Deck 13: Creditor-Debtor Relations and Bankruptcy

Question 1

The clerk of a bankruptcy court must provide consumer-debtors with information on the types of services available from credit counseling agencies.

Answer 1

True

Question 2

One goal of bankruptcy law is to ensure equitable treatment of creditors who are competing for a debtor's assets

Answer 2

True

Question 3

Liens generally take priority over other claims against the same property.

Answer 3

True

Question 4

When a surety or guarantor pays a debt owed to a creditor, he or she acquires any right that the creditor had against the debtor.

Question 5

With a mechanic's lien, real estate becomes security for a debt.

Question 6

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

Question 7

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

Question 8

Personal property that is most often exempt from satisfaction of judgment debts does not include equipment that the debtor uses in a business or trade.

Question 9

A writ of execution applies to a debtor's nonexempt real or personal property wherever located.

Question 10

Rulings from bankruptcy courts are final-they cannot be appealed.

Question 11

A fixed-rate mortgage is a standard mortgage with a rate of interest that changes periodically.

Question 12

Foreclosure is the legal process by which a lender repossesses and auctions off property that has secured a loan.

Question 13

The lender does not have to strictly comply with the state statute governing foreclosure-substantial compliance is sufficient.

Question 14

A surety can be required to pay an obligation only after the principal debtor defaults and usually only after the creditor has made an attempt to collect from the debtor.

Question 15

There is no limit to the amount that can be taken from a debtor's weekly take-home pay through garnishment.

Question 16

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

Question 17

Only a few types of property-a debtor's wages or bank account, for example-can be garnished.

Question 18

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

Question 19

A guaranty contract must always be in writing to be enforceable.

Question 20

A surety is entitled to receive from the debtor the actual amount of the debt paid to the creditor on behalf of the suretyship arrangement but not other expenses incurred.

Question 21

An individual debtor cannot exempt or exclude any property from the bankruptcy.

Question 22

A court awards a judgment to Loan Collection Agency, who is the creditor, against Margret, who is the debtor.After the judgment, the creditor requests a court order to seize Margret's property to ensure that the judgment will be collectible.This is

A)a judicial lien.
B)a writ of attachment.
C)a writ of execution.
D)a violation of most state laws.

Question 23

An involuntary bankruptcy occurs when a debtor's creditors are forced to accept a discharge of the debtor's debts.

Question 24

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 order the seizure of 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 25

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

Question 26

In putting together a repayment plan under Chapter 13, a debtor must apply the means test to identify the amount of disposable income that will be available to repay creditors.

Question 27

In a repayment plan case, the plan must provide for payment of all obligations in full.

Question 28

When a debtor has no assets, creditors are notified of the debtor's petition for bankruptcy but are instructed not to file a claim.

Question 29

In a Chapter 11 case, the court cannot confirm a reorganization plan over the objections of a class of creditors.

Question 30

Ronaldo's debt to Sofia is past due.Ronaldo obtains a judgment against Sofia to collect the debt, but Sofia will not pay.Ronaldo requests a writ of execution.The property that is seized under the writ of execution must be

A)in Ronaldo's possession.
B)in Sofia's possession.
C)in the possession of Sofia's employer or other third party.
D)located within the court's geographic jurisdiction.

Question 31

The procedure for filing a family-farmer bankruptcy plan is very similar to the proce-dure for filing a repayment plan.

Question 32

An involuntary bankruptcy occurs when the debtor forces his or her creditors into bankruptcy proceedings.

Question 33

Portia owes Bon $500 on their roof repair contract, but refuses to pay.To collect, Bon files a mechanic's lien.Under a mechanic's lien, security for the debt is represented by

A)Portia's personal property.
B)Portia's real estate.
C)the $500 owed under the contract.
D)the contract.

Question 34

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

Question 35

The means test forces more people to file for Chapter 7 bankruptcy rather than gave their debts discharged under Chapter 13.

Question 36

If the circumstances indicate bad faith, a court can dismiss a debtors' Chapter 13 petition.

Question 37

Certain debtors may not qualify to have all debts discharged in bankruptcy.

Question 38

At Riley's request, Speedy Auto Repair fixes his car, but he does not pay for the work.Speedy imposes a lien on the car.The lien will end

A)in thirty days.
B)in sixty days.
C)if Speedy voluntarily surrenders possession of the car.
D)if Riley obtains possession of the car, with orwithoutSpeedy's consent.

Question 39

For individual debtors, the plan in a reorganization case must be completed before discharge will be granted.

Question 40

Generally, in a Chapter 11 case, no orders affecting the estate will be entered without the consent of the creditors' committee or after a hearing in which the judge is informed of the committee's position

Question 41

Sheri files a petition for bankruptcy.She must include with the petition

A)a plan to turn over her future income to a trustee.
B)a certificate proving credit-counseling from an approved agency.
C)a provision of adequate means to make periodic cash payments to creditors.
D)a statement of preference for one creditor over another.

