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BLAW Cal State University Northridge Business Law Discussion Question

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To briefcases, case problems and questions, use the following “IRAC” format:
Issue: What question must be answered in order to reach a conclusion in the case? This should be a legal
question which, when answered, gives a result in the particular case. Make it specific (e.g. “Has there
been a false imprisonment if the plaintiff was asleep at the time of ‘confinement’?”) rather than general.
Most cases present one issue. If there is more than one issue, list all, and give rules for all issues raised.
Rule: The rule is the law which applies to the issue. It should be stated as a general principal, (e.g. A duty
of care is owed whenever the defendant should anticipate that her conduct could create a risk of harm
to the plaintiff.) not a conclusion to the particular case being briefed, (e.g. “The plaintiff was negligent.”)
Application: The application is a discussion of how the rule applies to the facts of a particular case. While
the issue and rule are normally only one sentence each, the application is normally paragraphs long. It
should be written debate -not simply a statement of the conclusion. Whenever possible, present both
sides of any issue. Do not begin with your conclusion. The application shows how you are able to reason
on paper and is the most difficult (and, on exams, the most important) skill you will learn.
Conclusion: What was the result of the case? With cases, the text gives you a background of the facts
along with the judge’s reasoning and conclusion. When you brief cases, you are basically summarizing
the judge’s opinion. With case problems, the editors have given you a summary of the facts of an actual
case, but have not given you the judge’s opinion. Your job is to act as the judge in reasoning your way to
a ruling, again using the IRAC format.

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Parts Credit
= Q 30-22
spending, which includes $560.43 on cars payments and $1,824 in
support of her parents. Considering her high rate of debt accumula
tion, her budget is excessive and suggestive of a lack of good faith.
5. Misrepresentation of financial condition. The UST has not
alleged any misrepresentation in Siegenberg’s papers as to her
financial condition
6. Eve of bankruptcy purchases. As discussed above, Siegenberg
opened two credit cards in July of 2006. During the four months
in which those cards were in use she charged $17,447 on those two
cards alone. Further, Siegenberg purchased at least $6,759 on vari
ous cards in September and October 2006. These facts are sugestive
of a lack of good faith in her bankruptcy filing.
C. Dismissal with a One-Year Bar against Refiling
A bankruptcy court may, for cause, dismiss a bankruptcy case
with a bar against later discharge of debt. A finding of bad faith
based on egregious behavior can justly dismissal with prejudice.
The bankruptcy court should consider the following factors when
considering barring later discharge for bad thith:
1. Whether debtor misrepresented facts in her petition, unfairly
manipulated the bankruptcy code, or otherwise filed in an
inequitable manner:
2. Debtor’s Piling history:
3. Whether debtor only intended to defeat state court litigation;
4. Whether egregious behavior is present
Here, while egregious behavior is present, the other three
factors are not. There are no allegations of misrepresentation
Siegenberg has no bankruptcy history, and there has been no
mention of state court litigation. Under the egregious circum
stances outlined, it would appear to be appropriate to bar Siegen
berg from refiling a bankruptcy petition for at least one year, as
the UST has requested
Siegenberg has used her credit cards in various efforts to extri
cate herself and her family from financial difficulties. She also
used her credit cards for tens of thousands of dollars in personal
expenditures, the purchase of consumer goods and services, and
to obtain unexplained cash advances. The record contains sig
nificant evidence of these ostensibly excessive expenditures and
contains only patchy, incomplete, and unconvincing evidence
that most of these expenditures were made to further Siegen
berg’s business efforts. I belkeit appropriate to grant the
UST’s motion to dismiss Slegenberg’s Chapter 7 petition, and to
impose a one year bar on future bankruptcy filings by or against

Chapter 11: Reorganizations
Explain the purpose and basic procedure of Chapter 11
1000 organizations
Reorganization Proceeding Sometimes, creditors
benefit more from the continuation of a bankrupt debtor’s
business than from the liquidation of the debtor’s property
Chapter 11 of the Bankruptcy Code provides a proceeding
whereby, under the supervision of the Bankruptcy Court,
the debtor’s financial affairs can be reorganized rather than
liquidated. Chapter 11 proceedings are available to indi
viduals and to virtually all business enterprises, including
individual proprietorships, partnerships and corporations
(except banks, savings and loan associations, insurance
companies, commodities brokers, and stockbrokers).
