CPA Regulation (REG) : Bankruptcy Relief for Business & Individuals

Study concepts, example questions & explanations for CPA Regulation (REG)

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Example Questions

Example Question #7 : Business Law Bankruptcy

Which of the following requirements must be met for creditors to file an involuntary bankruptcy petition under Chapter 7 of the federal Bankruptcy Code?

Possible Answers:

The debtor has not been paying its bona fide debits as they become due.

The debtor must owe one creditor more than $5,000.

At least one fully secured creditor must join the petition.

There must not be more than 12 creditors.

Correct answer:

The debtor has not been paying its bona fide debits as they become due.

Explanation:

The primary requirement for a petition of involuntary bankruptcy is that creditors must demonstrate that a debtor has defaulted on repayments of debts. Involuntary petitions must be filed only by creditors who are owed, individually or in the aggregate, at least $16,750 in unsecured, undisputed debt. If there are fewer than 12 creditors, the aggregate threshold of unsecured debt is $16,750; if there are more than 12, at least three who are owed $16,750 in the aggregate must join the petition.

Example Question #1 : Business Law Bankruptcy

A reorganization under Chapter 11 of the federal Bankruptcy Code requires all of the following except the:

Possible Answers:

Liquidation of the debtor.

Opportunity for each class of claims to accept the reorganization plan.

Confirmation of the reorganization plan by the court.

The filing of a reorganization plan.

Correct answer:

Liquidation of the debtor.

Explanation:

The primary feature of reorganization under Chapter 11 is to create a plan between the debtor and creditors which best satisfies all parties involved. Liquidation does not occur, and the debtors maintains control of the debtor’s assets. 

Example Question #9 : Business Law Bankruptcy

Which of the following statements is correct with respect to the reorganization provisions of Chapter 11 of the federal Bankruptcy Code?

Possible Answers:

A trustee must always be appointed.

The commencement of a bankruptcy case may be voluntary or involuntary.

The debtor must be insolvent if the bankruptcy petition was filed voluntarily.

A reorganization plan may be filed by a creditor any time after the petition date.

Correct answer:

The commencement of a bankruptcy case may be voluntary or involuntary.

Explanation:

Under Chapter 11, a debtor may file voluntarily, or its creditors may file an involuntary petition. Under a voluntary petition, the debtor need not be insolvent, though individuals must pass income tests to determine eligibility. Chapter 11 does not usually involve a trustee, and the debtor has an exclusive right to file a plan in the first 120 days after filing a petition.

Example Question #10 : Business Law Bankruptcy

A debtor who filed voluntarily and received a discharge in bankruptcy under the provisions of Ch 7 of the Federal Bankruptcy Code:

Possible Answers:

Will receive a discharge of any and all debts owed

May obtain another voluntary discharge in bankruptcy under Ch 7 after five years have elapsed from the date of the prior filing

Must surrender for distribution to the creditors any amount received as an inheritance if received within 180 days after filing the petition

Is precluded from owning or operating a similar business for two years

Correct answer:

Must surrender for distribution to the creditors any amount received as an inheritance if received within 180 days after filing the petition

Explanation:

An inheritance received within 180 days after the filing of the petition must be surrendered for distribution to the creditors.

Example Question #1 : Bankruptcy Relief For Business & Individuals

Of the following assets, which would be included in a debtor’s bankruptcy estate in a liquidation proceeding?

Possible Answers:

Wages earned by the debtor after the petition was filed

Property from a divorce settlement received 365 days after the petition was filed

Proceeds from a life insurance policy received 90 days after the petition was filed

An inheritance received 270 days after the petition was filed

Correct answer:

Proceeds from a life insurance policy received 90 days after the petition was filed

Explanation:

Proceeds from life insurance, inheritance or divorce settlement received within 180 days after the filing of the petition are included in the estate.

Example Question #2 : Bankruptcy Relief For Business & Individuals

Stephen Industries has a few claims pending against a client filing for Chapter 7 Bankruptcy. They are an unsecured claim of $1,300 that was not timely filed as well as a claim on $75,000 principal and accrued interest on a mortgage loan secured by real property. What dollar amount would Stephen receive from these claims?

Possible Answers:

$1,300

$75,000

$76,300

$0

Correct answer:

$75,000

Explanation:

Stephen would likely only receive the claim for $75,000 as this claim is secured, whereas the unsecured claim was not timely filed. Only additional money left over would be paid.

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