Chapter 19: Secured Transactions and Bankruptcy

z. In the context of a security agreement, identify an incorrect statement about how long a financing statement is valid once it has been filed with the correct agency under the Uniform Commercial Code (UCC).

Once the statement is filed with the United States Patent and Trademark Office, it is valid for five years.

involuntary liquidation petition

creditors attempt to force a debtor into bankruptcy by filing an involuntary petition. Farmers, ranchers, and nonprofits cannot be forced into bankruptcy.

Priority Disputes

occur when two secured parties claim rights to same collateral

z. A ______ transfer is a transfer of property made with the intent to defraud creditors or made for an amount significantly lower than the property's fair market value within ______ years of filing for bankruptcy.

fraudulent; two

z. Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, if a debtor was a debtor in a bankruptcy case that was dismissed within ______ year(s) of a current bankruptcy case filing, an automatic stay terminates ______ after the current filing.

one; 30 days

Perfection by Filing

perfection of interest by filing financing statement with state agency [9-502]

Perfection by Possession

perfection of interest by holding collateral of debtor until loan is paid in full

automatic perfection

perfection that automatically occurs when retailer sells a consumer good

automatic stay

prohibits creditors from collecting debts that the bankrupt incurred before the petition was filed

Proceeds

something that is exchanged for a debtor's sold collateral

security agreement

the agreement in which the debtor gives secured interest to the secured party. Signed by the debtor. Must describe the collateral.

z. Between ______ days after an order of relief has been granted, an interim trustee calls a creditors' meeting.

20 and 40

z. Identify an incorrect statement about debtors' exempt properties.

A debtor can combine state and federal exemptions.

proof of claim

A document required to be filed by a creditor that states the amount of his or her claim against the debtor

Chapter 7 Bankruptcy (straight)

Chapter of the Bankruptcy Code providing for liquidation of the debtor's assets in order to repay the creditors; certain assets or aggregate value of assets of the debtor may be exempt based on state law.

Perfection of Movable Collateral

Collateral that moves to another state must be "re-perfected" after four (4) months

z. Which of the following is not a type of collateral for which a security interest can be perfected by filing?

Easements

z. To qualify for a Chapter 13 repayment plan, an individual must have a regular income and must owe less than ______ for fixed unsecured debts or ______ for fixed secured debts.

$394,725; $1,184,200

Goals of Bankruptcy Law

1. To protect a debtor by giving him or her a fresh start without creditors' claims. 2. To ensure equitable treatment of creditors who are competing for a debtor's assets.

To become a secured party, a creditor must

1. create a security agreement with the debtor and either (a) there is a record of the security agreement (usually a written agreement that describes the collateral and is signed by the debtor) or (b) the secured party is in possession of the collateral. 2. the secured party must give value (consideration) to the security agreement. 3. Debtors Rights in the Collateral [9-230(b)]

Bankruptcy Proceedings

1.all bankruptcy cases begin with the filing of a petition for bankruptcy 2. the court grants an automatic stay for the creditor against the debtors estate 3. the court determines whether an order of relief should be granted 4. the creditor meets with the debtor 5. some type of payment plan is created an approved, usually by the creditors and the court 6. the payment plan is implemented by the actions of the trustee and the debtor 7. debts remaining after the plan is implemented are usually discharged

Disposition of Collateral [9-610]

A secured creditor's repossession of collateral on a debtor's default and selling, leasing, or otherwise disposing of it in a commercially reasonable manner

reaffirmation agreement

An agreement between a debtor and a creditor in which the debtor voluntarily agrees to pay a debt dischargeable in bankruptcy.

buyers of chattel paper and instruments exception

If buyer purchases chattel paper and instruments, he/she is free from security interest

buyers of consumer goods exception to security [9-320 (b)]

If consumer does not know product secured, buyer's new product is free from security interest

z. In the context of a security agreement, which of the following is an incorrect statement about the place of filing a financing statement?

Most states require that the financing statement be filed with the United States Patent and Trademark Office (USPTO).

z. In the context of a secured transaction, which of the following is an inaccurate statement regarding priority disputes among creditors who claim interest in the same collateral?

Priority disputes between creditors who claim interest in the same collateral are most likely to arise when a debtor is diagnosed with an illness.

