Deck 16: Bankruptcy, Divorce, and Tax Fraud

Question 1

In dealing with divorce and bankruptcy, when books and records of the debtor/marital partner have been destroyed or are hard to locate it generally means:

A) Fraud has caused the bankruptcy or divorce
B) The bankruptcy or divorce is used to perpetrate the fraud
C) The bankruptcy or divorce is used to conceal the fraud
D) None of the above

Answer 1

C
A: Usually when marriage partners discover that their marital partner has committed fraud, they may seek divorce to salvage their reputation
B: Using the "stay" to fraudulently transfer assets to other organizations to prevent them from "being on the table"
C: Correct

Question 2

True or false: In a "bust-out," fraud perpetrators plan to retain a business' assets while filing for bankruptcy in order to avoid responsibility for company liabilities.

Answer 2

TRUE
Correct: A bust-out is a planned bankruptcy where perpetrators max out credit opportunities and then declare insolvency.

Question 3

Court appointed trustees are individuals or firms, who:

A) Identify and collect a debtor's assets and then allocate those assets to creditors in an orderly manner.
B) Review fee applications, motions to appoint trustees and examiners, motions to convert or dismiss a case, and other pleadings
C) Investigate criminal complaint in bankruptcy cases
D) Makes a false oath or account in a bankruptcy case

Answer 3

A
A: Correct

Question 4

As a participant in divorce cases, an adjustor can be best described as a person who

A) Investigates allegations of fraud or misconduct by the debtor or its principals
B) Is the subject of a chapter 11 filing
C) Is the one who holds a valid claim against a debtor
D) Assists the trustee by performing such duties as securing business facilities and assets, locating assets of the debtors estate and arranging asset sales

Question 5

Jim Salazar is the majority shareholder of XYZ Co. XYZ Co. filed for Chapter 11 Bankruptcy on January 1, 2008. Which of the following would be considered a fraudulent transfer?

A) Transfer of land to Jim's sister Alice on July 1, 2006 with the intent to place the land beyond the reach of creditors.
B) Sale of inventory at regular price to a new customer on February 15, 2008.
C) Transfer of fixed assets to Jim's brother John on December 15, 2007 with the intent to place the fixed assets beyond the reach of creditors.
D) Transfer of inventory to a subsidiary for less than fair value on August 1, 2006.
E) Two of the above

Question 6

When fraud examiners investigate a bankruptcy or divorce resulting from fraud where do they focus?

A) Activity shortly before the bankruptcy filing or divorce
B) Activity after the bankruptcy filing or divorce
C) Activity several years prior to the bankruptcy filing or divorce
D) Activity throughout the individual's entire life

Question 7

Section 548 of the Bankruptcy Code defines as fraudulent certain transfers made, or obligations incurred, within ______ month(s) before the bankruptcy petition's filing date?

A) 12
B) 9
C) 6
D) 3
E) 1

Question 8

One type of bankruptcy is a reorganization that can be used by individuals who meet certain requirements, such as having regular income and debts of $1 million or less. This type of bankruptcy is defined in _____ of the Bankruptcy Code.

A) Chapter 3
B) Chapter 5
C) Chapter 7
D) Chapter 11
E) Chapter 13

Question 9

Which of the following describes the result of a Chapter 7 filing?

A) "a complete liquidation or shutting down of the business"
B) "courts give debtor time to reorganize"
C) "2 years probation and/or up to 300 hours community service"
D) "Debtors make regular payments for a number of years:"

Question 10

The Office of U.S. Trustee is an agency in which of the following departments?

A) Homeland Defense
B) Department of Justice
C) Department of the Treasury
D) Department of Agriculture

Question 11

Fraud is common in:

A) Divorces
B) Bankruptcies
C) Both A and B
D) Neither A nor B

Question 12

Which of the following best explains why pressure to commit fraud exists in bankruptcy and divorce cases?

A) Fraudsters don't have accurate records
B) Assets are taken away from one party and given to others
C) To see if private investigators can find the hidden asset
D) None of the above

Question 13

Which is the type of bankruptcy that allows large companies to reorganize themselves and pay off debt in the future?

