Business Law 2

Question 1

The statute of limitations for an alleged breach of contract

Answer 1

Generally commences on the date of the breach.

Question 2

Conditions of performance:

Answer 2

1. Precedent- must occur BEFORE duty to perform
2. Subsequent- must be present or occur AFTER duty to perform (ex. turning in insurance claim after accident)
3. Concurrent- common, title for goods passes when payment rendered

Question 3

Discharge of duty to perform:

Answer 3

1. Failure of conditions-precedent did not occur, duty to perform is discharged
2. Under UCC- Right of assurance that contract will be met if reasonable grounds to believe merchant will not meet obligation

Question 4

UCC Performance

Answer 4

1. Rights to determine performance- right of inspection prior to payment
2. Right of rejection (entire shipment, part of shipment or accept shipment)
3. Buyer’s responsibility- must information seller of rejection in a timely manner, not effective until seller informed, provide specific reasons for rejection, buyer must take care to return goods to seller in good condition or store them properly

Question 5

UCC Performance-Seller’s rights upon rejection

Answer 5

1. Right to cure

2. Substituted performance if contract carrier not available or delivery is impractical by no fault of seller

Question 6

Acceptance/Actual performance occurs when:

Answer 6

1. Buyers notifies seller
2. Buyer fails to reject goods in reasonable time
3. Buyer engages in act inconsistent with seller ownership of goods

Question 7

When can buyer revoke acceptance?

Answer 7

1. Seller did not cure
2. Later discovered that goods are nonconforming after assurance from seller that they are
3. Nonconformity was initially difficult to detect

Question 8

Discharge of duty to perform:

Answer 8

1. Failure of conditions (condition precedent)
2. Agreement or party action (ex. mutual rescission)
3. Novation- new party substituted for original party
4. Accord and satisfaction (completion of original or different performance that is agreed upon)
5. Operation of the law (statute of limitations, bankruptcy, death, illegality, specific subject matter)
6. Performance (including substantial performance meaning any deviations were in good faith and for practical purposes)
7. Material breach- if one party breaches, other party is released

Question 9

Commercial impracticability

Answer 9

UCC doctrine whereby contract can be discharged if there is extreme difficulty or cost to perform.

Question 10

Delivery terms:

Answer 10

1. FOB—(free on board)—Place of shipment or destination
2. FAS (Free Alongside Vessel)—Place of shipment.
3. CIF (Cost, Insurance, Freight)—Title and risk of loss pass from seller to buyer when the seller delivers (possession) identified conforming goods to the carrier, obtains a negotiable bill(s) of lading covering transportation to a named destination, procures an insurance policy, and forwards to buyer all documents

Question 11

Passage of title

Answer 11

Important for purposes of who OWNS the property (ex. IRS cannot seize if not owned)

Nondelivery
1. If there is no document of title, title passes at the moment the contract is made, If there is a document of title, then title passes to buyer upon buyer’s receipt of the document
Delivery
2. Title passes upon tender to either carrier or buyer’s contract destination
3. Delivery- seller to deliver at the buyer’s destination and there are no other delivery terms, title passes from the seller to the buyer upon tender of conforming goods at buyer’s destination

Question 12

Passage of risk of loss

Answer 12

Nondelivery:
1. If seller is a merchant, risk of loss does not pass until buyer actually gets possession
2. If seller is a nonmerchant, risk of loss passes upon seller’s tender of the goods to the buyer.
Delivery:
3. Shipment contract- determined by whether FOB shipping point or destination

Question 13

Effect of Breach on the Passage of Title and Risk of Loss

Answer 13

Seller’s breach- risk of loss does not pass to the buyer until the defects are cured or buyer accepts goods despite their nonconformity

Buyer’s breach- risk shifts immediately to the buyer for a commercially reasonable period after seller learns of the breach, but only to the extent not covered by seller’s insurance

Breach affects risk of loss, but not title. Title passes according to the rules despite the breach.

