Question 1

In order to avoid a bankruptcy proceeding,the parties often try to negotiate an out-of-court settlement-called a workout-that restructures the debtor's financial affairs.

Accepted Answer

This statement is true. Parties involved in a potential bankruptcy proceeding sometimes attempt to negotiate an out-of-court settlement, known as a workout, as a way to restructure the debtor's financial situation and avoid the need for going through bankruptcy court.

Question 2

A creditor's claim in bankruptcy may be involuntarily postponed through application of the doctrine of equitable subordination.

Accepted Answer

Equitable subordination is a legal doctrine that allows a bankruptcy court to re-order the priority of claims in favor of one creditor over another. It is typically used to subordinate the claims of insiders or those who engaged in inequitable conduct. By doing so, the court can ensure that those who acted unfairly or illegally do not receive a greater share of the estate than they deserve. As a result, a creditor's claim may be involuntarily postponed through application of the doctrine of equitable subordination.

Question 3

In order to reflect the greater risk to the lender,secured loans are priced at a higher rate than unsecured loans.

Accepted Answer

Secured loans typically have lower interest rates than unsecured loans because they are backed by collateral, reducing the lender's risk.

Question 4

In a composition plan under Chapter 13,the creditor receives a percentage of the debt owed and the remaining amount is discharged.

Accepted Answer

In Chapter 13 bankruptcy, a repayment plan is established where the debtor pays a percentage of the debt owed to the creditor over a period of time, usually three to five years. At the end of the repayment period, any remaining unpaid debt is discharged.

Question 5

A repayment plan under a Chapter 11 bankruptcy must either be accepted unanimously or pass the "best interests of creditors" test.

Accepted Answer

The answer of A repayment plan under a Chapter 11...

Question 6

A debt subordination is an agreement whereby one or more creditors of a common debtor agree to defer payment of their claims until the debtor is solvent again.

Accepted Answer

A debt subordination is an agreement where one creditor agrees to have their claim ranked below the claims of other creditors, not necessarily related to the debtor's solvency.

Question 7

Commercial paper is a term that describes short-term corporate indebtedness.

Accepted Answer

Commercial paper is a form of short-term financing usually used by corporations to meet immediate cash needs.

Question 8

If a borrower fails to repay a secured loan,the lender,may foreclose on the collateral.

Accepted Answer

This is true. If a borrower fails to repay a secured loan, the lender has the right to foreclose on the collateral that was put up as security for the loan.

Question 9

A revolving loan is based upon the continuous extension of credit of unlimited amount.

Accepted Answer

A revolving loan allows the borrower to access a pre-approved credit limit repeatedly, but it is not of unlimited amount.

Question 10

Agreements for term or revolving loans may call for mandatory prepayment when certain events occur.

Accepted Answer

Agreements for term or revolving loans may include provisions for mandatory prepayment in the event of certain circumstances, such as a change of ownership or material adverse event.

Question 11

A commitment to make a loan must always be in writing.

Accepted Answer

A commitment to make a loan does not always have to be in writing, but having it in writing provides legal clarity and enforceability.

Question 12

After-acquired property is property that the debtor acquires after the repayment of a loan under a security agreement.

Accepted Answer

The answer of After-acquired property is property that the debtor...

Question 13

Transnational insolvency involves an insolvency proceeding in one country with a creditor located in a second country.

Accepted Answer

Transnational insolvency involves a situation where a debtor (or company) is in one country and is unable to pay its debts to creditors who are located in another country. This typically requires cooperation between the courts and legal systems of the two countries in order to determine how the debtor's assets should be distributed and how the creditors can be paid. Therefore, the statement that "Transnational insolvency involves an insolvency proceeding in one country with a creditor located in a second country" is true.

Question 14

National banks acting as lenders are subject to state usury laws.

Accepted Answer

National banks are regulated by federally enacted usury laws, rather than state usury laws. This is due to the National Bank Act, which grants national banks the power to lend money throughout the country without being subject to various state regulations.

Question 15

The debtor-in-possession must honor all prebankruptcy executory contracts.

Accepted Answer

A debtor-in-possession in a bankruptcy case may reject any executory contracts that are not in the best interest of the estate, subject to court approval. This allows the debtor to relieve the estate of burdensome agreements that could hinder the restructuring process.

Question 16

Under a guaranty of collection,the guarantor becomes obliged to pay only after the lender has attempted unsuccessfully to collect the amount due from the primary debtor.

Accepted Answer

Under a guaranty of collection, the guarantor is not immediately liable for payment. The lender must first attempt to collect payment from the primary debtor before the guarantor becomes obligated to pay.

Question 17

The UCC provides that,unless otherwise agreed,a security agreement gives the secured party a security interest in the proceeds if collateral is sold,exchanged,collected,or otherwise disposed of.

Accepted Answer

This is provided for in Section 9-315(a)(2) of the UCC.

Question 18

Chapter 13 does not provide a bankruptcy discharge for corporations.

Accepted Answer

Chapter 13 only provides a bankruptcy discharge for individuals, not corporations. Corporations can file for Chapter 11 bankruptcy, which does provide a discharge.

Question 19

Payments in the ordinary course of business made within 90 days prior to a Chapter 11 bankruptcy filing are voidable as a preference.

Accepted Answer

Payments made in the ordinary course of business within 90 days prior to a Chapter 11 bankruptcy filing are generally not considered voidable preferences. This exception is designed to allow normal business transactions to continue without the threat of later reversal.

Question 20

A commitment fee is an amount a lender requires as consideration for its promise to keep a commitment to loan available.

Accepted Answer

A commitment fee is indeed an amount charged by a lender to ensure that they will keep a loan available for a borrower.

Quiz 24: Debtor-Creditor Relations and Bankruptcy