Deck 20: Creditors Rights and Bankruptcy

Question 1

When a person cosigns a loan as a guarantor,that person becomes primarily liable for the debt.

Answer 1

False

Question 2

Bankruptcy is not the only option for businesses that want to avoid liability for their debts.

Answer 2

True

Question 3

Typically,the collateral used for a mortgage is .

Answer 3

real estate

Question 4

One way a party may perfect a security interest is by filing a statement of notice with a state government.

Question 5

A(n) stops creditors from pursuing their collection actions.

Question 6

Properties owned by businesses are eligible for mortgage refinancing under the Mortgage Forgiveness Debt Relief Act.

Question 7

When a business no longer has enough money to pay its bills and maintain operations,it is considered to be .

Question 8

A is a contract that specifies the parties,describes the collateral,states the obligations of the debtor,and states the remedies available to the secured party.

Question 9

Debtors may be allowed to keep certain assets even after they have filed for liquidation.

Question 10

A is a third party who agrees to be liable to pay a loan only if the debtor actually defaults.

Question 11

Secured creditors must their security interests before they are protected under the UCC.

Question 12

A fraudulent transfer occurs when a debtor makes payment on a prebankruptcy debt up to a year before filing for bankruptcy.

Question 13

The out-of-existence option is not risky if the debtor has no assets.

Question 14

A has the legal power to void some transfers made before filing for bankruptcy.

Question 15

repayment plans are limited to individuals filing for bankruptcy.

Question 16

Secured creditors do not need to perfect their interests to be protected under the UCC.

Question 17

Unsecured creditors give loans without collateral based on .

Question 18

Unsecured creditors may seize any asset of the borrower once they have a debt collection judgment.

Question 19

A allows the debtor in possession to avoid any obligation that he or she would otherwise be forced to perform.

Question 20

The main role of the bankruptcy trustee is to protect the assets of the estate.

Question 21

Even if a debtor's salary is more than the median income for his or her state,the debtor is still eligible for Chapter 7.

Question 22

Only businesses are able to file for Chapter 13 bankruptcy.

Question 23

Before an individual can file for bankruptcy,by law he or she must complete a short credit-counseling seminar.

Question 24

Business entities that file for bankruptcy under Chapter 7 may be permitted to keep some exempt property.

Question 25

An automatic stay halts all creditors' collection actions except for ones brought by government agencies.

Question 26

Alan is the attorney representing Derek in bankruptcy hearings.His fees have the highest priority among the other unsecured debtors.

Question 27

The order of payment for unsecured creditors in bankruptcy is specified in each state's UCC statutes.

Question 28

Becky wants to buy a car but cannot obtain a loan from the bank on her own.Lori agrees to be the co-signer on Becky's loan,on the condition that Lori would only be liable for the amount of the loan if Becky actually defaults on the loan.In this situation,Lori would best be described as a guarantor.

Question 29

An individual filing for Chapter 7 may always keep his or her car.

Question 30

Unsecured creditors have few practical ways to collect their debt.

Question 31

Possession of collateral by a secured party is a valid method of perfecting a security interest.

Question 32

During the liquidation process,secured creditors are paid first and in full provided the value of the collateral equals or exceeds the value of their security interests.

Question 33

A Chapter 11 debtor may use bankruptcy as an excuse for not performing contractual obligations.

Question 34

Kevin transfers $10,000 to his brother to pay off a loan.Two months later,Kevin files for bankruptcy.This transaction can be voided by the bankruptcy trustee.

Question 35

In Chapter 11,creditors create a reorganization plan for the debtor,which outlines a specific strategy and financial plan for emerging from financial distress.

Question 36

Bankruptcy laws come solely from state statutes and case law.

Question 37

The U.S.Constitution does not address bankruptcy laws.

Question 38

The bankruptcy trustee is appointed to represent the interests of creditors in a bankruptcy proceeding.

Question 39

The court cannot force creditors to agree to a reorganization plan even if it is fair,equitable,and feasible.

Question 40

Creditors have the power to force a company into bankruptcy proceedings.

