Question 1

Felipe is a consumer who files for, and is granted, a discharge of his debts in bankruptcy. The consequences to Felipe of this discharge are most likely to include&#10;A) blemished credit ratings for up to ten years.&#10;B) favorable publicity.&#10;C) lower interest charges for new debts.&#10;D) unexpected job offers from potential employers.

Accepted Answer

A discharge in bankruptcy does not erase or eliminate a consumer's credit history, but it does negatively impact it. The discharge can remain on the credit report for up to ten years, which can make it difficult for the consumer to obtain credit or favorable interest rates in the future. Favorable publicity and unexpected job offers are not typical consequences of a consumer bankruptcy discharge.

Question 2

Subprime Credit Corporation uses &#34;self-help&#34; repossession when its debtors default on their loans. This simplifies the process of repossession because&#10;A) it can be done without judicial process.&#10;B) it is less stressful for debtors.&#10;C) it provides an incentive for confrontations with debtors.&#10;D) the UCC clearly defines what constitutes &#34;breach of the peace.&#34;

Accepted Answer

Self-help repossession allows the lender to recover the collateral without going through the court system, making it a simpler and more efficient process. This is because the Uniform Commercial Code (UCC) provides guidelines for conducting self-help repossessions without breaching the peace.

Question 3

Xtra Credit Company lends money to Yvon, a farmer. Yvon secures the loan with her livestock's feed. Xtra also obtains a security interest in the proceeds from the feed. Yvon defaults on the loan. Xtra can

A) not suffer any loss.
B) suffer a loss of no more than half of the value of the loan.
C) suffer a loss of no more than three-fourths of the value of the loan.
D) suffer a total loss.

D

Accepted Answer

Xtra can suffer a total loss because it has a security interest in the proceeds from the feed, not the feed itself.

Question 4

Forest National Bank lends money to Greta, taking a security interest in her assets. Later, Greta files a bankruptcy petition. From Forest National's point of view, once Greta is in bankruptcy, her assets have

A) decreased value, or no value.
B) increased value.
C) the same value.
D) unique value.

Accepted Answer

Once a debtor files for bankruptcy, the value of their assets is often decreased, as they may have to sell some of their assets to pay off their debts. Forest National Bank's security interest in Greta's assets may also be affected by the bankruptcy proceedings.

Deck 58: Loan Security and Repossession in Credit Transactions