Deck 16: Creditors Rights and Bankruptcy

Question 1

A trustee has the power to avoid preferences.

Answer 1

True

Question 2

A guarantor can be required to pay an obligation only after the principal debtor defaults.

Answer 2

True

Question 3

A bankruptcy court may deny a discharge based on a debtor's conduct.

Answer 3

True

Question 4

A surety can use any defenses available to the principal debtor to avoid liability on the debt.

Question 5

A security interest is enforceable only if the debtor has rights in the collateral.

Question 6

A buyer in the ordinary course of business takes the goods free of any security interest created by the seller.

Question 7

A prepayment penalty clause helps to protect a lender should the borrower refinance within a short time after obtaining a mortgage.

Question 8

A means test determines a debtor's eligibility to file for bankruptcy under Chapter 7.

Question 9

If a debtor does not pay a mechanic's lien, the debtor's property can be sold to satisfy the debt.

Question 10

A defaulting debtor cannot redeem nonexempt property before a sale under a writ of execution.

Question 11

All debts are dischargeable in bankruptcy.

Question 12

A debtor must be insolvent to file for bankruptcy relief.

Question 13

A purchase-money security interest in consumer goods is created when a person buys goods on credit.

Question 14

To knowingly supply false information on official bankruptcy schedules is a crime.

Question 15

In a repayment plan case, the plan must provide for payment of all claims in full, whether or not they are entitled to priority.

Question 16

In the distribution of the debtor's estate, unsecured creditors take priority over secured creditors.

Question 17

A bankruptcy estate consists of all the debtor's interests in property currently held, wherever located.

Question 18

A court can dismiss a debtor's petition for a Chapter 13 adjustment if the circumstances indicate bad faith.

Question 19

If a creditor wins a judgment against a debtor and the debtor will not or cannot pay the amount due, the dispute necessarily is at an end.

Question 20

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

Question 21

Nell's debt to Olsen is past due. Olsen obtains an order of garnishment to require Nell's employer Pro Transmission Service, Inc., to pay part of Nell's paycheck to Olsen. The law

A)limits the amount that can be taken from Nell's take-home pay.
B)permits Olsen to dismiss Nell because her wages are garnished.
C)practically does not allow Olsen to collect the awarded amount.
D)requires Pro to retain Nell as an employee until the debt is paid.

Question 22

An employee can be discharged under federal law due to a garnishment order.

Question 23

Wild River Tours Corporation wants to formulate a plan under which it pays a portion of its debts and is discharged of the remainder while continuing in business. To accomplish this goal, Wild River should file a petition in bankruptcy for relief through

A)a liquidation.
B)a reorganization.
C)a repayment plan.
D)a straight bankruptcy plan.

Question 24

The length of the payment plan under a Chapter 13 plan can be three to five years, depending on the debtor's family income.

Question 25

If the income of a debtor filing for bankruptcy is below the median income, there is a presumption of bankruptcy abuse.

Question 26

Cassie files a voluntary petition in bankruptcy for relief through a liquidation. Among her debts that will not be discharged are claims

A)by creditors who were not notified of the bankruptcy.
B)for money to be paid for goods not delivered.
C)for contributions to employee benefit plans.
D)for long overdue credit-card debt.

Question 27

If the assets in a debtor's estate in bankruptcy are insufficient to pay fully all creditors, the debtor is liable for the difference.

Question 28

Attachment gives a creditor an enforceable security interest in collateral.

Question 29

On the entry of an order for relief in a reorganization case, the creditors generally take over the operation of the debtor's business.

Question 30

Purchase-money security interests in consumer goods are perfected by filing a financing statement.

Question 31

The same principles that govern the filing of a liquidation petition apply to reorganization proceedings.

Question 32

If a homeowner defaults, or fails to make the mortgage payments, the lender has the right to foreclose on the mortgaged property.

Question 33

Jill believes that she should file a plan for a Chapter 13 discharge in bankruptcy. A court will confirm her bankruptcy plan if it provides for all of the following except

A)the completion of all payments to all creditors within six years.
B)the full payment of claims entitled to priority.
C)the surrender of all collateral to the creditors.
D)the turnover of the debtor's future income to the trustee.

Question 34

When more than one party claims an interest in the same collateral, a perfected secured party's interest has priority over security interests that are perfected later.

Question 35

A preference occurs when a debtor transfers property or money favoring one creditor over others.

Question 36

A homestead exemption allows a debtor to subtract the value of the family home from the amount of a debt.

Question 37

A surety is primarily liable for the debt of a principal.

Question 38

The state office in which a financing statement should be filed is always the location of the chattel.

Question 39

An artisan's lien is possessory.

Question 40

Norma files a petition in bankruptcy. She turns her assets over to O'Brien, who sells them and then distributes the proceeds to Norma's creditors. O'Brien is

A)a preferred creditor.
B)a bankruptcy court judge.
C)a bankruptcy trustee.
D)a debtor.

