Harold borrows $20,000 from Alex and signs a note promising to pay Alex this amount plus interest in one year.Alex negotiates the note to Reese,an HDC.Before the note is due,Harold declares bankruptcy and the court finds it to be true.According to the discharge in bankruptcy defense,which of the following is true in this scenario?
A) Reese can recover from Harold.
B) Reese can recover from Alex.
C) Alex can recover from Harold.
D) Reese cannot enforce the instrument.

Question

Quizplus · Accepted Answer

DWhen Harold declares bankruptcy and receives a discharge, the obligation to pay the note is legally eliminated for Harold, meaning Reese cannot recover from Harold directly due to the discharge in bankruptcy defense. However, as an HDC (Holder in Due Course), Reese has rights against prior endorsers of the note, which includes Alex. Therefore, Reese can seek recovery from Alex. Additionally, since the debt is discharged in bankruptcy for Harold, Reese cannot enforce the instrument against Harold, making both B and D correct.

Harold Borrows $20,000 from Alex and Signs a Note Promising