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Paralegal Exam Prep

Category - Legal Envrmt

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Brian filed for bankruptcy. He owed 3 different creditors: BigBox Co., MediumBox Co., and SmallBox Co. Immediately after filing for bankruptcy, Brian sold his car for $5,000. He used the money to pay the entire debt that he owed to BigBox Co. MediumBox Co. accused Brian of making a fraudulent conveyance when he sold his car. How will the court rule?
  1. The sale was not fraudulent conveyance, as cars are exempt.
  2. The sale was a fraudulent conveyance since Brian could have received more money from the sale of his car.
  3. The sale was not a fraudulent conveyance since Brian used the proceeds to pay off a debt owed.
  4. The sale was a fraudulent conveyance because Brian should have first sought the court's permission to sell the car.
  5. The sale was a fraudulent conveyance because Brian should have split the proceeds among all three creditors.
Explanation
Answer: C. The court will rule that the sale was not a fraudulent conveyance since Brian used the proceeds to pay off a debt owed. It is not a fraudulent conveyance when a debtor owes debts to several creditors and decides to pay one and not others from the proceeds of the sale. This is the case even if the debtor's intent was to avoid paying a particular creditor.
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