Question

Ring Stores, Inc., borrows $6,000 each from EZ Loan Corporation, First National Bank, and Great Products Corporation. Red Ring uses its "present inventory and any thereafter acquired" to secure the loans from EZ Loan and First National. EZ Loan perfects its interest on April 1, followed by First National on April 5. Red Ring buys new inventory on April 10 from Great Products and signs a security agreement, giving Great Products a purchase-money security interest in the new inventory. On the same day, Great Products perfects its interest and notifies EZ Loan and First National. Red Ring takes possession of the new inventory on April 15. On April 20, Red Ring defaults on all of the loans. Whose security interest has priority?

After graduating from college, you work briefly as a salesperson before filing for bankruptcy. As part of your petition, you reveal that your only debts are student loans, taxes from the last year, a $742 Visa credit card bill, and a claim against you based on your misuse of customers’ funds during your employment. Are these debts dischargeable in bankruptcy? Explain your answer

Answer 1

Since,the loans from EZ Loan and First National twere secured on " present inventory and any thereafter acquired", both FZ Loan and First National will have a pari pasu charge on the inventory for their interest.Hence, in case of default, the security interest will be distributed between both EZ loan and First National in the proportion of the loans granted by them to Ring Stores. If the agreement provides, the secuirty interest can be distributed between the two for their principle amount of loan that is due from Ring Stores.This is known as the pari- passu charge.

Since,the charge for security interest for General Products was created through an agreement after the above mentioned agreement,General Product cannot claim any security interest on the inventory as the total value of the inventory was already pledged to EZ Loan and First National.General Products would be able to claim security interest only if any residual amount remains after satisfying the claims of EZ Loan and First National.

A person can file for bankruptcy when they want to obtain a discharge of debts under Chapter 7 or Chapter 13 of bankruptcy where they are not personally liable to repay such debts. Not all debts can be discharged, however, and several are very difficult to discharge. The most common types of debt to avoid discharge include tax liens, student loans, alimony, debts obtained through fraud, debts for willful injury or wrongful death, and debts where the borrower was acting in a fiduciary capacity.

In this case salesperson is been filing for bankruptcy for student loans, taxes from the last year, a $742 Visa credit card bill, and a claim based on misuse of customers’ funds during employment, these debts cannot be discharged due to following reasons :

a. The debts that involves any alimony, child support, student loan, some types of taxes, fines for government agencies or in the criminal restitution, housing fee debts, personal injury debts, credit card debts worth more than $650 etc as such debts comes under the non dischargeable categories under bankruptcy.

b. In such cases the court can deny the discharge when debtor does not follow or lacks the compliance with the existing rules and process and the court has right of final say in the bankruptcy cases.