Question 1

The debtor-in-possession must honor all prebankruptcy executory contracts.

Accepted Answer

A) True 
 B)False

Question 2

Commercial paper is a term that describes short-term corporate indebtedness.

Accepted Answer

A) True 
 B)False

Question 3

Congress is given the power to enact bankruptcy laws by

Accepted Answer

A)  a delegation of authority by the President. 
B)  the U. S. Constitution. 
C)  rulings of the Supreme Court. 
D)  inherent powers under federalism. 
A)  a delegation of authority by the President. 
B)  the U. S. Constitution. 
C)  rulings of the Supreme Court. 
D)  inherent powers under federalism.

Question 4

Interest is generally computed on a ________ basis.

Accepted Answer

A)  yearly 
B)  monthly 
C)  weekly 
D)  daily 
A)  yearly 
B)  monthly 
C)  weekly 
D)  daily

Question 5

Fact Pattern 23-1
Bailey has been making large credit card purchases for months. He has also borrowed money from Jack and Susan, friends of his, so that he can continue his rather lavish lifestyle involving foreign travel. He borrowed $1,000 from Jack and $2,000 from Susan. He also borrowed $500 from his mother. Bailey finally decides that he can no longer continue to make even the minimum payments on his credit cards and considers filing for bankruptcy. He does, however, want to pay some of his debts. Bailey, therefore, puts off the credit card companies and saves his cash. He starts the New Year off by paying on January 1 all funds owed to his mother. He was particularly concerned about repaying his mother because he still lived at home and had some concerns that she would kick him out of the house if he did not repay her. Then, on June 1 he pays Jack; and on July 4, he pays Susan. Bailey proceeds to file bankruptcy on August 2 because he has repaid anyone he really cares about. He plans to complete the bankruptcy and move to the Caribbean.
-Refer to fact pattern 23-1. Which of the following is true regarding the repayment of the loan to Bailey's mother?

Accepted Answer

A)  It will be considered a preference because Bailey's mother would be considered an insider, and it was made within one year of the filing for bankruptcy. 
B)  Although Bailey's mother would not be considered an insider, the payment would be considered a preference because it was made within one year of the filing for bankruptcy. 
C)  The filing will be considered a preference only if Bailey and his mother had an agreement that she would advance the amounts to him again once the bankruptcy was completed. 
D)  The payment would not be considered a preference because it was not made within 30 days of the filing for bankruptcy. 
A)  It will be considered a preference because Bailey's mother would be considered an insider, and it was made within one year of the filing for bankruptcy. 
B)  Although Bailey's mother would not be considered an insider, the payment would be considered a preference because it was made within one year of the filing for bankruptcy. 
C)  The filing will be considered a preference only if Bailey and his mother had an agreement that she would advance the amounts to him again once the bankruptcy was completed. 
D)  The payment would not be considered a preference because it was not made within 30 days of the filing for bankruptcy.

Question 6

Matthew has filed for Chapter 7 bankruptcy relief. He had borrowed money from his best friend,Rick,for the purchase of a car. Matthew really wants to repay Rick,but does not want to jeopardize his bankruptcy relief and the discharge of a number of other debts. What option,if any,is open to Matthew?

Accepted Answer

A)  No options are open to Matthew because any payment to Rick would be considered a voidable preference. 
B)  Matthew can reaffirm the debt to Rick, and the bankruptcy judge has no authority to interfere in that decision. 
C)  Matthew can reaffirm the debt to Rick, but the bankruptcy judge has the authority to disapprove of the agreement if the court finds that it is not in Matthew's best interest. 
D)  Matthew can reaffirm the debt to Rick but only up to 50% of the maximum amount owed, and the bankruptcy judge has the authority to disapprove of the agreement if the court finds that it is not in Matthew's best interest. 
A)  No options are open to Matthew because any payment to Rick would be considered a voidable preference. 
B)  Matthew can reaffirm the debt to Rick, and the bankruptcy judge has no authority to interfere in that decision. 
C)  Matthew can reaffirm the debt to Rick, but the bankruptcy judge has the authority to disapprove of the agreement if the court finds that it is not in Matthew's best interest. 
D)  Matthew can reaffirm the debt to Rick but only up to 50% of the maximum amount owed, and the bankruptcy judge has the authority to disapprove of the agreement if the court finds that it is not in Matthew's best interest.

Question 7

Bank president Spencer had approved significant loan amounts to Bob for the purpose of developing a shopping center. Spencer was satisfied that the land collateralizing the shopping center loan was sufficient,and Spencer was not particularly concerned about that loan. Bob,however,requested an additional loan for the purpose of starting a temporary employee agency. Bob offered to collateralize that loan with his office equipment,but Spencer was uneasy that such collateral was insufficient. If Spencer decides to go forward with the loan involving the temporary employee agency,which of the following is true regarding his options?