Question 14

Jane hired Delta to cut and remove nine trees from Jane’s lot for $1,000. Delta cut all of the trees but only removed about half of the debris. Will Jane be successful if she asks a court to force Delta to finish removing the debris since Jane has already paid Delta the $1,000?

Answer 14

Jane cannot force Delta to remove the debris.

Question 15

Types of remedies:

Answer 15

1. Nominal (small amount)- when no financial loss suffered
2. Compensatory-all costs/loss associated with breach
3. Incidental damages-ex. lawyer’s fees
4. Consequential damages- forseeable loss known by breaching party of non-performance
5. Punitive-designed to punish, used in cases of fraud
6. Liquidated damages-agreed to in contract and are reasonable in comparison to loss from breach

Question 16

Remedies in Equity

Answer 16

1. Specific performance-Requiring the other party to perform the contract; available when there are rare goods (antiques) or for buyers of land (land is unique)
2. Rescission- restored to same positions as before contract
3. Reformation-contract rewritten
4. Quasi-contract recovery- prevents unjust enrichment

Question 17

To which of the following transactions does the common law Statute of Frauds not apply?

Answer 17

Contracts that can be performed within one year.

Question 18

Under the parol evidence rule, oral evidence will be excluded if it relates to

Answer 18

A contemporaneous oral agreement relating to a term in the contract.

Question 19

One of the criteria for a valid assignment of a sales contract to a third party is that the assignment must

Answer 19

Not materially increase the other party’s risk or duty.

Question 20

Ferco, Inc., claims to be a creditor beneficiary of a contract between Bell and Allied Industries, Inc. Allied is indebted to Ferco. The contract between Bell and Allied provides that Bell is to purchase certain goods from Allied and pay the purchase price directly to Ferco until Allied’s obligation is satisfied. Without justification, Bell failed to pay Ferco and Ferco sued Bell. Ferco will

Answer 20

Prevail, because Ferco was an intended creditor beneficiary of the contract between Allied and Bell.

Ferco can collect as a creditor beneficiary.

Question 21

Rogers and Lennon entered into a written computer consulting agreement that required Lennon to provide certain weekly reports to Rogers. The agreement also stated that Lennon would provide the computer equipment necessary to perform the services and that Rogers’ computer would not be used. As the parties were executing the agreement, they orally agreed that Lennon could use Rogers’ computer. After executing the agreement, Rogers and Lennon orally agreed that Lennon would report on a monthly, rather than weekly, basis. The parties now disagree on Lennon’s right to use Rogers’ computer and how often Lennon must report to Rogers. In the event of a lawsuit between the parties, the parol evidence rule will

Answer 21

Not prevent the admission into evidence of testimony regarding Lennon’s right to report on a monthly basis.

This answer is correct because an exception to the parol evidence rule allows evidence of “subsequent agreements” to be admitted into evidence.

Question 22

Gray Fabricating Co. and Pine Corp. agreed orally that Pine would custom manufacture a processor for Gray at a price of $80,000.

After Pine completed the work at a cost of $60,000, Gray notified Pine that the processor was no longer needed. Pine is holding the processor and has requested payment from Gray. Pine has been unable to resell the processor for any price. Pine incurred storage fees of $1,000.

If Gray refuses to pay Pine and Pine sues Gray, the most Pine will be entitled to recover is

Answer 22

$81,000

Question 23

Under the Sales Article of the UCC, which of the following rights is (are) available to the buyer when a seller commits an anticipatory breach of contract?

