Chapter 22 - Bankruptcy Law

Question 1

adequate protection doctrine

Answer 1

• in bankruptcy law, a doctrine that protects secured creditors from losing their security as a result of an automatic stay on legal proceedings by creditors against the debtor once the debtor petitions for bankruptcy relief
• in certain circumstances, the bankruptcy court may provide adequate protection by requiring the debtor or trustee to pay the creditor or provide additional guaranties to protect the creditor against the losses suffered by the creditor as a result of the stay

Question 2

automatic stay

Answer 2

• in bankruptcy proceedings, the suspension of virtually all litigation and other action by creditors against the debtor or the debtor’s property; the stay is effective the moment the debtor files a petition in bankruptcy

Question 3

bankruptcy trustee

Answer 3

• a person who is either appointed by the U.S. Department of Justice or by creditors in bankruptcy cases
• in all bankruptcies under Chapters 7, 12, or 13, a trustee is appointed by the U.S. Trustee, who is an officer of the Department of Justice
• Chapter 11 bankruptcies allow the debtor to continue to manage the property as a “debtor in possession,” but this person can be replaced for cause with a bankruptcy trustee

Question 4

consumer-debtor

Answer 4

• an individual whose debts are primarily consumer debts (debts for purchases made primarily for personal or household use)

Question 5

cram-down provision

Answer 5

• a provision of the Bankruptcy Code that allows a court to confirm a debtor’s Chapter 11 reorganization plan even though only one class of creditors has accepted it
• to exercise the court’s right under this provision, the court must demonstrate that the plan does not discriminate unfairly against any creditors and is fair and equitable

Question 6

debtor in possession (DIP)

Answer 6

• in Chapter 11 bankruptcy proceedings, a debtor who is allowed to continue in possession of the estate in property (the business) and to continue business operations

Question 7

discharge

Answer 7

• the termination of an obligation

- in bankruptcy proceedings, the extinction of the debtor’s dischargeable debts

Question 8

insider

Answer 8

-

Question 9

liquidation

Answer 9

(1) in regard to bankruptcy, the sale of all of the nonexempt assets of a debtor and the distribution of the proceeds to the debtor’s creditors. Chapter 6 of the Bankruptcy Code provides for liquidation bankruptcy proceedings
(2) in regard to corporations, the prices by which corporate assets are converted into cash and distributed among creditors and shareholders according to specific rules of preference

Question 10

order for relief

Answer 10

• a court’s grant of assistance to a complainant
• in bankruptcy proceedings, the order relieves the debtor of immediate obligation to pay the debts listed in the bankruptcy petition

Question 11

petition in bankruptcy

Answer 11

• the document that is filed with a bankruptcy court to initiate bankruptcy proceedings
• the official forms required for a petition in bankruptcy must be completed accurately, sworn to under oath, and signed by the debtor

Question 12

preference

Answer 12

• in bankruptcy proceedings, property transfers or payments made by the debtor that favor (give preference to) one creditor over others
• the bankruptcy trustee is allowed to recover payments made both voluntarily and involuntarily to one creditor in preference over another

Question 13

preferred creditor

Answer 13

• one who has received a preferential transfer from a debtor

Question 14

reaffirmation agreement

Answer 14

• an agreement between a debtor and a creditor in which the debtor reaffirms, or promises to pay, a debt dischargeable in bankruptcy
• to be enforceable, the agreement must be made prior to the discharge of the debt by the bankruptcy court

Question 15

U.S. trustee

Answer 15

• a government official who performs certain administrative tasks that a bankruptcy judge would otherwise have to perform

Question 16

workout

Answer 16

• in bankruptcy proceedings, a formal contract between a debtor and his or her creditors in which the parties agree to negotiate a payment plan for the amount due on the loan instead of proceeding to foreclosure

Question 17

SAMPLE TEST QUESTIONS

1. Bess wishes to appeal a decision of a bankruptcy court. Bess may appeal to :
   a. no court - there is no appeal from a bankruptcy court decision
   b. a federal district court
   c. the U.S. Supreme Court
   d. a state court

Answer 17

ANSWER :
(B)
CORRECT :
(B)

