Business Law, 8e (Cheeseman)
Chapter 28 Bankruptcy and Reorganization
1) The Bankruptcy Reform Act of 1978 made it easier for debtors to file for bankruptcy and have
their unpaid debts discharged.
2) Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes it more difficult
for debtors to file for bankruptcy and have their unpaid debts discharged.
3) Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is considered creditor-
friendly.
4) There are separate state and federal bankruptcy laws.
5) Bankruptcy proceedings are carried out at special U.S. Bankruptcy Courts created by the
Congress.
6) A U.S. Trustee is a federal government official who has responsibility for handling and
supervising many of the administrative tasks associated with a bankruptcy case.
7) A complaint is a document filed with a bankruptcy court that starts a bankruptcy proceeding.
8) The Bankruptcy Act of 2005 requires that before an individual debtor receives a discharge in a
Chapter 7 or Chapter 13 bankruptcy, the debtor must attend a personal financial management
course approved by the U.S. Trustee.
9) A voluntary petition is a petition filed by a creditor that states that the debtor has paid his
debts.
10) A debtor filing for bankruptcy who is represented by an attorney need not be investigated or
verified.
11) The 2005 act requires an attorney certification whereby an attorney who represents a client in
bankruptcy must certify the accuracy of the information contained in the bankruptcy petition.
12) An order of relief occurs upon the filing of either a voluntary petition or an unchallenged
involuntary petition.
13) The bankruptcy judge cannot attend the first meeting of the creditors.
14) In a meeting of the creditors, the bankruptcy judge questions the debtor.
15) A proof of claim is a document required to be filed by a creditor that states the amount of his
or her claim against the debtor.
16) A secured creditor whose claim exceeds the value of the collateral may submit a proof of
claim and become an unsecured claimant as to the difference.
17) All creditors must file a proof of interest before a bankruptcy proceeding.
18) A bankruptcy trustee is a legal representative of a creditor’s claim to an estate.
19) An automatic stay refers to the suspension of certain legal actions by creditors against a
debtor or the debtor’s property.
20) A creditor’s action of perfecting liens against a debtor’s property cannot be stayed.
21) Unscheduled claims are not dischargeable in bankruptcy.
22) A reaffirmation agreement is an agreement whereby a creditor agrees to discharge the debtor
of certain debts that maybe included in the bankruptcy.
23) Gifts that a debtor is entitled to receive within 180 days after the petition is filed are part of
the bankruptcy estate.
24) Exempt property may not be retained by a debtor who files for bankruptcy.
25) Liquidation is a form of bankruptcy in which the debtor’s exempt property is auctioned.
26) The median income test is bankruptcy rule that states that if a debtor’s median family income
is at or below the state’s median family income for a family the same size as the debtor’s family,
the debtor can receive Chapter 7 relief.
27) If the value of the collateral securing the secured loan is less than the secured interest, the
secured creditor is an oversecured creditor.
28) Unpaid debts that the debtor incurred prior to the date of the order for relief are discharged
under Chapter 7.
29) Under Chapter 13, a debtor retains more property than is exempt under Chapter 7 liquidation.
30) A composition provides a longer period of time for the debtor to pay his or her debts.
31) The property of a Chapter 13 estate consists of nonexempt property acquired after the case is
closed.
32) A Chapter 13 discharge is granted to the debtor before the debtor’s plan of payment begins.
33) A debtor-in-possession is a debtor who is left in place to operate the business during the
reorganization proceeding.
34) The acceptance method is a method whereby the court confirms a plan of reorganization if
the creditors accept the plan and if other requirements are met.
35) An executory contract refers to a contract or lease that has not been fully performed.
36) Which of the following federal acts substantially amended federal bankruptcy law in 2005?
A) Bankruptcy Reform Act
B) Bankruptcy Abuse Prevention and Consumer Protection Act
C) the Nelson Act
D) the Chandler Act
37) Which of the following is true of bankruptcy law in the United States?
A) The 1978 bankruptcy law made it easier for debtors to be relieved of much of their debt.
B) The 1978 bankruptcy law was deemed to be “creditor friendly.”
C) The bankruptcy act of 2005 makes it easier debtors be relived of their debts under federal
bankruptcy law.
D) The 2005 bankruptcy act has been called “debtor friendly.”
38) Chapter 7 of the Bankruptcy Code of the bankruptcy act of 2005 primarily deals with
________.
A) reorganization
B) adjustment of debts of a family farmer or fisherman with regular income
C) adjustment of debts of an individual with regular income
D) liquidation
39) Which of the following is true of the bankruptcy procedure?
A) A driven petition is a petition filed by a debtor that states that he or she has debts.
B) A debtor must receive prepetition credit counseling within 180 days prior to filing his or her
petition for bankruptcy.
