Bankruptcy Chapter 30 Test Questions & Answers

Business Law, 17e (Langvardt)

Chapter 30 Bankruptcy

1) The Bankruptcy Abuse, Prevention and Consumer Protection Act of 2005 is the most substantial revision of the bankruptcy law since the Bankruptcy Code was adopted.

2) The Bankruptcy Code is a part of state law.

3) Straight bankruptcy, also known as liquidation, is covered under Chapter 7 of the Bankruptcy Code.

4) Chapter 14 of the Bankruptcy Code allows for special protections for family farmers.

5) Dave, who is in financial trouble, has ten creditors. An involuntary bankruptcy petition against Dave requires that three of these creditors sign the petition.

6) As per the 2005 amendments, the trustee of a bankruptcy estate has the authority to sell personally identifiable information to persons not affiliated to the debtor.

7) Unless state law provides otherwise, a bankrupt party may choose either the state's exemptions or the federal exemptions when deciding which property to exempt from bankruptcy.

8) One of the kinds of property that is exempt from bankruptcy under Chapter 7's federal exemptions is the debtor's interest (not to exceed $3,775 in value) in one motor vehicle.

9) Bob has not paid his ex-wife alimony as required under court order. His ex-wife is trying to collect the alimony Bob owes her. Bob files a bankruptcy petition. This automatically stays his ex-wife's collection efforts.

10) Bill's bicycle business has gone bust. The week before Bill went into bankruptcy, he paid $200 for a used bicycle that he intended to re-sell for a profit. This $200 payment is a preference under Chapter 7.

11) Bettina knows that she is going bankrupt. One month before the filing of her voluntary petition, Bettina sells a painting worth $50,000 to her brother for $100. This transfer is void.

12) Creditors wishing to obtain funds from a bankrupt estate must typically file proof of a claim with the estate within a certain time.

13) A secured creditor is classified as an unsecured creditor, to the extent of the debt amount that exceeds the value of the collateral held by such secured creditor.

14) The priority claims to a bankruptcy estate are paid after the secured claims but before the unsecured claims.

15) A bankrupt person who conceals property in order to hinder, delay, or defraud creditors loses any discharge that he may have had regarding that property, but his other debts still are dischargeable.

16) Under special circumstances, a court can order the debtor to become a party to the reaffirmation agreement.

17) In order to prevent debtors from misusing the provisions of the Bankruptcy Code, the scope of dismissal of a bankruptcy petition has been widened to a broader interpretation of abuse, and not just restricted to substantial abuse.

18) Chapter 12 is available only for family farmers and fishermen with regular income.

19) Chapter 13 of the Bankruptcy Code gives individuals an opportunity to pay their debts free of such problems as garnishments and attachments of their property by creditors.

20) Chapter 13 bankruptcy petitions may be either voluntary or involuntary.

21) Which of the following statements about the Bankruptcy Code is false?

A) The Bankruptcy Code provides an organized procedure under the supervision of state courts for dealing with insolvent debtors.

B) The Bankruptcy Code ensures that the debtor's property is fairly distributed to the creditors and that some creditors do not obtain unfair advantage over the others.

C) The Bankruptcy Code protects all of the creditors against actions by the debtor that would unreasonable diminish the debtor's assets to which they are entitled.

D) The Bankruptcy Code provides the honest debtor with a measure of protection against the demands for payment by his creditors.

22) Insolvency occurs when a debtor:

A) is unable to pay his/her debts as they become due.

B) has a larger number of unsecured creditors than secured creditors.

C) is unemployed for two consecutive years.

D) is declared bankrupt by a certified accountant.

23) Which Chapter of the Bankruptcy Code covers liquidation?

A) Chapter 7

B) Chapter 13

C) Chapter 5

D) Chapter 11

24) A bankruptcy petition under Chapter 7:

A) can only be filed by the debtor.

B) can only be filed by the debtor's creditors.

C) can only be filed by the trustee.

D) can be filed either by the debtor or his creditors.

25) A voluntary petition under Chapter 7:

A) cannot be filed by an insurance corporation.