Chapter 11 cases for individuals look much like the
Chapter 13 cases, which are discussed later in this chap
ter, but the amount of debt is usually much larger and
is, most commonly, a predominance of nonconsumer
debt. The 2005 act created a special subclass of small
business debtors” with less than $2,725,625 in debts and
provides special rules for them, including expedited deci
sion making
Petitions for reorganization proceedings can be filed vol
untarily by the debtor or involuntarily by its creditors. Once
a petition for a reorganization proceeding is filed and relief
is ordered, the court usually appoints (1) a committee of
creditors holding unsecured claims and (2) a committee of
equity security holders (shareholders). Normally, the debtor
becomes the debtor in possession and has the responsibility
for running the debtor’s business. It is also usually respon
sible for developing a plan for handling the various claims
of creditors and the various interests of persons such as
The reorganization plan is essentially a contract between a
debtor and its creditors. This contract may involve recapitali
ing a debtor corporation and/or giving creditors some equity.
or shares, in the corporation in exchange for part or all of the
debt owed to them. The plan must (1) divide the creditors
into classes (2) set forth how each creditor will be satisfied
(3) state which claims, or classes of claims, are impaired or
adversely affected by the plan, and (4) provide the same treat-
ment to each creditor in a particular class, unless the creditors
in that class consent to different treatment
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Q 30-2:

advances were incurred without any reasonable or foreseeable
ability to repay them. I conclude, on balance that such charges,
under the circumstances, are evidence of Siegenberg’s bad faith
4. Excessite or extravagant proposed family budget. Siegen
berg’s budget appears to be excessive. In Schedules I and J, she
claims average monthly income of 52,466,58 and average monthly
expenditures of $5.368.60, including $1.824 to support her pas
ents and $560.43 for car payments, as well as 5652 in regular
business operating expenses. In light of the thousands of dollars
Siegenberg charged on her credit cards monthly during 2006, as
well as minimal credit card payments she was required to make,
the gap between her monthly income and budget appears exces
sive and is suggestive of a lack of good faith on her part
5. Statement of income and expenses misrepresenting flas
elal condition. The UST has not alleged any misrepresentation in
Siegenberg’s statement of financial condition
6. Eve of bankruptcy purchases. Siegenberg claims that in fact
she made an eve of bankruptcy payment rather than purchases
$12.500 toward her mother’s surgery, militating in favor of a find
ing of good faith
On the other hand, according to her Schedule F Siegenberg
opened at least three of her ll credit cards in 2006, one in January
and two in July, She owes $7,670 on the one opened in January
$10,925 on one opened in July, and $6,522 on the other opened
in July. Thus, in under four months of use, Siegenberg became
indebted for $17,447 on two cards that she opened within five
months or filing. Also, she charged at least 56,759 in September
and October 2006. within about two months of her bankruptcy
petition. These are instances of eve of bankruptcy purchases that
suggest a lack of good faith under the circumstances, regardless of
alleged business purpose, given the wide gaps between her carn
ings and her new credit card debt
7. Bankruptcy history. Siegenberg does not have a history of
bankruptcy petition filing and dismissals.
8. Improper purpose for automatiestas: state litigation. There is
no evidence that Siegenberg has invoked the automatic stay for an
improper purpose, such as to defeat state court litigation.
9. Egregious behavior. Siegenberg argues that rather than
exhibiting egregious behavior, the facts illustrate bad financial
luck. She points to the fact that she has had a hard time finding
a job in the entertainment industry, though she has spent a lot
of money trying her family’s real estate investment Dopped, and
the interviews for a job selling Mexican time shares turned out to
be a waste of time. In the end, she claims that despite her homest
efforts to improve her income, she has been unlucky and, thus, is
unable to pay off her debts.
