Question 1

Refresh Inc.'s debt to Spring Water Company is past due.Spring brings a legal action against Refresh to collect the debt.Spring asks the court to order Tempo Bank,in which Refresh has an account,to pay a portion of the funds to Spring.This is a request for
A) a writ of execution.
B) an order of garnishment.
C) an order that would violate most state laws.
D) an artisan's lien.

Accepted Answer

This is a request for an order of garnishment, which is a legal process that allows a creditor to take funds from a debtor's bank account to satisfy a debt. This is a common remedy for past due debts and is allowed under most state laws.

Question 2

To purchase a house,Nora obtains a mortgage loan from Oak Tree Loans LLC.Later,Nora informs Oak Tree that she may default on the payments.The lender agrees to delay taking possession of the property and selling it.The parties negotiate a payment plan for the amount due on the loan.This is
A) forbearance.
B) a short sale.
C) a workout agreement.
D) none of the choices.

Accepted Answer

The situation described involves the lender and borrower negotiating a payment plan to avoid default and foreclosure. This is typically referred to as a workout agreement. Forbearance would involve the lender agreeing to temporarily suspend or reduce payments, but a payment plan is not typically established in forbearance. A short sale typically occurs when the borrower cannot afford to repay the loan and the property is sold for less than the amount owed. Therefore, of the choices presented, a workout agreement is the best option.

Question 3

Business Sales Inc.'s debt to Cartage Company is past due.Cartage brings a legal action against Business Sales to collect.To ensure that a judgment in the creditor's favor will be collectible,Cartage asks the court to order the seizure of the debtor's property.This is a request for
A) an artisan's lien.
B) a mechanic's lien.
C) a writ of attachment.
D) a writ of execution.

Accepted Answer

A writ of attachment is a court order that allows a creditor to seize a debtor's property while a lawsuit is pending. This is done to ensure that there will be assets available to satisfy a judgment if the creditor wins the lawsuit. An artisan's lien and a mechanic's lien are specific types of liens related to work done on a specific piece of property, and a writ of execution is a court order that allows a creditor to seize a debtor's property after a judgment has been rendered.

Question 4

Dot is awarded $150,000 in a suit against Evan,and obtains a court order to sell Evan's home at auction to satisfy the debt.Half of the $100,000 proceeds from the sale are paid to Dot toward the judgment.Under a state exemption statute,the remainder is given to Evan as
A) his homestead exemption.
B) a deficiency judgment.
C) the excess over a federal cap on the amount a creditor can claim on a judgment debt.
D) part payment on the claims of other creditors or a bankruptcy trustee.

Accepted Answer

A homestead exemption is a legal provision that allows a homeowner to retain a certain amount of equity in their home free from the claims of most creditors. In this scenario, Evan receives the remainder of the sale proceeds as his homestead exemption under the state exemption statute.

Question 5

To purchase a house,Becky obtains a mortgage loan from Countywide Bank.The lender should record the mortgage to
A) be officially on record as holding an interest in the property.
B) secure itself in the position of an unsecured creditor.
C) preserve a copy of the loan in a separate location.
D) obtain reimbursement for a portion of the loan if the debtor defaults.

Accepted Answer

Recording the mortgage allows the lender to be officially on record as holding an interest in the property. This provides protection in case of any future disputes or claims on the property.

Question 6

Brewery Company's debt to Credit Service is past due.Credit obtains a judgment against Brewery,but the firm refuses to pay.Credit asks the court to order the seizure of Brewery's property.This is a request for
A) an artisan's lien.
B) a mechanic's lien.
C) a writ of attachment.
D) a writ of execution.

Accepted Answer

A writ of execution is a court order allowing the seizure of a debtor's property to satisfy a debt owed to a creditor. This is the appropriate remedy for Credit Service to pursue against Brewery to collect the past-due debt. An artisan's lien and a mechanic's lien are specific types of liens used to secure payment for services rendered, while a writ of attachment is used to seize a debtor's property before a judgment is obtained. None of these options are appropriate in this scenario where a judgment has already been obtained.

Question 7

If a voluntary petition in bankruptcy is found to be proper,the court's entry of an order for relief
A) puts into place an automatic stay.
B) discharges the debtor's obligations.
C) dismisses the petition.
D) distributes the debtor's assets to his or her creditors.

Accepted Answer

When a proper voluntary petition in bankruptcy is entered, the court will put an automatic stay in place which prevents creditors from continuing any collection activity. This provision is designed to give the debtor a chance to reorganize or rebuild financially. The other options are not accurate - the entry of an order for relief does not discharge the debtor's obligations (that would happen later in the bankruptcy process if at all), dismiss the petition (unless there was a defect or the debtor withdrew the petition), or distribute the debtor's assets (that would happen in a Chapter 7 liquidation, but not necessarily in other types of bankruptcy).

