Deck 21: Creditors Rights and Bankruptcy

Question 1

A surety is released from his or her obligation if a debtor cannot pay a debt.

Answer 1

False

Question 2

A homestead exemption allows a debtor to pay a fixed debt for an amount less than was actually owed.

Answer 2

False

Question 3

An attachment is a court-ordered seizure and taking into custody of prop?erty prior to the securing of a judgment for a past-due debt.

Answer 3

True

Question 4

A debtor's car may be exempt from satisfaction of a judgment debt.

Question 5

Bankruptcy law has one goal-to encourage the continued use of credit.

Question 6

A surety is released from his or her obligation if the debtor pays it.

Question 7

A surety is primarily liable on an obliga?tion.

Question 8

Before the guarantor of a debt can be required to answer for the debt of a debtor,the debtor must have defaulted on the underlying obligation.

Question 9

If the proceeds of a foreclosure sale cover the costs and the mortgage debt,any surplus is a windfall to the creditor.

Question 10

A surety can use any defenses available to a debtor to avoid liability on the obligation to the creditor.

Question 11

Clothing is not included in state exemption statutes.

Question 12

In most states,state law determines the amount of a debtor's property that is exempt from dis?tribution on bankruptcy.

Question 13

All of a debtor's pay can be gar?nished.

Question 14

An employer can dismiss an employee due to garnishment for one debt.

Question 15

Almost all types of property can be garnished.

Question 16

If a debtor will not pay a judgment,a creditor can only resort to "self-help" to collect.

Question 17

A creditor with a mechanic's lien on property can sell the property to sat?isfy the debt.

Question 18

A guaranty contract must be in writing to be enforceable.

Question 19

If a surety pays the debt owed to a creditor,then the surety acquires any rights that the creditor had against the debtor.

Question 20

Bankruptcy proceedings focus on the procedures to administer a debtor's estate in bankruptcy.

Question 21

A Chapter 11 plan is binding on confirmation and the debtor is discharged.

Question 22

On a debtor's bankruptcy,a secured creditor cannot recover more on a debt than the value of the collateral covering the debt.

Question 23

A corporate debtor must be "out of business" before it can file a bank?ruptcy petition for reorganization under Chapter 11.

Question 24

The procedure and content of a Chapter 12 plan are similar to the proce?dure and content of a Chapter 13 plan.

Question 25

The principal duty of a trustee is to liquidate and close up the debtor's es?tate as quickly as possible.

Question 26

The homestead exemption under the Bankruptcy Code is unlimited.

Question 27

The homestead exemption has been abolished under the Bankruptcy Code.

Question 28

Suha performs a contract with Tyler to add a second story addition to Tyler's house,but Tyler does not pay.In most states,Suha can create a lien and place it on Tyler's property by filing

A) an order of garnishment.
B) a writ of attachment.
C) a writ of execution.
D) a written notice of lien.

Question 29

Opie's debt to Pyle is past due.Pyle obtains a judgment against Opie to collect the debt,but Opie refuses to pay.Pyle asks the court to order the seizure and sale of Opie's property.This is a request for

A) a guaranty (or suretyship) contract.
B) an order that would violate most states' laws.
C) a writ of attachment.
D) a writ of execution.

Question 30

Donald's debt to Everett is past due.Everett brings a legal action against Donald to collect the debt.To ensure that a judgment in Everett's favor will be collectible,Everett asks the court to order the seizure of Donald's property.This is a request for

A) a guaranty (or suretyship) contract.
B) an order that would violate most state laws.
C) a writ of attachment.
D) a writ of execution.

Question 31

Before a discharge is granted,a debtor can transfer property or make a payment in preference to one creditor over another.

Question 32

Loni delivers her Mazda to be repaired at Nile's Body Shop.Loni agrees to pay cash.Nile performs,but Loni does not pay.Nile tells Loni that he will keep the car until she pays.This is

A) a judicial lien.
B) a mechanic's lien.
C) an artisan's lien.
D) a violation of most states' laws.

Question 33

The Bankruptcy Code's Chapter 12 is intended to aid charitable institutions.

