Deck 14: Secured Transactions and Bankruptcy

Question 1

Which of the following statements is incorrect?

A) The debtor and obligor in a secured transaction may be different persons.
B) A corporation may electronically authenticate a loan agreement by using the Internet to transmit a public-key signature.
C) Attachment is a series of steps the secured party must complete to protect its rights in collateral against people other than the debtor.
D) The UCC distinguishes software from goods.

Answer 1

C

Question 2

Spicy & Hot,Inc.is interested in expanding its Mexican food restaurant into a Mexican food catering business.Spicy & Hot,Inc.buys a new van for deliveries from Van World.Spicy & Hot,Inc.is a buyer in the ordinary course of business when purchasing the van.

Answer 2

True

Question 3

Peggy's credit card debts are mounting as her costs of insurance and fuel have dramatically increased and her income,from sporadic free-lance jobs,has dropped.Chapter 13 of the Bankruptcy Code will allow her to reorganize her debt while she keeps most of her assets.

Answer 3

False

Question 4

Under Revised Article 9 of the UCC,electronic chattel paper may not be used as collateral in a secured transaction.

Question 5

First Federal loaned Madeline $20,000 to purchase a new van.The van was for Madeline's personal and family use.First Federal's security interest is a purchase money security interest which perfects automatically.

Question 6

A financing statement,once filed,is effective for six years,but at the end of that period the statement will expire,leaving the secured party unprotected.

Question 7

Once a default occurs in a secured transaction,the secured party must obtain a court order before taking possession of the collateral.

Question 8

In a Chapter 13 bankruptcy,creditors cannot force a debtor into bankruptcy;nor can they vote to confirm or reject a plan of reorganization.

Question 9

Macig enters into a secured consumer debt transaction with Friendly Bank.When Macig pays the loan in full,Friendly Bank is required to file a statement indicating that it no longer claims a secured interest in the collateral.

Question 10

Country Bank,located in Indiana,loaned Chmelik $5,000 and obtained a security interest in a copyright Chmelik owns.Chmelik lives in Illinois,but works in Indiana.In order to perfect its interest,Country Bank files a financing statement in Indiana.The financing statement provides Chmelik's correct name,his business address,and a reasonable description of the copyright used as collateral.Is the financing statement sufficient?

A) Yes, it meets the UCC requirements for contents and filing.
B) No, if the debtor is an individual, the secured party generally must file in the state of the debtor's principal residence, which in this case would be Illinois.
C) No, the contents of the financing statement are incomplete.
D) Both (b) and (c) are correct.

Question 11

On April 10,Amy agreed to buy a riding lawn mower from Mowers Plus,signing a promissory note and security agreement giving Mowers Plus a security interest in the mower.On April 15,Amy took delivery of the mower.On May 1,Mowers Plus filed a financing statement.Which of the following is correct?

A) Despite the agreement, Mowers Plus could not create a security interest in the mower since it is a consumer good.
B) Mowers Plus has had attachment of a security interest in Amy's mower.
C) Mowers Plus completed the attachment of a security interest in the mower when it filed the financing statement on May 1.
D) The security interest has not attached, but attachment is unimportant to enforceability of a security interest.

Question 12

Great State Bank and First Federal Bank have a security interest in TriColor's equipment.If neither secured party is perfected,the first interest to attach has priority over the collateral.

Question 13

Vicor,Inc.holds a patent on a drug.Vicor used the patent to secure a $1 million loan from First Bank.The patent is a general intangible.

Question 14

A security agreement must be in writing.

Question 15

Bagsby owns a business selling insects for organic gardening.Bagsby is considering a loan agreement with First Natural Bank.The loan officer is asking that the loan be secured by Bagsby's inventory of insects,now owned or hereafter acquired.Each time Bagsby gets new insects or sells his insects,a new security agreement will need to be signed.

