Business Law - Bankruptcy
Help Questions
CPA Regulation (REG) › 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.
Is unable to pay administrative expenses
Owes payments of alimony and support
Will not explain satisfactorily a loss of assets to the court
Does not list a creditor
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.
Which of the following rights does a surety have?
I. Right to compel the creditor to collect from the principal debtor
II. Right to compel the creditor to proceed against the principal debtor’s collateral
I only
II only
Both I and II
Neither I or II
Explanation
As a rule, a surety generally has no rights to compel the creditor to collect from the principal debtor. Such rights are only available to a guarantor of collectability, who is liable only if the creditor has exhausted all other legal remedies.
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.
Is unable to pay administrative expenses
Owes payments of alimony and support
Will not explain satisfactorily a loss of assets to the court
Does not list a creditor
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.
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:
Wages earned by the debtor within one year after filing the petition
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
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.
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:
Not cancel it, but can sue Sharon’s father for the return of the $200.
Cancel it as a fraudulent transfer.
Cancel it as a voidable preference.
Not cancel it because it is a sale, not a gift.
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.
Which of the following rights does a surety have?
I. Right to compel the creditor to collect from the principal debtor
II. Right to compel the creditor to proceed against the principal debtor’s collateral
I only
II only
Both I and II
Neither I or II
Explanation
As a rule, a surety generally has no rights to compel the creditor to collect from the principal debtor. Such rights are only available to a guarantor of collectability, who is liable only if the creditor has exhausted all other legal remedies.
Which of the following statements is correct with respect to the reorganization provisions of Chapter 11 of the federal Bankruptcy Code?
The commencement of a bankruptcy case may be voluntary or involuntary.
The debtor must be insolvent if the bankruptcy petition was filed voluntarily.
A trustee must always be appointed.
A reorganization plan may be filed by a creditor any time after the petition date.
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.
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:
Wages earned by the debtor within one year after filing the petition
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
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.
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:
Not cancel it, but can sue Sharon’s father for the return of the $200.
Cancel it as a fraudulent transfer.
Cancel it as a voidable preference.
Not cancel it because it is a sale, not a gift.
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.
Which of the following statements is correct with respect to the reorganization provisions of Chapter 11 of the federal Bankruptcy Code?
The commencement of a bankruptcy case may be voluntary or involuntary.
The debtor must be insolvent if the bankruptcy petition was filed voluntarily.
A trustee must always be appointed.
A reorganization plan may be filed by a creditor any time after the petition date.
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.