BANK

Question 1

Hard Times, Inc., is insolvent. Its liabilities exceed its assets by $13 million. Hard Times is owned by its president, Waters, and members of his family. Waters, whose assets are estimated at less than a million dollars, guaranteed the loans of the corporation. A consortium of banks is the principal creditor of Hard Times, having loaned it $8 million, the bulk of which is unsecured. The banks decided to seek reorganization of Hard Times and Waters has agreed to cooperate. Regarding the proposed reorganization

Answer 1

Hard Times will remain in possession of its business unless request is made to the court for the appointment of a trustee.

Question 2

On May 5, year I, Bold obtained a $90,000 judgment in a malpractice action against Aker, a physician. On June 2, year I, Aker obtained a $75,000 loan from Tint Finance C0. by knowingly making certain false representations to Tint. On July 7, year I, Aker filed a voluntary petition in bankruptcy under the liquidation provisions of the Bankruptcy Code. Both Bold and Tint filed claims in Aker’s bankruptcy proceeding. Assets in Aker’s bankruptcy estate are exempt. Tint’s claim

Answer 2

Will be exempt from Aker’s discharge in bankruptcy.

Question 3

Various creditors are seeking payment for debts of corporation that has been forced into bankruptcy. Show from highest to lowest the priorities of the following debts of the corporation.

I. Legal fees owed to law firm for services not connected with the bankruptcy.

II. Fees owed appraisers who aided in the sale of the corporation’s assets for the bankruptcy proceedings.

III. State taxes the corporation owes for the previous year.

Answer 3

II, III, I

Question 4

Haplow engaged Turnbow as his attorney when threatened by several creditors with a bankruptcy proceeding. Haplow’s assets consisted of $85,000 and his debts were $125,000. A petition was subsequently filed and was uncontested. Several of the creditors are concerned that the suspected large legal fees charged by Turnbow will diminish the size of the distributable estate. What are the rules of limitation which apply to such fees?

Answer 4

Turnbow must file with the court a statement of compensation paid or agreed to for review as to its reasonableness.

Question 5

A discharge of a bankrupt debtor is a release from all debts except those that are not dischargeable. However, certain acts can bar general discharge. Which of the following acts of the debtor will result in a bar to a general discharge?

I. Failing to explain satisfactorily a loss of assets that should have ended up in the estate.

Il. Making false claims against the estate.

Ill. Taking out bankruptcy 3 years earlier.

Answer 5

I, II, and III

Question 6

Peters Co. repairs computers. On February 9, Stark Electronics Corp. sold Peters a circuit tester on credit. Peters executed an installment note for the purchase price, a security agreement covering the tester, and a financing statement that Stark filed on February 11. On April 13, creditors other than Stark filed an involuntary petition in bankruptcy against Peters. What is Stark’s status in Peters’ bankruptcy?

Answer 6

Stark is secured creditor and can assert a claim to the circuit tester that will be superior to the claims of Peters’ other creditors.

Question 7

In bankruptcy proceeding, the trustee

Answer 7

Is the representative of the bankrupt’s estate and as such has the capacity to sue and be sued on its behalf.

Question 8

Skipper was for several years the principal stockholder, director, and chief executive officer of the Canarsie Grocery Corporation. Canarsie had financial difficulties and an order of relief was filed against it, and its debts subsequently discharged in Bankruptcy. Several creditors are seeking to hold Skipper personally liable as a result of his stock ownership and as a result of his being an officer-director. Skipper in turn filed with the bankruptcy judge a claim for $1,400 salary due him. Which of the following is correct?

a. Skipper cannot personally file a petition in bankruptcy for 8 years.
b. Skipper’s salary’ claim will be allowed and he will be entitled to a priority.
c. Skipper is personally liable to the creditors for Canarsie’s losses.
d. Skipper has no personal liability to the creditors as long as Canarsie is recognized as separate legal entity.

Answer 8

Skipper has no personal liability to the creditors as long as Canarsie is recognized as separate legal entity.