Question 16

Eva has student loans guaranteed by the government amounting to $32,000 that came due two years ago,after she graduated from college.She has found a great job in her chosen profession,but she decides that she could enjoy her salary much more if she had her loans discharged through bankruptcy.Although preserving as much of the debtor's property as possible is one of the primary goals of bankruptcy,Eva cannot discharge all of her debts,including her student loans,and start over.

Question 17

Under Chapter 7 of the Bankruptcy Code,creditor claims are divided into classes and the highest class must be satisfied in full before going to the next category.

Question 18

Great State Bank loans money to Seth,securing the loan with property owned by Seth.Great State Bank is advised by its attorney to file a financing statement.Great State Bank doesn't understand why it should spend the extra money for this filing,since Seth has told them that he has no other creditors.Why should Great State Bank file a financing statement?

A) There are criminal penalties for failing to file.
B) The financing statement allows Great State Bank to repossess the collateral on default without a court order.
C) The financing statement will protect Great State's priority rights with other creditors by giving notice to other creditors that it claims a security interest in the collateral.
D) Filing the financing statement is necessary to complete the attachment requirement in order to create a security interest.

Question 19

Brad was having financial difficulties and thought bankruptcy might be in his future.He transferred his sports car to his brother with the agreement that if he didn't file for bankruptcy within the next 18 months,his brother would return the car to him.Brad did file for bankruptcy in ten months.The bankruptcy trustee can bring the car back into Brad's estate for the purpose of providing assets for Brad's creditors.

Question 20

To perfect a security interest in a negotiable instrument,Second State Savings and Loan should:

A) file a financing statement.
B) take possession of the instrument.
C) do nothing. Perfection is automatic.
D) secure a court order.

Question 21

Olympia Landscaping Co.has filed for voluntary bankruptcy under Chapter 7.Which of the following property will be exempt from the bankruptcy process under federal exemptions?

A) Work tools.
B) Up to three company cars.
C) Up to $20,200 of the value of the company's real property.
D) All of the above.
E) None of the above.

Question 22

Which of the following statements concerning a Chapter 11 reorganization plan is true?

A) A reorganization plan will be confirmed by the court only if a majority of each class of creditors votes in favor of the plan.
B) A reorganization plan can be confirmed by the court over objections of some creditors if the court determines that the plan is feasible and fair.
C) Only the bankruptcy court has the authority to confirm or reject the reorganization plan. Creditors do not have a right to vote on the plan.
D) A reorganization plan binds only the debtor and not the creditors.

Question 23

Esmeralda is a debtor in a Chapter 7 bankruptcy proceeding.Which of the following is not a duty of Esmeralda under Chapter 7?

A) To undergo credit counseling with an approved agency before filing.
B) To provide a repayment schedule for the debt owed to each creditor listed on the creditor list.
C) To provide a list of all her assets and debts.
D) To provide a schedule of all her income and expenditures.

Question 24

Which of the following is a requirement for an involuntary Chapter 7 bankruptcy petition?

A) The debtor must owe at least $150,000 in unsecured claims to the creditors who file.
B) The debtor must have at least three creditors join in the petition if the debtor has 12 or more creditors. If the debtor has fewer than 12 creditors, any single creditor or group can file a petition.
C) The creditors must have tried to help the debtor overcome the financial difficulties.
D) The debtor must have a majority of the creditors file the petition.

Question 25

Marteen,Inc.sold several wood-working machines to Crown Doors,taking a security interest in the machines.Crown defaulted on the loan.Marteen repossessed the machines.Marteen would like to retain the machines to use as models.Which of the following statements is correct?

A) Marteen must notify the debtor that it intends to retain the machines and give Crown 20 days to object.
B) By taking possession, Marteen automatically foreclosed on the collateral. Marteen has valid title and need do nothing else.
C) Since the machines are equipment, Marteen cannot retain them. Marteen must dispose of the collateral in a commercially reasonable manner.
D) Marteen can retain the machines but must pay Crown the surplus, the difference between the fair market value of the machine and the amount of the debt.

