Deck 21: Creditors Rights and Bankruptcy

Question 1

Unsecured creditors give loans based on ________ without collateral.

Answer 1

creditworthiness

Question 2

Unsecured creditors may seize any asset of the borrower once they have a debt collection judgment.

Answer 2

False
Explanation: Some assets, like the homestead, are protected from collectors.

Question 3

The out-of-existence option is not risky if the debtor has no assets.

Answer 3

False
Explanation: It is dangerous if the debt is secured through personal guaranties by one of the owners of the business.

Question 4

If a person cosigns a loan as a guarantor, that person becomes primarily liable for the debt.

Question 5

Secured creditors must ________ their security interests before they are protected under the UCC.

Question 6

When a business no longer has enough money to pay its bills and maintain operations, it is considered to be ____.

Question 7

A ________ has the legal power to void some transfers made before filing for bankruptcy.

Question 8

Properties owned by businesses are eligible for mortgage refinancing under the Mortgage Forgiveness Debt Relief Act.

Question 9

Bankruptcy is the only option for businesses that want to not be liable for their debts.

Question 10

Chapter 13 repayment plans are limited to ________ filing for bankruptcy.

Question 11

Filing a statement of notice with a state government is one way to perfect a security interest.

Question 12

The collateral used for a mortgage is ____.

Question 13

Debtors may keep certain assets after they have filed for liquidation.

Question 14

Secured creditors do not need to perfect their interests to be protected under the UCC.

Question 15

A ________ allows the debtor in possession to avoid any obligation that he or she would otherwise be forced to perform.

Question 16

The main role of the bankruptcy trustee is to protect the assets of the estate.

Question 17

An ________ stops creditors from pursuing their collection actions.

Question 18

A ________ is a third party who agrees to be liable to pay a loan only if the debtor actually defaults.

Question 19

A fraudulent transfer occurs when a debtor makes payment on a prebankruptcy debt up to a year before filing for bankruptcy.

Question 20

A ________ is a contract that specifies the parties, describes the collateral, states the obligations of the debtor, and states the remedies available to the secured party.

Question 21

The court cannot force creditors to agree to a reorganization plan even if it is fair, equitable, and feasible.

Question 22

Kevin's transfer of $10,000 to his brother to pay off a loan two months before filing bankruptcy can be undone by the trustee.

Question 23

Alan is the attorney representing Derek in bankruptcy hearings. His fees have the highest priority among the other unsecured debtors.

Question 24

A Chapter 11 debtor may use bankruptcy as an excuse for not performing contractual obligations.

Question 25

An automatic stay halts all creditors' collection actions except for ones brought by government agencies.

Question 26

An individual filing for Chapter 7 may always keep his or her car.

Question 27

Creditors can force a company into bankruptcy proceedings.

Question 28

Before an individual is allowed to file for bankruptcy, he or she must complete a short credit-counseling seminar.

Question 29

Only businesses are able to file for Chapter 13 bankruptcy.

Question 30

Even if a debtor's salary is more than the median income for his or her state, the debtor is still eligible for Chapter 7.

Question 31

Lori owes the bank the full amount of the loan that she guaranteed since collection action against Becky was unsuccessful.

Question 32

The bankruptcy trustee is appointed to represent the creditors' interests.

Question 33

In liquidation secured creditors are paid first and in full as long as the value of the collateral equals or exceeds the value of their security interests.

Question 34

If the creditor may keep the property used as collateral in his possession if the debtor defaults, the UCC does not require a lawsuit if there is a security agreement.

Question 35

Chapter 7 allows business entities to keep some exempt property.

Question 36

The U.S. Constitution does not address bankruptcy laws.

Question 37

Unsecured creditors have few practical ways to collect their debt.

Question 38

Bankruptcy laws come solely from state statutes and case law.

Question 39

The order of payment for unsecured creditors in bankruptcy is specified in the state's UCC statutes.

Question 40

In Chapter 11, creditors file a reorganization plan, which articulates a specific strategy and financial plan for emerging from financial distress.

Question 41

What is the main difference between Chapters 7 and 11?

