Deck 13: Creditor-Debtor Relations and Bankruptcy

Question 1

A debtor cannot defend against an involuntary bankruptcy petition because that would be contrary to the definition of involuntary.

Answer 1

False

Question 2

Anyone obligated to a creditor can declare bankruptcy.

Answer 2

True

Question 3

The basic duty of a bankruptcy trustee in a Chapter 7 proceeding requires that the trustee be accountable for administering the debtor's estate.

Answer 3

True

Question 4

Most liens have little practical use,because liens generally do not take priority over other claims to the same property.

Question 5

Federal law provides a minimal framework to protect debtors from losing all their income in order to pay judgment debts.

Question 6

Because a writ of attachment is a prejudgment remedy,a debtor does not need to be given notice and an opportunity to be heard before the property is seized.

Question 7

To ensure that a debtor retains some form of shelter,the homestead exemption permits the debtor to retain a home at least partially free from the claims of unsecured creditors or trustees in bankruptcy.

Question 8

Foreclosure is a process that allows a debtor to legally block a creditor's repossession and sale of property securing a mortgage.

Question 9

A small-amount mechanic's lien typically stays on record until the property against which it has been filed is sold when it is paid out of the sale proceeds.

Question 10

Once a bankruptcy petition is properly filed,creditors can commence or continue most legal actions against the debtor to recover claims.

Question 11

Items of personal property that can be replaced by goods readily available in the marketplace are not exempt from satisfaction of judgment debts.

Question 12

If a debtor's income falls below the median income in the area in which the debtor lives,there is a presumption of bankruptcy abuse.

Question 13

A court can dismiss a Chapter 7 petition if it finds that the use of Chapter 7 would constitute substantial abuse.

Question 14

Recording a mortgage ensures that a creditor is officially on record as holding an interest in the property.

Question 15

The borrower need not obtain the lender's permission for a short sale because the sale is for less than the balance owed on a mortgage loan.

Question 16

When a co-surety pays more than his or her proportionate share on a debtor's default,he or she is entitled to recover from the debtor the excess amount paid.

Question 17

To qualify for a Chapter 7 bankruptcy,a debtor must complete a means test to determine whether the debtor has been living within his or her means.

Question 18

Because a creditor can bear the loss on a debtor's default,mortgage insurance compensates the debtor for a loss due to a default on a mortgage loan.

Question 19

Any person-including individuals,but not partnerships or corporations-may be a debtor under Chapter 7.

Question 20

One of the Bankruptcy Code's main goals is to ensure preferential treatment of certain creditors who are competing for a debtor's assets.

Question 21

Any debtor who is eligible for bankruptcy relief under Chapter 7 is eligible under Chapter 11.

Question 22

Building Company adds a shipping dock to the property of Corporate Complex,but the owner does not pay.Building files a lien on Corporate's property.The property

A) can be held to guarantee payment of the debt.
B) must be sold to provide payment of the debt.
C) must be returned to the debtor within a certain period of time.
D) none of the choices.

Question 23

A court cannot dismiss a debtor's petition under Chapter 13 even if the circumstances indicate bad faith.

Question 24

Voluntary petitions may be filed to initiate Chapter 7 or Chapter 11,but not Chapter 13,bankruptcies.

Question 25

Because the purpose of a Chapter 7 proceeding is to provide a debtor with a fresh start,a discharge under Chapter 7 frees a debtor of all of his or her debts.

Question 26

Each state permits a debtor in bankruptcy to retain the family home in order to preserve some equity to pay any debts that are discharged.

Question 27

In a Chapter 13 proceeding,the debtor retains possession of his or her assets.

Question 28

Rancho West owes Silo & Barn Inc.$5,000 on their contract,but refuses to pay.To collect,Silo files a mechanic's lien,under which security for the debt is represented by

A) Rancho's personal property.
B) Rancho's real estate.
C) the $5,000 owed on the contract.
D) property held by a third party.

Question 29

Debts that remain after a liquidation are not discharged,and the debtor retains his or her obligation to pay them.

