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REG > Debtor-Creditor CRFF MCQ > Flashcards

Debtor-Creditor CRFF MCQ Flashcards

1
Q

Chapter 7

A

permits corporations to liquidate

unusual for individuals but an involuntary petition against an individual would typically be filed under Chapter 7

debtor may file more than one Chapter 7 petition within an eight year period, but is eligible for only one discharge every eight years

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2
Q

Chapter 11

A

permits corporations to reorganize

typically used by businesses but individuals are eligible

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3
Q

Chapter 13

A

limited to individuals with regular income, including married couples

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4
Q

Entities which may not be a debtor under any bankruptcy chapter

A

domestic insurance company,
bank (savings, cooperative)
association (savings and loan, building and loan, homestead) credit union

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5
Q

Ineligible for Chapter 7 (but not 11)

A

railroads

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6
Q

Ineligible for Chapter 11 (but not 7)

A

stock brokers and commodity brokers

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7
Q

preferential transfers

A

Transfers, whether voluntary or involuntary,
of money or property, or of a lien on property,
set aside by the trustee
that improves the transferee’s position

former landlord’s seizure of bank account

car payment and mortgage payment are not preferential if fully secured to receive full payment, even in a bankruptcy, upon the sale of respective collateral

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8
Q

In a Chapter 11 case, claims are classified for

A

both the purpose
of payment and
of voting,

but classification must be fair and appropriate.

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9
Q

Chapter 11 plan of reorganization, as long as it has been approved by at least one class of claims,

A

can be approved by the court,

but only if the court determines the plan to be “fair and equitable.”

may provide for the partial discharge of debts if appropriate

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10
Q

A Chapter 13 plan must pay unsecured creditors at least

A

what they would have received in a Chapter 7 liquidation.

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11
Q

A Chapter 13 plan can provide for payments to secured creditors which alter the terms of the parties’ agreement as long as

A

the secured portion of the creditor’s claim is provided for in full.

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12
Q

In Chapter 13 holders of a mortgage on the debtor’s principal residence are given special treatment such that

A

arrearages must be paid in full, even if partially unsecured (e.g., the value of the house has fallen below the balance due on the mortgage).

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13
Q

a consumer deposit claimant,

A

will receive priority treatment over general unsecured claims

portion of lease and pre-bankruptcy utility charges aretreated general unsecured claims

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14
Q

If one’s income is sufficient to pay all or a portion of their debts, a trustee will object to the filing of a Chapter 7. A debtor’s ability to pay debt is measured, in part, by

A

whether his/her income exceeds the median in the area

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15
Q

The Chapter 11 debtor

A

will ultimately propose a plan which, if approved, sets forth all the terms of payment of debts.

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16
Q

Chapter 11

A creditors committee is formed which includes

A

the seven largest UNSECURED creditors willing to serve.

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17
Q

Chapter 11 debtor (“debtor-in-possession”)

A

operates the business after confirmation of a plan of reorganization, not a trustee.

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18
Q

A Chapter 11 plan can provide for the discharge of

A

unsecured debt

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19
Q

Chapter 13

Secured creditors must

A

be paid in full or retain their secured status.

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20
Q

Chapter 13

Most plans are completed within

A

three years,

but plans up to five years are permissible

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21
Q

The most common defense asserted by creditors against preference claims

A

payment was non-preferential because it was made in the “ordinary course” of business

  1. debt was one which typically exists between the creditor and the debtor,
  2. the transfer was made in a time and manner that is consistent with previous payments made by the debtor to the creditor,
  3. payment (transfer) was standard for the industry. (requires expert testimony)
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22
Q

Chapter 7 trustee will generally seek to undo transfers which occurred

A

within the 90 days prior to bankruptcy,

but will not succeed if the transfer was for new value (such as the inventory purchase or the mortgage refinancing) or for payments made in the ordinary course of business,(rental payments)

may look back to transfers made within the 12 months prior to bankruptcy if the transfer was to an insider

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23
Q

To file an involuntary petition requires

A

three of more creditors whose unsecured claims total $14,425 or more (March 31, 2013)

or a single creditor (who also meets this statutory dollar amount) if the debtor has 11 or fewer creditors

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24
Q

Debts dischargeable in bankruptcy,

A

the result of negligent acts by the debtor

even if reduced to judgment

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25
Q

debts not dischargeable in bankruptcy,

A

debt incurred by fraud or by obtaining credit through false financial statements

spousal support, child support, alimony

taxes which are less than three years old

debts arising from malicious torts, including drunk driving

student loans;

fines (less than three years old) owed to a governmental unit,

debt incurred to purchase luxury items in excess of $650 owed to a single creditor within 90 days before bankruptcy.