Question 26

Ramona has received a discharge in bankruptcy,but wants to reaffirm a debt to her sister.To be valid,the reaffirmation:

A) will be scrutinized by the court to make sure her sister has not unfairly pressured Ramona.
B) will be automatically disallowed because allowing Ramona to promise to pay a discharged debt would be contrary to the goals of the bankruptcy proceedings.
C) will be automatically allowed if Ramona voluntarily chooses to make it.
D) must clearly disclose that Ramona has the right to rescind at any time since the debt was already discharged.

Question 27

Which of the following is an example of a purchase money security interest in consumer goods?

A) A doctor purchasing a computer on credit to create a Webpage to make services and information available to her patients.
B) A doctor purchasing on credit a blood glucose monitor to check his own blood sugar levels.
C) A doctor purchasing a TV/VCR unit on credit to place in her office waiting room.
D) A doctor purchasing an exercise bike for his employees to use over the lunch hour.

Question 28

First Bank loaned $400,000 to Thomas,taking a security interest in his yacht.Thomas defaulted on the loan and First Bank repossessed the boat.First Bank sold the yacht at a public sale.The sale yielded $50,000 more than the debt.First Bank:

A) must pay Thomas the $50,000.
B) is entitled keep the $50,000.
C) must share the $50,000 equally with Thomas.
D) must pay the surplus to the Secretary of State.

Question 29

Pamela plans to file for bankruptcy under Chapter 7.One month before filing,Pamela gives Marshall's Filling Station $500 to apply to her gas bill,since Marshall has been so kind to let her charge the gas she needed for her car over the past year.The bankruptcy trustee:

A) can cancel the payment to Marshall as a fraudulent transfer.
B) cannot cancel the payment to Marshall because it is payment for an existing debt.
C) cannot cancel the payment to Marshall because he is not an insider.
D) can cancel the payment to Marshall as a voidable preference.

Question 30

Florence borrows $1,500 from Fremont,leaving her gold necklace with Fremont as collateral.Two weeks later,Florence borrows $1,000 from Corner Bank.Florence signs a security agreement and a financing statement giving Corner Bank a security interest in the same gold necklace.The financing statement is filed in the appropriate location.If Florence defaults on both loans,which creditor has the superior rights to the necklace?

A) Fremont, because his loan was first.
B) Fremont, because his interest was the first to perfect.
C) Corner Bank, because Fremont did not perfect his interest.
D) Corner Bank, because Fremont did not have a written security agreement.

Question 31

Kathleen filed for voluntary bankruptcy and the automatic stay went into effect.The automatic stay:

A) acts to automatically discharge Kathleen's debts.
B) stops any and all acts to collect, assess, or recover a claim against Kathleen that arose before she filed bankruptcy.
C) stops only secured creditors from taking any act to collect, assess, or recover a claim against Kathleen that arose before she filed for bankruptcy.
D) stops creditors from trying to collect from Kathleen, but it does not stop them from filing lawsuits against her.

Question 32

Justin filed a Chapter 7 bankruptcy petition in which he exempted his home,valued at $123,000.Justin can keep his entire home from all creditors if:

A) he claims his exemptions under the federal Bankruptcy Code.
B) he lives in a state that allows an exemption amount of at least $123,000.
C) he lives in a state that allows an exemption amount of at least $123,000, he has lived in that state for at least two years prior to filing for bankruptcy, and there are no secured creditors with perfected liens against the home.
D) None of the above.

Question 33

Iris received a discharge under a Chapter 7 bankruptcy.She cannot receive another discharge under Chapter 7:

A) for at least six years after the prior filing.
B) for at least eight years after the prior filing.
C) for at least ten years after the prior discharge.
D) ever, but she could file a Chapter 11 or 13 bankruptcy after ten years.

Question 34

Which of the following is a primary goal of bankruptcy:

A) to preserve as much of the debtor's property as possible.
B) to divide the debtor's assets fairly between the debtor and the creditors.
C) to divide the debtor's assets fairly among the creditors.
D) All of the above.