Question 30

In a Chapter 7 proceeding,if the value of the debtor's estate does not provide sufficient cash to pay all the creditors,it is given back to the debtor.

Question 31

Construction Company has a claim against Diners Café to satisfy a debt that takes priority over other claims against the same property.This is

A) a lien.
B) a fraud.
C) a guaranty.
D) a garnishment.

Question 32

In a Chapter 7 proceeding,the primary effect of a discharge is to void any judgment on a discharged debt and to prohibit any action to collect it.

Question 33

Under Chapter 13,all debts are dischargeable.

Question 34

In a Chapter 11 proceeding,the role of a debtor in possession is similar to that of a trustee in a Chapter 7 proceeding.

Question 35

United Contractors Inc.holds a lien on Vista Estate's real property.This property can be sold to satisfy the debt if,before the sale,notice is given to

A) Vista Estate.
B) Vista Estate's other creditors.
C) the general public.
D) the state in which the property is located.

Question 36

A Chapter 13 proceeding is more expensive and complicated than a Chapter 11 or Chapter 7 proceeding.

Question 37

In a Chapter 7 proceeding,unsecured creditors' claims are subordinate to the claims of secured creditors.

Question 38

Equipment Company holds a lien on Fertile Farm's equipment.The equipment can be sold to satisfy the debt

A) if,before the sale,notice is given to Fertile Farm.
B) if,before the sale,notice is given to Fertile Farm's other creditors.
C) if,before the sale,notice is given to the general public.
D) without notice.

Question 39

In a Chapter 11 proceeding,for an individual debtor,the court may order discharge at any time after the plan is confirmed.

Question 40

In a Chapter 11 proceeding,a debtor corporation and its creditors agree on a plan under which the corporation pays a portion of its debt.

Question 41

Refresh Inc.'s debt to Spring Water Company is past due.Spring brings a legal action against Refresh to collect the debt.Spring asks the court to order Tempo Bank,in which Refresh has an account,to pay a portion of the funds to Spring.This is a request for

A) a writ of execution.
B) an order of garnishment.
C) an order that would violate most state laws.
D) an artisan's lien.

Question 42

To purchase a house,Nora obtains a mortgage loan from Oak Tree Loans LLC.Later,Nora informs Oak Tree that she may default on the payments.The lender agrees to delay taking possession of the property and selling it.The parties negotiate a payment plan for the amount due on the loan.This is

A) forbearance.
B) a short sale.
C) a workout agreement.
D) none of the choices.

Question 43

Business Sales Inc.'s debt to Cartage Company is past due.Cartage brings a legal action against Business Sales to collect.To ensure that a judgment in the creditor's favor will be collectible,Cartage asks the court to order the seizure of the debtor's property.This is a request for

A) an artisan's lien.
B) a mechanic's lien.
C) a writ of attachment.
D) a writ of execution.

Question 44

Dot is awarded $150,000 in a suit against Evan,and obtains a court order to sell Evan's home at auction to satisfy the debt.Half of the $100,000 proceeds from the sale are paid to Dot toward the judgment.Under a state exemption statute,the remainder is given to Evan as

A) his homestead exemption.
B) a deficiency judgment.
C) the excess over a federal cap on the amount a creditor can claim on a judgment debt.
D) part payment on the claims of other creditors or a bankruptcy trustee.

Question 45

To purchase a house,Becky obtains a mortgage loan from Countywide Bank.The lender should record the mortgage to

A) be officially on record as holding an interest in the property.
B) secure itself in the position of an unsecured creditor.
C) preserve a copy of the loan in a separate location.
D) obtain reimbursement for a portion of the loan if the debtor defaults.

Question 46

Brewery Company's debt to Credit Service is past due.Credit obtains a judgment against Brewery,but the firm refuses to pay.Credit asks the court to order the seizure of Brewery's property.This is a request for

A) an artisan's lien.
B) a mechanic's lien.
C) a writ of attachment.
D) a writ of execution.