Answer 23

Recover damages

Cancel the contract

Question 24

Right of replevin

Answer 24

Form of legal action to recover specific goods from the seller which are being withheld from the buyer wrongfully

Question 25

UCC Remedies-Sellers

Answer 25

1. Identify goods in contract, sell to others and ask for other remedies below
2. Withhold delivery-until full payment or assurance of payment is made
3. Cancel/rescind contract-seller must notify buyer and has right to be returned to original position prior to contract including being given lost profits
4. Resell goods-seller entitled to any amount not obtained through sale
5. Sue for breach of contract-SAL 4 years, damages=market price at time of tender minus unpaid contract price + incidental damages
6. Retain buyer’s deposit-$500 or 20% of purchase price, whichever is less

Question 26

Remedies for Seller if Goods Are in Transit (often tested)

Answer 26

1. If buyer is insolvent- seller (upon buyer’s repudiation) can stop any quantity shipped and can recover goods from buyer within 10 days. IF the buyer misrepresents solvency within 90 days prior to delivery of goods on credit, there are no time limits on the seller’s ability to recover the goods.
2. If the buyer is not insolvent—The seller can stop large shipments

Question 27

UCC Remedies: Buyer (if seller fails to deliver goods)

Answer 27

1. Cancel and rescind with notice- restore buyer and seller to original positions as before contract
2. Cover- make reasonable substitute purchase and recover difference between contract price and cost to cover (+incidental and consequential damages)
3. Sue for breach of contract-difference between market and contract price (+incidental and consequential damages)
4. Specific performance
5. Replevin- buyer cannot cover so this forces seller to delivery (rare)

Question 28

Remedies for Buyers if the Seller Tenders Nonconforming Goods—(Buyer Rejects)

Answer 28

1. Cancellation, cover, breach of contract, replevin
2. Keep goods and recover damages- buyer must give notice they will be pursuing other remedies), buyer can deduct damages from purchase price and mark “Payment in full” in final payment, if check cashed then debt is paid OR can see incidental and consequential damages for breach
3. Liquidating damages
4. If seller becomes insolvent within 10 days of receiving buyers payment, buyer can still recover goods if they are set aside

Question 29

Yost contracted with Egan for Yost to buy certain real property. If the contract is otherwise silent, Yost’s rights under the contract are

Answer 29

Generally assignable.

Unless the contract terms prohibit assignment, or the rights are personable to the person rendering them, or the assignment will materially increase or alter the risk or duties of the obligor, contract rights are generally assignable.

Question 30

Union Bank lent $200,000 to Wagner. Union required Wagner to obtain a life insurance policy naming Union as beneficiary. While the loan was outstanding, Wagner stopped paying the premiums on the policy. Union paid the premiums, adding the amounts paid to Wagner’s loan. Wagner died and the insurance company refused to pay the policy proceeds to Union. Union may

Answer 30

Recover the policy proceeds because it is a creditor beneficiary.

A person is a creditor beneficiary if two things are in place: one party to a contract in question owed the creditor money, and the contract in question was made specifically to satisfy that debt

Question 31

Wilcox Co. contracted with Ace Painters, Inc. for Ace to paint Wilcox’s warehouse. Ace, without advising Wilcox, assigned the contract to Pure Painting Corp. Pure failed to paint Wilcox’s warehouse in accordance with the contract specifications. The contract between Ace and Wilcox was silent with regard to a party’s right to assign it. Which of the following statements is correct?

Answer 31

Ace remained liable to Wilcox despite the fact that Ace assigned the contract to Pure.

Question 32

Under which of the following circumstances would an assignment of rights under a contract be invalid?

Answer 32

The assignment was made without the assignor’s intent to transfer.

Question 33

Contracts to purchase which of the following cannot be assigned without consent of the other party to the contract?

