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Bankruptcy and Employee Claims

Q-1: Sonia, a book dealer, has the following assets: a building worth $155,000, accounts receivable amounting to $32,500 due within the next three months, and $25,000 cash in the bank. Sonia's sole liability is a $300,000 note falling due tomorrow, and she is unable to pay it. Can Sonia be forced into involuntary bankruptcy under the Bankruptcy Code?

Q-2: Delilah owned a chain of bakery shops across the state. Recently, Delilah closed all of her shops. Due to decreased revenue over the past three years, Delilah filed both personal and business bankruptcy. Delilah closed her shops without meeting the last week of payroll. Delilah owed over $23,000 to her former employees. The employees joined to file a claim for the unpaid wages. Delilah also owes thousands of dollars in unpaid rent and supplies. Where, in the priority of claims, will the employee's wage claims fall?

Solution Preview

1 - Her sole liability is a $300,000 note that she is unable to pay and is due. Sonia can be forced into involuntary bankruptcy because she is an individual, but the chances of the creditor actually collecting are rare. Involuntary bankruptcy is more commonly used with businesses. Her assets total 212,500 and wouldn't even cover the note due. The monies collected would go to the bankruptcy court and would not go 100% to the ...

Solution Summary

This solution explains if Sonia, a book dealer, can be forced into involuntary bankruptcy. This solution also explains who has the priority of claims in Delilah's case.