Question 47

If a voluntary petition in bankruptcy is found to be proper,the court's entry of an order for relief

A) puts into place an automatic stay.
B) discharges the debtor's obligations.
C) dismisses the petition.
D) distributes the debtor's assets to his or her creditors.

Question 48

Under the Bankruptcy Code,the means test is used to

A) keep higher-income people from abusing the bankruptcy process.
B) force more people to file for Chapter 7 bankruptcy.
C) determine the validity of a statement or claim by any party in interest.
D) prioritize the claims of the creditors in an involuntary proceeding.

Question 49

Under Chapter 7,creditors are paid in a certain order of priority.The highest-priority class comprises claims for

A) debts related to motor vehicles,household goods,and trade tools.
B) domestic support.
C) the debtor's equity in his or her residence.
D) student loans.

Question 50

In a Chapter 7 bankruptcy,on a finding that the use of Chapter 7 would constitute substantial abuse,the court is most likely to

A) extend the time for the debtor's payment of overdue debts.
B) allow a creditor to collect a previous judgment on a disputed debt.
C) force a creditor to obtain a new judgment on a claimed debt.
D) dismiss the debtor's petition.

Question 51

Under Chapter 7,once the proceeds have been distributed,the obligations of the debtor most likely to be discharged are

A) taxes accruing within the last three years.
B) claims based on the debtor's willful or malicious conduct or fraud.
C) none of the choices.
D) domestic-support obligations.

Question 52

To purchase a house,Ethel obtains a mortgage loan from Fidelity Bank.Later,Ethel is unable to make payments on the loan.Meanwhile,the market value of the house has declined.Fidelity agrees to a sale of the property for less than the amount due on the loan.This is

A) forbearance.
B) a short sale.
C) a workout agreement.
D) none of the choices.

Question 53

To make a sale to Gourmet Inc. ,Hill Valley Commodities asks Gourmet's outside accountant Ina to co-sign a credit application.According to the terms,if Gourmet defaults,Hill Valley can look to her for payment without first pursuing legal remedies against Gourmet.Tina is

A) a surety.
B) a lienor.
C) a guarantor.
D) a creditor.

Question 54

Irma delivers her Jeep to be fixed at Kent's Auto Repair.Irma agrees to pay cash.Kent's performs,but Irma does not pay.Kent's keeps the Jeep until she pays.This is

A) garnishment.
B) a mechanic's lien.
C) an artisan's lien.
D) a violation of most states' laws.

Question 55

Barth borrows funds from City Bank to pay his tuition.His mother Debi co-signs the credit application.After the loan agreement is signed,Barth agrees to a higher rate of interest without telling Debi.She is

A) discharged from the agreement.
B) liable at the higher rate of interest.
C) liable at the lower rate of interest.
D) liable for the principal only.

Question 56

To purchase a house,Leo borrows funds from Metro Bank.The terms of the loan give the lender a security interest in the property being acquired by the borrower as security for payment of the debt.This is

A) a mortgage.
B) a down payment.
C) a short sale.
D) predatory lending.

Question 57

With respect to debtors,the main goal of bankruptcy law is to

A) encourage the continued use of credit.
B) ensure that third parties will continue to guarantee loans.
C) provide a new start without creditors' claims.
D) shield assets from creditors' claims.

Question 58

To purchase a house,Clyde obtains a mortgage loan from Debit Bank.Clyde defaults on the payments on the loan.The bank has

A) the right to foreclose on the mortgaged property.
B) the obligation to forbear part or all of the payments for a limited time.
C) the obligation to refinance the loan.
D) the right to reimbursement from an insurer for the unpaid debt.

Question 59

Under any chapter of the Bankruptcy Code,failing to file the necessary documents with the debtor's petition for relief can result in

A) an automatic stay.
B) the discharge of the debtor's obligations.
C) the dismissal of the petition.
D) the distribution of the debtor's assets to his or her creditors.