Even assuming all of what Siegenberg says is true, those fac
tors do not justify the spending detailed above. In light of her low
rate of income over a three-year period preceding bankruptcy, her
sizeable consumer-oriented expenditures and unexplained cash
advance debt appear to be egregious under the circumstances,
rather than legitimate startup business expenses
Thus, analysis pursuant to five of nine Mitchell factors, factors
2, 3, 4, 6, and 9, supports a finding of a lack of good faith
B. Dismissal under 707(bX3MB): Totality of the Circumstances
Additionally dismissal would appear be appropriate under
$ 707(6X3XB), considering the totality of the circumstances
presented by the evidence. Bankruptcy courts that have addressed
$ 707(M3) since the enactment of BAPCPA have found that the
“totality of the circumstances tests that were applicable under the
former $ 707(b) remain applicable under BAPCPA BAPCPA made
changes, however, making it easier for the UST to prove a case for
abuse because (a) there is no longer a presumption in favor of grant
ing relief to a debtor, and by the standard for dismissal is reduced
from “substantial abuse to merebuse.” The Inne Price “Totality of
the circumstances test includes the following six actors
1. Whether there is a likelihood of future income to fund debt
or’s Chapter 11, 12, or 13 plan
2. Whether the petition was filed as a consequence of illness,
disability, unemployment, or other calamity:
3. Whether the schedules suggest debtor obtained cash advances
and consumer goods without the ability to repay
4. Whether debtor’s proposed family budget is excessive or
5. Whether debtor’s papers misrepresent his or her financial
condition and
6. Whether debtor engaged in eve of bankruptcy purchases.
Here Price factors 2, 3, 4, and 6 are unfavorable to Siegenberg.
indicating a lack of good faith and supporting a conclusion of
abuse under $ 707(3B)
1. Future Income to find a Chapter 11 13 plan. The UST has
iled to establish that Siepenberg has a foreseeable likelihood of
future income to fund a Chapter 11 or 13.
2. Consequence of illness, disability, employment, or calam
ity. This factor is unfavorable to Siegenberg because she does
not present evidence that she herself experienced a grave illness,
change in employment status, disability, or any other calamity
that might explain the excess of her delt over her income.
3. Cash advances and consumer goods without ability to repay.
As discussed above. Slegenberg incurred substantial credit card
debt that might be considered business related or which may have
been incurred in the attempt to improve her financial situation
However, a large portion of her credit card debt was incurred to
acquire consumer goods and services and cash advances whose
business purposes remain unexplained. Thus, on balance, this fac
tor weighs against her
4. Excessive or extravagant family budget. As discussed above,
Siegenberg’s monthly income is less than half of the monthly
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Parts Credit
= Q 30-26

I. Whether the Chapter 7 debtor has a likelihood of sufficient the expense of her creditors. Siegenberg urges in response that
future income to fund a Chapter 11. 12. or 13 plan which various expenditures were either for business purposes or were
would pay a substantial portion of the unsecured claims repaid
2. Whether debtor’s petition was filed as a consequence of all Siegenberg asserts that she spent approximately $35,000 on
mess, disability, unemployment, or other calamity,
her parent’s residential investment; she repaid pre-bankruptcy
3. Whether debtor obtained cash advances and consumer goods almost two-thirds of the cost of the plane tickets to South Africa
on credit exceeding his or her ability to repay
($5.500)her parents wrote a check that she forwarded to her
4. Whether debtor’s proposed family budget is excessive or credit card company to repay $12,500 for the credit card charges
for her mother’s surgery, her expenditures on clothing were (a)
5. Whether debtor’s statement of income and expenses misrepre a legitimate business expense and (b) some of the clothing was
sents debtor’s financial condition,
returned for credit, and she traveled to Mexico for the purpose
6. Whether debtor made eve of bankruptcy purchases,
of attaining a job
7. Whether debtor has a history of bankruptcy petition filings On the other hand, Siegenberg provides no detail to explain
and dismissals
$42.775 in cash advances she received on her credit card
8. Whether debtor has invoked the automatie stay for improper accounts between May 2005 and October 2006. She does not