B) requires that the debtor's debts exceed his assets by $5,000.

C) requires that the debtor have at least three creditors.

D) cannot be made by an individual.

26) An involuntary bankruptcy petition can be filed against:

A) banking corporations.

B) multinational companies.

C) credit unions.

D) nonprofit organizations.

27) The Bankruptcy Act of 2005 increases the responsibility of a debtor's attorneys thereby raising concerns that bankruptcy practice may become less attractive because:

A) the attorney has to operate on relatively thin margins as provisions increase along with costs and risks.

B) the attorney owes a duty to client for getting the debtor's property appraised.

C) the attorney has to call a meeting of all the creditors of the debtor.

D) the attorney has to classify the priority of creditors as per the 10 classes of priority given in the Bankruptcy Code.

28) The 2005 revisions of the Bankruptcy Code makes it the responsibility of the ________ to determine that a pleading of insolvency is well grounded in fact and is either warranted by existing law or is based on a good faith argument for extending existing law.

A) attorney

B) debtor

C) creditor

D) court

29) The filing of a bankruptcy petition operates as a(n):

A) exemption of certain items of property.

B) discharge, relieving the bankrupt person of further responsibility for dischargeable debts, giving him/her a fresh start.

C) automatic stay, holding in abeyance various forms of creditor action against a debtor or his/her property.

D) redemption of exempt personal property from secured creditors by paying them the full value of the collateral at the time the property is redeemed.

30) According to the 2005 revisions of the Bankruptcy Code:

A) any eviction proceedings in which the landlord obtained a judgment of possession prior to the filing of the bankruptcy petition can be continued.

B) any eviction proceedings in which the landlord obtained a judgment of abandonment prior to the filing of the bankruptcy petition can be continued.

C) any eviction proceedings in which the landlord obtained a judgment of defeasance prior to the filing of the bankruptcy petition can be continued.

D) any eviction proceedings in which the landlord obtained a judgment of vicarious liability prior to the filing of the bankruptcy petition can be continued.

31) According to the 2005 revisions of the Bankruptcy Code, individual debtors must file, along with their schedules of assets and liabilities:

A) copies of all payment advices and other evidence of payments they have received from any employer within 30 days before the filing of the petition.

B) a statement of the amount of gross yearly income, itemized to show how the amount is calculated.

C) a certificate from the Clerk of the Bankruptcy Court that they must receive credit counseling to be eligible for relief.

D) a statement showing any anticipated increase in income or expenditures over the 24-month period following the date of filing the petition.

32) Under the Bankruptcy Act's exemption provisions:

A) the debtor must choose either the state or the federal exemption scheme.

B) the full value of one's motor vehicle is exempt.

C) federal exemptions defeat state exemptions in case of a clash between them.

D) state exemption laws that exceed the federal limits (i.e., that are too generous) are void.

33) Abe and Hanna are husband and wife. They have filed for Chapter 7 bankruptcy. However, they cannot agree on which set of property exemptions they want to use. Abe wants to use the federal set of exemptions, but Hanna wants to use the set of exemptions from Michigan, where they have lived for 10 years. Under these circumstances:

A) the federal exemptions will apply to this bankruptcy proceeding.

B) the Michigan exemptions will apply to this bankruptcy proceeding.

C) the federal exemptions will apply to Abe's property and the Michigan exemptions will apply to Hanna's property.

D) the bankruptcy court will decide which set of exemptions to apply.

34) If a petition for bankruptcy is filed by a health care business:

A) the creditors bear the financial responsibility for the disposal of patient records where there are insufficient funds to continue to store them.

B) the trustee is instructed to transfer patients in a health care business that is in the process of being closed to an appropriate health care business.

C) the necessary costs of closing a health care business is borne by the adjudicating court.

D) the automatic stay provisions apply to actions by the Secretary of Health and Human Services to exclude the debtor from participating in federal health care programs.

35) Under the Bankruptcy Code the debtor:

A) must elect to use either the set of exemptions provided by the state or the set provided by the federal bankruptcy law.

B) must honor the instructions of the adjudicating court with regard to the set of exemptions that he should take.