Question 8

Under the Bankruptcy Code,the means test is used to
A) keep higher-income people from abusing the bankruptcy process.
B) force more people to file for Chapter 7 bankruptcy.
C) determine the validity of a statement or claim by any party in interest.
D) prioritize the claims of the creditors in an involuntary proceeding.

Accepted Answer

The means test is used to determine if a debtor's income is low enough to qualify for Chapter 7 bankruptcy, or if they must instead file for Chapter 13 and repay a portion of their debts. It was designed to prevent higher-income earners from abusing the bankruptcy process and erasing all of their debts.

Question 9

Under Chapter 7,creditors are paid in a certain order of priority.The highest-priority class comprises claims for
A) debts related to motor vehicles,household goods,and trade tools.
B) domestic support.
C) the debtor's equity in his or her residence.
D) student loans.

Accepted Answer

Domestic support claims have the highest priority under Chapter 7 bankruptcy. This includes claims for alimony, child support, and certain other domestic obligations. Other types of debts, such as those related to motor vehicles, household goods, and trade tools, fall into a lower priority category. The debtor's equity in his or her residence can be exempted under certain circumstances but does not have a priority ranking. Student loans are generally not dischargeable in bankruptcy and do not have a priority ranking either.

Question 10

In a Chapter 7 bankruptcy,on a finding that the use of Chapter 7 would constitute substantial abuse,the court is most likely to
A) extend the time for the debtor's payment of overdue debts.
B) allow a creditor to collect a previous judgment on a disputed debt.
C) force a creditor to obtain a new judgment on a claimed debt.
D) dismiss the debtor's petition.

Accepted Answer

If the court finds that the use of Chapter 7 would constitute substantial abuse, they are likely to dismiss the debtor's petition. This is because Chapter 7 is meant for debtors who cannot pay their debts, and if the court determines that the debtor has the ability to pay, it would not be appropriate to allow them to discharge their debts through Chapter 7.

Question 11

Under Chapter 7,once the proceeds have been distributed,the obligations of the debtor most likely to be discharged are
A) taxes accruing within the last three years.
B) claims based on the debtor's willful or malicious conduct or fraud.
C) none of the choices.
D) domestic-support obligations.

Accepted Answer

Under Chapter 7 bankruptcy, most debts can be discharged, but there are exceptions. Taxes accruing within the last three years, claims based on willful or malicious conduct or fraud, and domestic-support obligations are typically not discharged.

Question 12

To purchase a house,Ethel obtains a mortgage loan from Fidelity Bank.Later,Ethel is unable to make payments on the loan.Meanwhile,the market value of the house has declined.Fidelity agrees to a sale of the property for less than the amount due on the loan.This is
A) forbearance.
B) a short sale.
C) a workout agreement.
D) none of the choices.

Accepted Answer

This is a situation of a short sale, where the property is sold for less than the amount due on the loan.

Question 13

To make a sale to Gourmet Inc. ,Hill Valley Commodities asks Gourmet's outside accountant Ina to co-sign a credit application.According to the terms,if Gourmet defaults,Hill Valley can look to her for payment without first pursuing legal remedies against Gourmet.Tina is
A) a surety.
B) a lienor.
C) a guarantor.
D) a creditor.

Accepted Answer

The answer of To make a sale to Gourmet Inc....

Question 14

Irma delivers her Jeep to be fixed at Kent's Auto Repair.Irma agrees to pay cash.Kent's performs,but Irma does not pay.Kent's keeps the Jeep until she pays.This is
A) garnishment.
B) a mechanic's lien.
C) an artisan's lien.
D) a violation of most states' laws.

Accepted Answer

An artisan's lien allows a service provider to retain possession of a piece of personal property until payment for services rendered is made.

Question 15

Barth borrows funds from City Bank to pay his tuition.His mother Debi co-signs the credit application.After the loan agreement is signed,Barth agrees to a higher rate of interest without telling Debi.She 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.

Accepted Answer

The answer of Barth borrows funds from City Bank to...

Question 16

To purchase a house,Leo borrows funds from Metro Bank.The terms of the loan give the lender a security interest in the property being acquired by the borrower as security for payment of the debt.This is
A) a mortgage.
B) a down payment.
C) a short sale.
D) predatory lending.

Accepted Answer

The terms described indicate that Leo is taking out a mortgage, which involves borrowing money to purchase property while using that property as collateral for the loan.

Question 17

With respect to debtors,the main goal of bankruptcy law is to
A) encourage the continued use of credit.
B) ensure that third parties will continue to guarantee loans.
C) provide a new start without creditors' claims.
D) shield assets from creditors' claims.

Accepted Answer

The main goal of bankruptcy law with respect to debtors is to provide them with a fresh financial start, free from the claims of their creditors. This is achieved by discharging debts that cannot be paid and allowing the debtor to keep exempt assets. The other options (A, B, and D) do not align with the main goal of bankruptcy law with respect to debtors.

