National American University

BUSINESS L 3100

Chapter 35-BANKRUPTCY

TRUE/FALSE

1)Jurisdiction over bankruptcy proceedings is vested in the federal district courts.

 

                                           

 

2. In a Chapter 7 bankruptcy, the debtor's nonexempt assets are liquidated to pay debts.

 

                                           

 

3. Stockbrokers are eligible to file Chapter 11 bankruptcy.

 

                                           

 

4. In order to be eligible for Chapter 13 bankruptcy an individual must have less than $1,081,400 in unse- cured debt.

 

                                           

 

5. A court can dismiss an individual debtor’s petition if the debtor does not satisfy the means test.

 

                                           

 

6. An involuntary bankruptcy case is commenced by creditors filing a petition with a bankruptcy court.

 

                                           

 

7. Nonprofit corporations are exempt from involuntary bankruptcy proceedings.

 

                                           

 

8. The holder of a claim that is the subject of a bona fide dispute may be counted as a petitioning creditor.

 

                                           

 

9. If the debtor is generally not paying debts as they become due, the debtor may be subject to an invol- untary bankruptcy petition.

 

                                           

 

10. The filing of an involuntary bankruptcy case petition results in an order of relief.

 

                                           

 

11. The filing of a voluntary, but not an involuntary, petition operates as an automatic stay.

 

                                           

12. A debtor may recover damages against any creditor who filed a bankruptcy petition in bad faith.

 

                                           

 

13. All debts are discharged in bankruptcy, whether disclosed by the debtor or not.

 

                                           

 

14. If a trustee is not elected by creditors, an interim trustee will be appointed by the court.

 

                                           

 

15. By operation of law, the trustee automatically becomes the owner of all of the debtor’s property in ex- cess of the property to which the debtor is entitled under exemption laws.

 

                                           

 

16. The trustee may void any fraudulent transfer made by the debtor within two (2) years of bankruptcy when the debtor’s actual intent was to hinder, delay, or defraud creditors by engaging in the transfer.

 

                                           

 

17. To be set aside as a preference, a transfer must be fraudulent.

 

                                           

 

18. A payment by a debtor in the ordinary course of business, such as the payment of a utility bill, will not be set aside by the bankruptcy trustee.

 

                                           

 

19. A creditor must only file a proof of claim if the bankruptcy trustee does not know of the existence of the claim.

 

                                           

 

20. Bankruptcy law does not regulate the manner in which the assets of the debtor are distributed; instead, distribution of the debtor’s assets is solely within the discretion of the trustee.

 

                                           

 

21. Creditors who hold security for payment, such as a lien or a mortgage on the debtor’s property, are less affected by the debtor's bankruptcy.

 

                                           

 

22. In approximately 50% of all bankruptcies no unsecured creditors receive any payments.

 

                                           

23. Costs and expenses of administration of the bankruptcy case, including trustee fees are paid before any money is disbursed to secured or unsecured creditors.

 

                                           

 

24. In a bankruptcy case, after all creditors have been paid, any balance is turned over to the debtor.

 

                                           

 

25. Debtor’s exemptions are provided under federal law and thus are the same in each state.

 

                                           

 

26. Under the Bankruptcy Reform Act, the allowable homestead exemption for debtors was significantly reduced.

 

                                           

 

27. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a discharge is avail- able only once every ten (10) years.

 

                                           

 

28. A discharge releases the debtor from the unpaid balance of most debts including taxes and tax penal- ties.

 

                                           

 

29. Individuals and corporations, but not partnerships, may be reorganized under the Bankruptcy Code.

 

                                           

 

30. A reorganization plan may, in certain instances, provide for the rejection of executory contracts or col- lective bargaining agreements.

 

                                           

 

MULTIPLE CHOICE

 

1. Chapter 7 is:
   1. a liquidation proceeding.
   2. a reorganization proceeding.
   3. an extended time payment plan.
   4. always an involuntary proceeding.

                                           

 

2. A voluntary petition in bankruptcy may be filed by a(n):
   1. husband and wife.
   2. railroad company.
   3. insurance company.
   4. all of the above.

                                           

3. An involuntary petition in bankruptcy may not be commenced against:
   1. a nonprofit corporation.
   2. an individual.
   3. a for-profit corporation.
   4. any of the above.

                                           

 

4. If there are twelve (12) or more creditors, at least                      of those creditors whose unsecured and undisputed claims total                         or more must sign the involuntary petition.

a.    one (1); $14,425

b. three (3); $14,425

c.     one (1); $15,575

d. three (3); $15,575

                                           

 

5. Where the debtor has fewer than twelve (12) creditors, how many must sign an involuntary petition?
   1. one (1), assuming that the creditor’s unsecured claim is at least $14,425
   2. one (1), assuming that the creditor’s secured claim is at least $15,575
   3. three (3), assuming that the creditors’ unsecured claims total at least $14,425
   4. three (3), assuming that the creditors’ secured claims total at least $15,575

                                           

 

6. An automatic stay:
   1. arises only upon the filing of a voluntary petition.
   2. prevents any further interest from accruing on a debtor's outstanding debts.
   3. prevents creditors from taking action outside of the bankruptcy proceeding against a debtor.
   4. ends if a debtor attempts to incur additional debt after a petition has been file

                                           

 

7. If an involuntary bankruptcy petition is dismissed other than by consent of all petitioning creditors and the debtor, the court may award which of the following to the debtor?
   1. Costs
   2. Reasonable attorney fees
   3. Damages
   4. All of the above

                                           

 

8. The status of a trustee in a bankruptcy proceeding is best described as the:
   1. prosecutor of the debtor.
   2. successor to the debtor.
   3. defender of the debtor.
   4. protector of the debtor.

