Business Law Chapter 38

On June 1, 2018, Aggie Corp. ("Aggie") filed Chapter 7 bankruptcy. Aggie owned two assets, an office building and inventory. Aggie has the following creditors: Aggie owes Second Bank $500,000 which is secured by a lien on the office building. Aggie owes Nomura $150,000 which is secured by a security interest on the inventory. Aggie owes the IRS $40,000 for 2018 income taxes Aggie owes one supplier $20,000 (unsecured) Aggie owes another supplier $30,000 (unsecured) The bankruptcy trustee sells the office building for $600,000 and the accounts receivable for $100,000. The administrative expenses for the bankruptcy are $10,000. Second Bank will receive $_____(1)_______ and Nomura will receive $______(2)________ under the bankruptcy. Choose the answer to correctly complete the blanks in their respective order: A. (1) $500,000 (2) $125,000 B. (1) $600,000 (2) $125,000 C. (1) $500,000 (2) $150,000 D. (1) $500,000 (2) $100,000 E. (1) $600,000 (2) $100,000

A. (1) $500,000 (2) $125,000

A Chapter 13 plan of reorganization may include all but which one of the following? A. Assets must be liquidated. B. Priority debts must be paid in full unless the debtor waives that right. C. Future wages must be controlled by the trustee. D. The rights of unsecured creditors may be modified.

A. Assets must be liquidated.

Which of the following statements is TRUE regarding discharge in bankruptcy? A. In a Chapter 11 bankruptcy, the debtor receives the discharge when the plan is confirmed. B. In a Chapter 13 bankruptcy, the debtor receives the discharge when the plan is confirmed. C. In a Chapter 7 bankruptcies individuals as well as entities receive a discharge. D. In a Chapter 7 bankruptcy, the debtor receives the discharge when the plan is confirmed.

A. In a Chapter 11 bankruptcy, the debtor receives the discharge when the plan is confirmed.

Which of the following statements is TRUE? A. In a Chapter 11 or Chapter 13 bankruptcy, the debtor may remain in possession of the assets in the bankruptcy estate. B. Even if a creditor does not receive notice of the bankruptcy, the creditor's claims will be subject to discharge in the bankruptcy. C. Priority Creditors are paid before Secured Creditors. D. A debtor is NOT required to attend the meeting of creditors.

A. In a Chapter 11 or Chapter 13 bankruptcy, the debtor may remain in possession of the assets in the bankruptcy estate.

In March, Margaret made a loan to Pete for $10,000. Three months later, she began to hear rumors about Pete's failing financial condition. When in July, Pete asked her to loan him an additional $2,000 to buy inventory, Margaret required a security interest in the inventory and also demanded that Pete secure the first loan with his personal automobile. In September, Pete filed bankruptcy. Will the security interest in the automobile be enforceable? A. No, the security interest in the automobile would be a voidable preference. B. Yes, because Margaret is a secured creditor as to the automobile. C. Yes, since the security interest in the automobile was granted before the bankruptcy was filed. D. No, since the security interest in the automobile was granted before the bankruptcy was filed.

A. No, the security interest in the automobile would be a voidable preference.

Creditors entitled to priority are paid before: A. unsecured creditors who file their claims on time. B. secured creditors. C. the debtor's attorney. D. Creditors entitled to priority are paid before all of the listed creditors.

A. unsecured creditors who file their claims on time.

Which of the following statements is FALSE? A. A trustee in bankruptcy under Chapter 7 may sell property included in the debtor's estate. B. Any person eligible to be a debtor under a given bankruptcy proceeding may file a voluntary petition, but must be insolvent to do so. C. A debt is an obligation to pay money owed by a debtor to a creditor. D. Individual debtors must receive credit counseling before filing a bankruptcy petition under most circumstances. E. The Bankruptcy Code grants to U.S. District Courts original and exclusive jurisdiction over all bankruptcy cases.

B. Any person eligible to be a debtor under a given bankruptcy proceeding may file a voluntary petition, but must be insolvent to do so.

