The Legal Environment of Business, 8e (Kubasek)
Chapter 25 Laws of Debtor-Creditor Relations and Consumer Protection
1) A contractor installed a new furnace in a house that was under construction. If he were not
paid for the job, he would most likely place a(n) ________ lien on the property.
A) contractor’s
B) mechanic’s
C) artisan’s
D) installer’s
2) Jane leaves her television at Sally’s small appliances repair shop, but she never returns to pick
it up or pay the bill. After a period of time, Sally can attach the television. Which type of lien
arises on the television?
A) a contractor’s lien
B) a mechanic’s lien
C) an artisan’s lien
D) an installer’s lien
3) Which of the following is a judicial lien?
A) foreclosure
B) injunction
C) contract
D) attachment
4) Which of the following is a court-ordered judgment that allows a local officer of the court to
seize a debtor’s property?
A) attachment
B) injunction
C) judgment notwithstanding verdict
D) directed verdict
5) Which of the following is an order issued by a clerk of the court directing the sheriff to seize
any of the nonexempt real or personal property of a debtor who refuses to or cannot pay a
creditor?
A) garnishment
B) judgment notwithstanding verdict
C) injunction
D) writ of execution
6) Which of the following is an order of the court directed at wages owed by an employer where
the debtor has an account?
A) garnishment
B) writ of execution
C) attachment
D) injunction
7) When a mortgagor cannot make the payments for his or her mortgage, the mortgagee will seek
a ________.
A) garnishment order of the court for the mortgagor’s wages
B) court-ordered sale of the mortgaged property
C) mechanic’s lien on the mortgaged property
D) loan guarantee from the mortgagor
8) Which of the following is true of a contract of suretyship?
A) There is no debtor in a contract of suretyship.
B) There is no creditor in a contract of suretyship.
C) The suretyship creates an express contract with a creditor, under which the surety is primarily
liable.
D) The suretyship creates an express contract with a creditor, under which the surety is
secondarily liable.
9) According to Article ________, Section ________ of the U.S. Constitution, the U.S. Congress
has the authority to establish “uniform laws” on the subject of bankruptcy throughout the United
States.
A) I; 3
B) I; 8
C) II; 3
D) II; 8
10) A lien is a claim on a debtor’s property that must be satisfied before any creditor can make a
claim.
11) An artisan’s lien is placed on the real property of a debtor when the latter does not pay for the
work done by the creditor.
12) Attachment involves a court-ordered judgment allowing a local officer of the court (e.g.,
sheriff) to seize property of a debtor.
13) Personal properties, like a vehicle to get to work with, are not exempt from attachments.
14) Describe the mechanic’s lien and the artisan’s lien.
15) Which of the following is a major goal of the United States Bankruptcy Code?
A) to give creditors access to debtors’ wages
B) to discharge debtors from their debts
C) to subsidize banks for unpaid loans
D) to increase unemployment insurance for debtors facing bad times
16) The most significant changes ever to be made to the Federal Bankruptcy Code took place
with the enactment of the ________ Act.
A) 2005
B) 1978
C) 2002
D) 1980
17) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was an attempt to
meet the complaints of the business community with regard to the ________.
A) increase of unemployment insurance for debtors facing bad times
B) issues related to the Bankruptcy Reform Act of 1978
C) increase in the number of filings for personal bankruptcy
D) allegation that debtors had begun evading payments to creditors
18) Chapter 7 of the United States Bankruptcy Code deals with ________.
A) cross-border solvency cases
B) the management and administration of the Code
C) the reorganization and adjustment of the debtor’s debts
D) straight bankruptcy
19) Which of the following is a term used for specialists who hear only bankruptcy proceedings?
A) bankruptcy specialists
B) bankruptcy judges
C) bankruptcy juries
D) bankruptcy rulers
20) Which of the following is true of a voluntary petition?
A) It is filed by a debtor under Chapter 15.
B) It involves a creditor placing a debtor in bankruptcy.
C) Those who sign the voluntary petition must have unsecured claims of at least $12,300 in the
aggregate.
D) The petition must clearly state the debts of a debtor.
21) In an involuntary petition, if a debtor has 12 or more creditors, the petition must be signed by
a minimum of ________ creditors.
A) 3
B) 4
C) 5
D) 6
22) In a Chapter ________ proceeding of the United States Bankruptcy Code, if there is a
showing of fraud, dishonesty, or incompetence, a trustee is appointed.
A) 13
B) 15
C) 2
D) 12(b)(6)
23) Which of the following is true of a debtor’s estate?
A) A debtor’s estate consists of all legal and equitable interests of a debtor in exempt property.
B) A debtor’s estate includes property of a debtor that a creditor acquires within 180 days of the
debtor’s filing of a bankruptcy petition.
C) A debtor’s estate does not include proceeds, rents, and profits from the property.
D) A debtor’s estate is a separate legal entity created when a bankruptcy case commences.
24) Which of the following is true of Chapter 7 of the United States Bankruptcy Code?
A) The 2005 Act gives debtors better means to obtain a Chapter 7 bankruptcy.
B) Under Chapter 7, a debtor is denied the right to a trustee.
C) It features a dollar-based means test and a median income test based on a debtor’s state of
residence.