C) must accept the decision of the creditors with regard to the exemptions to be taken so as to not jeopardize his chance of recovery.

D) may pick and choose between the set of exemptions provided by the state or the set provided by the federal bankruptcy law.

36) Which of the following items of a debtor's property are exempt in a bankruptcy proceeding under the federal set of exemptions?

A) Life insurance contracts valued at $10,000.

B) Real or personal property valued at $50,000.

C) Jewelry with value exceeding $10,000.

D) Individual retirement account exceeding $2 million.

37) An absolute $160,375 homestead cap applies if:

A) the debtor's aggregate interest exceeds $1,600 in value in jewelry held primarily for the personal, family, or household use of the debtor.

B) retirement funds that are in a fund or account are exempt from taxation under the Internal Revenue Code.

C) the debtor's interest exceeds $160,375 in value in real or personal property.

D) the bankruptcy court determines that the debtor has been convicted of a felony demonstrating that the filing of the case was abuse of the provisions of the Code.

38) The debtor is permitted to void ________ liens against exempt properties that impair her exemptions.

A) medical

B) tax

C) attorney

D) judicial

39) ________ refers to securing exempt personal property from secured creditors by paying them the full value of the collateral at the time the property is redeemed.

A) Automatic stay

B) Discharge

C) Exemption

D) Redemption

40) Which of the following fits within one of the exceptions to the Bankruptcy Code's preference provision?

A) A perfected Article 9 security interest.

B) A transfer to an insider of the debtor.

C) A transfer made in the ordinary course of the debtor's business.

D) A consumer's transfer of less than $2,000 to a creditor who has sold her consumer goods.

41) Selena pays back a $2,000 loan from her parents within one year before she files her bankruptcy petition. This is an example of:

A) anticipatory breach.

B) a secured transaction.

C) preferential payment.

D) a failure of consideration.

42) A creditor might try to obtain an advantage over other creditors by obtaining a(n) ________ on the debtor's property to secure an existing debt.

A) surety

B) preferential lien

C) presentment

D) equity of redemption

43) Which of the following transfers would be considered fraudulent under the 2005 revisions of the Bankruptcy Code?

A) Transfers that are intended by the debtor and creditor to be a contemporaneous exchange for new value.

B) Transfers that led to the creation of a security interest in new property where new value was given by the secured party to enable the debtor to obtain the property.

C) Transfers made in payment of a debt incurred in the ordinary course of the business of the debtor and the transferee.

D) Transfers to or for the benefit of an insider under an employment contract and not in the ordinary course of business.

44) Under the Bankruptcy Code, a judge is allowed to reduce the debtor's unsecured consumer debt by what percentage?

A) 20%

B) 30%

C) 50%

D) 75%

45) Unsecured creditors, to the extent that the bankruptcy estate is solvent, share in proportion to what?

A) Amount paid in legal fees

B) Claims against the debtor

C) Size of the creditors

D) The geographic locations of creditors

46) An individual will not be granted a discharge, if such discharge has been granted to the individual within the previous:

A) five years.

B) six years.

C) seven years.

D) eight years.

47) In a Chapter 7 liquidation proceeding, the claims of creditors are paid in which of the following order?

A) Priority claims take precedence over claims made by secured and unsecured creditors.

B) The claims of secured creditors are satisfied first, followed by priority claims, and lastly claims made by unsecured creditors.

C) Older claims are given priority over more recent claims.

D) Claims of secured creditors are satisfied first, followed by unsecured creditors, and lastly priority claims.

48) If there are insufficient funds to satisfy all the creditors within a class:

A) the debtors have the last say on the amount that each member shall receive.

B) the class members decide amongst themselves the amount that each of the members should receive.

C) the court makes a decision regarding the share of each member.

D) each class member receives a pro rata share of his claim.

49) Under Chapter 7, a debtor is denied discharge of all debts when:

A) the debtor has transferred property in order to defraud creditors.

B) the debtor has unpaid tax liabilities.

C) the debtor has made a preferential transfer to a creditor.

D) the debtor has made a fraudulent transfer.

