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Larry Levy filed a claim as a creditor in JTFJ’s bankruptcy
proceeding. During the bankruptcy, he agreed to subordinate his
claim to that of Betty Jo Byers. Ms. Byers was a JTFJ creditor
and former bookkeeper who lent $42,500 to JTFJ. Larry Levy
personally guaranteed the loan. Ms. Byers received $26,008.86
from Larry Levy, pursuant to a judgment and subsequent
garnishment of his wages.
In August 1989, the bankruptcy court ordered the sale of
JTFJ’s assets to Majestic Jewelers. Majestic Jewelers agreed to
pay the bankruptcy trustee $200,000 for JTFJ’s assets (i.e.,
$50,000 at the time of purchase and the remainder in
installments). Majestic Jewelers’ payments would go to JTFJ’s
secured creditors, first to Republic Bank and then to
petitioners. On November 20, 1989, the chapter 11 case was
converted to a chapter 7 case. In 1991, after making only a few
small payments, Majestic Jewelers defaulted on its obligations.
After Majestic Jewelers defaulted, petitioners were, pursuant to
Larry Levy’s personal guaranty, required to repay $103,622 to
Republic Bank. Pursuant to the bankruptcy plan, petitioners
would have received the remaining payments. Petitioners deducted
$445,104 as business bad debt on their 1991 tax return and
claimed a net operating loss carryover on their 1992 and 1994 tax
returns.
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Last modified: May 25, 2011