Unit 5 Test Flashcards
(20 cards)
Judgment was entered against a customer in the amount of $15,000 for unpaid debt. The customer does not have assets to pay the judgment in full. The customer owns a house with approximately $3,000 of equity, owns a car worth $12,000, and has approximately $7,000 in a bank account.
Which type of relief would allow the creditor to seize the money in the customer’s bank account?
Order for writ of attachment Order for suretyship Order for writ of execution Order for garnishment
Order for garnishment
An order for garnishment permits a creditor to collect a debt by seizing property of the debtor that is being held by a third party. Here, the creditor is looking to seize the customer’s money that is held by a third party, the bank.
What is the function of an order for writ of execution?
A court order issued post-judgment that permits a creditor to collect a debt by seizing property of the debtor that is being held by a third party. A court order issued post-judgment to seize the debtor’s property in the debtor’s possession. A court order issued pre-judgment that permits a creditor to collect a debt by seizing property of the debtor that is being held by a third party. A court order issued pre-judgment to seize the debtor’s property in the debtor’s possession.
A court order issued post-judgment to seize the debtor’s property in the debtor’s possession.
A writ of execution allows a creditor to seize the debtor’s property after judgment is entered in order to satisfy a debt.
A company contracts to make improvements to a family home. The total price, including labor and materials, is $150,000. The family home was on an installment payment agreement but did not make all payments under the agreement. The family paid the company a total of $50,000. Two years later, the family put the house on the market to be sold.
Can the company take action to collect the debt?
Yes, they can recover payment when the family home is sold because it is entitled to a mechanic's lien against the home Yes, they can recover payment when the family home is sold because it is entitled to an artisan lien against the home No, they cannot recover payment when the family home is sold because it can only recover payment through a garnishment lien No, they cannot recover payment when the family home is sold because it can only recover payment through a judicial lien
Yes, they can recover payment when the family home is sold because it is entitled to a mechanic’s lien against the home
A creditor can place a mechanic’s lien on real property when a debtor fails to pay for the contracted labor, services, or materials furnished to repair or improve the real property. Mechanic’s liens stay on the property until the house is sold. The seller agrees to pay the mechanic’s lien out of the proceeds of the sale.
What does a surety’s right of subrogation do?
Entitles the surety to the rights a creditor would have in bankruptcy Entitles the surety to recover from the other co-sureties when a co-surerty pays more than a proportionate share on the debt Entitles the surety to receive from the debtor all payments the surety made on the debt Entitles the surety to assert the defense of bankruptcy when the debtor is in bankruptcy
Entitles the surety to the rights a creditor would have in bankruptcy
The right of subrogation gives the surety any right that the creditor had against the debtor, including the creditor’s rights in bankruptcy.
What is a bad faith bankruptcy filing under Chapter 7?
Filing for Chapter 7 Liquidation after dismissal of two or more bankruptcy petitions during the prior two years Filing for Chapter 7 Liquidation after dismissal of three or more bankruptcy petitions during the prior year Filing for Chapter 7 Liquidation after dismissal of three or more bankruptcy petitions during the prior two years Filing for Chapter 7 Liquidation after dismissal of two or more bankruptcy petitions during the prior year
Filing for Chapter 7 Liquidation after dismissal of two or more bankruptcy petitions during the prior year
If the debtor had two or more bankruptcy petitions dismissed during the prior year, the Bankruptcy Code presumes the petition for bankruptcy under Chapter 7 was filed in bad faith. In such a situation, the automatic stay does not go into effect until the court determines that the petition was filed in good faith.
A debtor owes $124,000 on a home mortgage, $4,300 on a credit card, $11,500 in medical debt, and $6,100 domestic-support to the debtor’s former spouse.
Which debt is an exception to the automatic stay?
Credit card debt Domestic-support debt Medical debt Mortgage debt
Domestic-support debt
When a petition is filed, an automatic stay or suspension of all actions by creditors against the debtor goes into effect. The Bankruptcy Code provides exceptions to the automatic stay, including domestic-support obligations and any debt owed to or recoverable by a spouse, a former spouse, a child of the debtor, that child’s parent or guardian, or a governmental unit; proceedings against the debtor related to divorce, child custody or visitation, domestic violence, and support enforcement; investigations by a securities regulatory agency (e.g., investigation into insider trading); and certain statutory liens for property taxes.
A debtor owes $5,000 on a home mortgage, $2,000 on a car note, and $500 on a credit card. The debtor is having financial difficulties and is late by 60 days in making payments on the debt as it becomes due.
Which bankruptcy filing is appropriate for the debtor?