Answer 33

Personal services

Question 34

Assignments of rights in a contract:

Answer 34

1. Can be assigned/delegated unless exception applies
2. Assignment is separate from original agreement
3. Rights can be assigned (benefits)
4. Duties can be assigned (detriment under contract)
5. Assignment NOT binding until obligor has notice of assignment, until then, obligee is still liable to original obligor
6. Any defenses of original contracting party now belong to 3rd party assignee
7. ONLY way assignor can released of obligation is if the original party agrees

Question 35

Assignment exceptions:

Answer 35

1. Prohibited by contract terms
2. Prohibited by statute (ex. insurance)
3. Personal contracts
4. Increased material risks to obligor

Question 36

Delegation exceptions:

Answer 36

1. Prohibited by contract
2. Contract based on personal skills of obligor
3. Contract performance will materially vary from what is expected

Question 37

3rd party beneficiaries

Answer 37

1. Donee beneficiary- ex. insurance beneficiary
2. Creditor beneficiary- debtor-creditor relationship exists and debtor makes contract that benefits creditor with a 3rd person
3. Incidental beneficary

Question 38

Edwards Corp. lent Lark $200,000. At Edwards’s request, Lark entered into an agreement with Owen and Ward for them to act as compensated co-sureties on the loan in the amount of $200,000 each.

If Edwards releases Ward without Owen’s or Lark’s consent, and Lark later defaults, which of the following statements is correct?

Answer 38

Owen will be liable for 50% of the loan balance.

Question 39

Surety

Answer 39

A guarantor or a surety is someone who agrees to stand liable for a debt of another. Suretyship contract (or a written memo) must be in writing and signed by the surety (guarantor) for it to be enforceable against the surety.

Question 40

A distinction between a surety and a co-surety is that only a co-surety is entitled to

Answer 40

Contribution

Contribution is a right one co-surety has against another. There cannot be rights between sureties if there is only a single surety.

Question 41

Rights of creditor when principal debtor defaults:

Answer 41

1. Proceed against principal debtor
2. Proceed against surety
3. Proceed against collateral of debtor

Question 42

Rights of the surety or guarantor:

Answer 42

1. Exoneration- right of surety to petition court to exhaust efforts against principle debtor first
2. Reimbursement and indemnity- right to all costs
3. Subrogation- after paying debt, surety has same rights as original creditor against debtor
4. Right of contribution- entitles one co-surety to seek proportional payment from other co-surety

Question 43

Events that Do Not Release or Discharge the Surety from Liability

Answer 43

1. Insolvency of principal debtor
2. Bankruptcy of principal debtor
3. Fraud by debtor (unless creditor was aware of fraud)
4. Incapacity of principal debtor
5. Death of principal debtor
6. Release of debtor by creditor if creditor reserves rights against surety (UNLESS there is guarantor of collection because this requires creditor to exhaust all attempts to collect from principal debtor first)
7. Changes or modification of loan terms when there is a compensated surety
8. Creditor fails to give surety notice of debtor’s default

Question 44

Events that Do Result in the Release of the Surety

Answer 44

1. Debt paid
2. Surety’s incapacity
3. Surety’s bankruptcy
4. Statute of limitations expires
5. Fraud by creditor
6. Release of debtor by creditor
7. Refusal of principal debtor’s tender
8. Material alteration by creditor (ex. amt of debt)
9. Creditor’s failure to disclose material facts (defense of fraud)
10. Changes or modification of loan terms when there is an uncompensated surety
11. Statute of frauds- contract MUST always be in writing

Question 45

Under the Secured Transactions Article of the UCC, which of the following requirements is necessary to have a security interest attach?

Answer 45

1. Debtor has rights in the collateral
2. Secured party gives something of value (such as binding commitment to extend credit)
3. Written security unless collateral is in the hands of the secured party, need only be authenticated by debtor

Question 46

Under the Secured Transactions Article of the UCC, which of the following statements is correct regarding a security interest that has not attached?

Answer 46

It is not effective against either the debtor or third parties.

Question 47

Under the Secured Transactions Article of the UCC, which of the following security agreements does NOT need to be in writing to be enforceable?

Answer 47

A security agreement where the collateral is in the possession of the secured party.

Question 48

Which of the following transactions would illustrate a secured party perfecting its security interest by taking possession of the collateral?

Answer 48

A pawnbroker lending money.

