Fact Pattern 23-1 Bailey Has Been Making Large Credit Card Purchases for Months

question 39

Multiple Choice

Fact Pattern 23-1
Bailey has been making large credit card purchases for months. He has also borrowed money from Jack and Susan, friends of his, so that he can continue his rather lavish lifestyle involving foreign travel. He borrowed $1,000 from Jack and $2,000 from Susan. He also borrowed $500 from his mother. Bailey finally decides that he can no longer continue to make even the minimum payments on his credit cards and considers filing for bankruptcy. He does, however, want to pay some of his debts. Bailey, therefore, puts off the credit card companies and saves his cash. He starts the New Year off by paying on January 1 all funds owed to his mother. He was particularly concerned about repaying his mother because he still lived at home and had some concerns that she would kick him out of the house if he did not repay her. Then, on June 1 he pays Jack; and on July 4, he pays Susan. Bailey proceeds to file bankruptcy on August 2 because he has repaid anyone he really cares about. He plans to complete the bankruptcy and move to the Caribbean.
-Refer to fact pattern 23-1. Which of the following is true regarding the repayment of the loans from Jack and Susan?

• A) The payment to Susan would be considered a preference because it was made within 30 days of the filing for bankruptcy, but the payment to Jack would not be considered a preference because it was made more than 30 days prior to the bankruptcy filing.
• B) Payments to both Jack and Susan would be considered preferences because they were made within 90 days of the filing for bankruptcy.
• C) Payments to both Jack and Susan would be considered preferences because Jack and Susan are insiders, and the payments were made within one year of the bankruptcy filing.
• D) The payments would not be considered preferences.

---

Definitions:

Stockholder Claims

The rights or interests that shareholders have in a company, primarily related to dividends and assets in the event of liquidation.

Bondholders

Individuals or institutions that own bonds issued by corporations or governments, entitling them to receive the bond's principal back plus interest payments.

Interest and Repayment

Terms referring to the cost of borrowing money (interest) and the act of paying back borrowed funds (repayment).

Callable Bonds

Bonds that can be redeemed by the issuer before their maturity date at a predetermined price.