Question 42

Leif files a petition in bankruptcy.Among his debts are unpaid taxes, fines owed to the government, student loans owed to Metro University, and support owed to his ex-wife Nadia.Most likely to be discharged are

A)back taxes accrued within the previous three years.
B)fines outstanding less than eight years.
C)student loans whose payment would impose undue hardship.
D)spousal-support debts unpaid for more than eighteen months.

Question 43

Beatrix defaults on a debt to Credit Loan Corporation (CLC).As a creditor, CLC can place liens on all of Beatrix's property except

A)motor vehicles used to commute to work.
B)stock in various corporations.
C)items that the debtor selects.
D)vacant commercial property.

Question 44

Dina asks Edie to co-sign a credit application so that she can borrow money and buy a piano from First Chair, a musical instruments and supplies seller.If, after the loan agreement is signed, Dina agrees to a higher rate of interest without telling Edie, then Edie 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 45

Ridgeline Bank provides Shirley with a mortgage to buy a home.The rate of interest is fixed for three years and then adjusts annually.This is

A)a fixed-rate mortgage.
B)an adjustable-rate mortgage.
C)a creditor's composition agreement.
D)a guaranty agreement.

Question 46

Nancy joins with other creditors to force Odette, a debtor, into bankruptcy.One of the goals of bankruptcy law with respect to creditors is to

A)provide that creditors will continue to lend to insolvent debtors.
B)protect creditor assets from diminution in value.
C)ensure equitable treatment of creditors who are competing for a debtor's assets.
D)make all debtor property available for creditors.

Question 47

Gerald files a petition in bankruptcy.An automatic stay will apply to actions by creditors seeking to collect Gerald's debts comprised of

A)alimony.
B)child-support.
C)none of the choices.
D)car payments.

Question 48

Gena borrows $350,000 from Fish Island Bank to buy a home, which secures the mortgage.In the seventh year of the loan, Gena stops making payments.After the bank repossesses the property but before it is sold, Gena may buy it by paying

A)an amount that equals the potential proceeds from the property's sale.
B)an amount that exceeds the potential proceeds from the property's sale.
C)the amount of the missed payments, but not more.
D)the full amount of the debt, plus any interest and costs.

Question 49

Vito borrows $110,000 from Watershed 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 short sale.
B)forbearance.
C)foreclosure.
D)the right of redemption.

Question 50

Charlton files a petition in bankruptcy in a liquidation proceeding.If the court administers the means test and concludes that Charlton is abusing the bankruptcy process by filing for a liquidation, most likely

A)Charlton will be forced to file for relief through an individual repayment plan.
B)the court will discharge Charlton's debts.
C)the court will distribute Charlton's property to Charlton's creditors.
D)the court will issue an automatic stay against any actions by Charlton's creditors.

Question 51

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)bankruptcy court judge.
C)bankruptcy trustee.
D)debtor.

Question 52

Fact Pattern 13-1
Damian owns a pick-up truck and a motorcycle.He sells the motorcycle to Eden for $10,000.Eden pays for the cycle with a check, knowing that she had insufficient funds in her account to cover the amount.A week later, Damian files a petition in bankruptcy for relief through a liquidation.
Refer to Fact Pattern 13-1.Regarding the sale of the cycle, the bankruptcy trustee can

A)cancel it as a fraudulent transfer.
B)cancel it as a voidable preference.
C)not cancel it or sue to recover the price because it occurred before Damian filed his petition in bankruptcy.
D)not cancel it, but can sue Eden to recover the price.

Question 53

Denise borrows $90,000 from Clear Lake Credit Union to buy a home.Denise loses her job and fails to make payments on the mortgage, but assures Clear Lake Credit that she will soon secure a new job.The lender agrees to postpone the payments.This is

A)a right of redemption.
B)a forbearance.
C)a short sale.
D)a workout agreement.

Question 54

Fleet Trucking, LLC, buys a white van from Go Motors, Inc., on credit under a guaranty signed by Herbie, Fleet's president, making him personally liable if the company does not pay.Herbie is

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

Question 55

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 56

Erin and Dooley, a married couple, borrow $120,000 from Capital & Credit Bank to buy a home.When Erin and Dooley divorce, they are unable to make payments on the mortgage.The market value of the home has declined to less than the balance of the loan.Capital & Credit agrees to a sale of the property for this amount.This is

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

Question 57

Roland files a petition in bankruptcy.After all his assets have been sold and the proceeds distributed among his creditors, Roland's remaining debts

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

Question 58

Bess wishes to appeal a decision of a bankruptcy court.Bess may appeal to

A)no court-there is no appeal from a bankruptcy court decision.
B)a federal district court.
C)the U.S.Supreme Court.
D)a state court.