After-Acquired Property

Property that is acquired by the debtor after the execution of a security agreement.

z. Which of the following is true about individual repayment plans for a debtor under Chapter 13 of the Bankruptcy Code?

Repayment is voluntary only.

the following are correct statements about debtors' exemptions

States can opt out of the federal exemptions and allow debtors state exemptions only. Exemptions are stated in the Bankruptcy Code and are adjusted every three years on the basis of the consumer price index. A debtor is not required to give up his or her exempt property.

z. In the context of a bankruptcy case, which of the following does not constitute an exception to an automatic stay?

The bankruptcy judge elects, sua sponte, to disregard the automatic stay as a matter of judicial discretion.

z. Which of the following is an inaccurate statement about a creditors' meeting called by the court after a debtor files a petition under Chapter 13 of the Bankruptcy Code?

The creditors need to vote to approve the plan of payment submitted by the debtor.

Default

failure to pay back a loan

z. According to the Uniform Commercial Code (UCC), a security interest in collateral that has been perfected in one state will generally transfer to another state for a period of four months from the date that the property is brought into the state. Which of the following statements is true about the reperfection of the security interest after the four-month period?

The secured party may reperfect the interest in the new state.

z. In the context of Chapter 11 of the Bankruptcy Code, which of the following is not part of a plan to reorganize a debtor's financial affairs?

The structured sentencing plan for the debtor

Which of the following is a recognized power of bankruptcy trustees?

To obtain credit To reject executory contracts To void certain liens against a debtor's properties To assume executory contracts To defend against creditor actions To initiate collection actions

taking possession of collateral [9-609]

When the debtor defaults, the secured party may take possession of the collateral

z. Fraudulent transfers of property can be ______ or ______ fraudulent.

actually; constructively

z. Court approval of an opposed Chapter 13 repayment plan that changes a secured claim is called ______.

a cram down

financing statement [9-502]

a document filed by a secured creditor with the appropriate government office that constructively notifies the world of his or her security interest in personal property

termination statement

a document filed by a secured party that ends a secured interest because the debt has been paid

consumer good [9-102(23)]

a good used or bought for use primarily for personal, family, or household purposes

buyer in the ordinary course of business exception to security [9-320(a)]

a person who routinely buys goods in good faith from a person who routinely sells such goods. a buyer of this type can take goods free of any security interest created by the seller of goods even if the security is perfected.

Purchased Money Security Interest (PMSI)

a security interest formed when a debtor uses borrowed money from the secured party to buy the collateral.

Perfection

a series of legal steps a secured party takes to protect its right in the collateral from other creditors that wish to have their debts satisfied through the same collateral

Secured Transaction [Article 9]

a transaction in which the payment of a debt is guaranteed by personal property owned by the debtor

means test

an income qualification program that determines whether one is eligible for benefits under government programs reserved for lower-income groups

Secured Interest {1-201(37)]

an interest in personal property or fixtures that secures payment or performance to a creditor

order of relief

an order stating that bankruptcy proceedings can continue. typically granted if either: 1. the debtor is not paying debts as they become due 2. the custodian took possession of almost all the debtors property within 120 days of filing petition

debtor

the person or party that has an obligation to the secured party.

Secured Party/Creditor

the person or party that holds the interest in the secured property.

Attachment

the point when a creditor becomes a secured party with secured interest.

Collateral

the property that is subject to the security interest

Liquidation Proceedings

the selling of all nonexempt assets and the distribution of the proceeds to the debtor's trustee

pledge

the transfer of collateral to the secured party for the purpose of perfection

z. In the context of Chapter 11 of the Bankruptcy Code, the goal of a plan to reorganize a debtor's financial affairs is ______.

to rehabilitate the debtor while preserving the debtor's assets for the creditors.

voluntary liquidation petition

when the debtor decides to file of bankruptcy. signs to create the bankruptcy estate.

perfection of security interests in automobiles and boats

when the secured party makes a notation of this interest on the certificate of title

instruments

writings that serve as evidence of rights to payment of money, like certificates of deposit.

discharge

written federal court order signed by a bankruptcy judge stating that a debtor is immune from creditor actions to collect debts.