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26
Q

A common use of Chapter 13 bankruptcy is curing of a home mortgage arrearage. Typically, if an individual fails to make the payments outlined in his/her bankruptcy plan,

A

the case will be converted to Chapter 7 (although it could simply be dismissed by the court)

and all the debtor’s dischargeable debts (such as a home mortgage debt, credit card debt, medical bills) will be discharged

(unless the debtor has received a discharge within the eight years prior to conversion of the Chapter 13 case to Chapter 7).

An individual who is married may file a joint petition with his/her spouse, but is not required to do so.

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27
Q

if a debtor fails to make payments due to a secured creditor, the creditor may retake the collateral.

The automatic stay of the bankruptcy temporarily prevents repossession.

A secured creditor may seek “relief from the stay” if

A

the debtor is not making payments,

will prevail if secured creditor can prove lack of adequate protection (e.g., the value of the collateral is depreciating)

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28
Q

Both encumbered and unencumbered assets will be sold by the Chapter 7 trustee as long as

A

there is sufficient equity for creditors.

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29
Q

The U.S. Trustee

A

oversees the Chapter 7 trustee,

but does not conduct the liquidation.

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30
Q

Only individuals are entitled to claim certain assets as

A

exempt

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31
Q

If Acme has fewer than 12 unsecured creditors,

A

at least one more creditor will have to sign the involuntary petition.

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32
Q

Under §1104 of the Bankruptcy Code, at any time after the commencement of the case but before confirmation of a plan, on request of a party in interest or the United States trustee, and after notice and a hearing,

A

the court may order the appointment of a trustee “for cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management.”

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33
Q

bankruptcy laws put claims into a priority list with the items listed first being paid first. A partial list of those debts (in order of priority) would be:

A

administrative expenses,

wages owed at the date of the bankruptcy filing up to $12,475 per person,

contributions to employee benefit plans up to $12,475,

consumer deposits up to $2,775 per person,

taxes,

all other unsecured claims.

These specified numbers change every three years with inflation.

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34
Q

to push the company into Chapter 7 bankruptcy by filing an involuntary petition

If there are less than 12 creditors,

A

only one creditor needs to sign the petition if that person has a debt of $15,325 (starting in 2013).

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35
Q

to push the company into Chapter 7 bankruptcy by filing an involuntary petition

If there are 12 or more creditors,

A

then three creditors must sign and the total of those debts must be at least $15,325.

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36
Q

Under the Truth-in-Lending Act, creditors must

A

disclosure annual percentage rates (APRs) of consumer debt as well as finance charges.

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37
Q

Under the Truth-in-Lending Act, consumers may refuse credit within

A

three days

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38
Q

The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 provides additional disclosure requirements, specifically encompassing

A

internet credit card offers,
introductory interest rates, and
minimum payment information.

provides for additional tax-related disclosures for home equity loans and consumer protections related to certain loans sold by bankruptcy trustees.

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39
Q

The Fair Credit Billing Act covers

A

billing disputes with creditors,

not fee and interest rate disclosures.

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40
Q

An artisan’s lien

A 
an INVOLUNTARY lien 
on PERSONAL property 
imposed by law 
for nonpayment of a debt 
relating to an improvement on or repair to 
an item of personal property (TANGIBLE)
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41
Q

A second mortgage

A

is a VOLUNTARY lien
on REAL estate
(TANGIBLE)

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42
Q

A garnishment is

A 
an INVOLUNTARY lien 
on money (INTANGIBLE PERSONAL property)
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43
Q

A judgment is

A

an order by a court
indicating an amount owed and
to whom it is owed

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44
Q

The Equal Credit Opportunity Act of 1974

A

designed to eliminate the practice of lenders
refusing to extend credit to women of child bearing age

other bases of discrimination are proscribed by the Act

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45
Q

Fair Debt Collections Practices Act

A

enacted to stop abusive and deceptive practices by debt collectors

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46
Q

Consumer Protection Act

A

early attempt to require disclosure of charges by lenders

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47
Q

Financial Services Modernization Act of 1999

A

law designed to protect privacy in connection with transmissions by financial institutions

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48
Q

The federal Fair Credit Reporting Act

A

designed to promote accuracy, fairness, and privacy of information in the files of every “consumer reporting agency.”

If advised by a debtor that a file contains inaccurate information, agency must investigate the items by presenting to its information source all relevant evidence submitted by the debtor.

Corrections are only required if the information on file is incorrect or out of date.

