Project – Legal & Ethical Scenarios

Legal and Ethical Scenarios

Select two of the scenarios provided below. Analyze the facts in the scenarios and develop appropriate arguments and recommendations using case law and scholarly sources. Do not copy the case studies into the paper. Using APA format, submit a 3 to 4 page paper, not including the cover page or references. Cite your sources in APA format on a separate page.

Scenario 1—Bankruptcy

Kitty, a bookkeeper for Jabil Circuit, filed a petition in bankruptcy under Chapter 7, seeking to discharge $65,000 in credit-card debts and $45,000 in student loans.  Kitty’s husband died and left her with two children, Daniel, who attended college, and Darius, who was 14 years old.  According to Kitty, Darius was a star football player who practiced ten to fifteen hours a week and made all-star for two years.  Kitty’s petition showed monthly income of $4840 and expenses of $5,050.  The expenses included annual football expenses of $6,500.  The expenses did not include college costs for Daniel, or airfare for his upcoming summer trip to Budapest, and other items.  The trustee allowed monthly expenses of $4,200, with nothing allocated for football expenses and requested that the court dismiss the petition.

• If Kitty qualified for Chapter 7, which debts would be discharged?  Which debts would not be discharged?  Why?
• Using the median income from your state, does Kitty qualify for Chapter 7?  Remember to count the number of people in the household.
• If Kitty earns too much money, what are the next steps?
• Should the court grant the trustee’s request?  Does Kitty have other options if the Chapter 7 petition is dismissed?
• Explain your answers and support them with relevant scholarly sources.

Scenario 2: Real Property

Karl purchased 10 acres of land with a log cabin home in the Smoky Mountains from Rufus, but never recorded the deed.  Rufus stayed on the property as a tenant for two (2) years.  Near the end of the two years, Rufus learned that Karl never recorded the deed.  Rufus advertised the 10 acres for sale and Devon negotiated with Rufus thinking that Rufus was the owner.  Finally, Devon checked the records at the recording office and, finding no reason to question Rufus’s ownership of the property, purchased the 10 acres from Rufus.  Devon recorded the deed and Rufus took the proceeds and moved to Florida.  Meanwhile, Karl failed to pay the real estate taxes on the property for the two (2) years in question thinking it Rufus’s responsibility as the tenant.  When Devon started to build a barn on the property, Devon and Karl argued over the ownership of the property.  Decide the case between Devon and Karl.

• Decide whether Karl is responsible for the two (2) years of real estate taxes assessed while Rufus occupied the property as a tenant.
• Discuss Rufus’s liability to the parties.
• Support your answer with information from the textbook and other scholarly sources.

Scenario 3 – Bankruptcy

Locate one of the following scholarly articles about bankruptcy in the SUO Online Library.  Summarize the article in your own words.  Identify and discuss the most important aspect of the article, as well as any ethical issues.  You may select an article not on list, but you must request approval from your instructor to use the article 48 hours prior to the assignment due date.

Labatt, J., Forrest, M., & Swartz, R. (2016). Discharging student loans in bankruptcy: Good luck with that. Proceedings of the Allied Academies International Conference. International Academy for Case Studies, 23(1) 8-11.