Question 9

A bankrupt who has voluntarily filed for and received discharge in bankruptcy under the liquidation provisions (Ch. 7)

Answer 9

Must surrender for distribution to the creditors amounts received as an inheritance if the receipt occurs within 180 days after filing of the petition.

Question 10

On May 5, Bold obtained a $90,000 judgment in a malpractice action against Aker, a physician. On June 2, Aker obtained a $75,000 loan from Tint Finance Co. by knowingly making certain false representations to Tint. On July 7, Aker filed a voluntary petition in bankruptcy under the liquidation provisions of the Bankruptcy Code. Both Bold and Tint filed claims in Aker’s bankruptcy proceeding. Assets in Aker’s bankruptcy estate are exempt. Bold’s claim

Answer 10

Will be discharged in Aker’s bankruptcy proceeding.

Question 11

As an alternative to bankruptcy liquidation, business may reorganize under Chapter Il of the Bankruptcy Code. Such reorganization

Answer 11

May be commenced by filing either a voluntary or involuntary petition.

Question 12

Which of the following assets would be included in debtor’s bankruptcy estate in liquidation proceeding?

a. Proceeds from a life insurance policy received go days after the petition was filed.
b. Wages earned by the debtor after the petition was filed.
c. An inheritance received 270 days after the petition was filed.
d. Property from a divorce settlement received 365 days after the petition was filed.

Answer 12

Proceeds from a life insurance policy received go days after the petition was filed.

Question 13

Which of the following events will follow the filing of the Chapter 7 involuntary petition?

a. A trustee will be appointed and A stay against creditor collection proceedings will go into effect
b. A trustee will be appointed
c. A stay against creditor collection proceedings will go into effect
d. Neither

Answer 13

A trustee will be appointed and A stay against creditor collection proceedings will go into effect

Question 14

On April I, Roe borrowed $100,000 from Jet to pay Roe’s business expenses. On June 15, Roe gave Jet a signed security agreement and financing statement covering Roe’s inventory. Jet immediately filed the financing statement. On July I, Roe filed for bankruptcy. Under the federal Bankruptcy Code, can Roe’s trustee in bankruptcy set aside Jet’s security interest in Roe’s inventory?

Answer 14

Yes, because giving the security interest to Jet created a voidable preference.

Question 15

Six months ago Harold Walsh borrowed $4,000 from the First Financial Credit Corporation. At that time, First Financial requested and received collateral valued at $4,500. Other creditors filed an involuntary petition in bankruptcy against Walsh one week ago. First Financial has since sold the collateral it held for its fair market value. Under these circumstances

Answer 15

If the collateral held was of insufficient value to satisfy the debt, First Financial may file a claim in bankruptcy for any deficiency on the loan to Walsh.

Question 16

Under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code, certain property acquired by the debtor after the filing of the petition becomes part of the bankruptcy estate. An example of such property is

Answer 16

Inheritances received by the debtor within 180 days after the filing of the petition.

Question 17

Knox operates an electronics store as sole proprietor. On April 5, Knox was involuntarily petitioned into bankruptcy under the liquidation provisions of the Bankruptcy Code. On April 20, a trustee in bankruptcy was appointed and an order for relief was entered. Knox’s nonexempt property has been converted to cash, which is available to satisfy the following claims and expenses as may be appropriate:

Claims and Expenses

Claim by Dart Corp. (one of Knox’s suppliers) for computers ordered on April 5, and delivered on credit to Knox on April 10. $20,000

Fee earned by the bankruptcy trustee. $ 15,000

Claim by Boyd for deposit given to Knox on April I, for computer Boyd purchased for personal use but that had not yet been received by Boyd.** **$ 1,500

Claim by Noll Co. for the delivery of stereos to Knox on credit. The stereos were delivered on April 4, and a financing statement was properly filed on April 5. These stereos were sold by the trustee with Noll’s consent for $7,500, their fair market value. $ 5,000

Fees earned by the attorneys for the bankruptcy estate. $ 10,000

Claims by unsecured general creditors $ 1,000 The cash available for distribution includes the proceeds from the sale of the stereos.