Question 34

Debts based on fraud may be discharged under Chapter 13.

Question 35

Unsecured parties have priority over secured parties to the proceeds from the disposition of collateral on the distribution of a debtor's estate.

Question 36

In general,the claims of all of the creditors of an estate must be satisfied before any re?maining amounts can be given to the debtor.

Question 37

The time for repayment under an individual's Chapter 11 plan is three or five years,depending on the debtor's family income.

Question 38

A Chapter 13 plan can be initiated only by the filing of an involuntary petition.

Question 39

Pruit performs a contract with Quint to reshingle the roof on Quint's house,but Quint does not pay.Pruit notifies Quint that Pruit will foreclose on the house and sell it to satisfy the debt.This is

A) a judicial lien.
B) a mechanic's lien.
C) an artisan's lien.
D) a violation of most state laws.

Question 40

If the assets in a debtor's estate in bankruptcy are insufficient to pay fully all creditors,the debtor is liable for the difference.

Question 41

Kwik Delivery Company buys a truck from Lucky Vehicles,Inc.,under a guaranty signed by Mina,Kwik's president,who writes "President" after her signature.When Kwik does not pay for the truck,Lucky sues Mina,who claims that she did not intend to be bound by the guaranty.The court would most likely rule in favor of

A) Lucky, because Mina's guaranty is unambiguous.
B) Lucky, because Mina works for Kwik.
C) Mina, because she did not intend to be bound by the guaranty.
D) Mina, because she signed only as a corporate officer.

Question 42

Brick's debt to Conry is past due.Conry brings a legal action against Brick to collect the debt.To ensure that a judgment in Conry's favor will be collectible,Conry asks the court to order the seizure of Brick's property.Exempt from such an order in most states is

A) all of Brick's personal property.
B) as much of Brick's personal property as Brick opts to exempt.
C) equipment that Brick uses in a business up to a specified amount.
D) none of Brick's personal property.

Question 43

First State Bank holds a mortgage on Gigi's property.Gigi defaults on the debt.The bank forecloses.If the proceeds of the foreclosure sale are insuf?ficient to pay the costs of the sale and the debt,the bank can

A) obtain a deficiency judgment against Gigi.
B) prorate the costs to its other debtors.
C) reclaim the property as a voidable transfer.
D) use the equity of redemption to redeem the property.

Question 44

Mike owes $12,000 to Nora,$6,000 to Owen,and $6,000 to Pat.The three creditors enter into an agreement with Mike to discharge the debts on payment of a sum of $12,000 to them,to be divided proportionately.This is

A) a composition agreement.
B) a guaranty agreement.
C) a judicial lien.
D) a suretyship agreement.

Question 45

Dora,Ed,and Fran are co-sureties of Glen's debt to Hi-Credit Company.Dora pays Glen's entire debt.Dora's right to seek proportionate pay?ments from Ed and Fran is the right of

A) contribution.
B) redemption.
C) reimbursement.
D) subrogation.

Question 46

Mabel files a petition in bankruptcy.The initial proceeding on this peti?tion will be in

A) a federal bankruptcy court.
B) a state bankruptcy court.
C) the highest court in the state in which Mabel is located.
D) the United States Supreme Court.

Question 47

Ollie files a petition in bankruptcy.At the moment of filing

A) an automatic stay goes into effect.
B) Ollie's debts are discharged.
C) Ollie's petition is dismissed.
D) Ollie's property is distributed to Ollie's creditors.

Question 48

Larry borrows money from Joan.To use a writ of execu?tion as a remedy,Joan must first

A) be unable to collect the amount of a judgment against Larry.
B) be unable to redeem Larry's exempt property before a sale will occur.
C) notify Larry in writing (in a "writ") of her intent.
D) obtain and maintain possession of Larry's property.

Question 49

Kofi files a petition for bankruptcy.Kofi must include with the petition

A) a list of creditors and the amount of the debt owed to each only.
B) a list of creditors and the amount of the debt owed to each, a list of property, and a statement of financial affairs.
C) a list of property only. d a statement of financial affairs only.

