Chapter 33: Debtors, Creditors, and Bankruptcy
1. Pledged property may be repledged to a third party as long as the terms of the pledge to the third party do not
prevent the original pledgor from getting the property back when the debt is paid.
2. A pawnbroker, under a pledge agreement, has the right to garnish one’s wages.
3. A surety is discharged if the creditor releases the primary debtor or alters the obligation, as by extending the
time of performance, without the surety’s consent.
4. Usually usury laws that set maximum interest rates apply only to loans of money.
5. In some states, a debtor is not required to pay a debt unless a receipt is given.
6. Bankruptcy laws protect only the debtors.
7. Bankruptcy is always at the voluntary request of the debtor.
8. The law provides an order of priority for payout of the proceeds of a bankruptcy liquidation.
9. The liability for unauthorized use of an ATM/debit card is more expensive than that of a credit card.
10. Alimony and child support obligations can be discharged in bankruptcy.
11. A person who has not been paid for labor to build a home is allowed to file a legal claim against the
property under
C. a pawn.
D. a pledge.
12. A person who has not been paid for services is allowed to retain possession of the repaired property until
payment is made under
C. a pawn.
D. a pledge.
13. Any creditor who willfully and knowingly violates the Truth in Lending Act
A. may be fined, imprisoned, or both.
B. may be required to pay the debtor twice the finance charge plus court costs and attorney’s fees.
14. Which act permits merchants to offer discounts to customers who pay cash instead of using credit cards?
C. Federal Fair Debt Collection Practices Act
D. Federal Fair Discount Billing Act
15. The loss or theft of a credit card
C. raises the interest rate on the card.
D. none of these
16. The part of the bankruptcy law that controls liquidation of nonexempt property of the debtor is
C. Chapter 12.
D. Chapter 13.
17. The section of the bankruptcy law whose procedure is available only to individuals who have regular
income is
A. Chapter 7.
B. Chapter 11.
18. Certain types of claims that cannot be discharged by bankruptcy might include
A. claims against the debtor for fraud or embezzlement.
B. judgments resulting from driving while intoxicated.
19. The first to be paid from the proceeds of a bankruptcy liquidation would be for
A. administrative expenses.
B. certain unpaid taxes.
20. The last class of creditors to receive any of the proceeds, if available, from a Chapter 7 bankruptcy
liquidation is the
A. administrators of the bankruptcy estate.
B. creditors due wages and salaries.
21. A default on a loan occurs when
A. a debtor misses three straight payments.
B. a debtor destroys the property.
22. Maxine charged the $129 purchase of a new VCR on her credit card. The VCR, however, was defective.
What federal law will allow her to withhold payment on her credit card for the defective VCR without being
held liable for the entire amount owed?
C. Fair Credit Reporting Act
D. Equal Credit Opportunity Act
23. Which of the following statements regarding the Truth in Lending Act is not true?
A. This law requires complete and clear disclosure of loan terms.
B. The law sets a limit as to the percentage rates that may be charged to consumers.
24. Under which bankruptcy relief plan must the debtor have regular income, unsecured debts of less than
$360,475 and/or secured debts of less than $1,081,500?
A. Chapter 7
B. Chapter 11
25. The primary difference between a suretyship and a guarantorship is
C. a surety merely “promises” that the debtor will pay.
D. none of these.
26. First California Finance has an unwritten policy in which it refuses to loan money to any person of Northern
European descent, regardless of creditworthiness. Which federal law makes First California Finance’s policy
illegal?
A. UCC
B. Consumer Credit Protection Act
27. Under which of the following is most indicative of Chapter 11 relief?
A. Chapter 11 is designed to keep the corporation, partnership, or sole proprietorship in business without a total
liquidation.
B. Chapter 11 allows for liquidation of assets and the distribution of the proceeds to creditors.
28. Betty’s home needs to be painted. Her nephew, Dwight, has agreed to paint her house if she will provide the
paint and pay him $700. Dwight is unreliable, and Betty fears that he will start the job and not finish it. Dwight
gives Betty his car and the keys to the car to hold as his guarantee that he will fulfill his obligation to her. In this
situation, Betty is the
C. pledgor.
D. debtor.
29. Which of the following does not have to be filed by the debtor in a Chapter 7 proceeding?
C. a statement explaining the debtor’s financial affairs
D. All of the above have to be filed.
30. Which of the following is not an exemption from liquidation under the federal schedule in Chapter 7
bankruptcy?
A. real property (homestead), including co-op or mobile home, up to $20,200
31. Pedro owns stock certificates valued at approximately $4,000. He needs to borrow money, so his uncle
agrees to give him $4,000 in exchange for possession of the stock certificates until Pedro pays back the $4,000.
This type of secured debt arrangement is known as a(n) ____________________.
32. A contract or clause that is grossly unfair and oppressive to a debtor is said to be ____________________.
33. Once a creditor’s claim is shown to be legally valid and fair in a court hearing, the creditor may receive a
portion of the debtor’s wages directly from the debtor’s employer; this is known as ____________________.
34. Unlike a surety a guarantor is only ____________________liable.
35. The ____________________ allows persons who have not been paid for services, such as repairing a car, to
retain possession of the car or other appropriate property of the debtor until they are paid.
36. In a suretyship, a party labeled the ____________________ debtor owes the debt or obligation.
37. Under federal law, a credit card holder is liable for unauthorized use of the credit card by any person, such
as a thief or a dishonest finder. However, this liability is limited to ____________________.
38. Chapter ____________________ of the Bankruptcy Act involves the sale for cash of the nonexempt
property of the debtor and the distribution of the proceeds to creditors.
39. Chapter ____________________ of the Bankruptcy Act is designed to keep a business organization such as
a corporation, partnership, or sole proprietorship in operation with no liquidation.
40. By law, a report of a bankruptcy filing can stay on a debtor’s credit report for up to ____________________
years.
41. Mario has been divorced for two years and is bitter about paying alimony. At his previous job he purposely
did sloppy work so he would be fired and, therefore, couldn’t pay the alimony. He even went so far as to declare
Chapter 7 bankruptcy. Will this discharge the alimony? Explain your answer.
No. Certain types of claims cannot be discharged by bankruptcy. These nondischargeable claims are typically
42. Matt and Marilyn own a small family farm in Nebraska. In recent years their crops have failed due either to
extreme drought or excessive rainfall and flooding. Their ability to repay both their secured and unsecured loans
is seriously weakening. In desperation, they contact their friend, Ruben, who is an attorney specializing in
financial relief for farmers. What type of financial relief can the couple pursue? Explain the relief plan in detail.
Answers may vary. The Chapter 12 bankruptcy plan is a relief plan available for family farmers such as Matt