Deck 36: Bankruptcy

Question 1

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.

Answer 1

False

Question 2

Chapters 11 and 13 are liquidation chapters.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

Generally, filing bankruptcy stops the collection activity of creditors.

Question 5

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 6

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 7

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 10 months. The bankruptcy trustee can void the transfer and bring the car back into Brad's estate for the purpose of providing assets for Brad's creditors.

Question 8

Alimony and child support obligations are considered priority claims.

Question 9

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

Question 10

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

Question 11

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 12

Chapter 7 bankruptcy petitions may only be filed voluntarily.

Question 13

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

Question 14

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

Question 15

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; the judge approved it in spite of these creditors' objections. This action by the judge is called a "cramdown."

Question 16

A form stating the name of an unsecured creditor and the amount of the claim against the debtor is called a(n)

A) order for relief.
B) automatic stay.
C) proof of claim.
D) reaffirmation form.

Question 17

In a voluntary petition, a claim of exemptions lists

A) the names and addresses of all creditors.
B) all assets that the debtor is entitled to keep.
C) the debtor's job, income, and expenses.
D) the debtor's assets and debts.

Question 18

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

Question 19

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

Question 20

Bankruptcy is regulated by federal law.

Question 21

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 was 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 22

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 23

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 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

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 26

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 27

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 28

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 29

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

A) $23,675.
B) $55,200.
C) unlimited.
D) $125,000.

Question 30

What is the "gap period"?

A) the period 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 31

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 32

Jun-seo owes $20,000 in unsecured claims to 15 different creditors, and he has generally not been paying debts that are due. Two of Jun-seo's creditors want to force him into bankruptcy by filing an involuntary petition; the other creditors do not agree. Which of the following statements is correct about this situation?

A) An involuntary petition cannot be filed because Jun-seo is not that deeply in debt.
B) An involuntary petition cannot be filed because not enough creditors want to force Jun-seo into bankruptcy.
C) An involuntary petition can be filed because Jun-seo is not making his payments in a timely way.
D) An involuntary petition can be filed because any one of Jun-seo's creditors can force him into bankruptcy.

Question 33

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 34

Who is responsible for gathering the bankrupt's assets and dividing them among creditors?

A) the executor
B) the state court
C) the creditors' committee
D) the trustee

Question 35

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 36

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 37

Chapter 7 bankruptcy is also known as

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

Question 38

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 39

Which is an example of a priority claim?

A) alimony
B) income tax
C) child support
D) All of these are correct.

Question 40

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 41

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

Question 42

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 explain the plan of reorganization that should be used.

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

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 45

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.