Accepted Answer

A)  Spencer should request a cross-default provision and also a cross-collateralization provision. 
B)  Spencer should only request a cross-default provision because Article 9 makes cross-collateralization provisions unenforceable. 
C)  Spencer should only request a cross-collateralization provision because Article 9 makes cross-default provisions unenforceable. 
D)  Spencer should request a guarantee from a solvent person or entity because Article 9 makes both cross-default and cross-collateralization provisions illegal. 
A)  Spencer should request a cross-default provision and also a cross-collateralization provision. 
B)  Spencer should only request a cross-default provision because Article 9 makes cross-collateralization provisions unenforceable. 
C)  Spencer should only request a cross-collateralization provision because Article 9 makes cross-default provisions unenforceable. 
D)  Spencer should request a guarantee from a solvent person or entity because Article 9 makes both cross-default and cross-collateralization provisions illegal.

Question 8

A guaranty that covers all future obligations of the primary debtor to a lender is referred to as a _______ guaranty.

Accepted Answer

A)  continuing 
B)  restricted 
C)  primary 
D)  performance 
A)  continuing 
B)  restricted 
C)  primary 
D)  performance

Question 9

Discuss the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA")in regards to whether Chapter 7 or Chapter 13 relief is appropriate.

Accepted Answer

The BAPCPA,however,established an object

Question 10

A repayment plan under a Chapter 11 bankruptcy must either be accepted unanimously or pass the "best interests of creditors" test.

Accepted Answer

A) True 
 B)False

Question 11

The ________ interest rate is based on the cost of borrowing offshore U.S.dollars in the global interbank market.

Accepted Answer

A)  International Rate Exchange 
B)  Frankfurt International Trade Rate 
C)  London Interbank Offered Rate 
D)  New York Exchange Rate 
A)  International Rate Exchange 
B)  Frankfurt International Trade Rate 
C)  London Interbank Offered Rate 
D)  New York Exchange Rate

Question 12

________ a security interest involves making it valid as against other creditors of the debtor.

Accepted Answer

A)  Finalizing 
B)  Perfecting 
C)  Organizing 
D)  Signing 
A)  Finalizing 
B)  Perfecting 
C)  Organizing 
D)  Signing

Question 13

A purchase-money security interest in consumer goods is automatically perfected.

Accepted Answer

A) True 
 B)False

Question 14

A ________ loan is one in which the original lender sells shares to other parties.

Accepted Answer

A)  master 
B)  syndicated 
C)  participation 
D)  attached 
A)  master 
B)  syndicated 
C)  participation 
D)  attached

Question 15

Set forth the five events referenced in the text that usually constitute events of default.

Accepted Answer

Events of default usually include (1)fai

Question 16

A number of states have enacted legislation providing that loan commitments must be in writing to be enforceable.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is false regarding remedies for default of a security agreement?

Accepted Answer

A)  After default, the secured party has the right to take possession of the collateral so long as judicial process is followed. 
B)  After properly taking possession of the property, the secured party may then dispose of the collateral at a public or private sale. 
C)  If there is a surplus from the sale of collateral, the secured parry is required to return it to the debtor. 
D)  If there is a deficiency from the sale of collateral, the debtor remains liable for that amount 
A)  After default, the secured party has the right to take possession of the collateral so long as judicial process is followed. 
B)  After properly taking possession of the property, the secured party may then dispose of the collateral at a public or private sale. 
C)  If there is a surplus from the sale of collateral, the secured parry is required to return it to the debtor. 
D)  If there is a deficiency from the sale of collateral, the debtor remains liable for that amount

Question 18

Which of the following expresses the effect of the D'Oench,Duhme doctrine in relation to federally insured banks?

Accepted Answer

A)  It makes it harder for federal agencies to bring criminal charges against bank officials who negligently, but not intentionally, made bad loans. 
B)  It makes it easier for federal agencies to bring criminal charges against bank officials who negligently, but not intentionally, made bad loans. 
C)  It makes it harder for federal agencies to collect on outstanding loans by specifically providing that an oral loan commitment is enforceable so long as at least two bank officials confirm the existence of the oral agreement and there is no indication that the debtor involved acted in an illegal manner. 
D)  It makes it easier for federal agencies to collect on outstanding loans by barring enforcement of any agreements unless the agreements are in writing and approved contemporaneously by the bank's board or loan committee and recorded in the bank's written records. 
A)  It makes it harder for federal agencies to bring criminal charges against bank officials who negligently, but not intentionally, made bad loans. 
B)  It makes it easier for federal agencies to bring criminal charges against bank officials who negligently, but not intentionally, made bad loans. 
C)  It makes it harder for federal agencies to collect on outstanding loans by specifically providing that an oral loan commitment is enforceable so long as at least two bank officials confirm the existence of the oral agreement and there is no indication that the debtor involved acted in an illegal manner. 
D)  It makes it easier for federal agencies to collect on outstanding loans by barring enforcement of any agreements unless the agreements are in writing and approved contemporaneously by the bank's board or loan committee and recorded in the bank's written records.