Question 50

Khali's debt to Lew is past due.Lew obtains a judgment against Khali to collect the debt,but Khali refuses to pay.Lew asks the court to order Khali's employer to pay a portion of Khali's paycheck to Lew.This is a request for

A) an exemption from most federal limits on creditors' actions.
B) an order of garnishment.
C) an order that would violate most state laws.
D) a right of contribution.

Question 51

Delia refuses to pay Ewing $500 in cash on their contract to repair certain theater sets,which Ewing still possesses.Ewing's lien on the sets will terminate

A) if Ewing continues to maintain possession.
B) if Ewing does not file a written notice of lien within thirty days.
C) if Ewing surrenders possession.
D) within thirty days.

Question 52

Frank's farm is to be sold at a foreclosure sale.For Frank to keep the farm by paying the full amount of the debt,plus any interest and costs that have accrued,is

A) the equity of redemption.
B) the exercise of exemption.
C) the right of contribution.
D) the right of subrogation.

Question 53

Lulu joins with other creditors to force Mikhail,a debtor,into bankruptcy.One of the goals of bankruptcy law with respect to creditors is to

A) ensure that creditors will continue to lend to insolvent debtors.
B) protect creditor assets from diminution in value.
C) provide equitable treatment in the competition for debtor assets.
D) make all debtor property available for creditor claims.

Question 54

Rita is a surety for Sue's loan from Total Finance Company.Rita's right to "step into the shoes" of Total Finance,after paying Sue's debt,and ex?er?cise any of the Total Finance's rights against Sue is the right of

A) contribution.
B) redemption.
C) reimbursement.
D) subrogation.

Question 55

Jay is a surety for Karen's loan from Little Bank.Jay's right to be repaid by Karen after having paid her debt is the right of

A) contribution.
B) redemption.
C) reimbursement.
D) subrogation.

Question 56

Ross and Sally agree to guarantee Tim's debt.Ross's maximum liabil?ity is $30,000,and Sally's is $20,000.Tim owes $20,000 and is in default.Ross pays the creditor the entire amount.In the ab?sence of an agree?ment to the contrary,Ross can recover from Sally

A) $8,000.
B) $10,000.
C) $20,000.
D) nothing.

Question 57

Carlton files a petition in bankruptcy.One of the goals of bankruptcy law with respect to a debtor is to

A) encourage the continued use of credit to borrow funds.
B) ensure that third parties will continue to guarantee loans.
C) provide a fresh start, free from creditors' claims.
D) shield assets from creditors' claims.

Question 58

Ian's mortgage debt to Jeff is past due.Jeff brings a legal action against Ian to collect the debt.Jeff asks the court to order the sale of the mortgaged property and the payment of a portion of the proceeds to Jeff.This is a request for

A) a deficiency judgment.
B) a foreclosure.
C) a right of reimbursement.
D) redemption.

Question 59

Mia's voluntary petition for bankruptcy is found to be proper.The order for relief is effective as soon as

A) Mia files the petition.
B) Mia posts a bond to cover the costs of the proceedings.
C) Mia's creditors agree to the terms.
D) the trustee collects and distributes the property of Mia's estate.

Question 60

Elmo files a petition in bankruptcy.If the court concludes that there are grounds for a finding of "substantial abuse," the court will most likely

A) dismiss Elmo's petition.
B) discharge Elmo's debts.
C) distribute Elmo's property to Elmo's creditors.
D) issue an automatic stay against any actions by Elmo's creditors.

Question 61

Pola files a petition in bankruptcy.Pola's non-dischargeable debts include

A) domestic-support obligations.
B) student loans if payment would impose undue hardship.
C) unpaid loans to finance home repairs.
D) unsecured credit-card debt.

Question 62

Suki files for bankruptcy under Chapter 13.The value of her property to be distributed under the plan is more than the amount of the creditors' claims.The court can approve the plan

A) only if neither an unsecured creditor nor the trustee objects.
B) only if no unsecured creditor objects.
C) only if the trustee does not object.
D) over the objection of either an unsecured creditor or the trustee.

