Deck 19: Bankruptcy and Debt: Understanding Hardship Discharge, Lien Stripping, and Cramdowns

Question 1

A hardship discharge can be best described as

A) a Chapter 7 debtor that cannot afford the filing fees and costs of the credit counseling and financial management class, so it's waived by the court.
B) a motion filed by the trustee that approval of a discharge will present an undue hardship to secured creditors.
C) the argument presented by a debtor on why a Chapter 7 should be filed instead of a Chapter 13.
D) an argument made by a Chapter 13 debtor on why a discharge should be granted even though the debtor hasn't completed the bankruptcy plan.

Answer 1

an argument made by a Chapter 13 debtor on why a discharge should be granted even though the debtor hasn't completed the bankruptcy plan.

Question 2

What are the debt limits of a Chapter 7?

A) The debt limit varies by state and it is based on the average household debt of that state.
B) The debt limits vary depending on the debt-to-income ratio.
C) Debt limits don't apply to Chapter 7 cases unless the debtor has filed a prior bankruptcy.
D) Debt limits apply to Chapter 13 cases, not Chapter 7.

Answer 2

Debt limits apply to Chapter 13 cases, not Chapter 7.

Question 3

Jenny is filing for Chapter 13, and the lawyer mentioned to her cramming down the car loan. She purchased the car on June 26, 2020. She can cramdown on

A) September 25, 2020.
B) December 23, 2022.
C) April 22, 2021.
D) June 26, 2021.
E) anytime after the arrears have been cured on secured debt through the plan.

Answer 3

December 23, 2022.

Question 4

A Chapter 13:

A) protects a debtor's credit score since creditors are being paid back.
B) requires income.
C) requires having non-exempt assets.
D) requires consent or approval by secured creditors.
E) both answers b and c.
F) both answers a and d.

Question 5

A cramdown or lien stripping can be done on which of the following:

A) car
B) personal property secured by a loan.
C) investment property.
D) all of the above.

Question 6

The length of a Chapter 13 plan is based on

A) the debtor's income.
B) the debtor's debt versus income.
C) strictly the types of debts the debtor has. For example, secured debt versus unsecured debt.
D) the mathematical formula of debt, income, and the state median for both.

Question 7

A Chapter 13 lasts ____________.

A) until the debtor has paid back all creditors that have filed a timely proof of claim.
B) between two to three years.
C) between three years to five years.
D) until the debtor has paid back at least 70% of unsecured creditors.

Question 8

Bruce's house is worth $315,000 and the first mortgage has a balance of $285,000. His second mortgage has a balance of $55,000. If he were to lien strip, the results would be:

A) $55,000 is stripped and becomes an unsecured debt.
B) $25,000 becomes unsecured debt.
C) $30,000 becomes unsecured debt.
D) None of the above.

Question 9

Due to a decline in housing sales, Ken's home is now valued at $185,000. Due to a workplace accident, Ken had a loss of income and took out a second mortgage on his property to stay afloat financially for a few months. The first mortgage is $200,000, and the second mortgage is $25,000. What can Ken do to reduce the amount of the mortgages owed?

A) Cramdown both mortgages to the current fair market value.
B) Lien strip the first and second mortgage.
C) Lien strip the first mortgage since that is the one that he owes most on.
D) Lien strip the second mortgage.

Question 10

A wage earner's plan is the term referred to:

A) Chapter 7.
B) Chapter 13.
C) The Means Test.
D) None of the above.

Question 11

Bob owns a business and lately, business has been slow. However, when business was doing well, he paid off two of his cars and his motorcycle. Bob is considering filing for bankruptcy.

A) Bob cannot file Chapter 13 since it applies to individuals, not businesses.
B) Bob can file for Chapter 13 personally, even though he owns a business.
C) Bob cannot file for Chapter 7 because he owns assets that are free and clear.
D) Bob should file for Chapter 11 for both him and the business.

Question 12

Maria owes $225,000 in a first mortgage and $32,000 in a second mortgage. Her home is valued at $215,000. If she lien stripped, the results would be:

A) The first mortgage is reduced to $215,000 and the second mortgage becomes an unsecured creditor.
B) The first mortgage remains the same, and the entire second mortgage becomes an unsecured creditor.
C) The second mortgage is reduced by $10,000, which is the difference between the first mortgage and the value of the house.
D) The first mortgage is reduced to $215,000, and the second mortgage remains the same since it is a junior lien and has no value anyway.

Question 13

What are the time restrictions to file a motion for cramdown of a car in a Chapter 7 case?

A) So long as the trustee abandons the interest in the car, the motion needs to be filed prior to discharge.
B) The motion needs to be filed prior to the 341 Meeting is held even though the bankruptcy judge hears it after the meeting of creditors.
C) A cramdown isn't an option for a Chapter 7 case unless the debtor liquidates assets exceeding a percentage of the exemption limits.
D) The motion and hearing must be heard before the 341 Meeting so that the trustee knows the value of the bankruptcy estate.
E) None of the above.

Question 14

The plan should be filed in a Chapter 13 case _____

A) at the time of filing the petition.
B) any time before the confirmation hearing.
C) 14 days of filing the petition.
D) None of the above.

Question 15

In a Chapter 13, credit counseling and financial management classes aren't required.

A) True, because the debtor has reorganized his/her debt and thus, is automatically learning about debt management.
B) False. A Chapter 13 requires both credit counseling and financial management.
C) Financial management courses are only required if the debtor is involved in a thirty-six-month plan unless waived by the court.
D) Credit counseling is required, but not financial management because the debtor is presumed to have learned about budgeting by then.

Question 16

The debtor has an outstanding car loan in the amount of $17,300, and the car has a fair market value of $10,000. The debtor reduced the car loan to $10,000. This is an example of

A) a reaffirmation in Chapter 7.
B) a reaffirmation in Chapter 13.
C) lien stripping in Chapter 13.
D) a cramdown in Chapter 13.

Question 17

Larry filed for Chapter 13 because he was at risk of having his car repossessed. Larry has been separated from Connie for two years and has four years left on his bankruptcy plan. While Larry and Connie were together, she co-signed on the car loan because she had better credit than Larry and was offered a lower interest rate. The bank calls Connie daily demanding payment.

A) The bank should not be calling Connie because it's not her car.
B) The automatic stay protects Connie so long as the bankruptcy case is pending, so the bank is prohibited from collecting on the debt.
C) The bank has a right to pursue collection because Connie hasn't filed for bankruptcy.
D) The automatic stay is effective only up to the date of the confirmation hearing, so the bank should continue its collection efforts.

Question 18

The confirmation hearing is held ____

A) within 45 days of the petition being filed.
B) within 45 days of the 341 Meeting of Creditors.
C) according to the next available date on the judge's calendar.
D) None of the above.

Question 19

Non-dischargeable debts are included in a hardship discharge.

Question 20

Whether in a Chapter 7 or Chapter 13, payments received by creditors are based on

A) a percentage increase of the debt in the last twenty-four months.
B) a prorata share.
C) the amount dictated by the Means Test formula.
D) None of the above.

Question 21

Can a debtor complete a plan in twenty-nine months?

Question 22

What is the difference between lien stripping and a cramdown?

Question 23

In Chapter 13, if the debtor can't afford the mortgage payments, can the debtor seek to "avoid the lien" pursuant to §522?

Question 24

Why is it likely that a debtor won't seek to cramdown the mortgage on an investment property?

Question 25

How is the length of the payment plan determined in Chapter 13?

Question 26

What is the 910-day rule?

Question 27

How much debt is required in order to file for bankruptcy?

Question 28

What is required for a hardship discharge?