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
2
Q
Chapter 11
A
permits corporations to reorganize
typically used by businesses but individuals are eligible
3
Q
Chapter 13
A
limited to individuals with regular income, including married couples
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
5
Q
Ineligible for Chapter 7 (but not 11)
A
railroads
6
Q
Ineligible for Chapter 11 (but not 7)
A
stock brokers and commodity brokers
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
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.
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
10
Q
A Chapter 13 plan must pay unsecured creditors at least
A
what they would have received in a Chapter 7 liquidation.
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.
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).
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
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
15
Q
The Chapter 11 debtor
A
will ultimately propose a plan which, if approved, sets forth all the terms of payment of debts.
16
Q
Chapter 11
A creditors committee is formed which includes
A
the seven largest UNSECURED creditors willing to serve.
17
Q
Chapter 11 debtor (“debtor-in-possession”)
A
operates the business after confirmation of a plan of reorganization, not a trustee.
18
Q
A Chapter 11 plan can provide for the discharge of
A
unsecured debt
19
Q
Chapter 13
Secured creditors must
A
be paid in full or retain their secured status.
20
Q
Chapter 13
Most plans are completed within
A
three years,
but plans up to five years are permissible
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
- debt was one which typically exists between the creditor and the debtor,
- the transfer was made in a time and manner that is consistent with previous payments made by the debtor to the creditor,
- payment (transfer) was standard for the industry. (requires expert testimony)
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
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
24
Q
Debts dischargeable in bankruptcy,
A
the result of negligent acts by the debtor
even if reduced to judgment
25
debts not dischargeable in bankruptcy,
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.
26
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,
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.
27
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
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)
28
Both encumbered and unencumbered assets will be sold by the Chapter 7 trustee as long as
there is sufficient equity for creditors.
29
The U.S. Trustee
oversees the Chapter 7 trustee,
but does not conduct the liquidation.
30
Only individuals are entitled to claim certain assets as
exempt
31
If Acme has fewer than 12 unsecured creditors,
at least one more creditor will have to sign the involuntary petition.
32
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,
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."
33
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:
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.
34
to push the company into Chapter 7 bankruptcy by filing an involuntary petition
If there are less than 12 creditors,
only one creditor needs to sign the petition if that person has a debt of $15,325 (starting in 2013).
35
to push the company into Chapter 7 bankruptcy by filing an involuntary petition
If there are 12 or more creditors,
then three creditors must sign and the total of those debts must be at least $15,325.
36
Under the Truth-in-Lending Act, creditors must
disclosure annual percentage rates (APRs) of consumer debt as well as finance charges.
37
Under the Truth-in-Lending Act, consumers may refuse credit within
three days
38
The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 provides additional disclosure requirements, specifically encompassing
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.
39
The Fair Credit Billing Act covers
billing disputes with creditors,
not fee and interest rate disclosures.
40
An artisan's lien
```
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)
```
41
A second mortgage
is a VOLUNTARY lien
on REAL estate
(TANGIBLE)
42
A garnishment is
```
an INVOLUNTARY lien
on money (INTANGIBLE PERSONAL property)
```
43
A judgment is
an order by a court
indicating an amount owed and
to whom it is owed
44
The Equal Credit Opportunity Act of 1974
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
45
Fair Debt Collections Practices Act
enacted to stop abusive and deceptive practices by debt collectors
46
Consumer Protection Act
early attempt to require disclosure of charges by lenders
47
Financial Services Modernization Act of 1999
law designed to protect privacy in connection with transmissions by financial institutions
48
The federal Fair Credit Reporting Act
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.
49
Release or partial release of guarantor by
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
50
If a guarantor is fraudulently induced to sign a guaranty agreement, the fraud will not operate to release the guarantor unless
the creditor was aware of the fraud or participated in the fraud.
51
reasons for requiring and calling upon a guarantor
minority or bankruptcy
by the principal debtor
reason for not release of
a guarantor
52
Effect on guarantor of release of collateral by the creditor,
releases a guarantor to the extent of the value of the collateral released
53
When a creditor releases a co-surety without reservation of rights against the remaining sureties,
the obligation of the remaining sureties is reduced by the amount their right of contribution has been adversely affected
54
When guarantors agree among themselves as to the division of liability,
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
Exoneration
refers to a surety's right to force the principal debtor to pay.
56
Indemnity
refers to protection from liability, usually after making full payment.
57
Contribution
refers to a co-surety's right, after paying, to recover from other co-sureties.
58
Subrogation
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
Truth in Lending Act
"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
The disclosure required under the Truth in Lending Act must be made:
"Clearly and conspicuously,"
in meaningful sequence,
in writing, and
in a form that the consumer may keep
61
The Truth in Lending Act requires that creditors, in open-ended credit transactions, disclose
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
A creditor who seeks pre-judgment attachment of a debtor's property does so at its peril, unless
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
Certain federal payments are exempt from creditor garnishment,
including Social Security benefits
64
State law exempts certain personal property from seizure by creditors, which typically includes items such as
provisions for consumption,
apparel, and
tools or equipment used in trade
65
The homestead exemption
protects debtors from satisfaction of debt against equity in the debtor's primary residence,
EXCEPTIONS:
mortgage liens
IRS tax liens
66
percentage of wages that can be garnished by creditors.
limitations set by federal and state law
67
Insurability of being named as devisee in a will
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
Insurability of written lease on commercial business premises
constitutes an insurable interest in real estate.