Question 63

Fact Pattern 21-1 (Questions 28-29 apply)
In January, Jazz Dance Studio owes Kay, its musical director, $1,800 for cur¬rent wages, receives $700 as a down payment for dance lessons from Lora, and pays a Music, Inc., a sheet music supplier, $1,500 of $3,000 owed. In February, the studio files for bankruptcy under Chapter 7.
Refer to Fact Pattern 21-1.Based on the size of the studio's estate in bank?ruptcy,each of Jazz's creditors will get only 10 percent of their claims.Regarding the payment to Music,Inc.,the trustee may

A) not recover it because Music's claim has priority.
B) not recover it unless Music is an in?sider.
C) recover it as a fraudulent transfer.
D) recover it as a voidable preference.

Question 64

Gustav files a petition for bankruptcy under Chapter 13.Gustav is granted a discharge.Debts that will not be discharged include claims for

A) domestic support, fraudulently incurred debt, and student loans.
B) domestic support only.
C) fraudulently incurred debt only.
D) student loans only.

Question 65

Jill believes that she should file a plan for a Chapter 13 discharge in bankruptcy.A Chapter 13 bankruptcy plan must provide for

A) the completion of all payments to all creditors within six years.
B) the payment of 100 percent of all obligations in full.
C) the surrender of all collateral to the creditors.
D) the turnover of the debtor's future income to the trustee.

Question 66

Elle is a trustee for a federal bankruptcy court.Elle's duties include

A) collecting a debtor's property.
B) establishing priority for the payment of unsecured creditors.
C) operating a debtor's business to obtain maximum profit for creditors.
D) submitting to an examination under oath by the creditors.

Question 67

Fact Pattern 21-1 (Questions 28-29 apply)
In January, Jazz Dance Studio owes Kay, its musical director, $1,800 for cur¬rent wages, receives $700 as a down payment for dance lessons from Lora, and pays a Music, Inc., a sheet music supplier, $1,500 of $3,000 owed. In February, the studio files for bankruptcy under Chapter 7.
Refer to Fact Pattern 21-1.The highest priority belongs to

A) Kay and Music, Inc.
B) Kay only.
C) Lora only.
D) Music, Inc., only.

Question 68

Smartt Software Company borrows $10,000 from Term 'N All Loans,Inc.,but cannot repay the loan when it comes due.Term 'N All refuses to ex?tend the time for repayment unless Smartt can provide an acceptable surety.Uno Venture Corporation agrees to act as a surety for the loan af?ter Smartt offers the firm a discount on software and shows Uno financial statements,compiled with Term 'N All's assistance,that misrepresent Smartt's financial situation.Later,after Uno uses the discount to buy software,Smartt again defaults on repayment of the loan,and Term 'N All files a suit against Uno to collect the amount of the debt.Is Uno liable? Why or why not?

Question 69

Zeke files a petition for bankruptcy.Zeke's creditors must file with the court their proof of claims against Zeke's assets within

A) fifteen days of the creditors' meeting.
B) thirty days of the creditors' meeting.
C) sixty days of the creditors' meeting.
D) ninety days of the creditors' meeting.

Question 70

Current City (CC)is a retail seller of television sets.CC sells Dhani a $3,000 large-screen,high-definition,LED set on a retail installment security agreement in which he pays $100 down and agrees to pay the balance in equal installments.CC retains a security interest in the set,and perfects that interest by filing a financing statement centrally.Two months later,Dhani is in default on the payments to CC and is involun?tarily petitioned into bankruptcy by other creditors.Discuss CC's right to repossess the TV set and whether CC has priority over the trustee in bankruptcy.

Question 71

Kipper files a petition in bankruptcy.Kipper's dischargeable debts include

A) domestic-support obligations.
B) student loans unless the lender would suffer undue hardship.
C) unpaid state and federal taxes.
D) unsecured credit-card debt.

Question 72

Natural Resources,Inc.(NRI),files for bankruptcy under Chapter 11 and assumes the role of a debtor in possession.In this role,NRI is simi?lar to

A) a creditor at a Chapter 7 creditors' meeting.
B) a family farmer after a discharge under Chapter 12.
C) a secured creditor in possession of collateral under Chapter 13.
D) a trustee in a liquidation proceeding under Chapter 7.