Deck 9: Secured Transactions and Bankruptcy

Question 1

The right of subrogation allows the surety to obtain a court decree ordering the debtor to pay the creditor.

Answer 1

False
Explanation: The right of exoneration allows the surety to obtain a court decree ordering the debtor to pay the creditor. The surety's remedy of exoneration is against the debtor and in no way affects the creditor's right to proceed against the surety.

Question 2

A debtor that files under Chapter 11 can remain "in possession of the assets" while undergoing reorganization under Chapter 11, without the appointment of a trustee.

Answer 2

True
Explanation: A debtor that files under Chapter 11 can remain "in possession of the assets" while undergoing reorganization under Chapter 11, without the appointment of a trustee. A debtor in possession is placed in a fiduciary relationship with the powers and rights of a trustee.

Question 3

One nationwide rule governs the filing of financing statements for perfecting security interests.

Answer 3

False
Explanation: In order to properly file a financing statement to perfect a security interest, the UCC in the state in which the property lies must be consulted. Rather than have one rule that governs nationwide, the UCC provides alternative methods for filing a financing statement depending on the type of collateral filed against.

Question 4

The refrigerator purchased by a physician to store medicines in her office is classified as a consumer good.

Question 5

Patents and trademarks fall under the chattel paper category of collaterals.

Question 6

A guaranty for collection puts the guarantor in the same position as a surety.

Question 7

Not all debts are dischargeable in bankruptcy.

Question 8

Debtor's property in which the debtor gives an interest to the creditor as security for its debt is known as ___.

A) obligation
B) capital
C) capacity
D) collateral

Question 9

In the context of defining collateral, goods is used as a catchall phase for interests not otherwise covered unless they are specifically excluded.

Question 10

A _____ is the one who has given something of value to the debtor in exchange for a promise that the debtor will repay the loan.

A) testator
B) creditor
C) promoter
D) guarantor

Question 11

The surety has no right to reimbursement until he actually pays the creditor and then only to the extent of the payment made.

Question 12

Filing an involuntary bankruptcy triggers an automatic stay of the debts owed.

Question 13

For attachment, the creditor can enforce the security interest against third parties.

Question 14

If the surety is an absolute surety, then before the creditor can collect from the surety, the creditor must exhaust all other legal remedies to collect from the debtor.

Question 15

A creditor with a perfected security interest has greater rights in the collateral than a creditor with an unperfected security interest.

Question 16

Pensions are exempt from bankruptcy.

Question 17

Negotiable instruments can be used as collateral.

Question 18

A debtor cannot receive a second discharge if he or she received a discharge within eight years of filing for the second discharge.

Question 19

A guarantor usually makes a promise on the original agreement and becomes a party to that agreement.

Question 20

A _____ is one who owes a debt to a creditor.

A) grantor
B) testator
C) debtor
D) promoter

Question 21

A security interest is said to attach once three of the following requirements are fulfilled. Which of the following is NOT one of the three necessary requirements?

A) The secured party has given something of value.
B) The debtor has rights in the collateral.
C) The creditor has filed a financing statement signed by the debtor.
D) Either the collateral is in the possession of the secured party or the security agreement is in a writing which contains a description of the collateral and is signed by the debtor.

Question 22

_____ is a writing or writings which evidence both a monetary obligation and a security interest in, or a lease of, specific goods when a creditor sells the security agreement of his debtor along with his interest in the collateral to a third party.

A) Document
B) Instrument
C) Chattel paper
D) License

Question 23

Which of the following collaterals include literary rights, rights to performance of a contract, patents, trademarks, and copyrights?

A) General intangibles
B) Chattel paper
C) Instruments
D) Goods

Question 24

When a surety pays the creditor upon the default of the debtor, the surety has the right of _____ against the debtor.

A) subrogation
B) gentrification
C) reimbursement
D) exoneration

Question 25

Samantha bought a refrigerator for personal use. If the store where she purchased the refrigerator loaned her the money to make the purchase then:

A) the store's security interest attaches but it is not automatically perfected.
B) the store's security interest does not attach unless Samantha signs a security agreement for the refrigerator.
C) the store cannot accept the same refrigerator as collateral.
D) the store's security interest attaches and is automatically perfected.

Question 26

Which of the following statements is true regarding exoneration?

A) The right to exoneration arises when a surety has paid more than her share of the debt.
B) The surety's remedy of exoneration is against the debtor.
C) The surety has no right to exoneration until he actually pays the creditor.
D) The surety's right to exoneration confers upon the surety all the rights the creditor has against the debtor.

Question 27

A security interest in negotiable instruments is automatically perfected upon attachment for _____ days without filing or taking possession.

