Question 1

Ross and Sally agree to guarantee Tim's debt.Ross's maximum liabil?ity is $15,000,and Sally's is $10,000.Tim owes $10,000 and is in default.Ross pays the creditor the entire amount.In the ab?sence of an agree?ment to the contrary,Ross can recover from Sally

Accepted Answer

Ross paid the entire amount of $10,000. Since his maximum liability is $15,000, he can recover half of what he paid from Sally, which is $5,000. However, Sally's maximum liability is only $10,000, so Ross can only recover $4,000 from her.

Question 2

C-Plus Software Corporation needs money to meet its payroll.Drake,president and owner of C-Plus,asks East Main Bank to loan C-Plus the funds.East Main insists that Drake sign the loan applica?tion,making himself personally liable for payment whether or not C-Plus defaults.If Drake signs the application,he will be

Accepted Answer

If Drake signs the loan application and becomes personally liable for payment, he will be acting as a surety for C-Plus. This means that he is taking on the responsibility of paying back the loan if C-Plus defaults. A debtor in possession refers to a company that is in bankruptcy and is allowed to continue operating while it reorganizes. A preferred creditor is a creditor who is given priority over other creditors in the event of a bankruptcy. A trustee is a third party appointed to oversee the bankruptcy process. None of these terms accurately describe Drake's situation in this scenario.

Question 3

Flip's debt to George is past due.George brings a legal action against Flip to collect the debt.George asks the court to order Home Bank,in which Flip has an account,to pay a portion of the funds to George.This is a request for

Accepted Answer

George is requesting an order of garnishment, which allows him to collect the debt from funds in Flip's bank account. This is a legal remedy available to creditors in many states, and does not violate state laws or involve an exemption from most states' limits on creditors' actions. A right of subrogation refers to the transfer of one person's legal claim to another, and is not applicable in this scenario.

Question 4

Ollie files a petition in bankruptcy.At the moment of filing

Accepted Answer

When a person files a petition for bankruptcy, an automatic stay goes into effect. This means that creditors are not allowed to take any further collection actions against the debtor or their property without permission from the bankruptcy court. This gives the debtor time to sort out their finances and potentially come up with a plan to pay off their debts or have them discharged through bankruptcy proceedings. However, the filing of the petition does not automatically discharge the debts or distribute the debtor's property to their creditors – these are separate processes that occur later in the bankruptcy proceedings.

Question 5

Mia's voluntary petition for bankruptcy is found to be proper.The order for relief is effective as soon as

Accepted Answer

The order for relief in a bankruptcy case is effective as soon as the debtor files a voluntary petition for bankruptcy. This initiates the automatic stay and begins the process of determining which debts will be discharged and how the debtor's assets will be distributed. Bond posting and creditor agreement are not necessary for the order for relief to take effect. Similarly, the trustee's collection and distribution of the property of Mia's estate occurs after the order for relief has been issued.

Question 6

Ian's mortgage debt to Jeff is past due.Jeff brings a legal action against Ian to collect the debt.Jeff asks the court to order the sale of the mortgaged property and the payment of a portion of the proceeds to Jeff.This is a request for

Accepted Answer

This is a request for foreclosure, which is the legal process in which a lender (in this case, Jeff) seeks to take possession and sell the mortgaged property after the borrower (Ian) has defaulted on their payments.

Question 7

Liu and Midge-Nero's creditors-contract with Nero for the discharge of Nero's liquidated debts on payment of a lesser sum.This is

Accepted Answer

This scenario describes a composition agreement, where the creditors agree to discharge Nero's debts for a lesser sum.

Question 8

Don files a petition for bankruptcy.Don's creditors must file with the court their proof of claims against Don's assets within

Accepted Answer

Creditors typically have 90 days from the date of the creditors' meeting to file their proof of claims with the court. This allows them time to gather any necessary documentation and information to support their claim against the debtor's assets.

Question 9

Kofi files a petition for bankruptcy.Kofi must include with the petition

Accepted Answer

When filing for bankruptcy, Kofi must include a list of creditors and the amount of the debt owed to each, a list of property, and a statement of financial affairs. This information is necessary for the bankruptcy court to determine the appropriate course of action.

Question 10

Drew and Earl are brothers.They agree to act as guarantors on a loan made by their sister,Flo.Flo defaults on the payments and Drew re?fuses to pay.Earl pays the debt.Earl can recover from

Accepted Answer

Under the right of contribution, Earl can recover from Drew since they both agreed to act as guarantors on the loan. 
Under the right of subrogation, Flo can be held responsible for the debt and may be required to reimburse Earl.

