Lowell Recently Graduated from College with a Degree in Business

question 54

Essay

Lowell recently graduated from college with a degree in business administration, but has been unable to find a job. He decided to file a Chapter 7 petition with the Bankruptcy Court. He has the following assets:
a. $1,200 in equity in a new car which he purchased with a loan from the bank.
b. $5,000 in equity in his residence, a condominium secured by a mortgage.
c. $100 a week in unemployment benefits after being laid off from his job as a burgermaker at a local restaurant.
d. $750 in business administration books including a hardly used copy of Mann and Roberts, Business Law and the Regulation of Business.
e. a $1,000 retainer for his teeth prescribed by his orthodontist.
His debts are as follows:
a. $10,000 in student loans.
b. $20,000 to the bank for his car, which is secured by the car.
c. $5,000 in unsecured credit card debts.
Under federal exemptions, what can he keep? What will each of the creditors receive? Explain.

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Definitions:

Yield-to-maturity

The total return anticipated on a bond if it is held until the end of its lifetime, taking into account both interest payments and capital gains or losses.

After-tax Rate

The rate of return on an investment after accounting for taxes, giving a more accurate reflection of the actual take-home returns.

Marginal Tax Rate

The percentage of tax applied to your income for each tax bracket in which you qualify, essentially the tax rate you would pay on one additional dollar of income.

Weighted Average Cost

Weighted average cost often refers to the weighted average cost of capital (WACC), a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.