The debtor is eligible to declare bankruptcy because the debtor’s outstanding debt meets the filing threshold. The debtor is not eligible to declare bankruptcy because the debtor is not insolvent. The debtor is not eligible to declare bankruptcy because the monthly debt payments are less than 90 days late. The debtor is eligible to declare bankruptcy because the debtor is obligated to creditors.
The debtor is eligible to declare bankruptcy because the debtor is obligated to creditors
A debtor (except for a municipality) need not be insolvent to file for bankruptcy relief under the Bankruptcy Code. Anyone obligated to a creditor can declare bankruptcy.
What is the role of a trustee under Chapter 7 Bankruptcy?
To sell the nonexempt assets of the debtor and distribute the proceeds to creditors To protect the debtor's interests in the bankruptcy proceedings To protect the creditor's interests in the bankruptcy proceedings To sell the exempt assets of corporate debtors in the bankruptcy proceedings
To sell the nonexempt assets of the debtor and distribute the proceeds to creditors
In a Chapter 7 Bankruptcy filing, the trustee sells the nonexempt assets and distributes the proceeds to creditors. The basic duty of the trustee is to collect the debtor’s available estate and reduce it to cash for distribution, preserving the interests of both the debtor and the unsecured creditors. The trustee is held accountable for administering the debtor’s estate.
A couple filed for Chapter 7 Bankruptcy. They owe $115,000 to a mortgage company on their main residence, $34,000 to an auto financer on their car, and $22,000 to a bank on credit cards.
Who is the petitioner?
Bank The couple Mortgage company Auto financer
The couple
A couple may file jointly for bankruptcy under a single petition. Thus, the two individuals are the petitioner(s). An individual(s) or an entity initiating and filing the bankruptcy petition is the petitioner.
Who is a consumer-debtor?
A debtor whose debts result primarily from the purchase of commercial goods for resale A debtor whose debts result primarily from the purchase of goods for personal, family, or household use A debtor whose debts result primarily from the purchase of raw material goods used in manufacturing A debtor whose debts result primarily from the purchase of goods for charity
A debtor whose debts result primarily from the purchase of goods for personal, family, or household use
A consumer-debtor is a debtor whose debts result primarily from the purchase of goods for personal, family, or household use.
An individual applies for a loan from a bank to purchase a used car. The bank called the individual at home to say it will not lend the funds without a cosigner because the individual is still in school. Over the phone, the individual’s mother agrees to cosign the note but never went to the bank to sign the documents. The next day, the individual purchases a car. Two years later, the bank files suit against the mother because the individual defaults on the car payments.
Is the mother liable to the bank?
No, because a suretyship does not exist, and the mother did not execute anything in writing Yes, because a guaranty exists, and the individual defaulted on the loan payments No, because a guaranty exists, and the bank did not attempt to collect from the individual first Yes, because a suretyship exists, and the individual defaulted on the loan payments
No, because a suretyship does not exist, and the mother did not execute anything in writing
A suretyship is a relationship in which a third person promises to pay a debt owed by a debtor if the debtor does not pay. However, a suretyship agreement must be in writing. The mother agreed to cosign over the phone. There was nothing in writing; therefore, a suretyship does not exist.
A creditor files suit against the debtor and the guarantor for the debtor’s unpaid debt. The debtor believes the creditor’s time to collect the debt has expired.
Which defense can the debtor and guarantor assert against the creditor?
The debtor, but not the guarantor, can assert the statute of limitations defense. The debtor, but not the guarantor, can assert the subrogation defense. The guarantor, but not the debtor, can assert the subrogation defense. The guarantor, but not the debtor, can assert the statute of limitations defense.
The debtor, but not the guarantor, can assert the statute of limitations defense
The surety cannot assert the statute of limitations as a defense. In contrast, the principal debtor can claim the statute of limitations as a defense to payment.
A chef owns a restaurant with two brick-and-mortar locations and four food trucks in various areas around town. The chef hired a truck company to repaint all four food trucks with the restaurant’s new logo and remodel the inside of the food trucks to maximize space. They agreed on a total price of $6,400, or $1,600 for each truck. The chef paid a $1,600 deposit and agreed to pay installments of $1,200 after each truck was completed. The truck company agreed to do the work in the chef’s garage where the food trucks were housed. After the truck company completed the first two trucks, the chef refused to continue the contract, claiming the paint job was bad and the logo was not accurate.
Can the truck company recover payment through an artisan’s lien?
Yes, because the chef failed to pay for the improvements to the food trucks. No, because it did not ask for collateral when the parties entered into the agreement No, because it did not have possession of the trucks Yes, because it agreed to provide the services on a cash and not credit basis
No, because it did not have possession of the trucks
An artisan lien is placed on personal property when a debtor fails to pay for labor and materials furnished for the repairs or improvements of that personal property. However, the lienholder must have retained possession of the property.
