I need help writing a memo for a bankruptcy case. The scenario is long so I cant copy and paste it, we have to email each other. Questions 1. The Farragut’s have decided to file bankruptcy. Your assignment is to figure out which bankruptcy would be best to achieve the Farragut’s goals. 2. Using the facts in the Farragut case, outline any issues dealing with residency, valuation of collateral, real estate, vehicles and the priority claims. Write a memo outlining these issues.
Bill and Susan Farragut live in Seattle and have 2 kids, Tommy age 3 and Mary Rose age 5. Bill teaches at a local high school and earns $45, 000.00 per year; Susan lost her job as a computer programmer in December 2008 and was only recently able to find a part-time job. She works at a local retailer, selling computers, and earns $15, 000.00 per year. Susan’s loss of income, in excess of $80, 000.00, has caused financial hardship for the family.
Prior to their financial setback, the Farragut’s bought a home at the height of the housing boom in late 2006. They calculated the housing and other monthly expenses and decided their combined annual income, in excess of $140, 000 due to Susan’s bonuses, would enable them to easily afford the payments. They had very little credit card debt; their 2005 Ford Mustang was paid in full and they were able to make the $550.00 per month payments on their Cadillac Escalade since they put a lot of money down towards the purchase. The Farragut’s also have a leased vehicle-which Susan had used to commute to her computer job. There is a year left on the lease and the payments are $400.00 per month.
The purchase price for the house was $450,000.00, but the Farragut’s made a huge down payment and the first mortgage is $250,000. When they decided to add to the value of the house by adding a deck and swimming pool, as well as, a complete kitchen remodel and bathroom makeover, the Farragut’s took out a second mortgage for $450,000.00 to pay for these expenses. This brought their total mortgage payment to $6,000.00 per month, with the first mortgage totaling $2,500.00 including escrow for taxes and insurance and the second mortgage payment of $4,500.00. When Susan lost her job, the couple began to use their credit cards to pay for food and other essentials. They had not been able to save any monies since all their disposable funds were used to pay for the kid’s private schools and the mortgage payments.
Although the Farragut’s never lived what they considered to be a lavish life style, they were able to take a European vacation each year before the kids were born and since then, they travel to New York and Florida with great frequency to visit their parents and family members.
Susan and Bill never scrimped on gifts at the holidays and often treated both extended families to ski vacations at Copper Mountain. They believed that they both worked very hard and should enjoy the fruits of their labors. Since the birth of the kids, the Farragut’s have remained have curtailed some of their travel, especially since Tommy suffers from a genetic blood disorder. He requires constant monitoring and must go to the hospital a minimum of twice a month for treatments. Susan enrolled for the group health plan at her job and all of Tommy’s expensive treatments were covered. Even so, the out-of-pocket expenses still totaled in excess of $2,000.00 each month.
Since Susan was laid off, the health benefits have ceased and the couple was forced to pay for a private insurance policy since Bill’s coverage would not pay for Tommy’s treatments. So far, the couple has used Susan’s 401 K and their meager savings to remain current with all their bills. Given the couple’s mortgage payments, car payments, credit card payments, health insurance, Susan’s remaining school loans and utility and other payments, the Farragut’s feel like they are drowning in debt.
Although they owe $700,000.00 in mortgage payments, the Farragut’s believe their house is worth only $250,000.00 based on recent sales in their neighborhood. They are at a loss and have no idea what they should. Susan hopes to once again get a programmer job, and has sent hundreds of resumes only to learn she is competing with thousands of out-of-work programmers. Bill’s parents have offered to let them move into their home in New York, but they worry about Tommy’s medical care since the New York house is in rural area, with the nearest medical facility 3 hours away. The Farragut’s have lived in Seattle for five years and really do not want to relocate to the east coast.
The Farragut’s are also concerned about their credit rating and do not want to ruin their credit as they are concerned they may not be able to rebuild it in the future and therefore buy another house or replace their vehicles. They also want to keep their credit cards active so they use them as needed. The Farragut’s want to especially keep their American Express card as they use this card to pay for traveling and bills. They recently made a $1,000.00 payment on this bill, while not paying their other cards. Since they had to switch insurance companies, Tommy’s health bills have been mounting and they now owe in excess of $20,000.00. They have a total of 20 credit cards, 15 of which are in Susan’s name and the rest are joint cards. The first mortgage was signed by both of them, but because of Susan’s income, she is the only signatory on the second note and mortgage. The Farragut’s also thought about selling the mustang and getting a less expensive car, but they don’t think the blue book value will net them enough to get a new family sedan and they will not buy a used car. The Farragut’s would like to give the car to Susan’s sister. They would also like to downsize the Escalade and get a smaller, less expensive car, but were told by one dealer that, due to it’s depreciation, they would have to come up with a down payment and they cannot afford to do this.
Several years ago, the Farragut’s were concerned about providing for their children in the event they died so they had a living trust drafted. The trust is revocable, with the Farragut’s as the trustees and all of their funds and accounts are in the trust for the benefit for their children.
At this point, the Farragut’s has $5,000.00 left in Susan’s 401 K; $6,000.00 left in Bill’s 401 K; $2,000.00 in their joint savings account; $10,000.00 in mutual funds and $1,000.00 in their joint checking account. The anticipate receiving a $5,000.00 tax refund which they will use to pay bills. The Farragut’s are now in your office and want to know what to do.
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