One method of perfecting an interest is by taking physical possession of it.

Question 49

Sun, Inc., manufactures and sells household appliances on credit directly to wholesalers, retailers, and consumers.

Sun can perfect its security interest in the appliances without having to file a financing statement or take possession of the appliances if the sale is made by Sun to

Answer 49

Consumers.

One may perfect a security interest without filing if he or she has a purchase money security interest (PMSI) in consumer goods. This happens when the money to purchase the collateral is given as the basis of the security interest.
The collateral, however, must be in consumer goods and purchased by a consumer for personal, family, or household use for a PMSI to exist.

Question 50

Jones lives in Oklahoma and is the owner of a large number of valuable antiques. Treasures Delight, located in Arkansas, is a seller of antiques. Treasures Delight is owned by Sally Delight. Delight offers to purchase all of the antiques owned by Jones paying 60% of the agreed price and, by agreement, signs a security agreement for the balance putting up her entire inventory as security. The security agreement provides for monthly payments. Which of the following is correct?

Answer 50

Although this is a purchase money security interest, Jones must file to have a perfected security interest.

The antiques are classified as inventory (collateral to be held for resell). Thus, although a purchase money security interest was created, being inventory, a filing is required for perfection.

Question 51

Perfection

Answer 51

A means by which a secured party gains priority to a debtor’s collateral over other third parties who also claim to have an interest in the same collateral.

Question 52

Filing requirements:

Answer 52

1. UCC-1 form or security agreement
2. Names of debtor and secured party
3. Description of collateral
4. Valid for 5 years and can only be renewed within 6 months of expiration

Question 53

Perfection by Possession

Answer 53

Generally—Article 9 requires filing for perfection, but it also allows perfection by either possession or another method of perfection.

Question 54

Automatic Perfection

Answer 54

1. A purchase money security interest (PMSI) in consumer goods. Consumer goods are goods used or bought primarily for personal, family, or household purposes
2. Sale of promissory notes and payment intangibles (ex. receivables)

Question 55

Noninventory goods were purchased and delivered on June 15. Several security interests exist in these goods.

Which of the following security interests has priority over the others?

Answer 55

Purchase money security interest perfected June 24.

Usually, the first security interest to be perfected has top priority.

There is an exception, though, for a purchase money security interest. A purchase money security interest in noninventory collateral has priority if it is perfected before the debtor takes possession or within 20 days thereafter.

Question 56

Wine purchased a computer using the proceeds of a loan from MJC Finance Company. Wine gave MJC a security interest in the computer. Wine executed a security agreement and financing statement, which was filed by MJC. Wine used the computer to monitor Wine’s personal investments. Later, Wine sold the computer to Jacobs for Jacobs’ family use. Jacobs was unaware of MJC’s security interest. Wine now is in default under the MJC loan.

May MJC repossess the computer from Jacobs?

Answer 56

Yes, because MJC’s security interest was perfected before Jacobs’ purchase.

Although Jacobs purchased (for value) the computer for personal use without knowledge of MJC’s security. MJC’s perfection by filing (not by attachment) gave MJC priority to repossess the computer because this was NOT in ordinary course of business for Wine.

Question 57

Perfected vs. lien creditors priority:

Answer 57

First to attach as priority

Question 58

Perfected vs. judgement creditor:

Answer 58

First to attach has priority

Question 59

Perfected Secured parties and buyers

Answer 59

1. Buyers in ordinary course of business- buyer has priority even if interest is perfected
2. Buyer NOT in ordinary course of business-buyer has responsibility to check for creditor’s interests
3. Secured creditor only- buyer has priority unless they are aware of creditor’s secured interest

Question 60

Buyer not in the ordinary course of business of consumer goods

Answer 60

Buyer has priority only if all four criteria are met:

1. Buyer must not know of secured party’s security interest;
2. Buyer must buy for personal use (as consumer goods);
3. Buyer must buy before the secured party perfects by filing.
4. Buyer must give value to the seller-debtor;

Question 61

Inventory and PMSI

Answer 61

A PMSI in a debtor’s inventory will have priority over a previously perfected non-PMSI (ex. bank loan) providing these two events take place before the debtor takes possession of the collateral.

