BUS LAW CH 22 Bankruptcy

Rhonda's monthly income is $2,000, her monthly expenses are $2,800, and her debts are nearly $40,000. A debtor in Rhonda's position who files for bankruptcy would most likely seek relief under: A. Chapter 7. B. Chapter 11. C. Chapter 12. D. Chapter 13.

A. Chapter 7. Any individual debtor can file a petition for bankruptcy under Chapter 7. The debtor does not have to be insolvent. A court can dismiss a petition, however, if granting it would constitute substantial abuse under the "means test" (which, considering the low amount of the debtor's income in this problem is unlikely) or if the court finds the debtor could pay off his or her debts under Chapter 13. Most debtors who are eligible under Chapter 7 could also file under Chapter 11, although the later is more commonly used by corporate debtors. Under Chapter 11, some of the debts are paid. Chapter 13 is also a possibility under the circumstances described in the problem, but a debtor is more likely to prefer a Chapter 7 discharge, which does not require payment of many debts. Chapter 12 is an option only for certain farmers.

Pat files a Chapter 7 petition for a discharge in bankruptcy. Pat may be denied a discharge if Pat: A. Fails to explain a loss of assets. B. Fails to list a debt. C. Owes back taxes. D. Owes domestic support payments.

A. Fails to explain a loss of assets. Other grounds on which a discharge may be denied include concealing property with the intent to defraud a creditor, fraudulently destroying financial records, and refusing to obey a lawful court order. Having obtained a discharge in bankruptcy within the eight previous years is also a ground for denial. The other choices represent individual debts that are not dischargeable in bankruptcy, but they are not grounds for denying a discharge altogether.

As a bankruptcy trustee, Mica has the power to avoid: A. Fraudulent transfers only. B. Fraudulent transfers, preferences, and transactions the debtor could rightfully avoid. C. Preferential payments only. D. Transactions that the debtor could rightfully avoid, or cancel, only.

B. Fraudulent transfers, preferences, and transactions the debtor could rightfully avoid. A bankruptcy trustee has the power to avoid preferential payments (preferences), fraudulent transfers, and transactions that the debtor could rightfully avoid (such as transactions founded on fraud or duress). Other transfers that a trustee can set aside include those listed in the answer to question number 8 above.

Nina is appointed trustee of Owen's estate in bankruptcy. To collect the property of Owen's estate, Nina can set aside: A. A payment within the course of business and a transfer within 90 days to one creditor. B. A payment within the course of Business only. C. A transfer within 90 days prior to the petition's filing in preference to one creditor. D. Neither a payment within the course of business nor a transfer within 90 days to one creditor.

C. A transfer within 90 days prior to the petition's filing in preference to one creditor. Other transfers that a trustee can set aside include a transfer made with the intent to hinder, delay or defraud a creditor; transfers made to an insider with within one year before the debtor's filing a petition in bankruptcy; payments within 90 days before the filing of the petition for a preexisting debt; and any reason that the debtor could use to get the property back.

Dora and Ed make down payments on goods to be received from Fine Furniture Store. Before the goods are delivered, Fine files for bankruptcy. Besides consumers like Dora and Ed, Fine owes wages to its employees and taxes to the government. The order in which these debts will be paid is: A. Consumer deposits, unpaid wages, and taxes. B. Taxes, consumer deposits, and unpaid wages. C. Unpaid wages, consumer deposits, and taxes. D. Unpaid wages, taxes, and consumer deposits.

C. Unpaid wages, consumer deposits, and taxes. The first unsecured debts to be paid are domestic support payments, subject to certain administrative costs, and then other administrative expenses of the bankruptcy proceeding. Among the debts listed in this problem, the order of priority is unpaid wages, consumer deposits, and taxes. Each class of creditors is fully paid before the next class is entitled to anything.

Carol is the sole proprietor of Diners Café, which owes debts in an amount more than Carol believes she and the café can repay. The creditors agree that liquidating the business would not be in their best interests. To stay in business, Lora could file for bankruptcy under: A. Chapter 7 only. B. Chapter 11 only. C. Chapter 13 only. D. Chapter 11 or 13 .

D. Chapter 11 or 13 . Under Chapter 11, creditors and the debtor plan for the debtor to pay some debts, be discharged of the rest, and continue in business. Under Chapter 13, with an appropriate plan, a small business debtor can also pay some or all debts, be discharged of the rest and continue in business. A petition for a discharge in bankruptcy under Chapter 11 may be filed by a sole proprietor, a partnership or a corporation; a petition for discharge under Chapter 13, however, may be filed only by a sole proprietor, among these business entities, subject to certain debt maximums.

Dru's monthly income is $3,500, his monthly expenses are $3,000, and his debts are nearly $25,000. If he applied the difference between his income and expenses to pay off the debts, they could be eliminated within five years. The provision in the Bankruptcy Code that covers this plan is: A. Chapter 7. B. Chapter 11. C. Chapter 12. D. Chapter 13.

D. Chapter 13. Under Chapter 13, a debtor can submit a plan under which he or she continues in possession of his or her assets, but turns over disposal income for a five year period, after which most debts may be discharged. When applicable, a Chapter 13 plan must provide for the surrender of collateral to secured creditors. Note to that a court may approve a Chapter 13 plan over the objection of a creditor or a trustee if the property to be distributed under the plan is more than the amount of the creditor's claims.

Regional Stores, Inc., files for bankruptcy . A corporation can file a petition for bankruptcy under: A. Chapter 7 only. B. Chapter 11 only. C. Chapter 13 only. D. Chapter 7 or 11.

D. Chapter 7 or 11. Most corporations can file for bankruptcy under Chapter 7 or 11. The same principles that govern liquidation cases generally govern reorganizations as well. Corporate debtors most commonly file petitions for bankruptcy under Chapter 11. One important difference between the two chapters is that in a Chapter 11 proceeding, the debtor can continue in business.

National Corporation has not paid any of its fifteen creditors, six of whom have unsecured claims of more than $8,000. The creditors can force National into bankruptcy under: A. Chapter 7 only. B. Chapter 11 only. C. Chapter 13 only. D. Chapter 7 or Chapter 11.

D. Chapter 7 or Chapter 11. Under Chapter 7 or Chapter 11, a corporate debtor (or an individual debtor or a partnership, but not a farmer or a charitable institution) with twelve or more creditors can be forced into bankruptcy by three or more of them who have collectively unsecured claims of a certain amount. (the amount is periodically increased). A debtor with less than 12 creditors can be involuntarily petitioned into bankruptcy by one or more of them if the petitioner or petitioners has a claim for at least a certain amount.

Bob files a bankruptcy petition under Chapter 7 to have his debts discharged. Assuming Bob passes the appropriate test, the debts most likely to be discharged include claims for: A. Back taxes accruing within three years before the petition was filed. B. Certain fines and penalties payable to the government. C. Domestic support. D. Student loans, if the payment would impose undue hardship on Bob.

D. Student loans, if the payment would impose undue hardship on Bob. Claims that are not dischargeable in bankruptcy include the claims listed in the other answer choices: claims for back taxes accruing within three years before the bankruptcy, claims for domestic support, and claims for most student loans (unless their payment would result in undue hardship to the debtor, as stated in the correct answer choice). There are many other debts that are not dischargeable in bankruptcy.