Question 18

SAMPLE TEST QUESTIONS

2. Nancy joins with other creditors to force Odette, a debtor, into bankruptcy. One of the goals of bankruptcy law with respect to creditors is to :
   a. provide that creditors will continue to lend to insolvent debtors
   b. protect creditor assets from diminution in value
   c. ensure equitable treatment of creditors who are competing for a debtor’s assets
   d. make all debtor property available for creditors

Answer 18

ANSWER :
(C)
CORRECT :
(C)

Question 19

SAMPLE TEST QUESTIONS

3. Paulina operates a sole proprietorship, a corporation, and a partnership. Paulina wants to obtain relief for her individual debts and the debts of gee corporation and partnership. For each of these, Paulina may file a petition in bankruptcy for relief through :
   a. a liquidation
   b. a reorganization
   c. a repayment plan
   d. a family-farmer bankruptcy plan

Answer 19

ANSWER :
(B)
CORRECT :
(A)

Question 20

SAMPLE TEST QUESTIONS

4. Tully files a petition for bankruptcy. Tully must include with the petition :
   a. proof of each creditor’s claim
   b. a list of creditors and the amount of the debt owed to each
   c. all of his debit and credit cards to be disposed of by the court
   d. an affidavit testifying to his having read the Bankruptcy Code

Answer 20

ANSWER :
(B)
CORRECT :
(B)

Question 21

SAMPLE TEST QUESTIONS

5. Roland files a petition in bankruptcy. After all of his assets have been sold and the proceeds distributed among his creditors, Roland’s remaining debts :
   a. are discharged
   b. will be paid by the court
   c. must be paid by Roland
   d. are put on hold until Roland has sufficient means to pay them

Answer 21

ANSWER :
(A)
CORRECT :
(A)

Question 22

SAMPLE TEST QUESTIONS

6. Gerald files a petition in bankruptcy. An automatic stay will apply to actions by creditors seeking to collect Gerald’s debts comprised of :
   a. alimony
   b. child-support
   c. none of the choices
   d. car payments

Answer 22

ANSWER :
(D)
CORRECT :
(D)

Question 23

SAMPLE TEST QUESTIONS

7. Felicia goes through an involuntary bankruptcy proceeding. An involuntary bankruptcy occurs when :
   a. creditors are forced to accept a discharge of a debtor’s debts
   b. a debtor is unable to pay his or her debts as they come due
   c. a debtor’s creditors force the debtor into bankruptcy proceedings
   d. a debtor’s debts exceed the fair market value of his or her assets

Answer 23

ANSWER :
(C)
CORRECT :
(C)

Question 24

SAMPLE TEST QUESTIONS

8. Patsy files a petition in bankruptcy. At the moment of filing :
   a. an automatic stay goes into effect
   b. Patsy’s debts are discharged
   c. Patsy’s petition in dismissed
   d. Patsy’s property is distributed to her creditors

Answer 24

ANSWER :
(A)
CORRECT :
(A)

Question 25

SAMPLE TEST QUESTIONS

9. Daniel is a trustee for a federal bankruptcy court. Daniel’s duties include :
   a. collecting the debtor’s available estate
   b. establishing priority for the payment of unsecured creditors
   c. operating a debtor’s business to obtain maximum profit for creditors
   d. submitting to an examination under oath by the creditors

Answer 25

ANSWER :
(B)
CORRECT :
(A)

Question 26

SAMPLE TEST QUESTIONS

10. Norma files a petition in bankruptcy. She turns her assets over to O’Brien, who sells them and then distributes the proceeds to Norma’s creditors. O’Brien is a :
    a. preferred creditor
    b. bankruptcy court judge
    c. bankruptcy trustee
    d. debtor

Answer 26

ANSWER :
(C)
CORRECT :
(C)

Question 27

SAMPLE TEST QUESTIONS

11. Thirty-one days before filing a petition in bankruptcy, Gavin transfers property and makes payments that favor one creditor over another. These are :
    a. affirmation agreements
    b. preferences
    c. secured interests
    d. unsecured debts

Answer 27

ANSWER :
(B)
CORRECT :
(B)