DISCHARGING STUDENT LOANS IN BANKRUPTCY: GOOD LUCK WITH THAT Joseph Labatt, University of the Incarnate Word Michael Forrest, University of the Incarnate Word Robert Swartz CASE DESCRIPTION This case speaks to the real financial fears resulting from burdensome student loan debt experienced by millions of students upon leaving college. Unlike other types of debt obligations held by creditors, student loan debt falls into a special category and is not readily dischargeable in bankruptcy, absent proof of “undue hardship” that precludes paying back the loans. The major topics of the case are bankruptcy, consumer protection, legal environment of business, and ethics. Given the applicability of the topic to students who will soon be obligated to make student loan payments, the case is appropriate for students from junior level and higher, including graduate studies. The case is designed to be taught in one class period, with the expectation that students will have spent two hours in preparation outside of the classroom. CASE SYNOPSIS In his 2016 State of the Union address, President Barack Obama argued that “We have to make college affordable for every American. No hardworking student should be stuck in the red.” Indeed, “stuck in the red” is an all too common condition for American students. Outstanding student debt in the United States, by some estimates, stands at $1.2 trillion, held by borrowers numbering in the tens of millions. For these debtors, what began as an optimistic investment in higher education has turned to deep disillusionment and a sense of betrayal. High paying jobs students counted on too often fail to materialize. Instead, college graduates are caught in a perpetual struggle to manage high loan payments. What follows is a story of one such student. The case chronicles the vicissitudes of Rory Grette, who borrowed money to pay for a prestigious undergraduate degree and graduate school that he did not finish. A family crisis, economic downturn, lost job, consumer debts, and unexpected medical bills left Rory in financial straits. He seeks to discharge his student loans and other debts in bankruptcy. The question is whether the required payment of his student debt constitutes an “undue hardship.” CASE BODY The Facts Middle class parents in a mid-sized town in the Midwest raised Rory Grette. Their dream was for him to go to college and maybe even get his M.B.A. someday. Because he was an excellent student, Rory had no trouble being admitted to a nearby state university. Rory had bigger dreams, however. He studied intensely for the SAT test, scored high, and chose an elite Eastern college over the hometown state school. Rory’s parents explained that had he chosen the Proceedings of the International Academy for Case Studies Volume 23, Number 1 9 local option he could have lived at home, paid lower tuition, and earned a degree with little or no student loans hanging around his neck. Instead, Rory graduated in the middle of his class from “Ivy U” with $150,000 in student loan debt, but kept his eye on the prize of owning a successful business someday. Apprehensive but undeterred by his financial obligations to a faceless State Higher Education Financial Services Corporation” (at least that was what was printed on student loan payback notices), Rory vowed to continue his education by returning home to get an M.B.A. at the neighborhood state school. “Defer and pay” was his mantra. More student loans paid for graduate school tuition, which seemed high to Rory even though he got the in-state rate. While in graduate school, Rory quit his studies to help his parents who had suffered financial and health setbacks. His outstanding student loans then totaled $175,000, for which he had to show a B.A. in Economics (not quite a business degree) and one-half an M.B.A. (not a degree at all). Economic times in Rory’s area of the county were dire. Manufacturing plants had been closing steadily because of foreign competition and high labor and legacy costs under contracts made with unions struck in better times. Not to mention 40,000 pages of new government regulations added by the administration, which increased the cost of business. Rory’s parents were casualties of the downturn, both having been laid off from jobs long held. Neither had the will to continue looking for meaningful work, which led to the couple experiencing despair and depression. Determined to keep the family afloat, Rory took a job as a strategic planner with a defense manufacturer, even though the idea of working for the “military industrial complex” violated all of the ideals with which he had be inculcated in college. Nonetheless, his pay was more than enough to maintain his parents’ household and make regular payments on his student loans. Twelve months; twelve $500 loan payments dutifully posted. Things were sailing on an even keel until the federal budget was sequestered and the administration chose to gut the allocations for defense. Rory lost his job, his steady income, and his health insurance. He networked, searched, and applied for any job that might come his way, but his efforts to find employment were for naught. Even when he would get a nibble on a job lead, potential employers shied away because his Ivy League pedigree made him