CPA Regulation (REG) : Distribution of Assets Under Bankruptcy

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

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Example Questions

Example Question #1 : Business Law Bankruptcy

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

Possible Answers:

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

Will receive a discharge of any and all debts owed.

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

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:

Several items in a debtor’s personal property may be included in the property of the estate if received within 180 days of filing: property received as part of inheritance, divorce, or insurance, as well as income generated from estate property.

Example Question #2 : Business Law Bankruptcy

Which of the following assets would be included in a debtor’s bankruptcy estate in a liquidation proceeding?

Possible Answers:

Proceeds from a life insurance policy received 45 days after the petition was filed.

An inheritance received 365 days after the petition was filed

Property from a divorce settlement received 270 days after the petition was filed

Wages earned by the debtor after the petition was filed.

Correct answer:

Proceeds from a life insurance policy received 45 days after the petition was filed.

Explanation:

Several items in a debtor’s personal property may be included in the property of the estate if received within 180 days of filing: property received as part of inheritance, divorce, or insurance, as well as income generated from estate property.

Example Question #3 : Business Law Bankruptcy

Sharon sells her two-year-old convertible to her father for $200. The next week, Sharon files for bankruptcy under Chapter 7. Regarding the sale of the car, the trustee may:

Possible Answers:

Not cancel it, but can sue Sharon’s father for the return of the $200.

Cancel it as a voidable preference.

Cancel it as a fraudulent transfer.

Not cancel it because it is a sale, not a gift.

Correct answer:

Cancel it as a fraudulent transfer.

Explanation:

Fraudulent transfers occur when someone intentionally transfers property ownership in an attempt to reduce or limit the assets subject to distribution to creditors. In this case, since the value of the convertible would far exceed the amount of cash received in the exchange and was made to a close family member, the transfer would be regarded as an attempt to limit creditors’ access to the car in the distributable property at settlement.

Example Question #4 : Business Law Bankruptcy

Per the liquidation provisions of Ch 7 of the US Bankruptcy Code, certain property acquired by the debtor after the filing of the petition becomes part of the bankruptcy estate. An example of such property is:

Possible Answers:

Child support payments received by the debtor within one year after filing the petition

Inheritances received by the debtor within 180 days of filing the petition

Social Security payments received by the debtor within 180 days after filing the petition

Wages earned by the debtor within one year after filing the petition

Correct answer:

Inheritances received by the debtor within 180 days of filing the petition

Explanation:

The estate includes income generated from estate property and property the debtor receives from a bequest, devise, inheritances, property settlement, divorce, or beneficial interest in life insurance within 180 after filing the petition.

Example Question #5 : Business Law Bankruptcy

Of the following requirements, which must be met for creditors to file an involuntary bankruptcy petition under Ch 7 of the Federal Bankruptcy Code?

Possible Answers:

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

There must not be more than 12 creditors

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

At least one fully secured creditor must join in the petition

Correct answer:

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

Explanation:

An involuntary petition for bankruptcy can be filed if a debtor owes more than $16,750 in unsecured debt and is not paying its debts as they become due.

Example Question #6 : Business Law Bankruptcy

Per the provisions of Chapter 7 of the US Federal Bankruptcy Code, if the debtor _______ he or she will be denied a discharge in bankruptcy.

Possible Answers:

Does not list a creditor

Will not explain satisfactorily a loss of assets to the court

Is unable to pay administrative expenses

Owes payments of alimony and support

Correct answer:

Will not explain satisfactorily a loss of assets to the court

Explanation:

Per the provisions of Chapter 7 Bankruptcy law, the debtor will be denied a discharge from the bankruptcy if they cannot or refuse to explain a loss of their assets.

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