Question 28

SAMPLE TEST QUESTIONS

12. Builders Construction files a voluntary petition for bankruptcy. In listing its assets, Builders intentionally omits certain assets, including plots of undeveloped real estate. After Builders is granted a discharge, Commercial Electric Company, one of Builders’ unsecured creditors whose claims were discharged, learns of the fraud. Commercial Electric can :
    a. do nothing
    b. enforce its claim against Builders
    c. file an involuntary petition for bankruptcy against Builders
    d. take possession of the stones with or without a breach of the peace

Answer 28

ANSWER :
(C)
CORRECT :
(B)

Question 29

SAMPLE TEST QUESTIONS

13. Sheryl files a petition in bankruptcy. Sheryl’s non-dischargeable debts include :
    a. domestic-support obligations
    b. student loans if payment would impose undue hardship
    c. unpaid loans to finance home repairs
    d. unsecured credit-card debt

Answer 29

ANSWER :
(A)
CORRECT :
(A)

Question 30

SAMPLE TEST QUESTIONS

14. Leif files a petition in bankruptcy. Among his debts are unpaid taxes, fines owed to the government, student loans owed to Metro University, and support owed to his ex-wife Nadia. Most likely to be discharged are :
    a. back taxes accrued within the previous three years
    b. fines outstanding less than eight years
    c. student loans whose payment would impose undue hardship
    d. spousal-support debts unpaid for more than eighteen months

Answer 30

ANSWER :
(C)
CORRECT :
(C)

Question 31

SAMPLE TEST QUESTIONS

15. Fruit & Flowers Mail Order Corporation’s creditors agree to a workout with the firm. This is :
    a. an agreement to pay a debt dischargeable in bankruptcy
    b. an accountant’s summary of a debtor’s financial situation
    c. a private, negotiated adjustment of creditor-debtor relations
    d. a reorganization of corporate debt and debtors

Answer 31

ANSWER :
(C)
CORRECT :
(C)

Question 32

SAMPLE TEST QUESTIONS

16. Luxury Furniture & Floors, Inc., files a petition in bankruptcy for relief through reorganization. Luxury’s reorganization plan must contain :
    a. a plan to turn over its future income to the trustee
    b. a certificate proving attendance at a credit-counseling briefing
    c. a provision of adequate means for the plan’s execution
    d. a statement of preference for one creditor over another

Answer 32

ANSWER :
(C)
CORRECT :
(C)

Question 33

SAMPLE TEST QUESTIONS

17. To adjust debts and institute a repayment plan at is less expensive and less complicated than other options, Buffalo n’ Beef Bar-B-Q Restaurant, a small business, may file a petition in bankruptcy for relief through :
    a. a liquidation
    b. a reorganization
    c. a repayment plan
    d. a family-farmer bankruptcy plan

Answer 33

ANSWER :
(D)
CORRECT :
(C)

Question 34

SAMPLE TEST QUESTIONS

18. Edward is a debtor. Furniture Mart is Edward’s employer. Guaranty Credit, Inc., and the government are Edward’s creditors. For these parties, a petition in bankruptcy for relief through an individual’s repayment plan could be filed by :
    a. Edward alone, Furniture Mart alone, or Guaranty Credit and the government jointly
    b. Edward only
    c. Guaranty Credit and the government only
    d. the government only

Answer 34

ANSWER :
(A)
CORRECT :
(B)

Question 35

SAMPLE TEST QUESTIONS

19. Chi-Lan files a petition in bankruptcy for relief through an individual’s repayment plan, Chi-Lan’s plan must provide for :
    a. the turnover of her future income to the trustee
    b. her attendance at a credit-counseling briefing
    c. adequate means for the petition’s execution
    d. a preference for one creditor over another

Answer 35

ANSWER :
(A)
CORRECT :
(A)

Question 36

SAMPLE TEST QUESTIONS

20. Dorothy files a petition for bankruptcy in bankruptcy for relief through an individual’s repayment plan. If she is granted a discharge, debts that will most likely be discharged include :
    a. claims not provided for by the plan
    b. payments on retirement accounts
    c. claims for domestic support obligations
    d. credit-card debt incurred more than one year before filing

Answer 36

ANSWER :
(B)
CORRECT :
(D)