50) In order to safeguard the debtor from reaffirmation agreements the court:

A) allows the debtor to rescind the reaffirmation agreement within a period of 60 days.

B) is empowered to declare all reaffirmation agreements as void.

C) may order the creditor to demand only 50 percent of the original debt amount.

D) may allow a reaffirmation agreement only if the debtor is represented by an attorney.

51) ________ refers to the agreement between the debtors and the creditors wherein creditors put pressure on debtors to pay debts that have been discharged in bankruptcy.

A) Reaffirmation agreement

B) Discharge agreement

C) Blank endorsement

D) Buy-sell agreement

52) The means test is designed to determine the:

A) debtor's ability to repay general unsecured claims.

B) creditor's ability to recover unpaid claims from the debtor.

C) court's ability to guarantee exemptions for the debtor.

D) government's ability to bar corporations from availing the provision of discharge of debts.

53) Debtors have to file a statement of their calculations under the ________ as part of their schedule of current income and expenditures.

A) limiting test

B) ends test

C) means test

D) asset test

54) Which of the following is true regarding reorganizations under Chapter 11?

A) Only corporations are eligible for Chapter 11.

B) Chapter 11 proceedings are voluntary only.

C) No trustee can be appointed.

D) The court must confirm any reorganization plan approved by the creditors.

55) To which of the following is Chapter 11 not available?

A) Manufacturing corporations

B) A sole proprietorship that sells used cars

C) A bank

D) A person in his or her individual capacity

56) ________ refers to a situation whereby the court forces dissenting creditors to accept a reorganization plan when the court finds that it is fair and equitable.

A) Cram down

B) Make one whole

C) Divestiture

D) Restitution

57) A plan is considered to be fair and equitable to a class of impaired claimants with unsecured claims if the reorganization plan:

A) provides for the sale of any property subject to liens securing such claims free and clear of such liens with the liens to attach to the proceeds of the sale.

B) provides for the realization by the holders of the "indubitable equivalent" of such claims.

C) provides that each holder of a claim will receive or retain on account of the claim property of a value equal to the allowed amount of such claim.

D) provides the holder of any interest that is junior to the interests of such class will not receive any property on account of such junior claim.

58) In a reorganization petition under Chapter 11 of the Bankruptcy Code, if any particular class of creditors rejects the reorganization plan, the court will:

A) disallow the claims of the rejecting creditors.

B) force the trustee to renegotiate with the rejecting creditors so that a compromise may be reached at.

C) order the debtor to file bankruptcy under Chapter 13.

D) force the rejecting creditors to accept the reorganization plan, if the plan is fair and equitable toward the rejecting creditors.

59) Under Chapter 12 of the Bankruptcy Code:

A) only farms with an aggregate debt exceeding $5 million are covered.

B) the debtor must cease to operate the farm.

C) no trustee is appointed.

D) the debtor is usually permitted to remain in possession to operate the farm.

60) Fanny and her husband Fred own a farm in Iowa. Unfortunately, after earning a $50,000 income on the farming operation and $10,000 in non-related endeavors in 2002, Fanny and Fred accumulated $100,000 in farm-related debt. Their only other debt is a $10,000 loan on a truck they purchased in 2001. Fanny and Fred want to file for a Chapter 12 plan. Which of the following statements is most accurate?

A) Fanny and Fred do not qualify for protection under a Chapter 12 plan.

B) Fanny and Fred will not be able to remain in possession of their farm under the plan.

C) A trustee will be allowed to sell unnecessary assets, such as equipment.

D) A trustee will not be appointed under the plan.

61) Under Chapter 13 of the Bankruptcy Code:

A) the petition may be voluntary or involuntary.

B) no debt extensions are permitted.

C) no plan may be approved if an unsecured creditor objects.

D) no trustee is appointed.

62) Chapter 13 of the Bankruptcy Code provides an advantage to the debtor by which:

A) the debtor is not obligated to reveal all of his assets.

B) unsecured creditors are not recognized as valid creditors.

C) the debtor can avoid the stigma of bankruptcy by getting an opportunity to pay the debts in installments under the protection of a federal court.