Question 41

Matt loaned money to Josh and received a signed security agreement from Josh.To make sure he has priority as a creditor,Matt could

A) give the security agreement to his attorney.
B) do nothing-the date of signing gives Matt priority.
C) file the security agreement in a security deposit box.
D) take possession of the collateral.

Question 42

The bankruptcy trustee is a representative of

A) the debtor.
B) the creditors.
C) the court.
D) the state.

Question 43

A creditor with an interest in real property is called
A) a mortgagee.

A) a surety.
B) an unsecured creditor.
D) a mortgagor.

Question 44

The reorganization plan is unique to what type of bankruptcy filing?

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

Question 45

Under Article 9 of the UCC,which of the following could not be used as collateral?

A) a car
B) a house
C) a fixture
D) cash

Question 46

A petition for bankruptcy that is filed by creditors against a debtor is known as
A) a recovery action.

A) a voluntary bankruptcy.
B) an involuntary bankruptcy.
D) an order for relief.

Question 47

Which of the following is not a role of the bankruptcy trustee?
A) Provide debt counseling.

A) Void certain transfers.
B) Turn the assets into cash.
D) Collect the debtor's assets.

Question 48

The is the standard an individual must meet in order to file for Chapter 7 bankruptcy.
A) length of time of debt

A) means test
B) threshold level of debt
D) attempts to repay under Chapter 13

Question 49

Chris wanted to get a loan from the bank,but he had bad credit.In order to get the money,he convinced Eric to cosign as a surety.Now Chris has stopped making the payments.When is Eric liable for repayment of the loan?

A) At any point.
B) When Chris stopped making payments.
C) Only after the bank attempts to recover the full amount from Chris.
D) Never, because Eric was not the one actually using the money.

Question 50

Which of the following unsecured creditors has first priority?
A) An ex-spouse who is due alimony.

A) General creditors.
B) Unpaid employees.
D) The court, for its costs.

Question 51

The only legal remedy for is to bring a lawsuit against a borrower to try to recover the money loaned.
A) a mortgagor

A) secured creditors
B) unsecured creditors
D) a government agency

Question 52

In In re Jones,Jones graduated from college and then went to law school.He graduated from law school but was unable to pass the bar exam.Over the next decade he worked various jobs before going back to school again for a master's.Jones took out student loans to pay for his education,resulting in $140,000 of debt.He filed for bankruptcy and sought to have the student loans discharged for "undue hardship." Which of the following is the most likely holding of the court?

A) Jones met the undue hardship standard because the amount of money owed was too much for a person in his fifties to be able to pay.
B) Jones met the undue hardship standard because he demonstrated that he had made diligent efforts to find employment.
C) Jones had not met the undue hardship standard because he was well educated and able to work and presented no hardship such as illness or injury.
D) Student loans are nondischargeable and not subject to the undue hardship standard.

Question 53

Which of the following is not a purpose of bankruptcy?

A) Offer a fresh start to the debtor.
B) Punish the debtor.
C) Create a way for creditors to recover the debt.
D) Prevent creditors from gaining an unfair advantage over one another.

Question 54

What is the main difference between Chapters 7 and 11?

A) The order for relief.
B) The automatic stay.
C) The continued operation of a business.
D) The manner in which the bankruptcy petition is filed.

Question 55

In Ransom v.FIA Card Services,Ransom filed for Chapter 13 bankruptcy protection and listed among his living expenses the standard amount allowed in the Bankruptcy Code for car ownership costs.Ransom owned his car outright and had no car payment.FIA challenged the car deduction.The court held that Ransom could

A) take the deduction because he met the means test.
B) take the deduction because the statutory language was ambiguous.
C) not take the deduction because it was limited to debtors who were required to make loan or lease payments on a car.
D) take the deduction because denying it would send a message to debtors to take out car loans rather than pay them off.

Question 56

What effect does the process of accord and satisfaction have on creditors?

A) It prevents a creditor from suing while the business is revising its business model.
B) Contract terms with creditors are renegotiated, releasing the debtor from liability by settling the debt.
C) It prevents creditors from filing for involuntary bankruptcy.
D) It discharges debt.

Question 57

When does an automatic stay become permanent?