What amount will be distributed to Boyd if the cash available for distribution is $50,800?

Answer 17

$800

Question 18

Which of the following is correct with respect to an involuntary bankruptcy proceeding under the liquidation provisions of the Bankruptcy Code?

a. The debtor may regain possession of property in the possession of an interim trustee if the debtor files a bond.
a. The petitioners must automatically file a bond to indemnify the debtor for any loss caused by the filing of the petition.
b. It may be commenced against any debtor who is insolvent.
d. A trustee must be elected by the creditors immediately after the court orders relief against the debtor.

Answer 18

The debtor may regain possession of property in the possession of an interim trustee if the debtor files a bond.

Question 19

Barkam is starting a new business, Barkham Enterprises, which will be a sole proprietorship selling retail novelties. Barkam recently received a discharge in bankruptcy, but certain proved claims were unpaid because of lack of funds. Which of the following is still a valid claim against Barkham?

a. The unpaid amounts owed to secured creditors who received less than the full amount after resorting to their security interest and receiving their bankruptcy dividend.
b. The unpaid amounts owed to trade suppliers for goods purchased and sold by aarkam in the ordinary course of his prior business.
c. The unpaid amount of taxes due to the United States which became due and owing within 3 years preceding bankruptcy.
d. A personal loan by his father made in an attempt to stave off bankruptcy.

Answer 19

The unpaid amount of taxes due to the United States which became due and owing within 3 years preceding bankruptcy.

Question 20

Knox operates an electronics store as sole proprietor. On April 5, Knox was involuntarily petitioned into bankruptcy under the liquidation provisions of the Bankruptcy Code. On April 20, a trustee in bankruptcy was appointed and an order for relief was entered. Knox’s nonexempt property has been converted to cash, which is available to satisfy the following claims and expenses as may be appropriate:

Claims and Expenses

Claim by Dart Corp. (one of Knox’s suppliers) for computers ordered on April 5, and delivered on credit to Knox on April 10. $20,000

Fee earned by the bankruptcy trustee. $ 15,000

Claim by Boyd for deposit given to Knox on April I, for computer Boyd purchased for personal use but that had not yet been received by Boyd. $ 1,500

Claim by Noll Co. for the delivery of stereos to Knox on credit. The stereos were delivered on April 4, and a financing statement was properly filed on April 5. These stereos were sold by the trustee with Noll’s consent for $7,500, their fair market value. $ 5,000

Fees earned by the attorneys for the bankruptcy estate. $ 10,000

Claims by unsecured general creditors $ 1,000

The cash available for distribution includes the proceeds from the sale of the stereos. If the trustee in bankruptcy wishes to avoid Noll’s April 4 transactions with Knox as a preferential transfer, the transfer will

Answer 20

Lose, because the transfer was in fact substanially contemporaneous exchange for new value given

Question 21

The filing of an involuntary petition in bankruptcy

Answer 21

Stops the enforcement of a judgment lien against property in the bankruptcy estate.

Question 22

An involuntary petition in bankruptcy

Answer 22

If not contested will result in the entry of an order for relief by the bankruptcy judge.

Question 23

Branson Corporation voluntarily filed petition in bankruptcy on January 2 of the current year. Branson owes the following debts:

I. $500 to an appraiser for help in appraising the assets in the bankruptcy estate.

II. Wages of $3,000 to an employee for December of the previous year just concluded.

III. Timely claims of general, unsecured creditors of $30,000.

IV. State and federal taxes of $10,000 owed.

What is the priority from highest to lowest, of these claims in the bankruptcy proceedings?

Answer 23

I, II, IV, III

Question 24

Lux Corp. has been suffering large losses for the past 2 years. Because of its inability to meet current obligations, Lux has filed petition for reorganization under Chapter Il of the Bankruptcy Code. The reorganization provisions under the Bankruptcy Code

Answer 24

Permit Lux to remain in possession of its assets.

