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CPA REG > Debtor-Creditor Relationships > Flashcards

Debtor-Creditor Relationships Flashcards

1
Q

Define “absolute guaranty.”

A

Promise by surety or guarantor to pay no matter what happens or why debtor defaulted.

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2
Q

Describe the concept of reimbursement and indemnity of a guarantor.

A

Upon payment to the creditor, the guarantor has the right to seek reimbursement from the principal debtor.

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3
Q

What is the formula for the right of a co-surety to collect from another, i.e., the right of contribution?

A

Amount guaranteed by surety / Total agreed to be paid by all sureties
Take this ratio times the amount to be paid to the creditor - that is the amount owed by this surety to the creditor or to any surety who had to pay the full amount.

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4
Q

Explain the requirements for creating a surety relationship.

A

Must be in writing; can be gratuitous.

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5
Q

Describe a surety (or guaranty relationship).

A

Principal debtor owes money to creditor and surety or guarantor agrees to be back-up for debtor if debtor does not pay; promise to pay the debt of another in the event that “other” defaults.

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6
Q

Describe the right of contribution regarding sureties.

A

Cosureties have the right to collect from other sureties their pro rata share of the amount paid to the creditor.

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7
Q

What is the creditor’s right in a surety relationship?

A

Upon default can proceed against collateral or surety - creditor’s choice.

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8
Q

Define “conditional guaranty.”

A

Surety or guarantor promises to pay only when certain conditions have been made, such as AFTER creditor has reduced debtor’s obligation to a judgment or AFTER the creditor has exhausted all collateral.

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9
Q

What defenses are available to a guarantor?

A

Contracts defenses of the principal debtor such as fraud, duress, failure of consideration, breach.

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10
Q

What defenses are available to a surety through creditor actions?

A

Release of debtor. Refusal by creditor to accept payment.
Material alteration of agreement with debtor.

Fraud and collusion with debtor to get guarantor to provide guaranty.

Release of collateral to debtor (but only released for the amount that is the value of the collateral)

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11
Q

Under what circumstances are compensated and uncompensated discharged from liability?

A

On material alterations, uncompensated surety is discharged; compensated surety is discharged only if modification increases the risk.

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12
Q

What defenses are not available to a surety?

A

Capacity of the principal debtor; Bankruptcy of the principal debtor; Statute of limitations running on debtor’s obligation.

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13
Q

Define warranty deed.

A

This deed provides the highest level of protection. The grantor guarantees title and his right to transfer.

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14
Q

Define tenancy at will.

A

A tenancy that simply continues with permission of the landlord. A tenancy at will can be terminated by either party without notice.

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15
Q

List the requirements for a valid deed.

A

It must be in writing;
It must be signed by the grantor;
It must include a description of the land.

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16
Q

Define easement.

A

The right of a person to make limited use of another’s realty, usually without taking anything from it, or possession of it.

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17
Q

Define fee simple estate.

A

A person has complete ownership for an unlimited duration to do with the property as he or she legally chooses.

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18
Q

Define tenancy for years.

A

A lease for a specified duration. The lease agreement must name the parties, include identification of the property, and include any lease term that the parties wish to have.

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19
Q

What is a chapter 13 bankruptcy?

A

Adjustment of Debts of an Individual with Regular Income.

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20
Q

Define attachment.

A

Action by a creditor for a court-ordered seizure for the taking into custody the debtor’s nonexempt property prior to the creditor getting a judgment.

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21
Q

What governs bankruptcy laws?

A

Federal law administered by bankruptcy courts.

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22
Q

What is the federal limit for garnishment of wages?

A

25% of debtor’s wages.

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23
Q

What is a chapter 7 bankruptcy?

A

Straight Bankruptcy or Liquidation.

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24
Q

List the types of bankruptcy permitting involuntary petitions.

A

Chapter 7;

Chapter 11.

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25
Q

Define artisan’s lien.

A

Lien on personal property for repair, improvement, alteration.

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26
Q

How often are the amounts on filing requirements and exemptions for bankruptcies changed?