Question 41

Milos files a petition in bankruptcy. His dischargeable debts include

A)domestic-support obligations.
B)student loans unless the lender would suffer undue hardship.
C)court costs, trustee fees, and attorney's fees associated with the bankruptcy.
D)unsecured credit-card debt.

Question 42

Sasha's debt to Tully is past due. Tully brings a legal action against Sasha to collect the debt. To ensure that a judgment in Tully's favor will be collectible, he asks the court to enter a prejudgment order to seize Sasha's property. This is a request for

A)a contract of suretyship.
B)an order that would violate most state laws.
C)a writ of attachment.
D)an order of receivership.

Question 43

Philo files a petition in bankruptcy for relief through an individual's repayment plan. He is granted a discharge. Debts that will not be discharged include

A)a hospital bill.
B)money owed for services rendered.
C)allowed claims not provided for by the plan.
D)credit-card debt.

Question 44

Dylan defaults on a debt to Eastside Bank. Eastside will be able to recover the debt from all of the following except

A)Dylan's prize-winning pet dog.
B)proceeds from the sale of Dylan's investments in stocks.
C)Dylan's wages.
D)Dylan's checking account.

Question 45

Dean files a bankruptcy petition under Chapter 7. If this use of Chapter 7 is found to constitute substantial abuse, the most likely consequence is

A)Dean's debts will be discharged in a liquidation.
B)Dean will be forced into an involuntary bankruptcy.
C)Dean will file for a reorganization.
D)Dean's petition will be dismissed.

Question 46

Creditors hold judgments on overdue debts against AAA Auto Repair when the debtor receives a discharge in bankruptcy. AAA's discharge will

A)extend the time for payment of the overdue debts.
B)have no effect on the creditors' judgments.
C)require creditors to re-file their collection actions.
D)void any creditor's judgment on a discharged debt.

Question 47

Donna goes through an involuntary bankruptcy proceeding. An involuntary bankruptcy occurs when

A)a debtor files forms designated for the purpose in a bankruptcy court.
B)a debtor is unable to pay his or her debts as they come due.
C)a debtor's creditors force the debtor into bankruptcy proceedings.
D)a debtor's debts exceed the fair market value of his or her assets.

Question 48

Oscar refuses to pay Petra $500 in cash on their contract to repair Oscar's washing machine, which Petra still possesses at her repair shop. Petra's lien on the machine will terminate

A)if Petra continues to maintain possession.
B)if Petra does not file a written notice of lien within thirty days.
C)if Petra voluntarily surrenders possession.
D)within thirty days.

Question 49

Loni delivers her Mazda to be repaired at Nile's Body Shop. Loni agrees to pay cash. Nile performs, but Loni does not pay. Nile tells Loni that he will keep the car until she pays. This is

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

Question 50

Ethan fraudulently induces Franz to sign a promissory note to buy a speedboat. Franz's friend, Gus, agrees to act as a guarantor of the note. If Franz fails to make payment to Ethan, with respect to the defense of fraud, Gus can

A)assert this defense against Ethan.
B)assert this defense against Franz.
C)assert this defense against no one.
D)assert this defense against either Ethan or Franz.

Question 51

George borrows funds from Hometown Credit Union (HCU) to buy real property. George signs a written instrument that gives HCU an interest in, or lien on, the property as security for the debt's payment. This is

A)a mortgage.
B)a liquidation.
C)a workout agreement.
D)a reorganization.

Question 52

Creditors Loan Company and Debtors Service Corporation-Ellen's creditors-contract with Ellen for the discharge of her liquidated debts on payment of a lesser sum. This is

A)a composition agreement.
B)a subrogation.
C)a suretyship agreement.
D)in violation of most states' laws.

Question 53

Lenders Bank provides Molly with a mortgage to buy a home. Six years into the term of the loan, Molly loses her job and is unable to make the payments. Possible methods for these parties to avoid foreclosure include all of the following except

A)forbearance.
B)a short sale.
C)a workout agreement.
D)a prepayment penalty.

Question 54

Quotient Financial Corporation is a secured party with a security interest in property owned by Retail Sales Company. Perfection of this security interest may not protect Quotient Financial against the claim of

A)a bank.
B)a buyer in the ordinary course of business.
C)a subsequent lien creditor.
D)a trustee in bankruptcy.

Question 55

Jessie's debt to Karla is past due. Karla brings a legal action against Jessie to collect the debt. Karla asks the court to order Liberty Bank, in which Jessie has an account, to pay a portion of the funds to Karla. 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)a composition agreement.

Question 56

To adjust debt and institute a repayment plan, Bianca-who is not a corporation, a partnership, or a family farmer or fisherman-may file a petition in bankruptcy for relief through

A)a liquidation.
B)a reorganization.
C)a repayment plan.
D)a straight bankruptcy plan.

Question 57

Debit & Credit Financing, Inc., and Equity Lending Company are secured parties with security interests in property owned by Fleet Shipping Corporation. Priority between these security interests is generally determined by

A)the amount of the claim.
B)the custom in the trade.
C)the time of perfection or attachment.
D)the "float" of the liens.