Question 25

On February 2B, Master, Inc. had total assets with a fair market value of $1,200,000 and total liabilities of $990,000. On January 15, Master made a monthly installment note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note. On March 15, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold for less than the balance due on the note to Acme. If Master’s voluntary petition is filed properly,

Answer 25

Lawsuits by Master’s creditors will be stayed by the Federal Bankruptcy Code.

Question 26

The Bankruptcy Code provides that debtor is entitled to claim as exempt property the right to receive

a. Neither
b. Social security benefits
c. Social security benefits and DisabiIity benefits
d. Disability benefites

Answer 26

Social security benefits and DisabiIity benefits

Question 27

Which of the following unsecured debts of $500 each would have the highest relative priority in the distribution of bankruptcy estate in liquidation proceeding?

a. Liabilities to employee benefit plans arising from services rendered during the month preceding the filing of the petition.
b. Claims owed to customers who gave deposits for the purchase of undelivered consumer goods.
c. Wages earned by employees during the month preceding the filing of the petition.
d. Tax claims of state and municipal governmental units.

Answer 27

Wages earned by employees during the month preceding the filing of the petition.

Question 28

On February 28, Master, Inc. had total assets with a fair market value of $1,200,000 and total liabilities of $990,000. On January 15, Master made a monthly installment note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note. On March 15, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold for less than the balance due on the note to Acme. Master’s payment to Acme could

Answer 28

Not be set aside as a preferential transfer because Acme was over secured.

Question 29

If secured party’s claim exceeds the value of the collateral of bankrupt, he will be paid the total amount realized from the sale of the security and will

Answer 29

Become a general creditor for the balance.

Question 30

The federal bankruptcy act contains several important terms. The term is used in connection with preferences and preferential transfers. One such term is “insider.” Which among the following is not an “insider”?

a. A close blood relative of the debtor.
b. A partnership in which the debtor is a general partner.
c. A secured creditor having a security interest in at least or more of the debtor’s property.
d. A corporation of which the debtor is director.

Answer 30

A secured creditor having a security interest in at least or more of the debtor’s property.

Question 31

A claim will not be discharged in bankruptcy proceeding if it

Answer 31

Arises from an extension of credit based upon false representations.

Question 32

Chapter 11 of the Bankruptcy Reform Act of 1978 deals with reorganizations. This Chapter

Answer 32

Permits the debtor-in-possession to continue to operate the business in the same manner as Chapter 11 trustee.

Question 33

A voluntary bankruptcy proceeding is available to

Answer 33

Consumer debtors who make less than the dollar limits set forth in the Bankruptcy Code.

Question 34

The trustee in bankruptcy of a landlord-debtor under Chapter 7 liquidation

Answer 34

May assign the leases of the debtor.

Question 35

This question is based on the following:

On May I, year 2, 2 months after becoming insolvent, Quick Corp., an appliance wholesaler, filed a voluntary petition for bankruptcy under the provisions of Chapter 7 of the Federal Bankruptcy Code. On October I5, year I, Quick’s board of directors had authorized and paid Erly $50,000 to repay Erly’s April I, year I, loan to the corporation. Erly is a sibling of Quick’s president. On March 15, year 2, Quick paid Kray $100,000 for inventory delivered that day. Quick’s payment to Krzy would

Answer 35

Not be voidable, because it was contemporaneous exchange for new value.

Question 36

Under the federal Bankruptcy Code, which of the following rights or powers does trustee in bankruptcy not have?

a. The right to use any grounds available to the debtor to obtain the return of the debtor’s property.
b. The power to require persons holding the debtor’s property at the time the bankruptcy petition is filed to deliver the property to the trustee.
c. The right to avoid any statutory liens against the debtor’s property that were effective before the bankruptcy petition was filed.
c. The power to prevail against a creditor with an unperfected security interest.

Answer 36

he right to avoid any statutory liens against the debtor’s property that were effective before the bankruptcy petition was filed.