If a dispute is not resolved, the debtor’s evidence may become a permanent component of the debtors credit record.

National Finance Bureau is a consumer reporting agency.

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49
Q

Release or partial release of guarantor by

A

Refusal by a creditor of a principal debtor’s tender of payment

Granting an extension to the principal debtor may release a surety from all or part of his/her obligation.

Failure to promptly dispose of collateral or damage to some of the collateral may partially release

Release of a portion of the collateral

Release of the principal debtor without reservation of rights against the sureties

Material changes to the contract of the principal obligation (such as granting payment extensions)

Negligence by the creditor with respect to securing the collateral

Misplacing collateral which has been seized but not yet sold

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50
Q

If a guarantor is fraudulently induced to sign a guaranty agreement, the fraud will not operate to release the guarantor unless

A

the creditor was aware of the fraud or participated in the fraud.

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51
Q

reasons for requiring and calling upon a guarantor

A

minority or bankruptcy
by the principal debtor

reason for not release of
a guarantor

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52
Q

Effect on guarantor of release of collateral by the creditor,

A

releases a guarantor to the extent of the value of the collateral released

53
Q

When a creditor releases a co-surety without reservation of rights against the remaining sureties,

A

the obligation of the remaining sureties is reduced by the amount their right of contribution has been adversely affected

54
Q

When guarantors agree among themselves as to the division of liability,

A

such an agreement is binding on guarantors but does not bind the creditor.

Each guarantor is potentially liable for the entire obligation.

If one guarantor pays, s/he is subrogated to the rights of the creditor.

Subrogation would allow a guarantor to assume creditor rights, including his right as a landlord to assert a lien against personal property on the premises.

If the creditor releases a co-surety without reserving rights against remaining sureties, the obligation of the remaining co-sureties will be reduced by the released surety’s pro rata share of the debt, but not eliminated. -

55
Q

Exoneration

A

refers to a surety’s right to force the principal debtor to pay.

56
Q

Indemnity

A

refers to protection from liability, usually after making full payment.

57
Q

Contribution

A

refers to a co-surety’s right, after paying, to recover from other co-sureties.

58
Q

Subrogation

A

a surety, after paying, steps into the shoes of the creditor to asserts rights against collateral, against the principal debtor, or against other co-sureties

59
Q

Truth in Lending Act

A

“3-day cooling off period” - consumers who enter home equity loans may have rescission rights.

consumer may rescind a consumer credit transaction involving a non-purchase-money security interest in the consumer’s principal dwelling within 3 business days if all disclosure requirements are met, or during an extended statutory period, due to disclosure violations such as failure to give adequate notice of right to rescind

60
Q

The disclosure required under the Truth in Lending Act must be made:

A

“Clearly and conspicuously,”
in meaningful sequence,
in writing, and
in a form that the consumer may keep

61
Q

The Truth in Lending Act requires that creditors, in open-ended credit transactions, disclose

A

annual percentage rate,
statement of billing rights,
method of determining finance charges and balances, amount or method of determining any membership or participation fees,
security interests if applicable,
periodic statement of the account, and
statement regarding billing error resolution.

Such requirements are also included as provisions of the Fair Credit and Charge Card Disclosure Act.

62
Q

A creditor who seeks pre-judgment attachment of a debtor’s property does so at its peril, unless

A

the creditor has a security interest on a particular item (such as an automobile).

Where the creditor has a security interest (even nonperfected), pre-judgment seizure – without notice to the debtor – due to the debtor’s default is permitted AS LONG AS THE CREDITOR DOES NOT BREACH THE PEACE.

There are significant Constitutional and other legal limitations on pre-judgment attachments (not involving secured items).

63
Q

Certain federal payments are exempt from creditor garnishment,

A

including Social Security benefits

64
Q

State law exempts certain personal property from seizure by creditors, which typically includes items such as

A

provisions for consumption,
apparel, and
tools or equipment used in trade

65
Q

The homestead exemption

A

protects debtors from satisfaction of debt against equity in the debtor’s primary residence,

EXCEPTIONS:
mortgage liens
IRS tax liens

66
Q

percentage of wages that can be garnished by creditors.

A

limitations set by federal and state law

67
Q

Insurability of being named as devisee in a will

A

not an insurable interest

gives rise only to an expectation of an interest in real estate.

(A will is considered “ambulatory” and does not come into effect until the testator dies.)

68
Q

Insurability of written lease on commercial business premises

A

constitutes an insurable interest in real estate.

69
Q

Insurability of contract to purchase four hundred acres of timber land

A

constitutes an insurable interest as a contract purchaser.