A) Never.
B) Once the bankruptcy proceedings have ended.
C) When the petition is determined to be valid.
D) When the debtor files for bankruptcy.

Question 58

Claudia makes $30,000 a year.The median income for her state is $28,000.She owes over $50,000 in various debts and is considering ways to address her situation.Which of the following is not one of her options to fix her debt issues?

A) Attempt to negotiate a workout with her creditors.
B) Pay off her loans.
C) Chapter 7 bankruptcy.
D) Chapter 13 bankruptcy.

Question 59

Chapter 13 bankruptcy filings are limited to
A) businesses.

A) farms.
B) individuals.
D) individuals who own sole proprietorships.

Question 60

Which of the following is a debt that is nondischargeable unless the debtor can prove undue hardship?

A) Claims for federal, state, and local taxes within two years of the petition filing.
B) Student loan debts.
C) Debts incurred for luxury items within 90 days of the petition.
D) Alimony, maintenance, and child support.

Question 61

Explain the steps that Congress has taken to try to prevent individuals from abusing bankruptcy protections.

Question 62

Describe the role of a trustee in bankruptcy proceedings.

Question 63

Which of the following options does not attempt to repay and discharge debt?
A) Chapter 7 bankruptcy

A) out of existence
B) workout
D) Chapter 11 bankruptcy

Question 64

helps homeowners avoid foreclosure by offering certain guarantees when refinancing a mortgage.

A) The Mortgage Forgiveness Debt Relief Act
B) The Truth in Lending Act
C) The House Refinancing and Protection Act
D) The Foreclosure and Debt Prevention Act

Question 65

Give four examples of non-dischargeable debt in bankruptcy.

Question 66

Which businesses typically need a personal guaranty in order to receive a loan?

A) large businesses
B) small businesses
C) almost all businesses
D) no businesses (Businesses do not need personal guaranties.)

Question 67

What is the means test? Provide an example of how it would be applied.

Question 68

Discuss the differences between Chapters 7 and 11 bankruptcy proceedings.

Question 69

Which chapter of the Bankruptcy Code is best thought of as temporary protection from creditors while a business goes through a planning process to pay creditors while continuing to do business?

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

Question 70

Fast Feet,Inc.(FFI),is a manufacturer of running shoes.FFI gives merchandise on credit to Rick's Running,a small retailer of athletic shoes for distance runners.FFI requires Rick's to sign an agreement that describes the merchandise as collateral and specifies that Rick's will pay FFI weekly based on the sales of the shoes.FFI files a statement of notice with the appropriate government agency.Based on these facts,what kind of creditor is FFI,and why?

Question 71

liquidates the debtor's property to repay creditors and discharge the debts.

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

Question 72

Which of the following debts may be discharged in a bankruptcy?

A) Taxes.
B) Child support.
C) A new auto purchased 90 days before filing.
D) Punitive damages.

Question 73

Bankruptcy is primarily governed by
A) a blend of state and federal statutes.

A) federal statutes.
B) state statutes.
D) administrative regulations.

Question 74

Which of the following is not a major change to bankruptcy law in the Bankruptcy Abuse Prevention and Consumer Protection Act?

A) Credit counseling.
B) Means test.
C) Proof of income.
D) Lowering the priority of alimony payments.

Question 75

Which of the following is not typically part of a security agreement?
A) Description of the collateral.

A) Remedies available to the creditor.
B) Obligations of the debtor.
D) Instructions on perfection.

Question 76

Explain the difference between secured and unsecured creditors.What is the likelihood of financial recovery for each?

Question 77

Fast Feet is a manufacturer of running shoes.Its shoes are not selling fast enough for the company to pay its debts and continue its operations.Fast Feet is now insolvent.What options are available to Fast Feet? How would these options affect Fast Feet's obligations to its creditors,if at all?

Question 78

What is the procedure associated with a Chapter 7 filing?

Question 79

How is a debtor protected in bankruptcy from the moment of filing?

A) The debtor has access to credit counseling.
B) Personal guaranties of loans are voided.
C) An automatic stay is placed on all collection efforts.
D) Certain transactions are now considered to be voidable.

Question 80

Describe the process by which a secured creditor establishes his or her rights to collateral securing a first-priority position.