Question 18

To purchase a house,Clyde obtains a mortgage loan from Debit Bank.Clyde defaults on the payments on the loan.The bank has
A) the right to foreclose on the mortgaged property.
B) the obligation to forbear part or all of the payments for a limited time.
C) the obligation to refinance the loan.
D) the right to reimbursement from an insurer for the unpaid debt.

Accepted Answer

When a borrower defaults on a mortgage loan, the bank has the legal right to foreclose on the mortgaged property and sell it in order to recoup the unpaid debt.

Question 19

Under any chapter of the Bankruptcy Code,failing to file the necessary documents with the debtor's petition for relief can result in
A) an automatic stay.
B) the discharge of the debtor's obligations.
C) the dismissal of the petition.
D) the distribution of the debtor's assets to his or her creditors.

Accepted Answer

Failing to file necessary documents with the debtor's petition for relief can result in the dismissal of the petition. This means that the case will not proceed and the debtor will not receive bankruptcy protection.

Question 20

Petro Refinery asks Quality Bank for a loan to increase its inventory.Quality requires Rose,Petro's president,to sign a personal guaranty to pay the debt if Petro defaults.Rose is a guarantor.The guaranty is required to be in writing because
A) the debtor has a right of redemption.
B) the co-signer has a right of contribution.
C) the main purpose rule applies.
D) the main purpose rule does not apply.

Accepted Answer

The main purpose of the guaranty is to ensure repayment of the debt by a third party in case of default by Petro Refinery. As such, the written guaranty is not required to satisfy the main purpose rule, which applies to situations where the primary purpose of a transaction is to benefit the guarantor rather than the debtor. The other options are not relevant to the requirement for a written guaranty.

Quiz 13: Creditor-Debtor Relations and Bankruptcy

Refresh Inc.'s debt to Spring Water Company is past due.Spring brings a legal action against Refresh to collect the debt.Spring asks the court to order Tempo Bank,in which Refresh has an account,to pay a portion of the funds to Spring.This is a request for

To purchase a house,Nora obtains a mortgage loan from Oak Tree Loans LLC.Later,Nora informs Oak Tree that she may default on the payments.The lender agrees to delay taking possession of the property and selling it.The parties negotiate a payment plan for the amount due on the loan.This is

Business Sales Inc.'s debt to Cartage Company is past due.Cartage brings a legal action against Business Sales to collect.To ensure that a judgment in the creditor's favor will be collectible,Cartage asks the court to order the seizure of the debtor's property.This is a request for

Dot is awarded $150,000 in a suit against Evan,and obtains a court order to sell Evan's home at auction to satisfy the debt.Half of the $100,000 proceeds from the sale are paid to Dot toward the judgment.Under a state exemption statute,the remainder is given to Evan as

To purchase a house,Becky obtains a mortgage loan from Countywide Bank.The lender should record the mortgage to

Brewery Company's debt to Credit Service is past due.Credit obtains a judgment against Brewery,but the firm refuses to pay.Credit asks the court to order the seizure of Brewery's property.This is a request for

If a voluntary petition in bankruptcy is found to be proper,the court's entry of an order for relief

Under the Bankruptcy Code,the means test is used to

Under Chapter 7,creditors are paid in a certain order of priority.The highest-priority class comprises claims for

In a Chapter 7 bankruptcy,on a finding that the use of Chapter 7 would constitute substantial abuse,the court is most likely to

Under Chapter 7,once the proceeds have been distributed,the obligations of the debtor most likely to be discharged are

To purchase a house,Ethel obtains a mortgage loan from Fidelity Bank.Later,Ethel is unable to make payments on the loan.Meanwhile,the market value of the house has declined.Fidelity agrees to a sale of the property for less than the amount due on the loan.This is

To make a sale to Gourmet Inc. ,Hill Valley Commodities asks Gourmet's outside accountant Ina to co-sign a credit application.According to the terms,if Gourmet defaults,Hill Valley can look to her for payment without first pursuing legal remedies against Gourmet.Tina is

Irma delivers her Jeep to be fixed at Kent's Auto Repair.Irma agrees to pay cash.Kent's performs,but Irma does not pay.Kent's keeps the Jeep until she pays.This is

Barth borrows funds from City Bank to pay his tuition.His mother Debi co-signs the credit application.After the loan agreement is signed,Barth agrees to a higher rate of interest without telling Debi.She is

To purchase a house,Leo borrows funds from Metro Bank.The terms of the loan give the lender a security interest in the property being acquired by the borrower as security for payment of the debt.This is

With respect to debtors,the main goal of bankruptcy law is to

To purchase a house,Clyde obtains a mortgage loan from Debit Bank.Clyde defaults on the payments on the loan.The bank has

Under any chapter of the Bankruptcy Code,failing to file the necessary documents with the debtor's petition for relief can result in

Petro Refinery asks Quality Bank for a loan to increase its inventory.Quality requires Rose,Petro's president,to sign a personal guaranty to pay the debt if Petro defaults.Rose is a guarantor.The guaranty is required to be in writing because