holder of a secured claim, if-- (1) such creditor retains a security interest in real property that is the principal residence of the debtor; (2) such act is in the ordinary course of business between the creditor and the debtor; and (3) such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien.'" Question 5 DreamHome, Inc. operates a nationwide chain of retail home improvement centers (selling building materials, hardware, tools, plants, and a variety of other items to the public). It grew too quickly, encountered severe cash flow problems, and has filed a Chapter 11 petition. It hopes to be able to cure its financial problems by temporarily reducing the number of its home improvement centers and embarking on a slower program of future growth. Many of its creditors believe, however, that the home improvement market is saturated and that DreamHome would be better off liquidating. Among its creditors is Nursery Wholesaler (hereafter "Nursery"). Four months prior to the filing of DreamHome's Chapter 11 petition, Nursery obtained a judgment for $1,500,000 for failure to pay for plants sold and delivered to DreamHome. The day after obtaining its judgment, Nursery recorded a properly completed Abstract of Judgment in Wistful County. DreamHome owns a parcel of real property in Wistful County. DreamHome built one of its home improvement centers on the real property. The center and its parking lot occupy all of the real property. The real property, worth $1,400,000, is subject to one mortgage, securing a debt of $300,000, recorded prior to Nursery's recording of its Abstract, and is not subject to any liens other than those created by the mortgage and the Abstract. Evaluate the prospects of Nursery obtaining relief from the automatic stay. Question 6 Continue to assume that DreamHome, Inc., referred to above, has filed a Chapter 11 petition. Assume that it has turned its attention to the preparation of a plan of reorganization. Included among its unsecured creditors are 5,000 customers who, prior to the filing of the petition, had given DreamHome deposits of 50% of the purchase prices of special order kitchen cabinetry that had not been delivered prior to filing of the petition. The amount of those deposits ranged from a low of $500 to a high of $5,000. Pursuant to DreamHome's post-petition business strategy, it has discontinued the manufacture and sale of custom kitchen cabinetry. Accordingly, none of the 5,000 customers will receive the kitchen cabinetry for which they made deposits. Into how many classes of claims should the claims of the 5,000 customers mentioned above be put and what minimum treatment, if any, must a plan of reorganization afford each of the customers in each class to qualify for confirmation? Among other things, your analysis should take into account section 1129(a)(9) of the Bankruptcy Code.
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