Arthur was involuntarily petitioned into bankruptcy by three of his creditors. When the trustee reviewed Arthur's...

Arthur was involuntarily petitioned into bankruptcy by three of his creditors. When the trustee reviewed Arthur's books and records, the trustee discovered the following transactions: (a) Three weeks before the filing of the petition, Arthur bought for cash $17,000 worth of inventory for his store. (b) Arthur made a $400 donation to the American Cancer Society. (c) Twelve days before the filing of the petition, Arthur paid a $300 electric bill for the current bill. The trustee is considering attempting to set aside each of these transfers as a preference. Discuss the advisability of such action (s).

Expert Solution

When the debtor becomes insolvent, a trustee is appointed to review his books of accounts and settle the creditors from the assets of the debtor.The trustee has the right to recover the property of the debtor which is transfered before the period of bankruptcy. He can set aside such transfers 1) which is made for his benefit or creditor benefit. 2) on account of debt owed before the transfer was made 3)id the debtor is insolvent.4) if it is made more than what creditor should receive.

Given, Arthurfiled a bankruptcy , atrustee was appointed and found the following 3 transactions to set aside each s preference transfer.

a) Three weeks before filing thepetition Arthur bought for cash $17,000 worth of inventory for his store.

He paid cash in order to buy the inventory in the ordinary course of his business which cannot be set aside as voidable preference.

b) Arthur made $400 donation to American Cancer Society

The charitable contributions or donations made by the debtor which are not consistent practices cannot be set aside.If the donation made of $400 by Arthur is one time contribution, then the trustee can keep it aside as voidable ransfer.

c) Twelve days before filing of the petition, Arthur paid $300 eclectic bill for the current bill.

The amount of $300 towards electricity is a primary consumer debt which is under the limit of $600 and hence it cannot be set aside as an avoidable preference

ekkarill92 answered 1 year ago

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