Question 1

Voluntary petitions in bankruptcy may be filed by a(n) _____.

Accepted Answer

A voluntary petition in bankruptcy may be filed by an individual, a partnership, or a corporation. However, municipal, railroad, insurance, and banking corporations and savings and loan associations are not permitted to file for liquidation proceedings.

Question 2

Which of the following is a valid objection to a discharge in bankruptcy?

Accepted Answer

Discharges in bankruptcy are intended for honest debtors. Therefore, there are a number of acts that will bar a debtor from being discharged. These acts include failing to account satisfactorily for any loss or deficiency of assets and failing to obey court orders or to answer questions by the court.

Question 3

Under the Bankruptcy Code, exemptions are only available to _____.

Accepted Answer

Even in a liquidation proceeding, the debtor is generally not required to give up all of his property, but rather, is permitted to exempt certain items of property. Exemptions are only available to individual debtors, never to debtors who are corporations or other entities.

Question 4

Which of the following statements concerning reaffirmation agreements is true?

Accepted Answer

A reaffirmation agreement must be made before the discharge is granted and must contain a clear and conspicuous statement that advises the debtor to do certain specific things. A debtor may voluntarily pay any dischargeable obligation without entering into a reaffirmation agreement.

Question 5

People who file voluntary petitions:

Accepted Answer

It is not necessary that a person who files a voluntary petition be insolvent, that is, unable to pay his debts as they become due. However, the person must be able to allege that he has debts.

Question 6

Debts created by larceny or embezzlement by the debtor while acting in a fiduciary capacity are _____.

Accepted Answer

Certain debts are not affected by the discharge of a bankrupt debtor. The Bankruptcy Code provides that a discharge in bankruptcy releases a debtor from all provable debts except for those that were created by the debtor's larceny or embezzlement or by the debtor's fraud while acting in a fiduciary capacity.

Question 7

An individual may not be granted a discharge if the individual _____.

Accepted Answer

A bankrupt person who has not been guilty of certain dishonest acts and who has fulfilled his duties as a bankrupt is entitled to a discharge in bankruptcy. An individual may not be granted a discharge if he or she has obtained one within the previous eight years.

Question 8

Which of the following statements is true of Chapter 13 of the Bankruptcy Code?

Accepted Answer

Chapter 13 of the Bankruptcy Code sets out a special procedure that enables individuals with regular income who are in financial difficulty to develop a plan under court supervision to satisfy their creditors. It permits compositions (reductions) of debts and/or extensions of time to pay debts out of the debtor's future earnings.

Question 9

If a creditor owns a debt that is provable and nondischargeable, he or she _____.

Accepted Answer

The creditor who owns provable, nondischargeable debts can participate in the distribution of the bankrupt's estate. The creditor has an additional advantage: His right to recover the unpaid balance is not cut off by the bankrupt's discharge.

Question 10

Which of the following statements is true of bankruptcy judges?

Accepted Answer

Bankruptcy cases and proceedings are filed in federal district courts. The district courts have the authority to refer the cases and proceedings to bankruptcy judges, who are considered to be units of the district court. If a dispute falls within what is known as a core proceeding, the bankruptcy judge can hear and determine the controversy.

Question 11

Which of the following statements is true of claims made by creditors?

Accepted Answer

The trustee must determine whether a creditor has a lien or secured interest to secure an allowable claim. If the debtor's property is subject to a secured claim of a creditor, that creditor has the first claim to it. The property is available to satisfy claims of other creditors only to the extent that its value exceeds the amount of the debt secured.

Question 12

Which of the following is true about a trustee's duties?

Accepted Answer

A trustee takes possession of a debtor's property and has it appraised. The debtor must also turn over his records to the trustee. For a time, the trustee may operate the debtor's business. The trustee examines the claims that have been filed by various creditors and objects to those that are improper in any way.

Question 13

When a debtor files a bankruptcy petition, the creditor may be relieved from an automatic stay on his actions against the debtor if:

Accepted Answer

The filing of a bankruptcy petition operates as an automatic stay of various forms of creditor action against a debtor or his property. A court may give a creditor relief from the stay if the creditor can show that the stay does not give him "adequate protection" and jeopardizes his interest in certain property.

Question 14

The court orders relief to a creditor only if:

Accepted Answer

Once a bankruptcy petition has been filed, the first step is a court determination that relief should be ordered. The court orders relief only if (1) the debtor is generally not paying his debts as they become due or (2) within four months of the filing of the petition, a custodian was appointed or took possession of the debtor's property.

Question 15

Six months before filing for bankruptcy, Shirley sold her new car to her brother for $100 so that her creditors could not claim it. The market value of the car was $8,000 at the time of the sale. Under these circumstances, the transfer is _____.

Accepted Answer

If a debtor transfers property or incurs an obligation with intent to hinder, delay, or defraud creditors, the transfer is voidable by the trustee. Similarly, transfers of property for less than reasonable value are voidable by the trustee. By selling an $8000 car for $100, Shirley did not receive fair consideration. Hence, the transfer is voidable by the trustee.

Question 16

Which of the following payments is considered preferential?

Accepted Answer

A preferential payment is a payment made by an insolvent debtor within 90 days of the filing of the bankruptcy petition that enables the creditor receiving the payment to obtain a greater percentage of a preexisting debt than other similar creditors of the debtor receive. The Code permits payments of accounts in the ordinary course of business. Such payments are not considered preferential.

Question 17

Which of the following statements is true of the exemptions available to bankrupt debtors?

Accepted Answer

Under the Bankruptcy Code, the debtor must elect to use either the set of exemptions provided by the state or the set provided by the federal bankruptcy law; she may not pick and choose between them.

Question 18

Bill filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Act. Bill listed, among others, the following debts: a debt to the National Bank for $10,000 secured by his 1980 truck, which is valued at $3,500; an unsecured debt to his friend, Francis; a $500 debt to the IRS for 1989 federal income taxes; and a $500 student loan to the university which was due one year ago. In this scenario, _____.

Accepted Answer

Certain debts are not affected by the discharge of a bankrupt debtor. The Bankruptcy Code provides that a discharge in bankruptcy releases a debtor from all provable debts except for those that are due as a tax or fine to the United States or any state or local unit of government. In this scenario, the $500 debt that Bill owes the IRS is a nondischargeable debt.

Question 19

A bankrupt person's estate is administered by the _____.

Accepted Answer

The creditors elect a trustee, who takes over administration of the bankrupt's estate. The trustee represents the creditors in handling the estate.

Question 20

Involuntary petitions in straight bankruptcy can be filed against:

Accepted Answer

Involuntary petitions may be filed against many kinds of debtors; however, involuntary petitions in straight bankruptcy cannot be filed against (1) farmers; (2) ranchers; (3) nonprofit organizations; (4) municipal, railroad, insurance, and banking corporations; (5) credit unions, and (6) savings and loan associations.

Quiz 44: Bankruptcy