D) The 2005 Act in effect pushed many debtors out of Chapter 7 and into Chapter 15 debt-
adjustment bankruptcy.
25) Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a debtor can
be granted Chapter 7 relief only after ________ years following Chapter 7 or Chapter 11
bankruptcy.
A) two
B) four
C) six
D) eight
26) Which of the following occurs under Chapter 13 of the United States Bankruptcy Code?
A) A portion of the consumer-debtor’s earnings is paid into court for distribution to creditors
over a period of three years.
B) Only involuntary petitions for bankruptcy may be filed under Chapter 13.
C) Creditors can force petitioners into Chapter 13 bankruptcy.
D) A creditor is paid in full for amounts owed by a debtor.
27) With reference to the United States Bankruptcy Code, which of the following is an advantage
of bankruptcy to debtors?
A) It results in a decrease in autonomy.
B) The management’s ability to make and implement decisions rapidly is enhanced.
C) Debtors are not subject to legal and accounting expenses.
D) Debtors retain possession of a bankruptcy estate.
28) With reference to the United States Bankruptcy Code, which of the following is a
disadvantage of bankruptcy to creditors?
A) Continued operation results in less funds to distribute at liquidation.
B) The going-concern value of an insolvent business is not preserved.
C) Creditor-in-possession is held accountable due to bankruptcy reporting and notice
requirements.
D) A creditor cannot file an involuntary petition for relief under Chapter 7.
29) Chapter 11 of the United States Bankruptcy Code allows a ________.
A) portion of a debtor’s earnings to be paid into court for distribution to creditors over a period of
three years
B) business to reorganize and continue to function while it is arranging for the discharge of its
debts
C) portion of a debtor’s homestead exemption to be paid into court for distribution to creditors
over a period of five years
D) debtor to turn over all assets to a trustee who sells the nonexempt assets and distributes the
proceeds to creditors
30) Which of the following is true of Chapter 12 of the United States Bankruptcy Code?
A) Under Chapter 12, family farmers and fishermen have a right to file for bankruptcy
reorganization.
B) A plan for a Chapter 12 reorganization should provide for payments to creditors over no
longer than a one-year period.
C) Chapter 12 grants a personal exemption for all farm or fishing equipment.
D) A debtor cannot convert a Chapter 12 reorganization to a Chapter 7.
31) Family ________ are defined as corporations or partnerships owned by a family or relatives
with more than 80 percent of its assets related to farming operation and a total business debt not
exceeding $3,273,000.
A) farmers
B) partners
C) debtors
D) creditors
32) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was intended to
overhaul, in large part, certain provisions of the Bankruptcy Code.
33) The United States Bankruptcy Code (Code) is composed of seven chapters.
34) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added Chapter 15
to the Code for cross-border solvency cases.
35) Chapter 7 of the Bankruptcy Code exclusively deals with transnational insolvency cases
between the United States and foreign countries.
36) Bankruptcy judges are appointed by the United States court of appeals for the circuit in
which the bankruptcy court is located for a period of 14 years.
37) The bankruptcy court will file an order for relief unless a debtor challenges an involuntary
petition.
38) Debts that were or could have been listed in a previous bankruptcy in which a debtor waived
or was denied a discharge can be discharged under Chapter 7 of the Bankruptcy Code.
39) Reorganization under Chapter 11 of the United States Bankruptcy Code must be involuntary.
40) State the schedules that must be submitted by an individual debtor filing a voluntary petition.
41) List the powers of a bankruptcy trustee.
42) The refusal of courts during the nineteenth century to interfere with the freedom of parties to
enter into contracts can be traced, in part, to the writings of ________.
A) Karl Marx
B) Milton Friedman
C) Adam Smith
D) Thomas Paine
43) The freedom-to-________ doctrine states that parties who are legally competent are allowed
to enter into whatever contracts they wish.
A) compete
B) enter
C) sign
D) contract
44) The freedom-to-contract doctrine evolved through ________ law out of the ________ court
system(s).
A) case; state
B) case; federal
C) enacted; state
D) enacted; federal
45) As Adam Smith’s laissez-faire philosophy gained popularity in the eighteenth and nineteenth
centuries, the freedom-to-contract doctrine evolved through case law out of our federal court
system.
46) Governed by the freedom-to-contract doctrine, United States courts throughout the
nineteenth century generally refused to interfere in contractual relations merely because one
party was more economically powerful or better able to drive a hard bargain.
47) The U.S. courts throughout the nineteenth century upheld the principle of caveat emptor.
48) Since the 1930s, state courts have expanded the freedom-to-contract doctrine.
49) The freedom-to-contract doctrine has been limited by the implied warranty doctrine, as well
as by the courts’ relaxation of strict privity relationships between manufacturers and consumers.
50) Debate continues among economists, political scientists, and legal scholars as to what role, if
any, the government should play in the relationship between consumers and business
organizations.
51) Discuss how the role of government in the area of economics has been that of an actor and a
referee between consumers and the business community.
52) Which of the following is the leading federal consumer protection agency?
A) Interstate Commerce Commission
B) Federal Trade Commission
C) Occupational Safety and Health Administration
D) Federal Accountability Act
53) The Federal Trade Commission works with the ________ sectors to regulate fraud issues.
A) telemarketing
B) securities fraud
C) communications
D) advertising and sales practices