Question 11

Rita is a surety for Stu's loan from Total Finance Company.Rita's right to "step into the shoes" of Total Finance,after paying Stu's debt,and ex?er?cise any of the Total Finance's rights against Stu is the right of

Accepted Answer

The right Rita has to "step into the shoes" of Total Finance and exercise any of their rights against Stu is called subrogation. This allows Rita to take over Total Finance's position, including any rights they had to collect on the loan, after paying off Stu's debt. Contribution is when multiple parties share the responsibility of paying off a debt, redemption is the act of paying off a debt to reclaim collateral, and reimbursement is paying someone back for expenses they have already incurred. None of these accurately describe the situation between Rita, Stu, and Total Finance.

Question 12

Brick's debt to Conry is past due.Conry brings a legal action against Brick to collect the debt.To ensure that a judgment in Conry's favor will be collectible,Conry asks the court to order the seizure of Brick's property.Exempt from such an order in most states is

Accepted Answer

Most states have exemptions for certain types of property, including equipment that is necessary for an individual to earn a living. Therefore, option C is the best choice as it allows for some personal property to be protected while still addressing Conry's request for seizure of property to satisfy the debt.

Question 13

Ezra's mortgage debt to Foxy is past due.Foxy brings a legal action against Ezra to collect the debt.Foxy asks the court to order the sale of the mortgaged property and the payment of the proceeds to Foxy.If the proceeds are insufficient to pay the debt,after the sale,Foxy may recover the difference from Ezra by obtaining

Accepted Answer

A deficiency judgment allows Foxy to recover the remaining balance of the debt from Ezra after the sale of the mortgaged property. Foreclosure is the process of selling the mortgaged property to satisfy the debt, which Foxy is already requesting. Right of reimbursement and right of subrogation do not pertain to this situation.

Question 14

Jay is a surety for Karen's loan from Little Bank.Jay's right to be repaid by Karen after having paid her debt is the right of

Accepted Answer

The answer of Jay is a surety for Karen's loan...

Question 15

Elmo files a petition in bankruptcy.If the court concludes that there are grounds for a finding of "substantial abuse," the court will most likely

Accepted Answer

If the court concludes that there are grounds for a finding of "substantial abuse," they will dismiss Elmo's petition. Substantial abuse refers to situations where the debtor's income or expenses are significantly higher than average for their demographic, and they are seen as abusing the bankruptcy system to avoid paying their debts.

Question 16

Dana goes through an involuntary bankruptcy proceeding.An invol?un?tary bankruptcy occurs when

Accepted Answer

An involuntary bankruptcy occurs when a debtor's creditors force the debtor into bankruptcy proceedings. This can happen when at least three creditors who are owed at least $16,750 in unsecured debt file an involuntary bankruptcy petition in court. The debtor has the opportunity to respond and contest the petition, but if the court determines that the petition is valid, the debtor will be forced into bankruptcy proceedings.

Question 17

Khali's debt to Lew is past due.Lew obtains a judgment against Khali to collect the debt,but Khali refuses to pay.Lew asks the court to order My-T Quik Mart,Khali's employer,to pay a portion of Khali's paycheck to Lew.This is a request for

Accepted Answer

This is a request for an order of garnishment, where Lew is seeking to collect the debt from Khali's paycheck through his employer. This is a legal remedy available to creditors to collect on a judgment. It does not involve an exemption from federal limits on creditors' actions, violate state laws or a right of contribution.

Question 18

Lulu joins with other creditors to force Mikhail,a debtor,into bankruptcy.One of the goals of bankruptcy law is to

Accepted Answer

One of the main goals of bankruptcy law is to provide equitable treatment for creditors who are competing for the debtor's assets. This means that each creditor will have a fair chance to collect on their debts, regardless of when the debt was incurred or the creditor's financial status. The bankruptcy process is designed to ensure that assets are distributed in a way that is fair and equitable to all creditors, rather than allowing the debtor to favor certain creditors over others. The other choices are incorrect as bankruptcy law does not exist to ensure that creditors will continue to lend to insolvent debtors, nor does it aim to ensure that all creditors will be paid all that they are owed or to make all the debtor's property available to satisfy creditors' claims.

Question 19

Rashon's debt to Skyler is past due.Skyler brings a legal action against Rashon to collect the debt.To ensure that a judgment in Skyler's favor will be collectible,Skyler asks the court to order the seizure of Rashon's property.Exempt from such an order in most states would be

Accepted Answer

Most states have homestead exemptions that protect a certain amount of equity in a primary residence from being seized to satisfy debts. Therefore, Rashon's family home in its entirety or up to a specified amount would be exempt from seizure.

Question 20

Heidi is a trustee for a federal bankruptcy court.Heidi's duties include

Accepted Answer

A trustee in a federal bankruptcy court is responsible for collecting and liquidating the debtor's non-exempt property to distribute to creditors.

Quiz 21: Creditors Rights and Bankruptcy