When the debtor files a voluntary bankruptcy petitions which one of the following statements is NOT CORRECT? A. The automatic stay goes into effect preventing creditors from taking action to collect debts owed by the debtor. B. The bankruptcy estate of in a Chapter 7 bankruptcy will include an individual debtor's wages earned after filing. C. The bankruptcy estate is created which includes the debtor's non-exempt property. D. The bankruptcy estate of in a Chapter 13 bankruptcy will include an individual debtor's wages earned after filing.

B. The bankruptcy estate of in a Chapter 7 bankruptcy will include an individual debtor's wages earned after filing.

John's brother, Phil, loaned him $10,000 to start his business. John didn't do too well and planned to file for bankruptcy. In May, he gave Phil his car worth $8,000 to satisfy the debt. John filed his petition in November. After liquidation, if the car were included in John's bankruptcy estate, every unsecured creditor would have received 85% of the debt owing to him. Will the transfer of the car to Phil be a voidable preference? A. Yes, because the transfer was made within the prior year. B. Yes, since Phil is an insider. C. No, because Phil did not receive preferential treatment over other creditors. D. No, because the transfer was made more than 90 days prior to filing.

C. No, because Phil did not receive preferential treatment over other creditors.

Ken loaned Barbara $8,000 and secured payment of that loan by taking a security interest in Barbara's car. If Barbara files for bankruptcy when the value of the car is $4,500, what is Ken's status? He has a (n): Assume no interest was charged on the loan and that Barbara made no payments on the loan before filing for bankruptcy. A. unsecured claim for $8,000. B. secured claim for $3,500 and an unsecured claim for $4,500. C. secured claim for $4,500 and an unsecured claim for $3,500. D. secured claim for $8,000.

C. secured claim for $4,500 and an unsecured claim for $3,500.

Which of the following debts would be discharged in bankruptcy? A. Child support obligations. B. State and local property taxes on a beach house. C. Student loans. D. Consumer credit loans for a stove.

D. Consumer credit loans for a stove.

Under Chapter 7, the court will not grant the debtor a discharge if the debtor A. is not an individual. B. has destroyed, concealed, or failed to keep records. C. has transferred, removed, or concealed any of his property with intent to defraud his creditors within 12 months before the filing of the bankruptcy petition. D. In all the circumstances listed in these answers.

D. In all the circumstances listed in these answers.

Which of the following answers lists 2 items owned by a debtor either at the time of or prior to the bankruptcy filing that would most likely be included in the bankruptcy estate? A. The debtor's home and a vintage Mustang car that the debtor gave to his brother 3 weeks prior to the debtor's filing bankruptcy. B. The debtor's retirement accounts and the debtor's car worth $25,000. C. The debtor's cash payment made to a creditor 2 years ago who would have received nothing in the bankruptcy and the debtor's furniture. D. Jewelry worth $100,000 (the amount over $25,000) and life insurance proceeds received by the debtor within 90 days after the debtor filed for bankruptcy.

D. Jewelry worth $100,000 (the amount over $25,000) and life insurance proceeds received by the debtor within 90 days after the debtor filed for bankruptcy.

Nancy has a diamond ring worth $50,000 that she inherited from her grandmother. Thinking she may need to file bankruptcy in the future, Nancy gives the ring to her brother as a gift on January 1, 2019. On June 1, 2020, Nancy files bankruptcy. Will the brother get to keep the ring? A. No, because the gift is a voidable preference. B. Yes, because the ring was a gift to her brother. C. Yes, since Nancy gave the ring away more than a year before filing bankruptcy. D. No, Nancy's gift of the ring is a fraudulent transfer.

D. No, Nancy's gift of the ring is a fraudulent transfer.

Which of the following statements is TRUE regarding the different bankruptcy chapters? A. Chapter 7 is normally the type of bankruptcy filed by individuals and entities with a regular income or cash flow. B. In Chapter 7 the bankruptcy estate ONLY includes the debtor's property at the commencement of the bankruptcy proceeding. C. In Chapter 13 the bankruptcy estate ONLY includes the debtor's property at the commencement of the bankruptcy proceeding. D. Bankruptcy under Chapter 13 may be filed by both individuals and entities. E. None of the other listed answers are TRUE.

E. None of the other listed answers are TRUE.