Question 59

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

A)a mortgage.
B)an artisan's lien.
C)a workout agreement.
D)a suretyship arrangement.

Question 60

Jordan is a surety for Kelly's loan from Lenders Credit Corporation.When the loan comes due, Kelly tries to pay Lenders Credit, but the creditor rejects the payment.Jordan is

A)released from any obligation on the debt.
B)required to pay the amount of the debt to Lenders Credit.
C)required to pay up to half of the amount of the debt to Lenders Credit.
D)required to pay the amount of the debt to Kelly.

Question 61

Big Data Enterprises borrows $10,000 from Creditworthy Loans, Inc., but cannot repay the loan when it comes due.Creditworthy refuses to ex-tend the time for repayment unless Big Data can provide an acceptable surety.Dependable Capital, LLC, agrees to act as a surety for the loan af-ter Big Data offers Dependable a stake in the company and shows Dependable financial statements, compiled with Creditworthy's assistance, that misrepresent Big Data's financial situation.Later, Big Data again defaults on repayment of the loan, and Creditworthy files a suit against Dependable to collect the amount of the debt.Is Dependable liable? Why or why not?

Question 62

Paxton agrees to pay QuikChek Lenders a debt that is otherwise dis-chargeable in bankruptcy.This is

A)a reaffirmation.
B)a rescission.
C)a reorganization.
D)a revocation.

Question 63

To adjust debt and institute a repayment plan, Delton, a family fisherman in the Gulf of Mexico, may file a petition in bankruptcy for relief under the Bankruptcy Code's Chapter

A)1.
B)3.
C)5.
D)12.

Question 64

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 65

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

A)a liquidation.
B)a reorganization.
C)a repayment plan.
D)a family-farmer bankruptcy plan.

Question 66

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 family-farmer bankruptcy plan.

Question 67

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 claims for

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

Question 68

Dorothy files a petition for bankruptcy in bankruptcy for relief through an individual's repayment plan.If she is granted a discharge, debts that will most likely be discharged include

A)claims not provided for by the plan.
B)payments on retirement accounts.
C)claims for domestic support obligations.
D)credit-card debt incurred more than one year before filing.

Question 69

Eduardo is a debtor.Furniture Mart is Eduardo's employer.Guaranty Credit, Inc., and the government are Eduardo's creditors.For these parties, a petition in bankruptcy for relief through an individual's repayment plan could be filed by

A)Eduardo alone, Furniture Mart alone, or Guaranty Credit and the government jointly.
B)Eduardo only.
C)Guaranty Credit and the government only.
D)the government only.

Question 70

Federal Bank is a secured party on a $50,000 loan to Gigi, who owns Home HealthCare, an assisted living facility.When Gigi experiences financial difficulty, creditors other than Federal Bank petition her into involuntary bankruptcy.The value of the secured collateral has substantially decreased in value.On its sale, the debt to Federal Bank is reduced to $25,000.Gigi's estate consists of $100,000 in exempt assets and $20,000 in nonexempt assets.After the bankruptcy costs and back wages to Gigi's employees are paid, nothing is left for unsecured creditors.Gigi receives a discharge in bankruptcy.Later she decides to go back into business.By selling a few exempt assets and getting a small loan, she is able to buy Indulgence, a small, profitable nightclub.Gigi goes to Federal Bank for the loan.The bank claims that the balance of its secured debt was not discharged in Gigi's bankruptcy.She signs an agreement to pay Federal Bank the $25,000, and the bank makes a new unsecured loan to her.Is Federal Bank correct that the balance of its secured debt was not discharged in bankruptcy? What is the legal effect of Gigi's agreement to pay the bank $25,000 after the discharge in bankruptcy?

Question 71

Fact Pattern 13-1
Damian owns a pick-up truck and a motorcycle.He sells the motorcycle to Eden for $10,000.Eden pays for the cycle with a check, knowing that she had insufficient funds in her account to cover the amount.A week later, Damian files a petition in bankruptcy for relief through a liquidation.
Refer to Fact Pattern 13-1.Regarding the pick-up truck, Damian

A)can exempt an interest in it up to $3,675 from the bankruptcy.
B)must include it as part of the estate because Damian sold the cycle.
C)must include it as part of the estate because Eden's check did not cover the cost of the cycle.
D)must include it as part of the estate unless the trustee recovers the price from Eden.

Question 72

Shale Oil, Inc., files a petition in bankruptcy for relief through a reorganization and assumes the role of a debtor in possession.In this role, Shale Oil is simi-lar to

A)a creditor at a creditors' meeting.
B)an individual debtor who is denied a discharge under the means test.
C)a secured creditor in possession of collateral.
D)a trustee in a liquidation.