A) 12
B) 21
C) 32
D) 44

Question 28

A(n) _____ is the right given to a skilled person to retain possession of an item, produced with his or her labor and materials, until paid.

A) general lien
B) perfected interest
C) security interest
D) artisan's lien

Question 29

Which of the following is a category of goods used as collateral?

A) Instruments
B) Stocks
C) Fixtures
D) Bonds

Question 30

The UCC recognizes two types of intangible collateral: _____ and general intangibles.

A) license
B) chattel paper
C) accounts
D) instruments

Question 31

Which of the following statements is true regarding reimbursement?

A) The surety has no right to reimbursement until he actually pays the creditor.
B) The surety's right to reimbursement is against the creditor.
C) The right to reimbursement arises only when the surety has paid more than her share of the debt.
D) The right to reimbursement confers upon the surety all the rights the creditor has against the debtor.

Question 32

It is common in many business transactions involving the extension of credit for the creditor to require that someone in addition to the debtor promise to fulfill the obligation. This promisor generally is known as a(n) ___.

A) surety
B) grantee
C) promoter
D) testator

Question 33

A buyer has a receipt for goods that are being stored in a warehouse. He uses that receipt as collateral in another transaction. With reference to the various categories of indispensable paper, the receipt is most likely to be an example of a(n) ___.

A) document
B) license
C) chattel paper
D) instrument

Question 34

Which of the following terms best represents a paper that evidences a right to payment of money that is not itself a security agreement?

A) License
B) Instrument
C) Lien
D) Document

Question 35

The right of _____ allows the surety to obtain a court decree ordering the debtor to pay the creditor.

A) reimbursement
B) exoneration
C) subrogation
D) contribution

Question 36

With reference to indispensable paper, the term _____ includes negotiable instruments, stocks, bonds, and other investment securities.

A) license
B) chattel paper
C) document
D) instrument

Question 37

James has taken a loan of $10,000 from a bank with Julia and Robert as his sureties. Once the money becomes due, Julia seeks an order from the court ordering James to pay. In this example, Julia has used her right of ___.

A) reimbursement
B) exoneration
C) contribution
D) subrogation

Question 38

Which of the following statements is true regarding accounts receivable?

A) It is evidenced by a chattel paper or an instrument.
B) It falls under the category of intangible collaterals.
C) In the context of defining collateral, accounts receivable is used as a catchall phase for interests not otherwise covered unless they are specifically excluded.
D) It includes stocks, bonds and other investment securities.

Question 39

If a debtor goes bankrupt and has more than one secured creditors then:

A) the creditor who secured the interest first gets the first right to reclaim the collateral.
B) all secured creditors get equal shares in the collateral.
C) the creditor who perfected the security interest first gets the first right to reclaim the collateral.
D) the collateral is distributed among all the creditors with secured interest in the proportion of their credit.

Question 40

Which of the following categories of collateral is used as a catchall phase for interests not otherwise covered unless they are specifically excluded?

A) Goods
B) Instruments
C) Accounts receivables
D) General intangibles

Question 41

A Chapter 13 bankruptcy is also called a ___.

A) liquidation plan
B) reorganization bankruptcy
C) strategic bankruptcy
D) wage earner's plan

Question 42

_____ occurs when the debtor does not make the mortgage payments on property that is generating income. The debtor takes the money and uses it for himself and lets the real estate go into bankruptcy.

A) Skimming
B) Looting
C) Bleedout
D) Bustout

Question 43

Which of the following types of bankruptcy is frequently referred to as the reorganization bankruptcy?

A) Chapter 7
B) Chapter 9
C) Chapter 11
D) Chapter 12

Question 44

Individuals must undergo a means test to determine if they qualify for _____ bankruptcy.

A) Chapter 7
B) Chapter 9
C) Chapter 11
D) Chapter 12

Question 45

What is a secured transaction?

Question 46

The debtor must file a repayment plan within _____ days after the petition is filed for a Chapter 13 bankruptcy.

A) 8
B) 14
C) 18
D) 21

Question 47

Which of the following statements is true about a Chapter 7 bankruptcy?

A) Chapter 7 bankruptcy is frequently referred to as the 'Wage earner's plan.'
B) The debtor can remain "in possession of the assets" while undergoing the bankruptcy process under Chapter 7, without the appointment of a trustee.
C) Individuals must undergo a means test to determine if they qualify for Chapter 7 bankruptcy.
D) In Chapter 7 bankruptcy, the debtor is placed in a fiduciary relationship with the powers and rights of a trustee.

Question 48

This fraudulent scheme in bankruptcy occurs when a failing company moves its assets to a new business which is thriving after convincing the creditors that they should accept what the new buyer is offering for its debts. After the creditors accept pennies on the dollar for the sold company, they learn that the "new" company was a straw company set up by the principal of the failed business. Identify the fraudulent bankruptcy scheme in discussion.

