Deck 36: Bankruptcy

Question 1

Which of the following is a primary goal of the Bankruptcy Code?

A)to preserve as much of the debtor's property as possible
B)to pay off the debtor's creditors as quickly as possible
C)to secure debt counseling for the debtor
D)to keep the debtor from falling behind in payments

Answer 1

A

Question 2

In Chapter 11 bankruptcy only the debtor may propose plans of reorganization.

Answer 2

False

Question 3

Generally,filing bankruptcy stops the collection activity of creditors.

Answer 3

True

Question 4

Francesca cannot serve as a trustee in a bankruptcy case because she is not a lawyer.

Question 5

Under all chapters of the Bankruptcy Code,most of the debtor's assets are distributed to creditors and the debtor has no obligation to share future earnings with creditors.

Question 6

In a Chapter 13 bankruptcy,creditors cannot force a debtor into bankruptcy;nor can they vote to confirm or reject a plan of reorganization.

Question 7

Individual debtors are allowed to keep some assets in a Chapter 7 bankruptcy.

Question 8

Chapters 11 and 13 are liquidation chapters.

Question 9

Shoe Sunshine,Inc.filed for bankruptcy protection under Chapter 11 and submitted a plan of reorganization within 120 days after filing for relief.Two of the classes of creditors voted against the plan.However,the bankruptcy judge considered the plan to be feasible,fair,and in the best interests of the creditors;it approved it in spite of these creditors' objections.This action by the judge is called a "cramdown."

Question 10

Debts that cannot be discharged in bankruptcy include all EXCEPT

A)money owed for alimony.
B)income taxes for 3 years prior to filing.
C)money owed to utility companies.
D)money obtained fraudulently.

Question 11

Andy's business is not able to pay its debts,and the prospects for its finances to improve are slim.Andy decides not to continue the business.In this case,Andy should file a voluntary petition for which type of bankruptcy?

A)Chapter 7.
B)Chapter 11.
C)Chapter 13.
D)Chapter 12.

Question 12

The Bankruptcy Code uses the term "debtor" to refer to a person who cannot pay his debts.

Question 13

Creditor claims are divided into classes and the highest class must be satisfied in full before going to the next category.

Question 14

Chapter 13 bankruptcy

A)is used by businesses to reorganize their financial situations.
B)is an involuntary bankruptcy.
C)can be used only by individuals with a regular source of income.
D)is used by businesses to liquidate their debts.

Question 15

The start of the bankruptcy process is

A)the submission of a plan of repayment.
B)the bankruptcy court's issuance of an order for relief.
C)a meeting of creditors.
D)the appointment of a trustee.

Question 16

Alimony and child support obligations are considered priority claims.

Question 17

Chapter 7 bankruptcy petitions may only be filed voluntarily.

Question 18

Brad was having financial difficulties and thought bankruptcy might be in his future.He transferred his sports car to his brother with the agreement that if he didn't file for bankruptcy within the next 18 months,his brother would return the car to him.Brad did file for bankruptcy in ten months.The bankruptcy trustee can bring the car back into Brad's estate for the purpose of providing assets for Brad's creditors.

Question 19

Peggy's credit card debts are mounting as her costs of insurance and fuel have dramatically increased and her income,from sporadic free-lance jobs,has dropped.Chapter 13 of the Bankruptcy Code will allow her to reorganize her debt while she keeps most of her assets.

Question 20

Bankruptcy is regulated by federal law.

Question 21

A Chapter 7 debtor's agreement to pay a creditor on a debt after receiving a discharge in bankruptcy is called a

A)voidable preference.
B)reaffirmation.
C)fresh start.
D)redemption.

Question 22

An official acknowledgement that a debtor is under the jurisdiction of the bankruptcy court is called

A)a voluntary petition.
B)an involuntary petition.
C)an automatic stay.
D)an order for relief.

Question 23

What is the "gap period"?

A)The period of time between the time a debtor files for bankruptcy and the time that he is granted discharge
B)The period of time that creditors must wait to be paid once a plan of payment is approved
C)The period between the time that a creditor files for an involuntary petition and the court issues the order for relief
D)The period between the time a debtor files for bankruptcy and the time that the plan of payment is approved

Question 24

The correct order of payment of claims from the debtor's estate would be

A)secured claims, priority claims, unsecured claims.
B)secured claims, unsecured claims, priority claims.
C)priority claims, secured claims, unsecured claims.
D)priority claims, unsecured claims, secured claims.

Question 25

When a debtor no longer has an obligation to pay a debt,that debt has been

A)terminated.
B)revoked.
C)completed.
D)discharged.

Question 26

Link negligently ran his car into John,causing $50,000 in injuries.Link was intoxicated at the time of the accident.Can Link discharge this debt in bankruptcy?

A)Yes, claims based on negligence are dischargeable.
B)Yes, as long as he didn't intend to hit John's car.
C)No, such claims are not dischargeable in bankruptcy.
D)No, because Link breached a fiduciary duty.

Question 27

Chapter 7 bankruptcy is also known as

A)reorganization.
B)reaffirmation.
C)voluntary bankruptcy.
D)straight bankruptcy.

Question 28

Which of the following is a requirement for an involuntary Chapter 7 bankruptcy petition?

A)The debtor must owe at least $150,000 in unsecured claims to the creditors who file.
B)The debtor must have at least three creditors sign the petition if the debtor has 12 or more creditors.
C)The creditors must have tried to help the debtor overcome the financial difficulties.
D)The debtor must have a majority of the creditors file the petition.

