Deck 20: Creditors Rights and Bankruptcy

Question 1

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

Answer 1

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

Question 2

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

Answer 2

Trustee

Question 3

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.

Answer 3

Security Agreement

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Unsecured creditors give loans based on ________ without collateral.

Question 9

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

Question 10

An ________ stops creditors from pursing their collection actions.

Question 11

If a person cosigns a loan as a guarantor they become primarily liable for the debt.

Question 12

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

Question 13

The collateral used for a mortgage is _____.

Question 14

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

Question 15

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

Question 16

When a business no longer has enough money to pay their bills and maintain operations they are considered to be _____.

Question 17

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

Question 18

A secured creditor does not need to perfect their interest to be protected under the UCC.

Question 19

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

Question 20

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

Question 21

Only business are able to file for Chapter 13 bankruptcy.

Question 22

Unsecured creditors have few practical ways to collect their debt.

Question 23

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

Question 24

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

Question 25

The bankruptcy trustee is appointed to represent the creditors.

Question 26

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 27

An individual filing for Chapter 7 may always keep their car.

Question 28

Creditors can force a company into bankruptcy proceedings.

Question 29

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

Question 30

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

Question 31

Bankruptcy laws come solely from state statutes and case law.

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

Even if a debtor's salary is more than the median income for their state,they are still eligible for Chapter 7.

Question 38

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

Question 39

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 40

Chapter 7 allows business entities to keep some exempt property.

Question 41

Which of these 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 42

Chris wanted to get a loan from the bank but he has bad credit.In order to get the money he convinced Eric to cosign as 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 43

Nora loaned money to Susan and received a signed security agreement from Susan.What could Nora do to make sure she has priority as a creditor?

A) give the security agreement to her attorney
B) 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 44

A creditor with an interest in real property is called a/an:

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

Question 45

Who is the bankruptcy trustee a representative of?

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

Question 46

What 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 47

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 48

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 49

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 debt
C) it prevents creditors from filing for involuntary bankruptcy
D) it discharges debt

Question 50

Under Art.9 of the UCC,which of these could not be used as collateral?

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

Question 51

Chapter 13 bankruptcy filings are limited to:

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

Question 52

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) mortgager
D) government agency

Question 53

In In re Richie,Richie had an income of $22,000.She lived in Wisconsin where the median income is over $37,000.Right before filing for bankruptcy she received a master's in "outdoor therapeutic recreation administration." Jobs in that field typically had salaries above the median income.Richie was looking for jobs in that field but there were few opportunities in her geographic area.She was also qualified to work many other jobs that would have brought her above the median income but she only wanted to work in that field.When she filed for Chapter 7 bankruptcy the court held that:

A) she was eligible because she met the means test.
B) she was eligible because she was unable to find a job in her field of education.
C) she was not eligible because she was manipulating the means test by looking for a job in a small field in a small area.
D) she was not eligible because she was too financially well off to obtain immediate discharge without an attempt to repay her creditors

Question 54

A petition for bankruptcy that is filed by creditors against a debtor is known as what type of filing?

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

Question 55

Which of these creditors has first priority?

A) alimony due an ex-spouse
B) unpaid employees
C) general creditors
D) court costs

Question 56

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 57

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

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

Question 58

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 masters.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 their 50s to be able to pay.
B) had been met because Jones demonstrated that he has made diligent efforts to find employment.
C) had not been met because a healthy, educated, employable man paying back the loans would not amount to undue hardship.
D) is not applicable to student loans and therefore Jones could not discharge the debt

Question 59

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 60

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 61

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

A) the debtor goes to credit counseling
B) personal guarantees of loans are voided
C) an automatic stay is placed on all collection efforts
D) certain transactions are now considered to be voidable

Question 62

Discuss the differences between Chapters 7 and 11 bankruptcy proceeding.

Question 63

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

Question 64

Fast Feet,a manufacturer of running shoes,gave Rick's Running,merchandise for their store on credit.Rick's is required to sign an agreement that describes the merchandise as collateral and the 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.Fast Feet's shoes are not selling fast enough to pay their debts and continue their operations.They are now insolvent.What options does Fast Feet have?

Question 65

What businesses typically need a personal guarantee in order to receive a loan?

A) large businesses
B) small businesses
C) almost all businesses
D) businesses do not need personal guarantees

Question 66

What is the procedure for Chapter 7 filings?

Question 67

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

Question 68

What 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 69

This bankruptcy chapter filing option liquidates the debtor's property to repay creditors and discharge the debts.

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

Question 70

What is the role of a trustee in bankruptcy?

Question 71

Fast Feet,a manufacturer of running shoes,gave Rick's Running,merchandise for their store on credit.Rick's is required to sign an agreement that describes the merchandise as collateral and the 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?

Question 72

What is not typically part of a security agreement?

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

Question 73

Which of these 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 74

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

Question 75

Give four examples of nondischargeable debt in bankruptcy.

Question 76

How does a secured creditor establish their rights to the collateral securing a first priority position?

Question 77

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 78

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 79

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 80

Bankruptcy is primarily governed by what type of law?

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