Study Unit 20 Flashcards
When does a security interest attach and become enforceable against the debtor?
When the following have occurred:
- The debtor has authenticated (signed manually or electronically) a security agreement (contract) that reasonable describes the collateral. - The secured party is in possession of the collateral. - The secured party had given value. - The debtor (1) has rights (but not necessarily title) in the collateral or (2) can transfer such rights.
What are the requirements to (1) enforce a security interest and (2) prioritize the claim over any other third party’s interest in the collateral?
Attachment of Perfection of
Security Interest Security Interest
To Enforce a
Security Interest Yes No
Prioritize claims
Over other parties Yes Yes
Identify the three ways by which a security interest can be perfected.
- Perfection by filing a financing statement
- Perfection by possession or control of the collateral
- Automatic perfection (e.g., a PMSI inn consumer goods)
Define a purchase money security interest (PMSI).
A PMSI results when
1. A person abstains credit, 2. The credit is used to acquire property, and 3. That property is collateral for the debt.
Describe the three general rules for prioritizing conflicting security interested in the same collateral.
- A perfected security interest has priority over an unperfected security interest.
- If unperfected security interests conflict, the first to attach or become effective has priority.
- If continuously perfected security interests conflict, the first to file or perfect (not attach) has priority.
What is the order of priority in collateral when a debtor defaults?
Independent priority, the order is as follows:
1. Buyers in the ordinary course of business (other that a buyer of farm products from a farmer) 2. Lien creditors (artisan’s liens and mechanic’s liens) 3. Holders if a perfected PMSI 4. Lien creditors (others) 5. Buyers of tangible chattel paper, documents, goods, or certified securities who give value, take delivery, and have no knowledge of the security interest 6. Holders of unperfected security interests 7. General creditors
What are the three remedies available to a secured party after default by a debtor?
The secured party may
- Sue the debit for the amount die (reduce the claim to a judgement for the deficiency) - Peaceably take possession and dispose of the collateral - Accept (retain) the collateral
Compare the types of bankruptcy under Chapters 7 and 11 of the Bankruptcy code.
Type of
Bankruptcy
Chapter 7 Eligible - Individuals, Partnerships, Corporations
Ineligible - Municipalities, Railroads, Insurers, Banks, Credit Unions, Savings and Loans (S&Ls)
Trustee required
Chapter 11 Eligible - Railroads, most persons who may be debtors under Chapter 7
Ineligible - Sharheolders, Commodities and stockbrokers, Insurers, Banks, Credit Unions, Savings and Loans
(S&Ls)
Trustee is not required
What are the requirements for filing an involuntary petition under Chapter 7 and Chapter 11?
- If the debtor has 12 or more different creditors, any 3 or more who together hold unsecured claims of at least $16,750 may file an involuntary petition.
- If the debtor has fewer that 12 creditors, any 1 or more who alone or together have unsecured claims of at least $16,750 may file an involuntary petition.
List the two statutory grounds for filing an involuntary petition for bankruptcy.
- The debtor is not paying undisputed debts as they come due.
- A custodian, assignee, or general receiver took possession of all or most of the debtor’s property within 120 days before the filing of the petition.
Describe a preferential transfer, which is voidable by a trustee in a liquidation under Chapter 7.
A voidable preferential transfer is made
- To or for the benefit of a creditor, - For or on account of a pre-existing debt but not for new value, - During the debtor’s insolvency, - Within 90 days prior to filing the liquidation petition, during which time the debtor is presumed to be insolvent, and - For the purpose of entitling the creditor to receive a larger portion of its claim then otherwise would be received under a distribution in bankruptcy.
Describe a fraudulent transfer, which is voidable by a trustee in a liquidation under Chapter 7.
A voidable fraudulent transfer is made within 2 years prior to filing with actual intent to hinder, delay, or defraud creditors.
List the three types of creditors involved, in order of priority, in a liquidation under Chapter 7.
The three types of creditors, in order of priority, are as follows:
1. Secured creditors (who became general creditors to the extent collateral is deficient) 2. Priority creditors (unsecured) 3. General creditors (other unsecured creditors)
In the order of claim payment, list the classes of priority creditors.
The classes of a higher class of priority claims listed in order of payment are as follows:
1. Domestic support obligations 2. Administrative expenses 3. Gap creditors 4. Wages up to $13,650 owed to employees (earned within 180 days before filing) 5. Contributions to employee benefit plans (for services performed within 180 days before filing) 6. Claims of grain producers and fisherman up to $6,725 7. Consumer deposits up to $3,025 8. Taxes 9. Death and injury claims arising from an intoxicated person’s operation of a motor vehicle
Give examples of grounds for denial of a general discharge in a liquidation under Chapter 7.
- Fraudulently transferring or concealing property (within 1 year prior to filing)
- Unjustifiably concealing, destroying, or failing to keep adequate business records
- Making a false oath, fraudulent account, or a false claim
- Failing to explain satisfactorily any loss or deficiency of assets
- Refusing to testify or to obey lawful orders of the court
- Giving or receiving a bribe
- Committing any of these acts, within 1 year before filing, in a case involving an insider
- Being subject to a proceeding that may limit the homestead exemption
- Failing to complete a personal financial management course