A) Skimming
B) Looting
C) Bleedout
D) Bustout

Question 49

A debtor usually meets with his or her creditors in a " _____ " meeting, so named because of the section of the bankruptcy code which requires such a meeting.

A) 108
B) 189
C) 218
D) 341

Question 50

Which of the following types of bankruptcies requires debtor to turn over all nonexempt property to the trustee so that it may be sold and the proceeds distributed among the unsecured creditors?

A) Chapter 13
B) Chapter 7
C) Chapter 11
D) Chapter 2

Question 51

Explain the following terms: Secured party, Security interest.

Question 52

Which of the following types of bankruptcy is used by individuals with regular income to develop a plan to repay all or part of their debts and provides protection from creditors while they do so?

A) Chapter 7
B) Chapter 9
C) Chapter 13
D) Chapter 12

Question 53

What is meant by reaffirming a debt?

A) Securing a debt with the help of a collateral
B) Taking a loan for repaying the debt
C) Extending the time period allowed for repaying the debt
D) Voluntarily repaying a debt even after it has been discharged

Question 54

Which of the following statements is true regarding a Chapter 11 bankruptcy?

A) In a Chapter 11 bankruptcy, in exchange for a discharge in bankruptcy, a debtor is required to turn over all nonexempt property to the trustee.
B) In Chapter 11 bankruptcy the debtor is placed in a fiduciary relationship with the powers and rights of a trustee.
C) Individuals must undergo a means test to determine if they qualify for Chapter 11 bankruptcy.
D) Chapter 11 bankruptcy is frequently referred to as the 'Wage earner's plan.'

Question 55

An involuntary bankruptcy petition can be filed if:

A) the debtor is transferring unsecured assets to a third party for less than value.
B) creditors have total outstanding debt of at least $5,000.
C) there are more than 12 creditors and two of them are participating in the involuntary petition.
D) no custodian is appointed to take charge of substantially all of the debtor's property.

Question 56

When a surety pays a debtor's obligation, the surety is entitled to have the co-sureties pay to the surety their proportionate share of the obligation the surety paid to the creditor. This is known as the right of ___.

A) reimbursement
B) exoneration
C) contribution
D) subrogation

Question 57

Which of the following statements is true regarding a surety?

A) The creditor must first try to collect from the debtor before the surety becomes obligated on the debt.
B) A surety usually does not become a part of the original agreement between the debtor and the creditor.
C) A surety is obligated to pay the debt as soon as it becomes due.
D) A surety usually enters into a separate contract with the surety who binds him to the first contract between the debtor and the creditor.

Question 58

James has taken a loan of $10,000 from a bank with Julia and Robert as his sureties. However when the money becomes due, James is unable to pay the amount. Robert, as one of James' sureties, pays the entire amount to the bank. Robert, now, has the right to receive a proportionate share of this obligation from Julia. This right is known as the right of ___.

A) reimbursement
B) exoneration
C) contribution
D) subrogation

Question 59

If the surety is forced to pay off the creditor, the surety steps into the shoes of the creditor. This is called _____ and confers upon the surety all the rights the creditor has against the debtor.

A) reimbursement
B) exoneration
C) contribution
D) subrogation

Question 60

A fraudulent scheme in bankruptcy involves a protracted plan to con a creditor into thinking it is dealing with an upstanding debtor. The debtor makes payments on time and lulls the creditor into shipping more and more goods. The debtor then begins missing payments and tells the creditor it is having cash flow problems. The truth is the debtor has sold the creditor's merchandise and made off with the money. This fraudulent bankruptcy scheme is known as ___.

A) skimming
B) looting
C) bleedout
D) bustout

Question 61

What are the three necessary requirements that must be fulfilled so that the security interest can said to be attached?

Question 62

Discuss Chapter 11 bankruptcy.

Question 63

Discuss the difference between a surety and a guarantor.

Question 64

Discuss a surety's right of exoneration.

Question 65

Discuss the significance of the '341' meeting.

Question 66

Discuss the various defenses available to a surety.

Question 67

What are the various types of indispensable paper?

Question 68

What are the two most common types of guarantees?

Question 69

Discuss a surety's right of reimbursement.

Question 70

What are the two types of intangible collateral?

Question 71

What are the various advantages of Chapter 13 bankruptcy?

Question 72

Discuss artisan's lien.

Question 73

Discuss the various reasons due to which a debtor becomes eligible for involuntary bankruptcy.

Question 74

What is meant by perfecting a security interest? What is the difference between attachment of a security interest and perfection of a security interest?

Question 75

Discuss briefly Chapter 7 bankruptcy.