D) the court does not appoint a trustee, as it relies on the good faith of the debtor for the settlement of all debts.

63) Which of the following can only be initiated by a voluntary bankruptcy petition?

A) Chapter 7

B) Chapter 11

C) Chapter 13

D) Chapter 15

64) A Chapter 13 debtor must begin making the installment payments proposed in her plan:

A) within 30 days after the plan is filed.

B) one week after the plan is approved by the creditors.

C) within 60 days after the plan is approved by the court.

D) within one week of the formal submission to the trustee.

65) Which Chapter of the Bankruptcy Code can provide some financial discipline to a debtor as well as an opportunity to get his financial affairs back in good shape?

A) Chapter 12

B) Chapter 13

C) Chapter 15

D) Chapter 7

66) Which of the following terms is used to describe a person whose liabilities exceed his or her assets?

A) Bankrupt

B) Forfeiture

C) Indebt

D) Renounce

67) Which of the following statements about Chapter 7 liquidations is true?

A) The debtor must disclose all of the property she owns and surrender this bankruptcy estate to the bankruptcy trustee.

B) The trustee takes all of the debtor's property and administers, liquidates, and distributes it.

C) Only individuals can file under Chapter 7.

D) If the bankrupt person follows all court orders, she is usually given a discharge, regardless of whether she was honest in her business transactions or not.

68) Which of the following bankruptcy proceedings allows a debtor to work out a plan to solve his financial problems under the supervision of federal court?

A) Straight bankruptcy

B) Family farms and commercial fishing operations

C) Reorganizations

D) Consumer debt adjustments

69) Bankruptcy judges are appointed by the president for a term of ________ years.

A) 4

B) 8

C) 12

D) 14

70) If a dispute falls within a ________ proceeding, the bankruptcy judge can hear and determine the controversy.

A) substantive

B) special

C) principal

D) core

71) Which of the following statements about a Chapter 7 trustee is false?

A) The trustee takes possession of the debtor's property and has it appraised.

B) The trustee may operate the debtor's business.

C) The trustee sells the bankrupt's exempt property as soon as possible, consistent with the best interest of the creditors.

D) The trustee is required to keep an accurate account of all the property and money he receives and to promptly deposit moneys into the estate's accounts.

72) In the case in the text, In re Rogers, the court found in favor of Rogers and held that she was entitled to her full homestead exemption. In reaching this conclusion, the court analyzed:

A) the statute's legislative history.

B) preemption law.

C) whether Wallace was entitled to recover as a matter of law.

D) when exactly Wallace and Rogers entered into the contract.

73) In determining the debtor's interest in property:

A) the homestead exemption is deducted.

B) the amount of any liens against the property must be deducted.

C) the debtor's equity is subtracted from the property's appraisal value.

D) three independent appraisers evaluate the property and the courts uses the average value.

74) As demonstrated in the case in the text, In re Bernard Madoff Investment Securities, a trustee:

A) can initiate a criminal action against a fraudulent debtor.

B) can seek to avoid monies paid as part of a fraudulent transfer.

C) can seek to prevent discharge of the debtor's unpaid liabilities.

D) can require the debtor to provide a full accounting under oath after an allegation of fraud.

75) Which of the following statements about the distribution of the debtor's estate is false?

A) The priority claims are paid after secured creditors realize on their collateral.

B) Each class must be paid in full before the next class is entitled to receive anything.

C) Payments are made to the 10 priority classes, in order, to the extent there are funds available.

D) To the extent there are insufficient funds to satisfy all the creditors within a class, each class member receives an equal share of his claim.

76) Which of the following would be eligible for a discharge in bankruptcy?

A) Sole proprietor

B) LLC

C) Corporation

D) Partnership

77) An objection to the discharge of the bankrupt may be filed by:

A) the trustee, a creditor, or the U.S. attorney.

B) the trustee only.

C) the trustee or creditor only.

D) the U.S. attorney only.

78) In Krieger v. Educational Credit Management Corporation, the case in the text, the court held that:

A) Krieger was not entitled to have her student loans discharged because she failed to make a good faith effort to repay the loans.