A) Chapter 3
B) Chapter 5
C) Chapter 7
D) Chapter 11
E) Chapter 13

Question 14

The Office of U.S. Trustee is responsible for all but which of the following functions?

A) Administering bankruptcy cases
B) Officiating in court on matters of interest to the debtor's estate and creditors
C) Overseeing and monitoring trustees
D) Reviewing employees and fee applications
E) The Office of U.S. Trustee is responsible for all of the above functions

Question 15

All bankruptcy petitions are subject to

A) Federal claims court jurisdiction
B) U.S. Tax court jurisdiction
C) Supreme court jurisdiction
D) U.S. district court jurisdiction

Question 16

When a bankrupt company only listed address and phone number as a post office box and an answering service, we may see this as a flag of what type of fraud?

A) Illegal concealment of assets
B) Planned bankruptcy fraud
C) Fraudulent transfers
D) None of the above

Question 17

"Bust-out" refers to:

A) A planned bankruptcy
B) Jailbreak planned by fraud perpetrators
C) Skipping out on bail
D) Fraud prevention program for convicted fraudsters

Question 18

Who holds a valid claim against someone filing a chapter 11 bankruptcy?

A) Examiner
B) Debtor
C) Creditor
D) Adjuster

Question 19

Most divorce fraud cases are:

A) Civil cases.
B) Criminal cases.
C) Protected by Chapter 7.
D) Rarely investigated through surveillance.

Question 20

The Bankruptcy Fraud section of the Bankruptcy Code, as it relates to criminal fraud, makes it a crime to do which of the following in executing or concealing a fraud scheme?

A) File a bankruptcy petition
B) File a document in a bankruptcy proceeding
C) Make a false or fraudulent representation, claim, or promise with respect to a bankruptcy proceeding
D) All of the above

Question 21

Bankruptcy judges perform all of the following functions except

A) Approve reorganization plans
B) Conduct hearings and trials to resolve disputes
C) Appoint fraud examination firms to conduct audits
D) Award professional fees
E) Bankruptcy judges perform all of the above functions

Question 22

Government statistics estimate that losses to creditors from bust-outs amount to:

A) $100,000/day
B) $1 billion/year
C) $1 million/ year
D) $10,000/day

Question 23

Which of the following is true of bankruptcy/divorce fraud?

A) It involves only criminal proceedings
B) It is growing at an alarming rate
C) The main motivation is to keep assets from being taken
D) A and C
E) B and C
F) All of the above

Question 24

If reorganization does not work under Chapter 11 bankruptcy, judges will often order a _________ bankruptcy.

A) Chapter 5
B) Chapter 9
C) Chapter 10
D) Chapter 13
E) None of the above

Question 25

Indicators of possible asset or income concealment include all of the following except:

A) Missing, inaccurate, or damaged records
B) Travel to off-shore tax havens or locations that allow secret bank accounts
C) Transactions frequently made in cash but normally made on account
D) Unusual increases in reported assets
E) All of the above are indicators of possible asset or income concealment

Question 26

Which of the following is not a participant in the bankruptcy process?

A) U.S. trustee
B) Bankruptcy court
C) Creditors
D) All of the above are participants in the bankruptcy process

Question 27

Which of the following is not a purpose of bankruptcy?

A) Give debtors relief from the creditors.
B) Protect debtors from unfair collection efforts by other creditors.
C) Give debtors relief from foreclosure activities.
D) Gives the debtor the ability to safeguard their most important assets.
E) All of the above are purposes of bankruptcy

Question 28

The duties of the court-appointed trustee in a chapter 11 case include all of the following except:

A) Investigate the acts, assets, liabilities, and financial condition of the debtor
B) Examine proofs of claims
C) Collect and liquidate the property of the debtor's estate
D) All of the above are duties of a court-appointed trustee

Question 29

Karl Mathers set up a new company and obtained loans to buy inventory with the intention of filing for bankruptcy after 2 years and selling the inventory later to a close friend at deep discounts. This type of bankruptcy fraud is known as:

A) Commercial loan fraud
B) Inventory dumping fraud
C) Bust-out
D) None of the above

Question 30

The concealment of assets during or in contemplation of a bankruptcy is:

A) Often used in divorce cases
B) Often used in a planned bankruptcy
C) How a bust-out is designed
D) All of the above

Question 31

Which of the following courts has jurisdiction to oversee the receipt of bankruptcy petitions?