Question 19

Fact Pattern 23-1
Bailey has been making large credit card purchases for months. He has also borrowed money from Jack and Susan, friends of his, so that he can continue his rather lavish lifestyle involving foreign travel. He borrowed $1,000 from Jack and $2,000 from Susan. He also borrowed $500 from his mother. Bailey finally decides that he can no longer continue to make even the minimum payments on his credit cards and considers filing for bankruptcy. He does, however, want to pay some of his debts. Bailey, therefore, puts off the credit card companies and saves his cash. He starts the New Year off by paying on January 1 all funds owed to his mother. He was particularly concerned about repaying his mother because he still lived at home and had some concerns that she would kick him out of the house if he did not repay her. Then, on June 1 he pays Jack; and on July 4, he pays Susan. Bailey proceeds to file bankruptcy on August 2 because he has repaid anyone he really cares about. He plans to complete the bankruptcy and move to the Caribbean.
-Refer to fact pattern 23-1. Which of the following is true regarding the repayment of the loans from Jack and Susan?

Accepted Answer

A)  The payment to Susan would be considered a preference because it was made within 30 days of the filing for bankruptcy, but the payment to Jack would not be considered a preference because it was made more than 30 days prior to the bankruptcy filing. 
B)  Payments to both Jack and Susan would be considered preferences because they were made within 90 days of the filing for bankruptcy. 
C)  Payments to both Jack and Susan would be considered preferences because Jack and Susan are insiders, and the payments were made within one year of the bankruptcy filing. 
D)  The payments would not be considered preferences. 
A)  The payment to Susan would be considered a preference because it was made within 30 days of the filing for bankruptcy, but the payment to Jack would not be considered a preference because it was made more than 30 days prior to the bankruptcy filing. 
B)  Payments to both Jack and Susan would be considered preferences because they were made within 90 days of the filing for bankruptcy. 
C)  Payments to both Jack and Susan would be considered preferences because Jack and Susan are insiders, and the payments were made within one year of the bankruptcy filing. 
D)  The payments would not be considered preferences.

Question 20

A(n)________ clause in a loan document provides that any breach by the borrower under any other loan agreement constitutes an event of default.

Accepted Answer

A)  attached 
B)  dragnet 
C)  cross-default 
D)  cross collateralization 
A)  attached 
B)  dragnet 
C)  cross-default 
D)  cross collateralization

Exam 23: Debtor-Creditor Relations and Bankruptcy

The debtor-in-possession must honor all prebankruptcy executory contracts.

Commercial paper is a term that describes short-term corporate indebtedness.

Congress is given the power to enact bankruptcy laws by

Interest is generally computed on a ________ basis.

Matthew has filed for Chapter 7 bankruptcy relief. He had borrowed money from his best friend,Rick,for the purchase of a car. Matthew really wants to repay Rick,but does not want to jeopardize his bankruptcy relief and the discharge of a number of other debts. What option,if any,is open to Matthew?

A guaranty that covers all future obligations of the primary debtor to a lender is referred to as a _______ guaranty.

Discuss the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA")in regards to whether Chapter 7 or Chapter 13 relief is appropriate.

A repayment plan under a Chapter 11 bankruptcy must either be accepted unanimously or pass the "best interests of creditors" test.

The ________ interest rate is based on the cost of borrowing offshore U.S.dollars in the global interbank market.

________ a security interest involves making it valid as against other creditors of the debtor.

A purchase-money security interest in consumer goods is automatically perfected.

A ________ loan is one in which the original lender sells shares to other parties.

Set forth the five events referenced in the text that usually constitute events of default.

A number of states have enacted legislation providing that loan commitments must be in writing to be enforceable.

Which of the following is false regarding remedies for default of a security agreement?

Which of the following expresses the effect of the D'Oench,Duhme doctrine in relation to federally insured banks?

A(n)________ clause in a loan document provides that any breach by the borrower under any other loan agreement constitutes an event of default.

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