- 3101.1.4-01.8x.A.V1
The children of a restaurant owner wish to take over the family restaurant and take it in a new direction. The children hire a company to completely remodel the restaurant and their recently purchased food trucks.
If the children fail to pay the remodeling company as promised, how could the company recover payment for the improvement done to the restaurant and food trucks?
Through an artisan lien Through a mechanics lien for the restaurant and an artisan lien for the food trucks Through an artisan lien for the restaurant and a mechanics lien for the food trucks Through a mechanics lien
Through a mechanics lien for the restaurant and an artisan lien for the food trucks
A mechanic’s lien is placed on real property when a debtor fails to pay for labor, services, or materials furnished for the repair property improvement of that real property, such as the restaurants. An artisan lien is similar; however, it is placed on personal property, such as the food trucks.
What is the preferential transfer under Chapter 7 Bankruptcy?
Payment for services rendered within 15 days before the payment is made Payment for spousal maintenance Payment of child support Payment or transfer of property by a debtor favoring one creditor over others
Payment or transfer of property by a debtor favoring one creditor over others
A debtor is not permitted to transfer property or to make a payment that favors—or gives a preference to—one creditor over others. To have made a recoverable preferential payment, an insolvent debtor must have transferred property, for a preexisting debt, within ninety days before the filing of the bankruptcy petition. The transfer must have given the creditor more than the creditor would have received as a result of the bankruptcy proceedings.
What is a reorganizational plan under Chapter 11?
A plan to conserve and administer creditor’s exempt assets for an eventual return to successful operation and solvency A plan to conserve and administer debtor’s assets for an eventual return to successful operation and solvency A plan to conserve and administer creditor’s assets for an eventual return to successful operation and solvency A plan to conserve and administer debtor’s exempt assets for an eventual return to successful operation and solvency
A plan to conserve and administer debtor’s assets for an eventual return to successful operation and solvency
Chapter 11 bankruptcy provides for a reorganization plan to conserve and administer a debtor’s assets in the hope of an eventual return to solvency and a successful operation of the business by the debtor.
An individual owes $30,400 in student loans to the Department of Education, $16,000 in back taxes to the IRS, and $5,200 in spousal maintenance to a partner.
Who is the debtor?
Individual's partner Department of Education IRS Individual
Individual
A debtor is a person or an entity that owes money.
What is the relief provided to an individual debtor under a Chapter 13 Bankruptcy filing?
Chapter 13 Repayment plan provides for forgiveness of debts to an individual debtor with regular income. The debtor continues in business or possession of assets during the plan period. Chapter 13 Repayment plan provides for adjustment of secured debts to an individual debtor with regular income. The debtor continues in business and secured debts are discharged during the plan period. Chapter 13 Repayment plan provides for adjustment of unsecured debts to an individual debtor with regular income. The debtor continues in business and unsecured debts are discharged during the plan period. Chapter 13 Repayment plan provides for adjustment of debts to an individual debtor with regular income. The debtor continues in business or possession of assets. Most debts are discharged after the plan period.
Chapter 13 Repayment plan provides for adjustment of debts to an individual debtor with regular income. The debtor continues in business or possession of assets. Most debts are discharged after the plan period
Chapter 13 Repayment plan provides for “Adjustment of Debts of an Individual with Regular Income.” Individuals with regular income who owe debts not exceeding specified amounts may take advantage of bankruptcy repayment plans. The limit for fixed unsecured debts is around $420,000, and the limit for fixed secured debts is about $1.3 million. Most debts are discharged after the plan period.
How is disposable income calculated under the means test?
By subtracting living expenses and unsecured debt payments from annual income By subtracting living expenses and total outstanding debt payments from annual income By subtracting living expenses and secured debt payments from annual income By subtracting living expenses and secured debt payments from monthly income
By subtracting living expenses and secured debt payments from monthly income
A debtor wishing to file for bankruptcy must complete the means test to determine the eligibility for Chapter 7. If the debtor’s income is above the median income, the debtor’s disposable income is calculated by subtracting living expenses and secured debt payments, such as mortgage payments, from monthly income.
What is an ordinary or straight bankruptcy?
Reorganization under Chapter 11 of the Bankruptcy Code Liquidation under Chapter 7 of the Bankruptcy Code Adjustment of debts under Chapter 13 of the Bankruptcy Code Involuntary reorganization under Chapter 11 of the Bankruptcy Code
Liquidation under Chapter 7 of the Bankruptcy Code
Liquidation under Chapter 7 of the Bankruptcy Code is the most familiar type of bankruptcy proceeding and is often referred to as an ordinary, or straight, bankruptcy.