1. The PMSI secured party perfects; and
2. The PMSI secured party sends (and the non-PMSI party receives) written notice of the PMSI

Question 62

Other collateral and PMSI

Answer 62

For any other types of collateral, a PMSI will have priority over a previously perfected non-PMSI if the PMSI secured party perfects before or within twenty days after the debtor takes possession of the collateral. No notice is required

Question 63

Floating lien concept

Answer 63

allows the (perfected) secured party to have a security Interest in collateral not in existence at time of its creation, future goods and proceeds from future goods

Question 64

Under the UCC Secured Transactions Article, if a debtor is in default under a payment obligation secured by goods, the secured party has the right to

Answer 64

1. Peacefully repossess the goods without judicial process
2. Reduce the claim to a judgement
3. Sell the goods and apply the proceeds toward the debt

Question 65

Creditor’s Rights on Disposal of the Repossessed Collateral

Answer 65

1. Keep collateral in full satisfaction of debt unless junior lien holders object and force a sale
2. If debtor has paid 60%+ of purchase price, creditor must sell it
3. Distribution of proceeds=Expenses, balance of debt, junior lien holders, debtor
4. Creditor has right to collect deficiency of sales funds from debtor

Question 66

Debtor’s right of redemption

Answer 66

If the secured party is not allowed to keep the collateral in possession in full satisfaction of the debt, the debtor or any other secured party has a right of redemption and by doing so can regain possession of the collateral until there is a sale

Question 67

Creditor’s remedies to prevent bankruptcy:

Answer 67

1. Composition- discharges debts if debtor performs as to all creditors agreed demands
2. Assignment- Debtor assigns any money received to creditors, creditors may petition debtor into bankruptcy still (ex. To be an assignment for the benefit of creditors, Green would have to voluntarily transfer certain assets to a trustee or an assignee who, in turn, offers each creditor a pro rata payment.)
3. Judgement lien- creditors go to court and can execute on debtor’s property

Question 68

Judgement lien execution

Answer 68

1. Attachment- related to property
2. Garnishment- of wages (not more than 25%)
3. SS is exempt
   Homestead exemption- protection for equity in home but still subject to mortgage and IRS

Question 69

Chapter 7

Answer 69

Liquidation, can be voluntary or involuntary (NO involuntary for farmers or non profits), consumer MUST establish that they cannot pay their debts (means test=income-expenses)

Eligibility: Individuals, partnerships, corporations
Exemptions: S&Ls, credit units, small business administration, municipalities, insurers, RRs

ALWAYS has trustee

Question 70

Chapter 9

Answer 70

Allows for the adjustment of debts of an insolvent municipality—defined as any political subdivision, public agency, or instrumentality (includes any taxing unit) of a state.

Permits voluntary petitions by the municipality

Question 71

Chapter 11

Answer 71

Allows for the reorganization of a debtor to pay debts, there is an automatic stay when this happens. Voluntary/involuntary.

Eligibility: Individuals, partnerships, corporations
Exemptions: S&Ls, credit units, small business administration, municipalities, insurers, stockbrokers

Allows companies to restructure and be discharged from certain debts.