A) the order for relief
B) the automatic stay
C) the continued operation of a business
D) the manner in which the bankruptcy petition is filed

Question 42

A creditor with an interest in real property is called:

A) a surety.
B) an unsecured creditor.
C) a mortgagee.
D) a mortgagor.

Question 43

Which of the following is not a requirement for the undue-hardship standard?

A) The debtor cannot maintain a minimal standard of living for herself and her dependents.
B) The debtor has no marketable skills that would allow him to be employed.
C) This state of affairs is likely to persist for a significant portion of the repayment period.
D) The debtor has made good faith efforts to repay the loan.

Question 44

A petition for bankruptcy that is filed by creditors against a debtor is known as:

A) a recovery action.
B) an involuntary bankruptcy.
C) a voluntary bankruptcy.
D) an order for relief.

Question 45

Under Article 9 of the UCC, which of the following could not be used as collateral?

A) a car
B) a house
C) a fixture
D) cash

Question 46

In Ransom v. FIA Card Services, Ransom filed for Chapter 13 bankruptcy protection and listed among his living expenses the standard amount allowed in the Bankruptcy Code for car ownership costs. Ransom owned his car outright and had no car payment. FIA challenged the car deduction. The court held that Ransom could:

A) take the deduction because he met the means test.
B) take the deduction because the statutory language was ambiguous.
C) not take the deduction because it was limited to debtors who were required to make loan or lease payments on a car.
D) take the deduction because denying it would send a message to debtors to take out car loans rather than pay them off.

Question 47

In In re Jones, Jones graduated from college and then went to law school. He graduated from law school but was unable to pass the bar exam. Over the next decade he worked various jobs before going back to school again for a master's. Jones took out student loans to pay for his education, resulting in $140,000 of debt. He filed for bankruptcy and sought to have the student loans discharged for "undue hardship." The court held that the undue-hardship standard:

A) had been met because the amount of money owed was too much for a person in his fifties to be able to pay.
B) had been met because Jones demonstrated that he had made diligent efforts to find employment.
C) had not been met because for a healthy, educated, employable man, paying back the loans would not amount to undue hardship.
D) was not applicable to student loans and therefore Jones could not discharge the debt.

Question 48

When does an automatic stay become permanent?

A) never
B) once the bankruptcy proceedings have ended
C) when the petition is determined to be valid
D) when the debtor files for bankruptcy

Question 49

Chapter 13 bankruptcy filings are limited to:

A) businesses.
B) individuals.
C) farms.
D) individuals who own sole proprietorships.

Question 50

Nora loaned money to Susan and received a signed security agreement from Susan. To make sure she has priority as a creditor, Nora could:

A) give the security agreement to her attorney.
B) do nothing-the date of signing gives Nora priority.
C) file the security agreement in a security deposit box.
D) take possession of the collateral.

Question 51

Which of the following is not a role of the bankruptcy trustee?

A) void certain transfers
B) turn the assets into cash
C) provide debt counseling
D) collect the debtor's assets

Question 52

The bankruptcy trustee is a representative of:

A) the debtor.
B) the creditors.
C) the court.
D) the state.

Question 53

Whose only legal remedy is to bring a lawsuit against a borrower to try to recover the money loaned?

A) secured creditors
B) unsecured creditors
C) a mortgager
D) a government agency

Question 54

Trish makes $30,000 a year. The median income for her state is $28,000. She owes over $50,000 in various debts and is considering ways to address her situation. Which of the following is not one of her options to fix her debt issues?

A) attempt to negotiate a workout with her creditors
B) pay off her loans
C) Chapter 7 bankruptcy
D) Chapter 13 bankruptcy

Question 55

Which of the following creditors has first priority?

A) an ex-spouse who is due alimony
B) unpaid employees
C) general creditors
D) the court, for its costs

Question 56

What is the standard that an individual must meet in order to file for Chapter 7 bankruptcy?

A) means test
B) threshold level of debt
C) length of time of debt
D) attempts to repay under Chapter 13

Question 57

Chris wanted to get a loan from the bank, but he had bad credit. In order to get the money, he convinced Eric to cosign as a surety. Now Chris has stopped making the payments. When is Eric liable for repayment of the loan?