B) Krieger was not entitled to have her student loans discharged because she failed to show that her circumstances were likely to persist for a significant portion of the repayment period.

C) Krieger was entitled to have her student loans discharged because repayment would constitute an undue hardship.

D) Krieger was entitled to have her student loans discharged because she made the minimum payments on her loan for 25 years under an income-based repayment plan.

79) In the case in the text, In re Siegenberg, the court dismissed the Chapter 7 petition because:

A) Siegenberg misrepresented her financial condition.

B) Siegenberg filed the petition in bad faith.

C) Siegenberg had an extensive history of bankruptcy filings and dismissals.

D) Siegenberg had a foreseeable likelihood of future income to fund a Chapter 11 or 13.

80) As demonstrated in the case in the text, In re Made in Detroit, a reorganization plan must be feasible. A plan is feasible when:

A) the debtor's goals are realistic in relation to its abilities.

B) confirmation of the plan is not likely to be followed by the liquidation or the need for further financial reorganization of the debtor.

C) the debtor plans to pay off old liabilities quicker than it attains new liabilities.

D) the debtor's creditors will not be adversely affected by the plan.

81) Under Chapter 13, if a debtor's income is above the state median income for the same family size, the plan must provide for payments over a period of ________ year(s) unless all claims will be fully paid in a shorter period.

A) one

B) three

C) five

D) seven

82) Under Chapter 13, if a debtor's income is less than the median income of the state, the plan may not provide for payments over a period that is longer than ________ year(s) unless the court, for cause, approves a longer period, which in no case can be more than five years.

A) one

B) two

C) three

D) four

83) Which of the following can be discharged in bankruptcy?

A) Debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime.

B) Debts for collection agency accounts.

C) Debts for restitution or damages awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury or death.

D) Debts that result from liabilities for obtaining money by false representations.

84) A court cannot grant a discharge of the debts provided in the plan if a debtor received a discharge in a case filed under Chapter 7, 11, or 12 of the Bankruptcy Code in a ________ period preceding the date of the order for relief under Chapter 13.

A) two-year

B) four-year

C) five-year

D) six-year

85) In the case in the text, In re Burt, the court concluded that:

A) the negative equity was inadequate consideration.

B) the entire transaction qualified as a purchase money security interest because there was a close nexus between the negative equity and the financing of the debtor's new vehicle.

C) cram down was inapplicable because the vehicle was not purchased for personal use.

D) the transaction could be dissected into smaller segments and therefore, any purchase money security interest that existed did not include the negative equity.

86) Ajax, Inc. has accumulated debts that it is unable to pay. The company has four creditors who hold security provided by Ajax and are valued as follows: Ace ($6,000), Crest ($3,000), Maxton ($8,000) and Interon ($9,000). Which of these creditors will be able to successfully file a petition for involuntary bankruptcy for Ajax?

87) The Ace Corporation is involuntarily petitioned into a Chapter 7 bankruptcy on March 1, 1994. On January 10, 1994, Ace paid the Highstate Gas Company for its $1,700 utility bill for natural gas supplied during December of 1993. Is this payment preferential? Why or why not?

88) Dave owes $100,000 to Cindy and $100,000 to Connie. Both before and after Dave went into bankruptcy under Chapter 7, he engaged in faking records, withholding information, and concealing assets in order to avoid Cindy's debt. However, Dave did not behave this way in regard to Connie's debt. Because Dave had few assets and Connie's debt was unsecured, she got virtually nothing out of Dave's bankruptcy. The same is true regarding Cindy. Sometime later, therefore, Cindy and Connie sued Dave on the debt, once Dave becomes rich. Dave defends by saying that both debts are discharged. Is Dave right? Assume that each debt is a normal contract obligation.

89) Joe goes into bankruptcy under Chapter 7 and, in due course, all of his debts are discharged. After the discharge is granted, Joe signs an agreement promising to repay one of those discharged debts. Joe's attorney certifies that Joe is able to pay the debt. Is Joe bound to pay this debt?

90) Describe the different approaches taken to transnational insolvencies. What is the approach taken currently?