MUST be approved by half of the creditors with two-thirds of the total claims (includes shareholders)

Question 72

Chapter 12

Answer 72

50% of debt due to farm activity, adjustment of debts of a family farmer and family fisherman

Question 73

Chapter 13

Answer 73

• Like Chapter 11 for consumers, must be voluntary
• Less than $394,725 in unsecured and less than $1,184,200 in secured debt
• Always has a trustee

Question 74

Chapter 13

Answer 74

• Like Chapter 11 but for consumers, must be voluntary
• 3-5 year plan-discharge if payment made
• Less than $394,725 in unsecured and less than $1,184,200 in secured debt
• Always has a trustee

Question 75

Involuntary petition requirements

Answer 75

<12 creditors- petition requires only one (more can sign) of these creditors with an aggregate debt of $15,775 or more to sign the involuntary petition
>12 creditors- petition must be signed by three or more of these creditors whose aggregate claims are $15,775 or more

Standard is inability to pay debts as they come due

Question 76

A voluntary petition filed under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code

Answer 76

Does not require the debtor to show that the debtor’s liabilities exceed the fair market value of assets.

Question 77

Which of the following statements is correct concerning the voluntary filing of a petition in bankruptcy?

Answer 77

Petitions are often filed by spouses jointly. Either may file alone, or they may file together.

Question 78

Which of the following liens generally require(s) the lienholder to give notice of legal action before selling the debtor’s property to satisfy the debt?

Answer 78

Mechanic’s lien

Artisan’s lien

Question 79

A party involuntarily petitioned into bankruptcy under Chapter 7 of the Federal Bankruptcy Code who succeeds in having the petition dismissed could recover

Answer 79

Court costs and attorney’s fees
Compensatory damages
Punitive damages

Question 80

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 80

Municipal-bond interest received by the debtor within 180 days of the filing of the petition.

A debtor’s estate in bankruptcy consists of all tangible and intangible property of the debtor held at the commencement of the bankruptcy proceedings. In addition, the estate consists of any after-acquired income from such property.

Therefore, interest from municipal bonds (held as part of the estate) also becomes part of the estate. Any gifts received within 180 days of the filing the petition also become part of the estate

Question 81

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

Answer 81

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

Although the trustee can avoid some statutory liens (such as landlord’s lien), the trustee cannot avoid all (key word is “any”) statutory or common law liens (such as certain warehouse liens).

Question 82

The filing of an involuntary bankruptcy petition under the Federal Bankruptcy Code

Answer 82

Stops the enforcement of judgment liens against property in the bankruptcy estate.

Question 83

Chapter 7 of the Federal Bankruptcy Code will deny a debtor a discharge when the debtor

Answer 83

Is a corporation or a partnership.

Corporations and partnerships may go through a Chapter 7 liquidation, but do not qualify for a general discharge from all remaining debts as natural persons do.

Question 84

A bankrupt person who filed voluntarily and received a discharge in bankruptcy under the provisions of Chapter 7 of the Federal Bankruptcy Code

Answer 84

Must surrender for distribution to the creditors any amount received as an inheritance if received within 180 days of filing the petition.

There is a 180-day rule. Not only must most assets be surrendered if they existed at the time of filing, but some assets (including inherited assets) must be added to the bankruptcy estate if acquired within 180 days of the filing.

Question 85

The Debtor’s Estate—Debtor’s estate includes:

Answer 85

All tangible and intangible property—(all legal and equitable interests) of the debtor held at the time the bankruptcy proceedings began

The following after-acquired property that the debtor acquired within 180 days after the petition is filed:

• Property by inheritance or gift
• Property by divorce, separation, or property settlement
• Beneficiary proceeds from a life insurance policy

Any property appreciation, income, etc. from existing property

Question 86

Property that is partially Exempt from Bankrupt’s Estate

Only individuals, not partnerships or corporations, can claim exemptions.

Answer 86

Choice to take state or federal exemptions (debtor’s choice).

1. Homestead exemptions- if acquired within 3.5 years of filing, then exemptions limited to $160,475, must have lived in state for 2 years

Motor vehicle up to $3775, household furnishings, other property, tools of profession, life insurance, jewelry, IRAs and ROTHs, personal injury claims

Question 87

TOTAL exemptions:

Answer 87

1. Pension and retirement
2. Wrongful death
3. Alimony and child support
4. Disability, unemployment and SS

Question 88

Voidable preference

Answer 88

Transactions set aside and brought back into the estate by trustee. Property transferred to “shield” assets.