A) U.S. tax court
B) U.S. district court
C) U.S. supreme court
D) Bankruptcy court

Question 32

Which is not something that a fraud perpetrator conducting a bust-out is likely to do?

A) Work to establish credibility
B) Contact law enforcement to strengthen their cover
C) Quietly buy an existing company that already has established credit or business
D) Take on a business name similar to a well-reputed company
E) A fraud perpetrator conducting a bust-out is likely to do all of the above

Question 33

An examiner investigates and reports the results of a bankruptcy fraud investigation to the court. However, unless court appointed, his duties cannot include any of the following except

A) Operate a business
B) Subpoena records
C) Make business decisions
D) Propose reorganization plans
E) An examiner is not allowed to perform any of the above

Question 34

Which of the following is not a category into which bankruptcy and divorce frauds can be placed?

A) Fraud causes the bankruptcy or divorce
B) Bankruptcy or divorce is used to perpetuate the fraud
C) Bankruptcy or divorce is used to conceal fraud
D) Bankruptcy or divorce is used to cash out of the fraud

Question 35

The Concealment of Assets, False Oaths and Claims, and Bribery section of the USC makes it a crime to "knowingly and fraudulently" do all of the following EXCEPT:

A) Receive property from the debtor after bankruptcy is filed
B) Conceal records or property
C) Transfer property to the debtor
D) Make a false statement

Question 36

Which of the following statements about hiring accounting or fraud professionals in bankruptcy proceedings is NOT correct?

A) If the trustee wants to employ attorneys, accountants, or other professionals to represent or assist the trustee, the trustee has to get the court's approval.
B) All the professionals must be employed under Code section 327
C) The retention of a fraud examiner or investigator in a bankruptcy proceeding must be approved by the court
D) U.S. trustees require the services of professionals to be categorized and have developed broad categories of service.

Question 37

Which of the following is the strongest indication of a bust-out?

A) The company has one permanent address in downtown San Jose.
B) Management suddenly changes without public notice.
C) Inventory suddenly and dramatically increases.
D) One of the credit references is Chase Manhattan.

Question 38

Entering false financial information on bankruptcy petitions and schedules occurs in an estimated __________ of bankruptcy cases.

A) 10 percent
B) 30 percent
C) 50 percent
D) 70 percent

Question 39

Which of the following may indicate concealment of assets during a bankruptcy?

A) Large transfers of assets to related parties or individuals
B) Rapid reduction in assets
C) Missing, inaccurate, or damaged documents
D) All of the above

Question 40

Bankruptcy and divorce parties can sue fraud investigators if

A) The fraud investigator makes a statement supported by fact
B) The fraud investigator makes a statement based on opinion
C) The fraud investigator makes a statement about the opposing side
D) The fraud investigator makes a statement about the court process

Question 41

Bankruptcy fraud makes it a crime to do any of the following to execute or conceal a fraud scheme except:

A) File a bankruptcy petition
B) Make a false account in a bankruptcy case
C) File a document in a bankruptcy proceeding
D) Make a false or fraudulent representation, claim, or promise with respect to a bankruptcy proceeding, either before or after the bankruptcy petition is filed.

Question 42

Which title of the U.S. Code governs the bankruptcy process?

A) Title 9
B) Title 11
C) Title 13
D) Title 7

Question 43

Which bankruptcy participant administers a bankruptcy estate?

A) Examiner
B) Trustee
C) Adjuster
D) Creditor

Question 44

Which of the following is the best description for the purpose of an estate created for divorce or bankruptcy?