A

The amounts on filing requirements, exemptions etc. are set to automatically increase every three years.

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27
Q

What can a creditor garnish in order to satisfy a judgment?

A

Wages of the debtor.

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28
Q

What is a chapter 12 bankruptcy?

A

Adjustment of Debts of a Family Farmer and Fisherman.

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29
Q

Describe the differences between the various chapters of bankruptcy.

A

Voluntary 7, 9, 11, 12, 13.
Involuntary 7, 11.
Trustee required 7, 12, 13.

30
Q

List the different types of liens.

A 
Mortgages;
Secured transactions;
Mechanic's liens;
Worker's liens;
Judgment liens;
Artisan's liens.
31
Q

What is a chapter 9 bankruptcy?

A

Adjustment of Debts of a Municipality.

32
Q

List the types of property that can be attached.

A

Real and personal property as well as accounts and receivables

33
Q

Define garnishment.

A

Right of judgment creditor to garnish (take a portion of) debtor’s wages through direct filing with employer- federal law limits amount that can be garnished to 25% of take-home pay.

34
Q

Define “order for relief.”

A

Court order issued pending hearing on involuntary petition.

35
Q

List the types of bankruptcy permitting voluntary petitions.

A 
Chapter 7;
Chapter 9;
Chapter 11;
Chapter 12;
Chapter 13.
36
Q

What is a chapter 11 bankruptcy?

A

Reorganization.

37
Q

Define mechanic’s lien.

A

Lien for work or materials provided on real property.

38
Q

List the five types (or chapters) of bankruptcy.

A 
Chapter 7;
Chapter 9;
Chapter 11;
Chapter 12;
Chapter 13.
39
Q

What are the requirements for filing voluntary bankruptcy?

A

Any individual, partnership, corporation can file. Consumers must undergo credit counseling with nonprofit within 180 days of filing. Need not be insolvent - there are tests for determining eligibility for bankruptcy but insolvency is not required.

40
Q

Describe how a lienholder can collect on the amount owed.

A

Through foreclosure of the lien

41
Q

What entities are not allowed to file voluntary bankruptcy?

A 
Banks;
Savings (buildings) and loans;
Credit unions;
Railroads;
Insurance companies;
Governmental units;
Small businesses under SBA. (Their bankruptcies are handled via other sections of the code or by receiverships.)
42
Q

What are the requirements for involuntary petition?

A

If there are 12 or more creditors, then 3 creditors with aggregated unsecured debt owed of $15,325 must file (April 2013 figure - changes every three years).
If less than 12 creditors, then any creditor owed $15,325 may file.

43
Q

What are the special responsibilities of consumers?

A

Must have had credit counseling;
Must meet the means test;
Dismissal of petition for abuse if consumer debtor has the means to pay according to code calculations of income.

44
Q

Define debtor’s estate.

A

All property held at commencement (and for 180 days after) plus appreciation (except employee benefit contributions) and property reacquired by trustee (voidable transfers).

45
Q

List the voidable preferences in bankruptcy.

A

Property transferred by fraud, duress, undue influence, mistake;
Fraudulent conveyances;
Transfers to insiders;
Transfer in the 90 days preceding the bankruptcy;
Transfers to creditors while insolvent (presumed insolvent for 90 days prior to filing). Also applies to security interests granted.

46
Q

What are the end results of a creditor knowingly violating a stay?

A

Constitutes a Crime;

Creditor liable for costs, actual and possibly punitive damages, attorney fees.

47
Q

List the exceptions to voidable preferences.

A

Contemporaneous bills: utilities, rent;

Ordinary course payments: monthly installment payments (mortgages; vehicle payments).

48
Q

What is the role of debtor at creditor’s meeting?

A

Appear to testify about assets and debts.

49
Q

List the duties of the debtor.

A

List all creditors;
Schedule of assets;
Schedule of income;
Other required financial information.

50
Q

Define insider.

A

An individual or business which has a close relationship with the debtor.

51
Q

Describe the federal homestead exemption for bankruptcy.