1. Anything that occurred within 90 days of bankruptcy will be set aside and creditor puts it back into estate
   Provision for insiders:
2. Fraud (concealed transaction) within 1 year-set aside
3. Transfer and cost was unfair within 1 year- set aside
4. Transfer property to insider within 1 year- set aside

Question 89

EXCEPTIONS to trustee’s authority to set aside:

Answer 89

1. A contemporaneous exchange (new business inventory)
2. Payment of debt in ordinary course of business (utility bill)
3. Consumer debtor’s payment of up to $6425
4. Payments for paternity, alimony, maintenance and child support

Question 90

Distribution preference of owner’s estate:

Answer 90

1. Perfected secured parties
2. Domestic support obligations
3. Administrative costs (attorney fees)
4. Claims in ordinary course of business (after filing to keep business going)
5. Employee wages up to $12850
6. Employee benefit plan payments up to $12850 per EE
7. Claims of farmers and fisherman
8. Consumer creditors
9. Government for taxes
10. Death or personal injury claims
11. General unsecured creditors
12. Remainder goes to debtor

Question 91

After the estate has been distributed, the court will grant the debtor a discharge decree (at a hearing), that releases the debtor from further liability of his or her debts. This decree is revocable for one year.

Conditions under which Discharge May Be Denied:

Answer 91

1. Only individuals can receive discharge
2. If other discharge received within 8 years
3. Fraud/concealment
4. Consumer debts incurred within 90 days of filing petition for $675+ for luxury goods or cash advance of $950+

Question 92

Debts Not Discharged (by Statute) under Any Circumstances

Answer 92

1. Unpaid taxes if: the taxes must were due at least 3 years before the filing or the tax return for the taxes due was filed at least two years before the filing
2. Debts incurred through fraud
3. Judgements for willfull or malicious injuries
4. (Judgments) as a Result of Driving while Intoxicated
5. Unscheduled Debts (those not listed by the debtor upon filing of bankruptcy and not actually known to trustee)
6. Alimony, Maintenance, and Child Support
7. Fines and Penalties—Payable to a governmental unit
8. Student Loan Debts or Benefits
9. Sarbanes-Oxley Bonuses and Incentives awarded to executives of companies based on fraudulent financial statements—Their obligation to repay these amounts cannot be discharged
10. Consumer Debts—Debts incurred within 90 days of filing

Question 93

Reaffirmations

Answer 93

Agreements between a debtor and creditor that a debt will not be discharged in bankruptcy.

Question 94

Under the Secured Transactions Article of the UCC, what secured transaction document must be signed by the debtor?

Answer 94

Security agreement

Question 95

Mars, Inc., manufactures and sells VCRs on credit directly to wholesalers, retailers, and consumers. Mars can perfect its security interest in the VCRs it sells without having to file a financing statement or take possession of the VCRs if the sale is made to

Answer 95

Consumers

Question 96

Which of the following conditions, if any, must a debtor meet to file a voluntary bankruptcy petition under Chapter 7 of the Federal Bankruptcy Code?

Answer 96

Almost anyone can file a voluntary petition for Chapter 7 relief at any time regardless of the number of creditors. The only restriction is that the filing is not a “substantial abuse,”

Question 97

Mechanic’s lien

Answer 97

A mechanic’s lien applies to services, labor, or materials rendered by a creditor to repair or improve real property. A grandfather clock is personal property.

Question 98

Which of the following statements is correct?

Answer 98

Failure of the debtor to attend (unless excused) the creditor’s meeting is a failure to co-operate and grounds for denial of the debtor’s discharge in a Chapter 7 bankruptcy.

Unless the state has limited a bankrupt debtor to use of state-law exemptions, the debtor has a choice of using either state or federal-listed exemption laws.