Question 1

Under a guaranty of collection,the guarantor becomes obliged to pay only after the lender has attempted unsuccessfully to collect the amount due from the primary debtor.

Accepted Answer

A) True 
 B)False

Question 2

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.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

A Chapter 7 discharge is not available to a debtor who has received a discharge in a bankruptcy filed in the preceding _____ years or in a Chapter 13 case filed in the preceding _____ years.

Accepted Answer

A)  two; four 
B)  six; seven 
C)  eight; six 
D)  seven; six

Question 5

If the collateral from one loan is used to secure the obligations on another loan,this is called __________,or sometimes called a "__________" clause.

Accepted Answer

A)  perfection, default 
B)  cross-collateralization, dragnet 
C)  floating lien, dragnet 
D)  attached loan, dragnet

Question 6

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

Question 7

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

Question 8

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.

Question 9

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.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Interest is generally computed on a __________ basis.

Accepted Answer

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

Question 12

If a borrower fails to repay a secured loan,the lender may foreclose on the collateral.

Accepted Answer

A) True 
 B)False

Question 13

What is a preference under the bankruptcy code? What time period is reviewed to determine if a preference has occurred? When does a long-term debt payment to a bank qualify under the ordinary course of business exception?

Accepted Answer

The answer of What is a preference under the bankruptcy...

Question 14

Alice,the president of ABC Bank,had a meeting with Fred to discuss the fact that he was having difficulty making the payments on his loan that was guaranteed by Sylvia.Fred requested that Alice provide a grace period to Fred and allow him to miss a few payments without penalty in order to catch up his finances.Alice had no objection.Assuming the guaranty agreement did not address such situations,is Alice acting prudently and why or why not?

Accepted Answer

A)  Yes, because Sylvia, as a guarantor, has no rights to oppose any action of the bank. 
B)  Yes, because while Sylvia has certain rights in regard to actions taken by the bank, she had no right to oppose the provision of a grace period since it is unlikely that allowing such a grace period would impair Sylvia's interests. 
C)  No, because Alice should have obtained the written consent of Sylvia in the form of an affirmation of the guaranty in view of the grace period. 
D)  No, because as a matter of equitable business practice, Alice should have put Sylvia on notice although Alice did not increase the bank's exposure by failing to do so.

Question 15

Bob goes bankrupt.He has several creditors and a small amount in savings.He owes XYZ Bank $200,000 for which he used his home as collateral.XYZ Bank properly perfected its interest in the home.Bob additionally owes $3,000 in alimony to an ex-wife,Sue; $50,000 in unsecured credit card bills; and $5,000 in unsecured debt to his friend Tina.After all exemptions are satisfied,$205,000 from the sale of the home and $5,000 in a small bank account remain for distribution to creditors.Which of the following is true regarding priority?

Accepted Answer

A)  All funds are added together and disbursed to the claimants based upon the percentage of each creditor's claim. 
B)  Tina has first priority, the credit card companies are then paid, and XYZ Bank is entitled to any remainder. 
C)  XYZ Bank receives $200,000 from the sale of the home, Sue receives $3,000, and the remainder is divided between the credit card companies and Tina. 
D)  Tina has first priority, XYZ Bank is then paid, and the credit card companies divide the remainder.

Question 16

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

Accepted Answer

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

Question 17

A __________ interest rate fluctuates throughout the life of the loan according to the interest rate that the lender would pay if it borrowed the funds in order to relend them.

Accepted Answer

A)  fixed 
B)  principal 
C)  base 
D)  floating

Question 18

A state law that limits the maximum rate of interest that may be charged is called a(n)__________ law.

Accepted Answer

A)  interest 
B)  usury 
C)  rate 
D)  term

Question 19

In CASE 23.1Tufankujian v.Rockland Trust Co.(2003)Tufankujian signed a contract to acquire a Toyota dealership for $1.4 million.Rockland agreed to lend Tufankujian $700,000 at 7.5% interest,with the remaining $700,000 to come from the SBA at a separate interest rate which was quoted by Rockland at 6.5% (but with no written guaranty).Ultimately,the loan was not consummated and Tufankujian sued.How did the court rule?

Accepted Answer

A)  The court dismissed Tufankujian's claims. 
B)  The court heldTufankujianbreached his duty of good faith and fair dealing and awarded damages toRockland. 
C)  The court heldRockland had committed fraud but only awarded Tufankujian nominal damages of $1. 
D)  The court heldRockland breached its duty of good faith and fair dealing and awarded damages toTufankujian.

Question 20

While state restrictions may apply,there are no federal restrictions on lenders and borrowers entering into transactions whereby secured credit will be sued to acquire stock.

Accepted Answer

A) True 
 B)False

Exam 23: Debtor-Creditor Relations and Bankruptcy.

Under a guaranty of collection,the guarantor becomes obliged to pay only after the lender has attempted unsuccessfully to collect the amount due from the primary debtor.

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

A Chapter 7 discharge is not available to a debtor who has received a discharge in a bankruptcy filed in the preceding _ years or in a Chapter 13 case filed in the preceding _ years.

If the collateral from one loan is used to secure the obligations on another loan,this is called ,or sometimes called a "" clause.

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

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

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

Congress is given the power to enact bankruptcy laws by:

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

Interest is generally computed on a __________ basis.

If a borrower fails to repay a secured loan,the lender may foreclose on the collateral.

What is a preference under the bankruptcy code? What time period is reviewed to determine if a preference has occurred? When does a long-term debt payment to a bank qualify under the ordinary course of business exception?

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

A __________ interest rate fluctuates throughout the life of the loan according to the interest rate that the lender would pay if it borrowed the funds in order to relend them.

A state law that limits the maximum rate of interest that may be charged is called a(n) __________ law.

While state restrictions may apply,there are no federal restrictions on lenders and borrowers entering into transactions whereby secured credit will be sued to acquire stock.