Question 35

Debts that cannot be discharged in bankruptcy,include all EXCEPT

A) alimony.
B) income taxes.
C) negligence judgments.
D) fraud judgments.

Question 36

In 2005 Congress included provisions in the Bankruptcy Code to speed up the process under:

A) Chapter 7 for businesses with more than $200 million in debt.
B) Chapter 7 for businesses with less than $200 million in debt.
C) Chapter 11 for businesses with less than $2 million in debt.
D) Chapter 13 for individuals with more than $336,900 in unsecured debt.
E) Both (b) and (c).

Question 37

February 5,Panda Gardens puts up its Chinese cookie inventory as well as any future inventory as collateral for a loan from Fortune Bank.Fortune Bank perfects by filing a financing statement the same day.June 10,Panda Gardens buys unstuffed fortune cookies from Olga under a purchase money security interest.Olga notifies Fortune Bank of her PMSI and perfects the PMSI by filing a financing statement before Panda Gardens takes possession of the unstuffed cookies.Panda Gardens,failing to predict hard times,filed for bankruptcy.As between Fortune Bank and Olga,who has the superior interest in the unstuffed fortune cookies purchased on June 10?

A) Fortune Bank. The first to file has the priority interest in the inventory.
B) Olga, in this situation. Her PMSI in inventory has met the conditions in order to take priority over a conflicting perfected security interest.
C) Olga and Fortune Bank share proportionately the priority interest in the inventory.
D) Neither Olga nor Fortune have a priority interest. The employees and the IRS have superior claims.

Question 38

All but which of the following is true? Once confirmed,a Chapter 13 bankruptcy plan:

A) is binding on all creditors, whether they like it or not.
B) washes the debtor clean of all pre-petition debts except those provided for in the plan.
C) permanently discharges the debts provided for in the plan.
D) may be modified upon the request of the debtor, the trustee, or unsecured creditors if the debtor's circumstances change.

Question 39

The correct order of payment of claims from the debtor's estate would be:

A) secured claims, priority claims, unsecured claims.
B) secured claims, unsecured claims, priority claims.
C) priority claims, secured claims, unsecured claims.
D) priority claims, unsecured claims, secured claims.

Question 40

Great State Bank took a security interest in Gresham,Inc.'s meat processing equipment.Gresham defaulted on the loan.Which statement is correct?

A) Great State Bank may take possession of the collateral.
B) Great State Bank may ignore its rights in the collateral and sue Gresham for the money owed.
C) Both (a) and (b) are courses of action that Great State Bank may follow.
D) Neither (a) nor (b) are courses of action that Great State Bank may follow.

Question 41

Gateway sold a big-screen TV and entertainment center to Inez for $2400 on credit.Inez signed a promissory note and gave Gateway a security interest in the TV and entertainment center.Gateway filed a financing statement in the appropriate public office.When Inez defaulted on her monthly payments owing a balance of $2080,Gateway's attorney made arrangements to have the TV and entertainment center repossessed.The attorney then placed classified ads in the local newspaper to sell the goods.The attorney's fees are $400,the repo company charged $150,and the advertising costs are $50.If Inez does not redeem,and the TV and entertainment center are sold for $1850,how will the money be disbursed?

Question 42

Fowler Bros.has applied to Gibralter Bank for a $50,000 loan for its business expansion.If Fowler Bros.plans to use its account at Gibralter Bank as collateral,discuss what the bank needs to do for a security interest to attach.

Question 43

Karen has filed for bankruptcy under Chapter 13.Who can file a plan of payment,who has the authority to confirm or reject a plan of payment,and what factors will be considered when deciding whether to approve a repayment plan?

Question 44

Explain the difference between attachment and perfection.

Question 45

Artistic Framing,a business with $120,000 of unsecured debt,needs to file for bankruptcy,but wants to continue in business.Discuss what chapter of the Bankruptcy Code should be used,and discuss the effect of a 2005 change to the Bankruptcy Code on the proceedings.