purposes, such as to delay or defeat state court litigation, provide evidence of contractor payments she claims to have
9. Whether egregious behavior is present
made that exceeded $19.607. She does not provide corroborating
detailed evidence that during the period covered by the UST’S
1. Likelihood that the Chapter 7 debtor will have suffelent motion she used the clothing she bought for demonstrable busi
future income to funda Chapter 11 or 13 plan. Siegenberg does not ness purposes. Regarding her Mexican expenditures, it appears
currently have income to Punda chapter 11 of 13 plan. According that she incurred credit card debt of more than $6,000 before
to the pleadings, such future income is not foreseeable. This fact July 2006, but only about $2,000 between July and October
supports Siegenberg’s position
2006, the period during which she claims she was interviewing
2. Consequence of illness, disability, unemployment or other for employment in Mexico. The preJuly Mexican expenditures
calamity. Siegenberg claims, in part, that the bankruptcy petition appear to be for consumer items such as plane tickets, hotels,
was filed as a consequence of the disability of her father. His dis and restaurants for the personal pleasure of Siegenberg and her
ability and surgery in April 2006 caused financial panic in her boyfriend, and Siegenberg offers no convincing evidence to per
family, in response to which her parents bought a house in the suade me otherwise,
hope of remodeling it and selling it quickly at a profit. Siegenberg Similarly, Siepenberg does not persuasively explain the reason
contributed $35.000 to remodel that investment property under able business purpose of about $5,500 in car related credit card
an agreement that promised her 50 percent of the profit. How debt creating expenditures (including $2.500 on her boyfriend’s
ever, her parents sold the home at a loss and Siegenberg received Cadillac down payment), as well as $2,129 on restaurants, and
no money in return for her investment
about $900 on hotels in Southern Califomia, among other con
Siegenberg did not experience an illness, disability, new sumer items.
unemployment, or other calamity. On the contrary, she provides The sum of Siegenberg’s justified business or personal
evidence of only modest improvement in her employment status expenditures including contractor expenses reimbursed
for the year 2005, not enough to match her greater expenditures tickets to South Africa, her mother’s surgery, returned cloth
There w
te was no change in her health status after 2004
ing, and spending to pursue employment in Mexico is about
Further Siepenberg incurred thousands of dollars of new $59.000. On the other hand, the sum of her unexplained and
credit card debt on plane tickets, a car for her boyfriend, hotel un justified cash advances, and other credit card debt for Mex
stays, and other consumer items that are not convincingly attrib ican travel spending prior to her Mexican job interviews, on
utable to any reasonably potentially revenue producing activities cars, Southern California hotels, and unexplained clothing
during May 2006, the month after her father’s surgery and the expenditures is about $58,000. Further, if only the $19,507 in
month during which her parents purchased a house as an invest contractor charges are included in her explained expenditures,
ment property, the alleged period of financial distress
instead of her uncorroborated claim that she incurred $35,000
3. Obtaining cash advances and consumer goods on credit for such contractor charges then her adequately explained
exceeding Siegenberg’s ability to repay. Much of the argument expenditures are about $44.000 while her unexplained expendi
between the two parties revolves around the question of con tures would appear to be about $73.000
sumer spending. The UST argues that Siegenberg purchased Whatever Siepenberg’s business-oriented goals, hier very
luxury consumer items on credit beyond her ability to repay at substantial credit card charges for consumer goods and cash
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= Q 30-19
Chapter Thirty Bankruptcy
abuse, including bad faith, determined under the totality over five years. To rebut the presumption of abuse, the debtor
of the circumstances
must show special circumstances that would decrease the
The means test is designed to determine the debtor’s abil income or increase expected expenses so as to bring the debe
ity to repay general unsecured claims. It has three elements: or’s income below the trigger points.