Question 58

Gem Jewelers files a voluntary petition for bankruptcy. In listing its assets, Gem intentionally does not include certain valuable stones. After Gem is granted a discharge, Hasty Catering, one of Gem's unsecured creditors whose claims were discharged, learns of the fraud. Hasty can

A)do nothing.
B)proceed with its claim against Gem.
C)file an involuntary petition for bankruptcy against Gem.
D)take possession of the stones with or without a breach of the peace.

Question 59

Harold files a bankruptcy petition. The resulting automatic stay will apply to Harold's payments for

A)alimony.
B)child support.
C)all of the choices.
D)a car.

Question 60

Roland files for Chapter 7 bankruptcy. After all his assets have been sold and the proceeds distributed among his creditors, Roland's remaining debts, subject to certain exceptions

A)are discharged.
B)are paid by the court.
C)must be paid by Roland.
D)are put on hold until Roland has sufficient means to pay them.

Question 61

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

A)Rhea files the petition.
B)Rhea posts a bond to cover the costs of the proceedings.
C)Rhea's creditors agree to the terms.
D)the trustee collects and distributes the property of Rhea's estate.

Question 62

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

A)an automatic stay goes into effect.
B)Patsy's debts are discharged.
C)Patsy's petition is dismissed.
D)Patsy's property is distributed to her creditors.

Question 63

Smartt Software Company borrows $10,000 from Term 'N All Loans, Inc., but cannot repay the loan when it comes due. Term 'N All refuses to extend the time for repayment unless Smartt can provide an acceptable surety. Uno Venture Corporation agrees to act as a surety for the loan after Smartt offers the firm a discount on software and shows Uno financial statements, compiled with Term 'N All's assistance, that misrepresent Smartt's financial situation. Later, after Uno uses the discount to buy software, Smartt again defaults on repayment of the loan, and Term 'N All files a suit against Uno to collect the amount of the debt. Is Uno liable? Why or why not?

Question 64

Capital Projects, Inc., files a financing statement to provide notice of its security interest in the property of Data Network Corporation. The initial effective term of a financing statement is a period of

A)five days.
B)five months.
C)five weeks.
D)five years.

Question 65

Current City (CC) is a retail seller of television sets. CC sells Dhani a $3,000 large-screen, high-definition, LED set on a retail installment security agreement in which he pays $100 down and agrees to pay the balance in equal installments. CC retains a security interest in the set, and perfects that interest by filing a financing statement centrally. Two months later, Dhani is in default on the payments to CC and is involuntarily petitioned into bankruptcy by other creditors. Discuss CC's right to repossess the TV set.

Question 66

The payment of Olinda's debt to Prudent Loan Company is guaranteed by Olinda's personal property. Prudent is most likely to perfect its interest by

A)insuring Olinda's property for the full amount of its value.
B)calculating the precise amount of Olinda's debt.
C)correcting grammatical errors in the parties' written agreement.
D)filing a financing statement with the appropriate authority.

Question 67

Vito borrows $150,000 from Workers & Farmers Bank to buy a home. If he fails to make payments on the mortgage, the bank has the right to repossess and auction off the property securing the loan. This is

A)a cram-down provision.
B)a forbearance.
C)a foreclosure.
D)the right of redemption.

Question 68

Joe files a petition in bankruptcy. The initial proceeding on this petition will be in

A)a federal bankruptcy court.
B)a state bankruptcy court.
C)the highest court in the state in which Joe is located.
D)the United States Supreme Court.

Question 69

Frances borrows $1,000 from Garden State Bank, using her recreational vehicle (RV) motor home, which she purchased at Hugo's RV Sales & Service, as collateral. To perfect its security interest, the bank must file its financing statement with

A)the secretary of state.
B)the county clerk.
C)the city treasurer.
D)Hugo's RV Sales & Service.

Question 70

Helen's debt to Imprints Printers is past due. Imprints obtains a judgment against Helen, but she refuses to pay it. Imprints asks the court for an order that directs the sheriff to seize and sell any of Helen's nonexempt real or personal property that is within the court's geographic jurisdiction. This is a request for

A)a writ of execution.
B)a composition agreement.
C)an order that would violate most state laws.
D)an order of garnishment.

Question 71

Natural Resource Investment Company and Mega Bank are secured parties with security interests in property owned by LNG Gas Corporation. Between these interests, the first to be filed or perfected has priority over other filed or perfected security interests in

A)general, subject to exceptions.
B)no circumstances.
C)states that have not adopted Article 9 of the UCC.
D)states that require a security agreement to be signed and dated by the creditor.

Question 72

Lena borrows from Mac and Nicol, using the same collateral for both loans. Only Nicol has a perfected security interest. Lena defaults on both loans. The party with first rights to the collateral is

A)Lena.
B)Mac and Nicol, in proportion to Lena's debt to each.
C)Mac only.
D)Nicol only.