                                           

9. A transfer of property by the debtor to a creditor may be set aside as a                    transfer and the property recovered by the debtor’s trustee in bankruptcy if (1) the transfer was made to pay a debt in- curred at some earlier time; (2) the transfer was made when the debtor was insolvent and within ninety

(90) days before the filing of the bankruptcy ; and (3) the transfer resulted in the creditor receiving more than the creditor would have received in a liquidation of the debtor’s estate.

1. predetermined
2. preternatural
3. preordained
4. preferential

                                           

 

10. A debtor is presumed to be insolvent on and during what number of days immediately preceding the date of the filing of a bankruptcy petition?
    1. 30
    2. 60
    3. 90

d. 120

                                           

 

11. Which of the following is a preferential transfer?
    1. a transaction for present consideration
    2. a payment in the ordinary course of business
    3. both a. and b. are preferential transfers
    4. neither a. nor b. are preferential transfers

                                           

 

12. Under the 2005 reforms:
    1. it is easier for creditors to show they did not receive a voidable preference.
    2. nonconsumer debt payments of less than $7,500 are not subject to the voidable preference standards .
    3. both a. and b.
    4. none of the above.

                                           

 

13. Claims for wages, salaries, or commissions have priority in the payment of unsecured debts over:
    1. costs and expenses of the administration of the bankruptcy case.
    2. claims arising in the ordinary course of business after commencement of the case.
    3. claims arising for contributions to employee benefit plans.
    4. all of the above.

                                           

 

14. With regard to priority of claims in the payment of unsecured debts, which of the following has prior- ity over alimony and child support obligations?
    1. costs and expenses of the administration of the bankruptcy case.
    2. claims arising in the ordinary course of the debtor’s business after commencement of the case
    3. claims for wages, salaries or commissions earned within 180 days before the filing of the petition
    4. none of the above

                                           

15. The debtor will be denied a discharge if:
    1. the debtor had been extravagant.
    2. the debtor incurred debts because of negligence.
    3. the debtor received a discharge ten (10) years previously.
    4. the debtor refused to obey a lawful order of the court.

                                           

 

16. Which of the following debts is not dischargeable in bankruptcy?
    1. judgments based on negligence
    2. judgments based on breach of contract
    3. judgments for willful and malicious injuries
    4. judgments in which the creditors would receive no distribution

                                           

 

17. A discharge does not release a person from a consumer debt to a single creditor totaling more than

$5,775 for luxury goods or services if the debt was incurred within how many days of the order for re- lief?

1. 1. 90

b.   120

c.     180

d.   365

                                           

 

18. In a Chapter 11 rehabilitation plan, the debtor:
    1. keeps all of the assets (both exempt and nonexempt).
    2. remains in business.
    3. makes a settlement that is acceptable to the majority of the creditors.
    4. all of the above.

                                           

 

19. Which of the following is a correct legal conclusion regarding reorganization bankruptcy?
    1. Individuals, partnerships, and corporations in business may be reorganized.
    2. A plan for reorganization may be filed only by a committee of creditors.
    3. When a reorganization plan is confirmed by the court, the creditors can revert back to their original position if they are not satisfied with the plan.
    4. Individuals within a particular class of creditors can be treated differently if they object to the reorganization plan.

                                           

 

20. An extended time payment plan:
    1. does not provide for a discharge of the debtor.
    2. provides for a discharge of the debtor.
    3. does not require creditors holding the same type or class of claim to be treated the same way.
    4. will not allow the debtor to pay the debts in installments if the debtor's creditors had not originally agreed to such installments.

                                           

CASE

 

1. Peter is employed as a shop electrician for ABC, Inc. Peter has a car being repaired and a home on which he is paying mortgage payments. Peter is contemplating filing for bankruptcy, but he is not sure which type of petition to file. Peter also wonders whether the auto repair costs and the mortgage pay- ments are dischargeable. Which bankruptcy filing is most appropriate for Peter? Are Peter’s debts dis- chargeable?

 

 

 

2. The creditors of Sara Delano have petitioned for involuntary bankruptcy proceedings against her. De- lano has been consistently late in paying her obligations for the past year. Two months before the peti- tion was filed, a custodian was appointed to protect Delano's property. In her statement contesting the bankruptcy petition, Delano pointed out that she had dealt in good faith and could not be shown to be guilty of any act of misconduct. In addition, she cited her willingness to allow a custodian to be ap- pointed as an indication of her intention to avoid bankruptcy and honor her obligations. Can she pre- vail?

 

 

 

3. Arthur was involuntarily petitioned into bankruptcy by three of his creditors. When the trustee re- viewed Arthur's books and records, the trustee discovered the following transactions: (a) Three weeks before the filing of the petition, Arthur paid cash for $17,000 worth of inventory for his store; and (b) Twelve days before the filing of the petition, Arthur paid $300 in full satisfaction of his store’s most re- cent electric bill.

 

The trustee is considering attempting to set aside both of these transfers as preferential transfers. Dis- cuss the advisability of the trustee’s attempt to set aside these transfers.