Question 60

Petro Refinery asks Quality Bank for a loan to increase its inventory.Quality requires Rose,Petro's president,to sign a personal guaranty to pay the debt if Petro defaults.Rose is a guarantor.The guaranty is required to be in writing because

A) the debtor has a right of redemption.
B) the co-signer has a right of contribution.
C) the main purpose rule applies.
D) the main purpose rule does not apply.

Question 61

At the time of the filing of the petition and the time of the filing of the plan,Chapter 13 imposes on the debtor the requirement of

A) goodwill.
B) good faith.
C) substantial means.
D) sufficient credit.

Question 62

Under Chapter 7,the primary effect of a discharge is to

A) extend the time for the debtor's payment of overdue debts.
B) allow a creditor to collect a previous judgment on a discharged debt.
C) force a creditor to obtain a new judgment on a discharged debt.
D) void a judgment on a discharged debt and prohibit an action to collect it.

Question 63

The roof in Rosalyn's house springs a leak.She contracts with Shelter Roofing & Restoration Company to repair the roof and fix the damage to the house.Rosalyn pays 10 percent of the price in advance.Shelter Roofing does the work,but Rosalyn refuses to pay the rest of the price.What can Shelter Roofing do,and how is it done?

Question 64

Rashi is a student at State University.In need of funds to pay for tuition and books,Rashi asks Tiempo Loans,Inc. ,for a short-term loan.The lender agrees to make a loan if Rashi will have someone who is financially responsible guarantee the loan payments.Umberto,a well-known businessperson and a friend of Rashi's family,calls Tiempo and agrees to pay the loan if Rashi cannot.Because of Umberto's reputation,the loan is made.Rashi is making the payments,but because of illness he is unable to work for one month.He asks Tiempo to extend the loan for three months.The lender agrees,raising the interest rate for the extended period.Umberto is not notified of the extension and thus does not consent to it.Later,all attempts to collect the remainder of the loan from Rashi fail.Can Tiempo assert a claim against Umberto on the debt?

Question 65

Under Chapter 11,the debtor's obligations most likely to be discharged are

A) taxes accruing within the last three years.
B) claims based on the debtor's willful or malicious conduct or fraud.
C) none of the choices.
D) domestic-support obligations.

Question 66

Baby Day Care,a sole proprietorship,wants to pay as many of its obligations as reasonably possible,and be discharged of the rest.To accomplish this goal,the proprietorship should file a petition in bankruptcy under Chapter 13 for relief through

A) a liquidation.
B) a reorganization.
C) a repayment plan.
D) an adjustment plan.

Question 67

Under Chapter 13,a repayment plan must provide for

A) the turnover of the debtor's future income to the creditors.
B) full payment of all claims,without exception.
C) the same treatment of each claim within a particular class of claim.
D) all of the choices.

Question 68

Dana operates Energy Inc. ,a corporation in the fuel-supply business.Dana wants to create a plan under which the firm pays a portion of its debts,is discharged of the remainder,and is allowed to continue in business.Energy should file a petition in bankruptcy for relief through

A) a liquidation.
B) a reorganization.
C) a repayment plan.
D) an adjustment of debts.

Question 69

Compared to Chapter 7 and 11 plans,a Chapter 13 plan

A) permits creditors to force a debtor into involuntary bankruptcy.
B) allows a debtor to retain possession of his or her assets.
C) is more expensive and more complicated.
D) permits any interested party to file a repayment plan.

Question 70

Under Chapter 7,a discharge is most likely to be denied if the debtor

A) conceals property to hinder or delay a creditor.
B) destroys records of the debtor's financial condition.
C) fails to attend a required consumer education course.
D) all of the choices.

Question 71

Under Chapter 7 and Chapter 11

A) all of the choices.
B) petitions can be filed voluntarily or involuntarily.
C) the same principles govern the entry of the order for relief.
D) the automatic stay provision applies.

Question 72

Under Chapter 13,after the completion of all payments under the plan,the court will grant a discharge of

A) only the debts provided for by the plan.
B) only the obligations not provided for by the plan.
C) all claims,whether or not provided for by the plan.
D) all obligations that remain unsatisfied.