Question

Claims to Funds. Paul had a great job as a bank executive. Unfortunately, his bank came under scrutiny by federal regulators and while Paul had done nothing illegal, he ended up being fired. Unfortunately for Paul, he had a number of debts. Among his assets were a house worth $250,000 on which he owed $150,000 to a bank that held a security interest; three vehicles; an expensive watch worth $5,000; and $120,000 in an Individual Retirement Account "IRA". He owed $900 per month in child support to his ex-wife Suzy and was behind on payments in the amount of $1,800. He also owed $2,000 in wages consisting of four months of back pay to Bob who took care of Paul's landscaping needs and swimming pool care. Unable to find a job and believing that he had no other option, Paul filed for Chapter 7 bankruptcy. All debtors angrily demanded payment from liquidation of Paul's assets. Paul, on the other hand, claims that he needs all the above-mentioned assets and that he should not have to give up anything. Only federal bankruptcy exemptions apply to Paul's case. Which of the following is true in regard to the claims of Suzy and Bob in reference to their status as unsecured creditors?

A. Suzy's claims have priority.

B. Bob's claims have priority.

C. Suzy and Bob are on equal footing and will receive the same percentage of funds.

D. Suzy's claims have priority only up to $1,000 and after that amount is satisfied, Suzy and Bob are on equal footing and will receive the same percentage of funds.

E. Bob's claims have priority only up to $1,000 and after that amount is satisfied, Suzy and Bob are on equal footing and will receive the same percentage of funds.

Answer

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