Bankruptcy Flashcards
Under the liquidation provisions of Chapter 7 of the U.S. 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:
Inheritances received by the debtor within 180 days after the filing of the petition.
The estate includes income generated from estate property and property the debtor receives from a bequest, devise, inheritances, property settlement, divorce, or beneficial interest in life insurance within 180 days after filing of the petition.
Under Chapter 7 of the federal Bankruptcy Code, what effect does a bankruptcy discharge have on a judgment creditor when there is no bankruptcy estate?
The debtor is relieved of any personal liability to the judgment creditor
Under Chapter 7, a discharge discharges most debts of a debtor, whether or not there is a bankruptcy estate from which to pay the debts.
Which of the following types of debtor are not eligible for relief under Chapter 11 of the Bankruptcy Code?
Stockbrokers
Although both individuals and corporations are generally eligible for relief under Chapter 11, stockbrokers are specifically excluded.
Under Chapter 11 of the federal Bankruptcy Code, which of the following would not be eligible for reorganization?
Savings and loan corporation.
Savings and loan corporations may not participate in Chapter 11 (or Chapter 7) bankruptcy proceedings.
Retail (and wholesale) sole proprietorships, advertising partnerships and CPA professional corporations may file under Chapter 11 of the Bankruptcy Code.
Filing a valid petition in bankruptcy acts as an automatic stay of actions to:
Garnish the
debtor’s wages.
The “automatic stay” created upon filing a petition in bankruptcy stops any attempt by creditors to collect through the garnishment of the debtor’s wages. However, the automatic stay does not stop the collection of alimony.
The filing of an involuntary petition in bankruptcy:
Stops the enforcement of a judgment lien against property in the bankruptcy estate.
The filing of a petition in bankruptcy (voluntary or involuntary) stops the enforcement of all judgment liens and collection actions against the debtor (called “automatic stay”).
The automatic stay stops creditors from pursuing collection actions against the debtor while the bankruptcy is pending.
Liens against the debtor’s property (exempt or otherwise) are not terminated upon the filing of a petition in bankruptcy (voluntary or involuntary); they are merely stayed.
Security interests in the debtor’s property do not terminate upon the filing of a petition in bankruptcy (voluntary or involuntary); they continue until the secured interest is satisfied.
Involuntary petition
An involuntary petition requires at least 3 creditors to file if the debtor has 12 or more creditors.
A debtor owes a total of $40,000 to three secured creditors and a total of $100,000 to 15 unsecured creditors. The debtor has not been paying debts as they become due. Which of the following requirements must be met for the debtor’s creditors to file an involuntary bankruptcy petition under Chapter 7 of the federal Bankruptcy Code?
At least three unsecured creditors must join in the petition.
If a debtor is not paying debts as they become due and and has 12 or more unsecured creditors, at least three of the unsecured creditors who together are owed at least $18,600 must join to bring an involuntary petition.
Which of the following requirements must be met for creditors to file an involuntary bankruptcy petition under Chapter 7 of the federal Bankruptcy Code?
The debtor has not been paying its bona fide debts as they become due.
An involuntary petition for bankruptcy can be filed if a debtor owes more than $18,600 in unsecured debt and is not paying its debts as they become due.
There can be more than 12 creditors. If there are more than 12 creditors, at least three must join together in filing the petition.
The debtor must owe at least $18,600 to all of the unsecured creditors. There is no requirement that one creditor be owed any specified amount.
There is no requirement that a secured creditor join in the petition.
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:
Municipal bond interest received by the debtor within 180 days after the filing of the petition.
The bankruptcy estate includes property the debtor receives from a bequest, devise, inheritance, property settlement, divorce decree or beneficial interest in a life insurance policy or death benefit plan within 180 days after the filing of the petition. In addition, the estate includes any income generated by estate property (rents, interest and dividends) after the petition is filed. Earned income after the case commences is generally excluded.
A debtor who filed voluntarily and received a discharge in bankruptcy under the provisions of Chapter 7 of the federal Bankruptcy Code:
Must surrender for distribution to the creditors any amount received as an inheritance if received within 180 days after filing the petition.
An inheritance received within 180 days after filing of the petition must be surrendered for distribution to the creditors.
Certain debts are not discharged, e.g., alimony, taxes. (Avoid options using words such as “all,” “always,” and “never.”)
A debtor can obtain another voluntary discharge in bankruptcy after eight (not five) years have passed.
Deft, CPA, is an unsecured creditor of Golf Co. for $19,000. Golf has a total of 10 creditors, all of whom are unsecured. Golf has not paid any of the creditors for three months. Under Chapter 11 of the U.S. Bankruptcy Code, which of the following statements is correct?
Deft may file an involuntary petition in bankruptcy against Golf
When there are fewer than 12 unsecured creditors, any one creditor who is owed at least $18,600 (as adjusted for inflation) in unsecured debt or more may file an involuntary petition in bankruptcy.
A debtor who is not paying debts as they become due is subject to being involuntarily petitioned into bankruptcy under the provisions of Chapter 11.
The fact that there are fewer than 12 unsecured creditors means that only one creditor is needed for the involuntary petition (as long as the creditor is owed at least $18,600 in unsecured debt).
Karen sells her one-year-old sports car to her mother for $100. The next week, Karen files for bankruptcy under Chapter 7. Regarding the sale of the car, the trustee may:
Cancel it as a fraudulent transfer.
Transfers made within two years of the filing date with an intent to hinder, delay, or defraud creditors or any transfer where the debtor received less than equivalent value while the debtor was insolvent are fraudulent transfers and may be set aside by the trustee. A one year old car typically is worth far more than $100, and because Karen filed for bankruptcy the next week, she likely was insolvent when she made the transfer.
A voidable preference is a transfer made to benefit one creditor over other creditors on account of an antecedent debt. Karen’s mother was not a creditor (i.e., no antecedent debt was involved).
Flax, a sole proprietor, has been petitioned involuntarily into bankruptcy under the federal Bankruptcy Code’s liquidation provisions. Simon & Co., CPAs, has been appointed trustee of the bankruptcy estate. If Simon also wishes to act as the tax return preparer for the estate, which of the following statements is correct?
Simon may employ itself to prepare tax returns if authorized by the court and may receive a separate fee for services rendered in each capacity.
A court appointed trustee may serve as both a trustee of an estate and also be its tax return preparer if authorized by the court. The CPA may receive a separate fee for services rendered in each capacity.
Under the reorganization provisions of Chapter 11 of the U.S. Bankruptcy Code, after a reorganization plan is confirmed, and a final decree closing the proceedings entered, which of the following events usually occurs?
A reorganized corporate debtor will be discharged from all debts except as otherwise provided in the plan and applicable law.
Generally in a reorganization the debtor remains in possession and there is no trustee. In any event, a trustee would not be left in place after the reorganization is complete. The goal of Chapter 11 is to allow the debtor’s business to continue.
The goal of a reorganization is to allow the debtor’s business to continue; the business is not dissolved at the conclusion of the bankruptcy proceedings.
The goal of a reorganization is just the opposite: to allow the debtor’s business to continue.