A) To pay for the all of the legal fees in filing a chapter 7, 11, or 13 bankruptcy or to pay the legal fees of a divorce
B) To protect the assets of the party filing bankruptcy so that no further losses are realized
C) To settle the debts of the debtor or divorce partner of which the Bankruptcy or Divorce Court has control
D) To hold only the physical assets of the divorce partner or debtor for the period of the bankruptcy or divorce

Question 45

Which of the following statements is true concerning divorce cases?

A) Bankruptcy laws and statutes are much simpler than divorce laws and statutes
B) Divorce fraud never involves hiding or transferring assets
C) Most divorce cases are civil cases, with no criminal charges filed
D) It is illegal for divorce attorneys to hire investigators to help them find hidden assets

Question 46

Which of the following is one of the Court-Appointed or Panel Trustee's duties or characteristics?

A) Investigate the acts, conduct, liabilities, assets, and financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of that business.
B) Approve reorganization plans
C) Administering bankruptcy cases and reviewing employees and fee applications.
D) Holds a valid claim against a debtor.

Question 47

Which of the following is NOT listed as a duty of the trustee in a Chapter 7 bankruptcy?

A) Furnish information about the estate and its administration
B) Ensure that the debtor files the statement of intention to retain or surrender property
C) After confirmation of a plan, file such reports as are necessary or as the court orders
D) Oppose the discharge of the debtor when appropriate

Question 48

Which of the following is listed as a possible indicator of a "bust-out"?

A) Transactions are frequently made on account but are normally made in cash
B) The company decreases its credit purchases
C) Records are missing, inaccurate, or damaged
D) Credit references cannot be verified

Question 49

Criminal bankruptcy fraud cases are generally prosecuted by the:

A) U.S. Attorney's office
B) FBI
C) CIA
D) District Attorney's office

Question 50

Chapter 11 bankruptcy:

A) Constitutes a complete shutdown of the organization
B) Requires the entity to reorganize to pay creditors
C) Is available only to persons
D) Requires debtors to repay creditors over a specified period

Question 51

Which of the following is NOT an element of a fraudulent transfer that is made for less than a reasonably equivalent value?

A) The debtor knew the debts could not be repaid at maturity
B) The debtor becomes insolvent as a result of the transfer
C) The debtor misstates the value of the transfer
D) The debtor's capital remaining after the transfer is unreasonably small

Question 52

Bankruptcy and divorce can be:

A) Criminal matters
B) Civil matters
C) All of the above
D) None of the above

Question 53

Planned bankruptcies or "bust-outs" always involve:

A) Setting up a new company whose purpose is to help the perpetrator carry out the scheme
B) Intentionally obtaining loans or purchasing inventory on credit and concealing or running away with the proceeds before the creditors are paid
C) Planning a bankruptcy with the creditors before a loan is made
D) The perpetrator skipping town when the bankruptcy is filed

Question 54

Which of the following actions is NOT prohibited for a trustee or other official overseeing bankruptcy proceedings?

A) Refusing to permit inspection of documents of the estate in the person's charge
B) Refusing to sell assets in the person's charge
C) Purchasing, indirectly, any property of the debtor's estate
D) Purchasing, directly, any property of the debtor's estate

Question 55

All of the following are examples of ways to conceal assets in a bankruptcy or divorce fraud except:

A) Not reporting sales on the debtor's books but dispersing them to another entity
B) Damaging or hiding the books and records of the debtor
C) Dispersing cash received from receivables to third party
D) Not disclosing interests held in other partnerships, corporations, or other assets
E) All of the above are ways to conceal assets

Question 56

Which of the following is a possible indicator of concealment in a bankruptcy or divorce fraud?

A) Increases in operating losses that are not explained by economic factors
B) The size of orders placed on credit and the credit balances with suppliers suddenly and dramatically decrease
C) A sudden change in management is made without public notice
D) The company sells goods at large discounts

Question 57

The best description of a fraudulent transfer in a bankruptcy setting is:

A) A transfer of assets made with the intent of placing them outside the reach of a bankruptcy court
B) A transfer of cash in exchange for supplies or other business assets
C) A transfer of assets made to another institution before a bankruptcy is filed
D) A transfer to a fund or other account to hold assets for a period of time