70
Q

Insurability of holding of a mortgage on residential real estate

A

constitutes an insurable interest in property

71
Q

To maintain insurance on property or on a person’s life in which there is no legally recognized insurable interest

A

is tantamount to wagering

such insurance contracts are void

72
Q

It is permissible to purchase a property insurance policy before owning the property (i.e., when there is no insurable interest) but

A

the insurable interest must exist at the time a loss is sustained.

73
Q

With respect to life insurance, a person can maintain life insurance on a spouse’s life after divorce

A

regardless whether s/he is receiving alimony or child support payments

74
Q

insurable interest with respect to real estate for property

A

owned fee simple,
life estate,
a future interest

75
Q

Failure to notify the insurer of a potential claim

A

will bar recovery

since the insurance company’s ability to reduce or defeat the claim may be materially impaired.

76
Q

with respect to malpractice claims

A

no right of subrogation

following of company procedures will be irrelevant if negligent

mere negligence, not gross negligence, is all that is necessary to prove malpractice and trigger coverage

77
Q

Insurance law permits person to procure life insurance coverage on

A

one’s own life,
on blood relatives, and
on legal or economic dependents

business is economically dependent upon its key persons and therefore may maintain “key-person” life policies on their lives

78
Q

A property insurance policy includes, automatically, a right of subrogation for any claims paid on behalf of the insured.

A

insurer entitled to “step into the shoes” of insured against others

79
Q

If insured releases the wrongdoer

A

the insured gives up any claim for recovery under the insurance policy

80
Q

Attachment of a security interest occurs once three requirements have been met:

A

Debtor has rights in the collateral;

Creditor has given value;

Security agreement has been executed.

Creditors SAV’R attachment:
Security Agreement,
Value
Rights in collateral

81
Q

A security interest is

A

a VOLUNTARY lien on personal property.

can be oral or inferred (pawn shop)

82
Q

attachment” of a security interest means

A

security interest is enforceable

83
Q

perfection of a security interest

A

protects a lender against persons who might make a claim to the same property

cannot occur until there is attachment

generally occurs upon the filing of a financing statement in the appropriate jurisdiction,

but is automatic with respect to a purchase money security interest in consumer goods (not equipment)

84
Q

buyer in the ordinary course from inventory

A

takes free and clear of any security interest, even if he knows of its existence

(unless he is aware that his purchase is in violation of the security agreement)

85
Q

If collateral which is subject to a filed financing statement is moved from one jurisdiction to another, the secured creditor

A

has four months within which to file a financing statement in the new jurisdiction.

86
Q

Retention of collateral in full satisfaction of claims

A

against INDIVIDUALS is NOT permitted by UCC Article 9,

but IS PERMITTED against NON-INDIVIDUALS

debtor’’s consent or sending notice to the debtor which is not objected to is required

87
Q

A creditor may retain collateral in partial satisfaction of a debt

A

only with explicit consent of the debtor

with respect to non-individual debtors

88
Q

A secured creditor must give notice of sale

A

to ALL junior lienholders of record

89
Q

Foreclosure sales against individuals which do not result in full satisfaction of the debt

A

are common

90
Q

A secured party may purchase collateral at:

A

(1) public disposition; or
(2) private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.

91
Q

A creditor may obtain judgment

A

before proceeding against the collateral.

92
Q

If a creditor takes possession of collateral, it must do so without

A

breaching the peace.

93
Q

The creditor must distribute excess proceeds

A

to junior security interests,

with any remainder to the debtor

94
Q

security interest must be perfected

A

by filing;

95
Q

only a security interest that can be automatically perfected

A

in consumer goods that are inventory in the hands of a retailer

96
Q

a security interest can take priority with respect to new inventory over a perfected security interest

A

if former is notified prior to the arrival of the new inventory

97
Q

financing statement relating to the tort claims

A

is valid

commercial tort claims (an intangible) may be the subject of a financing statement under recent revisions to article 9 of the Uniform Commercial Code (UCC)

98
Q

financing statement relating to equipment

A

is valid

general descriptions are sufficient to perfect a security interest under recent revisions to Article 9 of the UCC

99
Q

If purchase-money collateral also secures an obligation that is not a purchase-money obligation, and vice-versa, this mixing of collateral

A

does not affect the status of the items which were, in fact, purchase-money collateral.

100
Q

When a purchase-money obligation is renewed, refinanced, consolidated, or restructured

A

it does not lose its character as a purchase money secured transaction.

