Legal Business Chap. 16

Which of the following are objections that a creditor may bring to bankruptcy distribution proceedings?

An unsecured creditor may object to being excluded from the distribution if she had not been notified of the bankruptcy. A creditor may object to a distribution plan if the debtor has been fraudulent. A secured creditor may object to being excluded from the distribution if she had not been notified of the bankruptcy.

The type of bankruptcy where an individual who is in debt makes a plan to repay some or all of his creditors is called:

Chapter 13.

Andy's business is not able to pay its debts, and the prospects for its finances to improve are slim. Andy decides not to continue the business. In this case, Andy should file a voluntary petition for which type of bankruptcy?

Chapter 7 Feedback: Andy should file for a Chapter 7 petition. For a business, the goal of a Chapter 7 bankruptcy is euthanasia—putting it out of its misery by shutting it down and distributing its assets to creditors.

Creditors wishing to file an involuntary petition for a debtor may do so under:

Chapter 7 or Chapter 11.

The type of bankruptcy where a trustee takes the nonexempt property, sells it, and uses the proceeds to pay the debtor's general unsecured creditors is called:

Chapter 7.

Which of these statements are true about involuntary bankruptcy proceedings?

If a court dismisses an involuntary bankruptcy case, the filing creditors may be required to pay court and filing costs for the defendant. If an involuntary bankruptcy case is filed frivolously, the petitioner may be liable to the debtor for damages to his reputation.

The following are true for Chapter 7 Bankruptcies:

The debtor must pass the means test. They are for individuals.

Which of the following statements is true about assets in the bankruptcy estate?

The majority of states require debtors to follow state exemption guidelines instead of federal guidelines.

Under what circumstances might the court reject a debtor's Chapter 13 plan?

The plan anticipates paying the unsecured creditors less than what they would get under Chapter 7. Feedback: The court may reject a debtor's Chapter 13 plan if the plan anticipates paying the unsecured creditors less than what they would get under Chapter 7. Under a plan of payment, all of the unsecured creditors receive at least as much as they would have if the bankruptcy estate had been liquidated under Chapter 7.

Creditor claims are divided into classes, and the highest class must be satisfied in full before going to the next category.

True All claims are placed in one of three classes: (1) secured claims, (2) priority claims, and (3) unsecured claims. The second class—priority claims—has seven subcategories; the third class—unsecured claims—has three. The trustee pays the bankruptcy estate to the various classes of claims in order of rank. A higher class is paid in full before the next class receives any payment at all.

Bankruptcy is regulated by federal law

True Feedback: A case begins with the filing of a bankruptcy petition in federal district court. The district court typically refers bankruptcy cases to a specialized bankruptcy judge. Either party can appeal decisions of the bankruptcy judge back to the district court and, from there, to the federal appeals court.

Shoe Sunshine, Inc. filed for bankruptcy protection under Chapter 11 and submitted a plan of reorganization within 120 days after filing for relief. Two of the classes of creditors voted against the plan. However, the bankruptcy judge considered the plan to be feasible, fair, and in the best interests of the creditors; the judge approved it in spite of these creditors' objections. This action by the judge is called a "cramdown."

True Feedback: As long as at least one class votes in favor of the plan, the court can confirm it over the opposition of other classes in what is called a cramdown (as in "the plan is crammed down the creditors' throats"). The court imposes a cramdown if, in its view, the plan is feasible, fair, and in the best interests of the creditors. If the court rejects the plan of reorganization, the creditors must develop a new one.

Generally, filing bankruptcy stops the collection activity of creditors.

True Feedback: The Bankruptcy Code automatically stays collection actions against the debtor except by secured creditors.

Brad was having financial difficulties and thought bankruptcy might be in his future. He transferred his sports car to his brother with the agreement that if he didn't file for bankruptcy within the next 18 months, his brother would return the car to him. Brad did file for bankruptcy in 10 months. The bankruptcy trustee can void the transfer and bring the car back into Brad's estate for the purpose of providing assets for Brad's creditors.

True Feedback: The trustee can void a transfer to an insider that occurs in the year preceding the filing of the petition. Insiders are family members of an individual, officers and directors of a corporation, or partners of a partnership that has filed for bankruptcy.

Alimony and child support obligations are considered priority claims.

True Feedback: The trustee must first pay any claims for alimony and child support. However, if the trustee is administering assets that could pay these support claims, then the trustee's fees are paid first.

Assuming there are not enough assets to pay the debts of an entire class of creditors, creditors must:

be paid at a pro rata share

Which of the following debts is non-dischargeable in bankruptcy?

claims for amounts borrowed by the debtor to pay federal taxes

Which of the following are the three basic purposes of bankruptcy laws?

fair treatment of creditors relief of the burden of debt on a debtor allowing a struggling business to become more stable

The Bankruptcy Code exempts (limited to a certain dollar amount) which type of property?

jewelry

Which of the following is the lowest priority of claims in bankruptcy?

medical debts

In 2005, bankruptcy reform laws:

required debtors to pay more of their debts in bankruptcy.

Which of the following is the proper order for the payment of bankruptcy claims by class from highest priority to lowest priority?

secured claims, priority claims, unsecured claims

The correct order of payment of claims from the debtor's estate would be

secured claims, priority claims, unsecured claims. Feedback: The correct order of payment of claims from the debtor's estate is secured claims, priority claims, unsecured claims. A payment simply means that the debtor gives a creditor cash that would otherwise end up in the bankruptcy estate.

A business filing for a Chapter 11 Bankruptcy must:

submit a payment plan for approval by creditors and the court.

Who is responsible for gathering the bankrupt's assets and dividing them among creditors?

the trustee Feedback: The trustee is responsible for gathering the bankrupt's assets and dividing them among creditors. The creditors have the right to elect a trustee, but often they do not bother.

A debtor who wishes to file a voluntary petition must:

undergo credit counseling. meet eligibility requirements for the Chapter under which they wish to file. file the petition and required schedules.