Question 37

Filing valid petition in bankruptcy acts as an automatic stay of actions to

a. Garnish the debtor’s wages and Collect alimony from the debtor
b. Garnish the debtor’s wages
c. Collect alimony from the debtor
d. Neither

Answer 37

Gar​nish the debtor’s wages

Question 38

One of the elements necessary to establish that a preferential transfer has been made under the Bankruptcy Code by the debtor to creditor is that the

Answer 38

Debtor was insolvent at the time of the transfer.

Question 39

Under Chapter 11 of the Federal Bankruptcy Code, which of the following actions is necessary before the court may confirm reorganization plan?

a. Preparation of a contingent plan of liquidation.
b. Appointment of a trustee.
c. Provision for full payment of administration expenses.
d. Acceptance of the plan by all classes of claimants.

Answer 39

Provision for full payment of administration expenses.

Question 40

In general, which of the following debts will be discharged under the voluntary liquidation provisions of the Bankruptcy Code?

a. Debts incurred after the order for relief but before the debtor receives a discharge in bankruptcy.
b. A debt arising before the filing of the bankruptcy petition due to the debtor’s negligence.
c. Income taxes due as the result of filing a fraudulent return 7 years prior to the filing of the bankruptcy petition.
d. Alimony payments owed to the debtor’s spouse under a separation agreement entered into prior to the filing of the bankruptcy question.

Answer 40

A debt arising before the filing of the bankruptcy petition due to the debtor’s negligence.

Question 41

Which of the following statements is correct under the Reorganization Chapter of the Bankruptcy Code if the debtor remains in possession of its business?

I. The debtor has the right to be compensated in the same manner as trustee.

Il. The debtor has the right to retain its own accountant to represent it despite the debtor’s employment of that accountant prior to the commencement of the Reorganization proceeding.

Answer 41

II only

Question 42

Wilk owes a total of $50,000 to eight unsecured creditors and one fully secured creditor. Rusk is one of the unsecured creditors and is owed $14,800. Rusk has filed a petition against Wilk under the liquidation provisions of the Bankruptcy Code. Wilk has been unable to pay Wilk’s debts as they become due and Wilk’s liabilities exceed Wilk’s assets. Wilk has filed the papers that are required to oppose the bankruptcy petition. Which of the following statements is correct?

a. The petition will be dismissed because three unsecured creditors must join in the filing of the petition.
b. The petition will be granted because Wilk’s liabilities exceed Wilk’s assets.
c. The petition will be dismissed because the secured creditor failed to join in the filing of the petition.
d. The petition will be granted because Wilk is unable to pay Wilk’s debts as they become due.

Answer 42

The petition will be granted because Wilk is unable to pay Wilk’s debts as they become due.

Question 43

Dark Corp. is a general creditor of Slue. Slue filed a petition in bankruptcy under the liquidation provisions of the Bankruptcy Code. Dark wishes to have the bankruptcy court either deny Slue a general discharge or not have its debt discharged. The discharge will be granted and it will include Dark’s debt even if

Answer 43

Dark was a secured creditor which was not fully satisfied from the proceeds obtained upon disposition of the collateral.

Question 44

A debtor will be denied discharge in bankruptcy if the debtor

Answer 44

Unjustifiably failed to preserve his bocks and records which could have been used to ascertain the debtor’s financial condition.

Question 45

Under the Bankruptcy Code, one of the elements that must be established in order for the trustee in bankruptcy to void preferential transfer to creditor who is not an insider is that

Answer 45

The transferee-creditor received more than he would have received in liquidation proceeding under the Bankruptcy Code.

Question 46

On June 5, year I, Green rented equipment under a 5-year lease. On March 8, year 2, Green was involuntarily petitioned into bankruptcy under the liquidation provisions of the Bankruptcy Code, and a trustee was appointed. The fair market value of the equipment exceeds the balance of the lease payments due. The trustee

Answer 46

May elect not to assume the equipment lease.