A

$146,450;
Debtor must have domiciled in the state for two years;
Applies to property acquired within 3.5 years of filing for bankruptcy

52
Q

List the actions not stayed by a bankruptcy petition

A

Criminal prosecution of the debtor;
Collection of child support and/or alimony;
Tax audits;
HUD’s right to foreclose under National Housing Act;
Investigations by a securities regulatory agency.

53
Q

What is the time limit for including inheritances in a bankrupt’s estate?

A

The bankrupt must have the right to receive the inheritance before the bankruptcy or within 180 days of declaration.

54
Q

List the basic duties of a bankruptcy trustee.

A

Collect property and reduce it to money;
Be accountable for property and make a final report;
Investigate financial affairs of debtor and creditor’s claims;
Furnish information and reports to interested parties and domestic-support creditors;
Review all filings by debtor and a statement whether the filing is an abuse under the means income test.

55
Q

Define “automatic stay.”

A

Order issued by court that stops creditors from collecting debt once a petition is filed.

56
Q

Describe the first creditors’ meeting.

A

Called by the U.S. Trustee on behalf of the Court.

57
Q

What are the time limits on voidable preferences?

A

90 days prior to bankruptcy assumed insolvent and can be set aside if creditor gets priority it would not have in bankruptcy;
Insiders – one year prior to filing of the petition - presumed voidable.

58
Q

Who can claim exemptions in a bankruptcy?

A

Only individuals, not partnerships or corporations, can claim exemptions

59
Q

List the order of distribution of a bankruptcy estate after the gap creditors have been paid.

A

Employee/commission claims up to $12,475;
Employee pension contributions to $12,475, less the amount received as wages;
Farms/fishers;
Consumer deposits;
Taxes;
DUI damages;
General creditors.

60
Q

List the top four categories in the order of distribution in a bankruptcy hearing.

A

Secured parties;
Child support;
Bankruptcy administration costs (trustee, accountant, lawyer, appraisal fees etc.);
Gap creditors.

61
Q

What is the treatment of perfected secured claims beyond the value of collateral?

A

General creditor claim.

62
Q

What is a reaffirmation agreement?

A

It is a promise by the bankruptcy debtor to pay a debt that would otherwise be discharged in bankruptcy.

63
Q

List the types of discharge.

A 
Payment or Tender of Payment;
Cancellation or Renunciation;
Reacquisition;
Certification of a Check;
Impairment of Recourse or Collateral.
64
Q

What are the requirements for a valid reaffirmation agreement?

A

It must be:
Signed by the bankruptcy debtor;
Filed by the court;
Discussed with attorney or, if no attorney, court hearing is required.

65
Q

How long does a bankruptcy debtor have for the rescission of a reaffirmation agreement?

A

Any time prior to discharge or within 60 days of the filing of the agreements, whichever is later.

66
Q

List the conditions under which a discharge can be denied

A

It can be denied:
If a debtor has intentionally concealed assets, records, etc. from creditors or the trustee;
In the case of fraudulent claims or transfers of property;
If the debtor refuses to obey court orders;
If required documents are not filed;
In consumer bankruptcies, if the required education course is not completed.

67
Q

What debts cannot be discharged in bankruptcy?

A 
Unpaid taxes (2 years);
Debts from fraud, larceny, embezzlement;
Alimony, child support;
Claims on willful or malicious and DUI torts;
Government fines and penalties;
Student loan debts (unless discharged)
68
Q

What debts cannot be discharged in bankruptcy?

A 
Unpaid taxes (2 years);
Debts from fraud, larceny, embezzlement;
Alimony, child support;
Claims on willful or malicious and DUI torts;
Government fines and penalties;
Student loan debts (unless discharged).
69
Q

How often can a debtor receive a discharge in bankruptcy?

A

There must be at least eight years between the last discharge and the filing of the petition for the current bankruptcy.

70
Q

When must a reaffirmation agreement be entered into in order to be valid?

A

It must be entered into prior to the discharge in bankruptcy in order to be valid.

CPA REG (14 decks)

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