Business Law: Part 2

Question 1

Which types of bankruptcy is a trustee required?

Answer 1

Chapter 7 and Chapter 13. NOT Chapter 11

Question 2

Who can’t file Chapter 7 bankruptcy? (RIBS)

Answer 2

• Railroads
• Insurance
• Banks
• Savings/small business institution

Question 3

Who can’t file Chapter 11 bankruptcy? (BIBS)

Answer 3

• Brokers
• Insurance
• Banks
• Savings/small business institution

Question 4

Chapter 7 bankruptcy

Answer 4

Liquidation. Available to individuals, partnerships, corporations. Debts are typically wiped out. May be converted to chapter 13 if an individual makes too much money

Question 5

Chapter 11 bankruptcy

Answer 5

Reorganization. Available to individuals, partnerships, corporations.

Question 6

Chapter 13 bankruptcy

Answer 6

Adjustment of debts of individuals with regular income. Available to individuals only and must be voluntarily chosen by debtor. Debtor repays over a 3-5 year period

Question 7

When must a Chapter 7 convert to a Chapter 13

Answer 7

Step 1: Determine if income is lower than the state median
Step 2: If higher in step 1, carry out the means test

*Means test: (average monthly income - Allowed/necessary expenses) x 60.
If less than $8,175, Chapter 7 okay
If greater than $13,650, convert to Chapter 13

Question 8

Rules for creditors to petition a debtor involuntarily into bankruptcy

Answer 8

Creditors must be owed individually, or in aggregate $16,750 in UNSECURED, UNDISPUTED debt.

1) Fewer than 12 creditors = one or more owed $16,750
2) 12 or more creditors = 3 owed 16,750 in aggregate

Question 9

What is included in the debtor’s estate

Answer 9

• All the debtor’s real and personal property at the time of filing
• *** Income generated from the estate property (bonds that are part of the estate) received within 180 DAYS after the filing of the petition
• *** Property that the debtor receives from divorce, inheritance, and insurance within 180 DAYS after the filing of the petition

Question 10

What is a preferential payment

Answer 10

A payment made to a creditor:

• on an old debt which was prepaid or accelerated
• within 90 days to the filing or 1 year if the creditor is an insider (relative, officer at their company)
• made while the debtor was insolvent
• which results in the creditor receiving MORE THAN the creditor would have received under the Bankruptcy Code

Question 11

Exception for contemporaneous exchanges for new value

Answer 11

Paying for necessary goods counts as a contemporaneous exchange for value and is NOT considered preference

Question 12

Debts not discharged during bankruptcy (FAWTED)

Answer 12

• Fraud and Fines/penalties owed to gov’t
• Alimony
• Willful and malicious injury
• Taxes (within 3 years)
• Educational loans
• Debts undisclosed

Question 13

Distribution of debtors estate: payment order

Answer 13

1) Secured claims
2) Priority claims
3) General creditors

Question 14

Priority claim payment order (SAG WEG CTI)

Answer 14

1) Support obligations to spouse or kids
2) Administration expenses (court fees, trustee fees,etc)
3) ‘Gap’ claims that accrue in ordinary business after involuntary petition is filed
4) Wages owed to employees up to $13,650
5) Employee benefits up to $13,650
6) Grain farmers and fishermen up to $6,275
7) Consumer deposits up to $3,025
8) Tax claims
9) Injury from drunk driving

Question 15

FICA

Answer 15

6.2 perfect of net taxable wages up to 142,800

Question 16

Medicare

Answer 16

1.45 + 0.9 if over limit of gross income. No limit

Question 17

Which employers must participate in Unemployment Tax

Answer 17

1) quarterly payrolls of at least $1,500
2) Employ at least 1 person for 20 weeks in a year
* Deductible to employer

Question 18

What type of business entity can be formed without filing organizational documents with the state?

Answer 18

Sole proprietorship or a general partnership

Question 19

Which types of business structures share profits and losses equally, regardless of contribution

Answer 19

General partnership and limited liability partnership

Question 20

Which types of business structures share profits and losses in proportion to value of partners contribution?

Answer 20

LIMITED PARTNERSHIP, Corporation, LLC

Question 21

Items that must be included n the articles of incorporation

Answer 21

1) Name of corporation
2) Name and address of corps. registered agent
3) Name and address of each incorporator
4) The number of shares to be authorized

Question 22

When do courts generally pierce the corporate veil aka hold the shareholders, officers, directors liable for abusing corporate form(3 reasons)

Answer 22

1) Shareholders commingle personal funds with corporate funds
2) The corp was inadequately capitalized at the time of formation
3) The corp was formed to commit fraud on existing creditors

Question 23

What is the status of a shareholder when a corporation declares a dividend

Answer 23

Unsecured creditor, to the extent of the dividend

Question 24

Fundamental changes that require shareholder approval (DAMS)

Answer 24

• Dissolution
• Amendments to the articles of incorporation
• Mergers
• Sale of all the corporations assets, outside the normal course of business
• Majority vote required