Ludmilla and Sudash carry on a catering business.They form ICING Inc,a caterer that specializes in frozen desserts and elaborate ice sculptures used for centerpieces.The corporation purchases a refrigerated truck with the help of a loan from Bank X.The bank takes a security interest in the truck to secure the full amount of the loan,which is $70 000.Unknown to the bank,however,the truck is worth substantially more than the value of the loan.If ICING goes bankrupt and the bank seizes and sells the truck for $80 000,it will

Question

Quizplus · Accepted Answer

When a security interest is taken, it is only valid up to the amount of the debt it secures. In this case, the bank has taken security over the truck to secure a loan of $70,000. If the truck is sold for $80,000, the bank will be entitled to the first $70,000 to pay off their debt. However, any additional value beyond the debt owed must be paid into the bankrupt's estate for distribution to other creditors. This is because the security interest only covers the amount of the debt owed and any excess value belongs to the debtor's estate for distribution to other creditors. Therefore, the bank will not be allowed to retain the $80,000 proceeds from the sale of the truck, and any value beyond $70,000 will have to be paid into the bankrupt's estate for distribution to other creditors.

Ludmilla and Sudash Carry on a Catering Business