appear to be overqualified—if not desperate. At wit’s end, Rory signed up to drive for Uber. This required that he get a late model car. He found a one-year-old Mazda that fit the bill and paid for it with a high-interest car loan in the amount of $15,000 at 5% interest. All earnings went to pay down the car loan; he stopped all student loan payments. Dunning letters from the State Higher Education Financial Services Center went into the trash. Gas, food, and rent were the priorities for his family. One day while sitting in his car hoping to catch a fare, Rory had a revelation sparked by a TED video he watched on his iPad. The speaker encouraged listeners to look beyond their own circumstances and find ways to help people without resources improve their lives. Rory realized he was too caught up in his own misery over financial pressures and decided it was his mission to help denizens of the inner-city take control through sustainable initiatives. He immediately drove to the nearest church and walked up to the padre, who spoke in broken English. Rory pitched the idea of a community garden—small-plot gardening as a means to give people the skills to grow their own food, improve their diet, and make a contribution, however paltry, to the fight against world-wide famine and the scourge of global warming. This idea was fostered by discussions in an Economics class that followed a viewing of “An Inconvenient Truth.” Rory was a new man. Even though his dreams of being a corporate giant were long ago extinguished, he reveled in his newfound mission to serve Mankind and Mother Nature. He Proceedings of the International Academy for Case Studies Volume 23, Number 1 10 maxed out his available credit on two cards buying tools, bags of organic fertilizer and seedling trays full of vegetable sprouts. On an especially pleasant day, in the middle of demonstrating hoeing techniques at a planting clinic at the church, Rory suffered a minor injury to his foot. Just a scratch, really. A rambunctious youth had grabbed a three-pronged cultivator and, while stabbing at the ground, nicked Rory’s foot, through the boot. The skin was barely broken and thankfully his tetanus shot and booster were still current. A week later, Rory was in the emergency room. He foot was terribly swollen with the poison from the infection already up to the knee. That is where the doctors cut—at the knee. Rory was in the hospital for six weeks. His obligations on the medical bills (for deductibles, a prosthetic device, and rehabilitation) totaled $30,000. During his absence, the “Mankind and Mother Nature” program (as it was called) collapsed. Most recruits found it was a whole lot of bother for not much bounty. Instead of hoeing, planting, fertilizing, watering, and fighting insects, it was easier to go to the corner market to take advantage of government food stamps. The final straw was an early freeze that killed most of the plants. Fortunately, Rory’s injury did not preclude his profession as an Uber driver. He has returned to picking up fares and brings in, on average $2,000 a month. This amount barely pays for household expenses. He still resides with his aging parents, who are on Social Security. Rory receives demand letters from his creditors almost daily. Bankruptcy may be Rory’s best option for a chance to discharge his debts and get a fresh start. The Bankruptcy Proceeding Comes Now Rory Grette, under Chapter 7 of the United States Bankruptcy Code. He seeks to discharge debts that are primarily consumer debts, defined in 11 U.S.C. § 101(8) as “incurred by an individual primarily for a personal, family, or household purpose.” Notably, the Bankruptcy Code at 11 U.S.C. § 523(a)(8)(B) also provides that educational loans can only be discharged if payment “would impose an undue hardship on the debtor and the debtor’s dependents.” The schedule of Rory’s assets and liabilities is as follows: NAME OF SCHEDULE ASSETS LIABILITIES OTHER Real Property $0 Personal Property $10,000 Secured Claims (Car) $15,000 Unsecured Claim (Student Loans) $173,000 (loan payments made largely went to interest) Unsecured Claim (Credit Cards) $12,000 Unsecured Claim (Medical Bills) $30,000 Current Income (Monthy) $2,000 Current Expenditures (Monthly) $2,700 Total $10,000 $230,000Proceedings of the International Academy for Case Studies Volume 23, Number 1 11 While waiting for fares, Rory has been researching the Internet for solutions to his financial dilemmas. He has learned that there is a “split in the circuits” on the legal test used by various federal courts in determining whether student loans can be discharged in the case of an undue hardship. Is there any hope he can get such relief?

 Here are the results of his research:

 Kendall, Brent and Josh Mitchell (January 11, 2016). Supreme Court denies appeal on student loan erasure. Wall Street Journal, January 11, 2016. Retrieved February 11, 2016, from http://www.wsj.com/articles/supreme-court-denies-appeal-on-student-loan-erasure 1452527286 

Gubbiotti, Carmelia (2015). Student loans can be discharged (at least partially) in bankruptcy after all. 7 St. John’s Bankr. Research Libr. No. 12. Retrieved February 16, 2016, from http://www.stjohns.edu/sites/default/files/documents/law/bankruptcy/2015-12- gubbiotti_carmella.pd