Reference no: EM133338054

Debtor files a petition under Chapter 7 and has two assets: (i) a piece of equipment worth $100,000, subject to a perfected security interest securing an $80,000 debt to seller; and (ii) real property worth $500,000, subject to a recorded mortgage securing a $400,000 debt to bank. In addition, debtor owes $300,000 to other (unsecured) creditors.

1. How will the assets be distributed? (The effect of sellers having perfected its security interest is discussed infra, Section 2(A))

2. How would the assets be distributed if debtor had purchased the equipment from seller on an unsecured basis?

3. How would the assets be distributed if the equipment is worth only $70,000 at the time debtor enters bankruptcy? Note that BC 506(A) would divide Seller's $80,000 claim into two parts: Seller would have a secured claim in the amount of the value of its collateral of $70,000; the balance of its claim ($10,000) would be an unsecured claim.