69
Insurability of contract to purchase four hundred acres of timber land
constitutes an insurable interest as a contract purchaser.
70
Insurability of holding of a mortgage on residential real estate
constitutes an insurable interest in property
71
To maintain insurance on property or on a person's life in which there is no legally recognized insurable interest
is tantamount to wagering
such insurance contracts are void
72
It is permissible to purchase a property insurance policy before owning the property (i.e., when there is no insurable interest) but
the insurable interest must exist at the time a loss is sustained.
73
With respect to life insurance, a person can maintain life insurance on a spouse's life after divorce
regardless whether s/he is receiving alimony or child support payments
74
insurable interest with respect to real estate for property
owned fee simple,
life estate,
a future interest
75
Failure to notify the insurer of a potential claim
will bar recovery
since the insurance company's ability to reduce or defeat the claim may be materially impaired.
76
with respect to malpractice claims
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
Insurance law permits person to procure life insurance coverage on
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
A property insurance policy includes, automatically, a right of subrogation for any claims paid on behalf of the insured.
insurer entitled to "step into the shoes" of insured against others
79
If insured releases the wrongdoer
the insured gives up any claim for recovery under the insurance policy
80
Attachment of a security interest occurs once three requirements have been met:
Debtor has rights in the collateral;
Creditor has given value;
Security agreement has been executed.
Creditors SAVR attachment:
Security Agreement,
Value
Rights in collateral
81
A security interest is
a VOLUNTARY lien on personal property.
can be oral or inferred (pawn shop)
82
attachment of a security interest means
security interest is enforceable
83
perfection of a security interest
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
buyer in the ordinary course from inventory
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
If collateral which is subject to a filed financing statement is moved from one jurisdiction to another, the secured creditor
has four months within which to file a financing statement in the new jurisdiction.
86
Retention of collateral in full satisfaction of claims
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
A creditor may retain collateral in partial satisfaction of a debt
only with explicit consent of the debtor
| with respect to non-individual debtors
88
A secured creditor must give notice of sale
to ALL junior lienholders of record
89
Foreclosure sales against individuals which do not result in full satisfaction of the debt
are common
90
A secured party may purchase collateral at:
(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
A creditor may obtain judgment
before proceeding against the collateral.
92
If a creditor takes possession of collateral, it must do so without
breaching the peace.
93
The creditor must distribute excess proceeds
to junior security interests,
with any remainder to the debtor
94
security interest must be perfected
by filing;
95
only a security interest that can be automatically perfected
in consumer goods that are inventory in the hands of a retailer
96
a security interest can take priority with respect to new inventory over a perfected security interest
if former is notified prior to the arrival of the new inventory
97
financing statement relating to the tort claims
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
financing statement relating to equipment
is valid
general descriptions are sufficient to perfect a security interest under recent revisions to Article 9 of the UCC
99
If purchase-money collateral also secures an obligation that is not a purchase-money obligation, and vice-versa, this mixing of collateral
does not affect the status of the items which were, in fact, purchase-money collateral.
100
When a purchase-money obligation is renewed, refinanced, consolidated, or restructured
it does not lose its character as a purchase money secured transaction.
101
collateral must be purchased with loan proceeds of a purchase money loan (and not with other funds)
for the security interest to be properly perfected
102
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,
1. sale or lease proceeds,
2. insurance proceeds,
3. replacement collateral.
Uniform Commercial Code Article 9 (section 9-203(f)),
103
a financing statement which is recorded with the incorrect or fictitious debtor name is effective if
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
perfected (though not automatically perfected) purchase-money security interest
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
security interest in collateral may be automatically perfected, but perfection does not reach beyond initial obligor unless
it files/records a financing statement
| within 20 days?
106
A purchase money security interest retained in consumer goods is automatically perfected. Whether goods are consumer goods depends upon
the intended use of the goods rather than the nature of the goods.
107
perfection non-purchase money security interest in items listed in the security agreement and financing statement, including
cash proceeds from the company's sales.
108
security interest in the vehicle can only be perfected
by filing with the state's motor vehicle department.
109
A security interest in real estate is perfected only when
filed among the real estate records
110
A release terminating the security interest can be filed
only by the creditor
111
The general rule is that a perfected security interest defeats competing claims other than
those which were previously perfected.
112
an automatically perfected security interest
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
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
does not qualify as a buyer in the ordinary course of business
114
A security interest in inventory does not attach to
noninventory (e.g., equipment)
115
Debtor may not use materials during a Chapter 7 proceeding because
in a liquidation case the debtor is not permitted to carry on business
116
A lease may not qualify as a negotiable instrument if it contains
promises in addition to the promise to pay money.
117
Recordation of a lease in lieu of a financing statement
is valid.
118
A secured creditor may add or delete collateral covered by a financing statement by filing an amendment, but an amendment does not
extend the period of effectiveness of the financing statement.
119
In general, a financing statements is effective for
a period of five years after the date of filing.
120
A continuation statement may be filed
only within six months before the expiration of the five year period of effectiveness of the financing statement. -
121
UCC Article 9-313 covers priorities of
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
A "fixture filing"
is the filing in the office where a real estate mortgage would be filed.
123
Section 9-501 of the UCC provides that an accounting
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
When a secured creditor seizes and sells collateral, it may be disposed of
in any commercially reasonable manner, including a private sale.
Auctions are common, but are not mandatory.
125
artisan’s lien
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
perfect interest by
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
purchase money security interests for noninventory goods.
if perfected within 20 days of purchase, takes first priority
128
financing statement
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.