A) at any point
B) when Chris stopped making payments
C) only after the bank attempts to recover the full amount from Chris
D) never, because Eric was not the one actually using the money

Question 58

What does going through the process of accord and satisfaction do?

A) It prevents a creditor from suing while the business is revising its business model.
B) Contract terms with creditors are renegotiated, releasing the debtor from liability by settling the debt.
C) It prevents creditors from filing for involuntary bankruptcy.
D) It discharges debt.

Question 59

Which of the following is not a purpose of bankruptcy?

A) offer a fresh start to the debtor
B) punish the debtor
C) create a way for creditors to recover the debt
D) prevent creditors from gaining an unfair advantage over one another

Question 60

The reorganization plan is unique to what type of bankruptcy filing?

A) Chapter 7
B) Chapter 11
C) Chapter 12
D) Chapter 13

Question 61

Which option does not attempt to repay and discharge debt?

A) out of existence
B) workout
C) Chapter 7 bankruptcy
D) Chapter 11 bankruptcy

Question 62

What is the means test? Provide an example of how it would be applied.

Question 63

The bankruptcy chapter filing option that liquidates the debtor's property to repay creditors and discharge the debts is:

A) Chapter 7.
B) Chapter 11.
C) Chapter 12.
D) Chapter 13.

Question 64

Bankruptcy is primarily governed by:

A) federal statutes.
B) state statutes.
C) a blend of state and federal statutes.
D) administrative regulations.

Question 65

Explain the difference between secured and unsecured creditors. What is the likelihood of financial recovery for each?

Question 66

Give four examples of nondischargeable debt in bankruptcy.

Question 67

What has Congress done to try to prevent individuals from abusing bankruptcy protections?

Question 68

How is a debtor protected in bankruptcy from the moment of filing?

A) The debtor goes to credit counseling.
B) Personal guaranties of loans are voided.
C) An automatic stay is placed on all collection efforts.
D) Certain transactions are now considered to be voidable.

Question 69

How does a secured creditor establish his or her rights to the collateral securing a first-priority position?

Question 70

Which of the following is not typically part of a security agreement?

A) description of the collateral
B) obligations of the debtor
C) remedies available to the creditor
D) instructions on perfection

Question 71

Which chapter of the Bankruptcy Code is best thought of as temporary protection from creditors while a business goes through a planning process to pay creditors while continuing to do business?

A) Chapter 7
B) Chapter 11
C) Chapter 12
D) Chapter 13

Question 72

What is the name of the legislation that helps homeowners avoid foreclosure by offering certain guarantees when refinancing a mortgage?

A) Mortgage Forgiveness Debt Relief Act
B) Truth in Lending Act
C) House Refinancing and Protection Act
D) Foreclosure and Debt Prevention Act

Question 73

What is the role of a trustee in bankruptcy?

Question 74

Which of the following debts may be discharged in a bankruptcy?

A) taxes
B) child support
C) a new auto purchased 90 days before filing
D) punitive damages

Question 75

Discuss the differences between Chapters 7 and 11 bankruptcy proceedings.

Question 76

Which businesses typically need a personal guaranty in order to receive a loan?

A) large businesses
B) small businesses
C) almost all businesses
D) no businesses (Businesses do not need personal guaranties.)

Question 77

Which of the following is not a major change to bankruptcy law in the Bankruptcy Abuse Prevention and Consumer Protection Act?

A) credit counseling
B) means test
C) proof of income
D) lowering the priority of alimony payments

Question 78

Fast Feet is a manufacturer of running shoes. Its shoes are not selling fast enough for the company to pay its debts and continue its operations. Fast Feet is now insolvent. What options does Fast Feet have?

Question 79

Fast Feet, a manufacturer of running shoes, gave merchandise on credit to Rick's Running for its store. Rick's is required to sign an agreement that describes the merchandise as collateral and specifies that Rick's will pay Fast Feet weekly based on the sales of the shoes. Fast Feet files a statement of notice with the appropriate government agency. Based on these facts, what kind of creditor is Fast Feet, and why?