Question 29

Grand Lighting Co.has filed a petition for voluntary bankruptcy under Chapter 7 of the Code.Which of the following will prohibit creditors from collecting debts that Grand Lighting incurred before the petition was filed?

A)An automatic stay
B)A proof of claim
C)A voluntary petition
D)A discharge statement

Question 30

Under what circumstances might the court reject a debtor's Chapter 13 plan?

A)The plan requires future earnings to pay off debts.
B)The plan promises to pay all secured and priority claims.
C)The plan anticipates paying the unsecured creditors less than what they would get under Chapter 7.
D)The plan treats all unsecured classes equally.

Question 31

Ramona has received a discharge in bankruptcy,but wants to reaffirm a debt to her sister.To be valid,the reaffirmation

A)will be scrutinized by the court to make sure her sister has not unfairly pressured Ramona.
B)will be automatically disallowed because allowing Ramona to promise to pay a discharged debt would be contrary to the goals of the bankruptcy proceedings.
C)will be automatically allowed if Ramona voluntarily chooses to make it.
D)must clearly disclose that Ramona has the right to rescind at any time since the debt was already discharged.

Question 32

Creditors of Northern Hydraulics file an involuntary bankruptcy petition against the company and the petition is approved.What is true of Northern Hydraulics?

A)Northern Hydraulics has at least $10,425 in debts.
B)There are at least 12 creditors.
C)A custodian has automatically been appointed.
D)It must make all the filings necessary under a voluntary petition.

Question 33

Who operates the business and develops a plan of reorganization in Chapter 11 bankruptcies?

A)The trustee
B)The debtor in possession
C)The state courts
D)The creditors' committee

Question 34

Kathleen filed for voluntary bankruptcy and the automatic stay went into effect.The automatic stay

A)acts to automatically discharge Kathleen's debts.
B)prohibits creditors from collecting debts against Kathleen that arose before she filed bankruptcy.
C)stops only secured creditors from taking any act to collect, assess, or recover a claim against Kathleen that arose before she filed bankruptcy.
D)stops creditors from trying to collect from Kathleen, but it does not stop them from filing lawsuits against her.

Question 35

Agnes plans to file for bankruptcy under Chapter 7.One month prior to filing,Agnes gives Joe's Filling Station $700 to apply to her gas bill.Joe has been so kind to let her charge the gas she needed for her car over the past year.The bankruptcy trustee appointed to the case

A)can cancel the payment to Joe as a fraudulent transfer.
B)cannot cancel the payment to Joe because it is payment for an existing debt.
C)cannot cancel the payment to Joe because he is not an insider.
D)can cancel the payment to Joe as a voidable preference.

Question 36

Under the federal Bankruptcy Code,the exemption amount for the debtor's personal residence is

A)$22,975.
B)$55,200.
C)unlimited.
D)$125,000.

Question 37

Which of the following statements concerning a Chapter 11 reorganization plan is true?

A)A reorganization plan will be confirmed by the court only if a majority of each class of creditors votes in favor of the plan.
B)A reorganization plan can be confirmed by the court over objections of some creditors if the court determines that the plan is feasible and fair.
C)Only the bankruptcy court has the authority to confirm or reject the reorganization plan. Creditors do not have a right to vote on the plan.
D)A reorganization plan binds only the debtor and not the creditors.

Question 38

Iris received a discharge under a Chapter 7 bankruptcy.She cannot receive another discharge under Chapter 7 for at least

A)six years after the prior filing.
B)eight years after the prior filing.
C)ten years after the prior discharge.
D)She cannot file another Chapter 7, but could file a Chapter 11 or 13 bankruptcy.

Question 39

Forever Yours,Inc.has a secured and perfected security interest in Sally's big-screen TV.On the filing date of Sally's Chapter 7 petition,the balance of the debt owed to Forever Yours is $2,000.The value of the TV is estimated at $1,500.This means that Forever Yours

A)is secured for the entire debt, $2,000.
B)is unsecured for $500, the excess of the debt over the value of the TV.
C)has a high priority claim of $500. This means that Forever Yours, Inc. will be allowed $500 worth of other unsecured property before other unsecured creditors get anything.
D)is unsecured for the entire debt.

Question 40

A trustee can void any transfer that meets all of the following requirements EXCEPT

A)if the transfer was to a creditor of the debtor.
B)if the pre-petition payment made in the ordinary course.
C)if the transfer was used to pay an existing debt.
D)if the debtor's liabilities exceeded assets at the time of the transfer.

Question 41

When Dudley files his Chapter 7 petition,he lists the following debts:
a.$25,000 in back child support and alimony.
b.$15,000 for liabilities incurred after drinking and driving.
c.$10,000 for past-due student loans.
d.$5,000 for past-due rent to his landlord.
e.$550 for a past-due phone bill.
How will each of these debts be treated by the bankruptcy court.

Question 42

Mark and Cynthia work for Bryson Supply Co.If the company files for Chapter 7 bankruptcy before paying their last month of wages and benefits,will they be able to recover anything from the company?

Question 43

Karen has filed for bankruptcy.Who has the authority to confirm or reject a plan of payment,and what factors will be considered when deciding whether to approve a repayment plan under Chapter 13?

Question 44

What are the three main purposes of the federal Bankruptcy Code? How are these purposes supported and fostered in the Code?

Question 45

Artistic Framing,a business with $120,000 of unsecured debt,needs to file for bankruptcy,but wants to continue in business.Discuss what chapter of the Bankruptcy Code should be used,and discuss the effect of the 2005 amendment to the Code on the proceedings.