101
Q

collateral must be purchased with loan proceeds of a purchase money loan (and not with other funds)

A

for the security interest to be properly perfected

102
Q

even if not mentioned in the security agreement or financing statement, a secured creditor has a security interest in proceeds of the collateral which includes, among other things,

A
  1. sale or lease proceeds,
  2. insurance proceeds,
  3. replacement collateral.

Uniform Commercial Code Article 9 (section 9-203(f)),

103
Q

a financing statement which is recorded with the incorrect or fictitious debtor name is effective if

A

if a computer search under the debtor’’s correct name locates the financing statement with the debtor’’s incorrect name

Courts have no discretion to decide that the name used in a financing statement is “close enough” to the debtor’’s actual name.

UCC

104
Q

perfected (though not automatically perfected) purchase-money security interest

A

Priority is determined by which party was first to file or perfect.

Bankruptcy trustee’’s claim is equivalent to a secured creditor who filed a financing statement on the date of bankruptcy and has avoidance power to avoid preferential transfers.

Recordation/file financing statement within 20 days of receipt of the collateral

105
Q

security interest in collateral may be automatically perfected, but perfection does not reach beyond initial obligor unless

A

it files/records a financing statement

within 20 days?

106
Q

A purchase money security interest retained in consumer goods is automatically perfected. Whether goods are consumer goods depends upon

A

the intended use of the goods rather than the nature of the goods.

107
Q

perfection non-purchase money security interest in items listed in the security agreement and financing statement, including

A

cash proceeds from the company’s sales.

108
Q

security interest in the vehicle can only be perfected

A

by filing with the state’s motor vehicle department.

109
Q

A security interest in real estate is perfected only when

A

filed among the real estate records

110
Q

A release terminating the security interest can be filed

A

only by the creditor

111
Q

The general rule is that a perfected security interest defeats competing claims other than

A

those which were previously perfected.

112
Q

an automatically perfected security interest

A

perfected without filing

because it is a purchase-money security interest in consumer goods

defeats most competing claims

but does not defeat the claim of a consumer-to-consumer purchaser

113
Q

A security interest in inventory remains attached to the inventory after it is sold to a party who is not a buyer in the ordinary course of business. Purchaser during a liquidation sale

A

does not qualify as a buyer in the ordinary course of business

114
Q

” A security interest in inventory does not attach to

A

noninventory (e.g., equipment)

115
Q

Debtor may not use materials during a Chapter 7 proceeding because

A

in a liquidation case the debtor is not permitted to carry on business

116
Q

A lease may not qualify as a negotiable instrument if it contains

A

promises in addition to the promise to pay money.

117
Q

Recordation of a lease in lieu of a financing statement

A

is valid.

118
Q

A secured creditor may add or delete collateral covered by a financing statement by filing an amendment, but an amendment does not

A

extend the period of effectiveness of the financing statement.

119
Q

In general, a financing statements is effective for

A

a period of five years after the date of filing.

120
Q

A continuation statement may be filed

A

only within six months before the expiration of the five year period of effectiveness of the financing statement. -

121
Q

UCC Article 9-313 covers priorities of

A

security interests in fixtures.

goods are “fixtures” when they become so related to particular real estate that an interest in them arises under real estate law.

a security interest may be created in goods which are fixtures or may continue in goods which become fixtures,

no security interest exists under this article in ordinary building materials incorporated into an improvement on land.

122
Q

A “fixture filing”

A

is the filing in the office where a real estate mortgage would be filed.

123
Q

Section 9-501 of the UCC provides that an accounting

A

is a requirement that may not be waived or varied except with respect to redemption of collateral (Section 9-506).

The right to an accounting of the proceeds of a sale of collateral cannot be waived

124
Q

When a secured creditor seizes and sells collateral, it may be disposed of

A

in any commercially reasonable manner, including a private sale.

Auctions are common, but are not mandatory.

125
Q

artisan’s lien

A

occurs when one party improves personal property for another and then retains possession of that property until payment is made.

Without this type of lien, the party doing the work might have trouble forcing payment to be made.

126
Q

perfect interest by

A

filing of the financing statement.

attachment is not perfection

possession of the goods is considered a perfection, but still takes its position in order of priority regarding other perfections

127
Q

purchase money security interests for noninventory goods.

A

if perfected within 20 days of purchase, takes first priority

128
Q

financing statement

A

must be made in writing or electronic

must contain the debtor’s and creditor’s names,

does not require signatures.

Minor errors are acceptable unless they materially change the statement or serve to make it misleading.

General descriptions of collateral are acceptable.

Expire in five years, but can be extended by submitting a continuation statement before the end of the term.

REG (9 decks)

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