(1) a definition of current monthly income,” which is the Debtors have to file a statement of their calculations
total income a debtor is presumed to have available: (2) a list under the means test as part of their schedule of current
of allowed deductions from the current monthly income for income and expenditures. If the presumption of abuse
the purpose of supporting the debtor and his family and for arises, then the court has to notify the creditors of this situ-
repayment of higher priority debts; and (3) defined “trigger ation. While any party in interest generally has the right to
points at which the income remaining after the allowed bring a motion seeking dismissal of a Chapter 7 case for
deductions would trigger the presumption of abuse. For exam abuse, only the U.S. Trustee or bankruptcy administrator
ple, if the debtor’s current monthly income after the defined can bring the motion if the debtor’s income is below the
deductions is more than $166.66, the presumption of abuse median income in the state. Moreover, the means test pre-
arises irrespective of the amount of debt, and if the debtor hassumption is inapplicable to debtors whose income is below
at least $100 per month of current monthly income after the that state median and also to certain disabled veterans.
allowed deductions (which would amount to $6,000 over five In the case that follows, In Siegberg, the court dis-
years), then abuse is presumed that income would be suffi- missed a Chapter 7 case on the grounds it was filed in bad
cient to pay at least 25 percent of the debtor’s unsecured debts faith.
In re Siegenberg
2007 Bankr. LEXIS 2538 (C.D. Cal. July 31, 2007)
. (. )

Commencing in 2000, when she was hired by Mariah Carey, a prominent entertainer, Nicole Siegberg worked as a comer in the
entertainment business. Her duties were to buy clothes for and costume her employer. In 2004, she lost her job with Carey and began
looking furthermoremate the entertainment industry. In order to do that she had to build a pie, which requiredpur
chases of clothing stock terling 89,273 in 2004 Slegenberg’s statement of financial affairs indicates that she earned $10,000 in 2004
Since 2004, Sigeberg was ewwplayed on spordially on mary jobs such as television plot. When employed, she camed
abour $2.000 per week. Unfortunate, since 2004 she was usually unemployed. Thus, in 2005 she earned $12.648, and in 2006 she
named 35.233
Siegenberg lined with her parents in her parents condominiwin Pacific Palisades. During the 2004 to 2006 period, she incurred
debess, among other things, awit her went with a property they had bought as an intent to provide income when her father
was unable to continue his job assist a boyfriend who was a Realtor with perses on properties he was seeking to market, travel with
her boyfriend and her mother to South Africa to wisit her sick grandmother, asseur luer mother with medical expenses and provide living
expenses for herself. Some of the expenses were reimbursed to her, while others were MOT.
Siegenberg filed a Chapter 7 bankruptcy on November 29, 2006. Segeberg awed $82,59712 in unsered delt and $27668 in
secured delt on her car and her boyfriend’s car (a 2001 BMW and a 1999 Cadillac Escalade, respectively). The US These (UST) filed
amation to dim Siegenbergs Chapter 7 petition as filed i bad faith and sought a one year bar against refiling
Donovan, S. Bankrupley Judge
In considering whether a Chapter 7 case should be dismissed
because granting relier would be an abuse of the provisions of
Chapter 7 courts may consider (a) whether the debtor filed the
petition in bad faitle or (b) whether the totality of the circum
stances of the debtor’s financial situation demonstrates abuse.
A. Dismissal for Bad Faith under 707(b)(3)(A)
Section 70703) was added to the Bankruptcy Code by the
Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005 (BAPCPA). Since BAPCPA, the Ninth Circuit has not
established a standard for determining a finding of bad faith
in Chapter 7 cases under $ 707/
03KA). However, a few bank
ruptcy courts have addressed the issue. The court in In Michell,
a Chapter 7 case, used a nine-part test borrowing both from the
Ninth Circuit’s pre BAPCPA substantial abuse” test and from
Chapters 11 and 13 bad faith cases. The court in Mitchell con
sidered the following nine factors in determining whether the
debtor’s intention in filing bankruptcy is inconsistent with the
Chapter 7 goals of providing a ‘fresh start to debtors and maxi
mizing return to creditors and whether the case should thus be
dismissed under 107 XAX
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