C) A voluntary petition is filed by creditors of a debtor, alleging that the debtor is not paying his
or her debts as they become due.
D) A complaint is a document filed with a bankruptcy court that starts a bankruptcy proceeding.
40) Sam wants to file a petition for bankruptcy. Which of the following is true in this context?
A) Sam need not submit a list of creditors; it is obtained by the court upon investigation.
B) Sam’s bankruptcy petition cannot be filed electronically.
C) Only Sam’s attorney can file his bankruptcy petition.
D) Sam’s attorney is liable for perjury if information filed by Sam is incorrect.
41) The filing of either a voluntary petition or an unchallenged involuntary petition constitutes
a(n) ________.
A) prayer for relief
B) discharge
C) order for relief
D) composition
42) Which of the following is true of the meeting of the creditors?
A) A meeting of the creditors is called before the court grants an order for relief.
B) The bankruptcy judge cannot attend the meeting of the creditors.
C) In the first meeting of the creditors, a debtor is questioned by a jury constituted for the
purpose.
D) Questions regarding the debtor’s possible concealment of assets are not permitted during the
meeting of the creditors.
43) Which of the following best defines a proof of claim?
A) a statement by the debtor that states that he or she has debts
B) a document required to be filed by a debtor stating the property that is exempted from
constituting the bankruptcy estate
C) a document required to be filed by a creditor that states the amount of his or her claim against
the debtor
D) a statement by creditors alleging that the debtor is not paying his or her debts as they become
due
44) A(n) ________ is a document required to be filed by an equity security holder that states the
amount of his or her interest against the debtor.
A) proof of claim
B) proof of interest
C) voluntary petition
D) involuntary petition
45) A bankruptcy trustee is a ________.
A) legal representative of a debtor’s estate
B) claimant to the debtor’s estate on behalf of a creditor
C) federal government official responsible for supervising a bankruptcy case
D) bankruptcy judge, appointed by a U.S. Bankruptcy Court
46) The suspension of certain legal actions by creditors against a debtor or the debtor’s property
is known as a(n) ________.
A) discharge of debt
B) composition
C) automatic stay
D) order for relief
47) Why is a discharge of debt granted?
A) to divide the bankruptcy estate equally among all creditors
B) to relieve the debtor of the responsibility to pay some of or all the debt
C) to divide the bankruptcy estate according to the debt owed to each creditor
D) to suspend certain legal actions by creditors against a debtor’s property
48) A(n) ________ is an agreement entered into by the creditor and the debtor whereby the
debtor agrees to pay the creditor for a debt that is dischargeable in bankruptcy.
A) reaffirmation agreement
B) order for relief
C) discharge agreement
D) acceptance agreement
49) Which of the following is true of a debtor’s bankruptcy estate?
A) Only intangible personal property constitutes the bankruptcy estate.
B) No property solely owned by the debtor is exempted from constituting the bankruptcy estate.
C) Creditors are allowed to claim exempt property.
D) Government benefits and compensations are exempted from constituting the bankruptcy
estate.
50) Which of the following constitutes the bankruptcy estate of a debtor?
A) interest in jewelry worth $1,000
B) unmatured life insurance policy owned by the debtor
C) interests in wrongful death benefits
D) interest of $3,500 in a motor vehicle
51) What is a homestead exemption?
A) investment in realty that a debtor must forfeit
B) equity in a home that a debtor is permitted to retain
C) remainder of the debtor’s interest in commercial property that is returned to him after
fulfilling creditors’ claims
D) all of the debtor’s assets converted to cash
52) ________ is a form of bankruptcy in which the debtor’s nonexempt property is sold for cash,
the cash is distributed to the creditors, and any unpaid debts are discharged.
A) Abusive filing
B) Dissolution of debt
C) Liquidation
D) Reorganization
53) Which of the following is true of Chapter 7 liquidation?
A) The debtor is not permitted to keep any of his or her assets.
B) The 2005 bankruptcy act has eased the process of applying for Chapter 7 bankruptcy.
C) The debtor’s future income cannot be reached to pay the discharged debt.
D) Petitioning for Chapter 7 liquidation does not permit the debtor to petition for bankruptcy
under any other chapter.
54) Which of the following is true of the median income test?
A) If a family has median family income equal to the state’s median family income, the debtor
does not qualify for Chapter 7 bankruptcy.
B) If a family has median family income below the state’s median family income, the debtor is
subject to the “means” test.
C) If a family has median family income below to the state’s median family income, the debtor
automatically qualifies for Chapter 7 bankruptcy.
D) A debtor’s debts are not discharged if the family median income is more than the state‘s
median family income.
55) The ________ is a bankruptcy rule that applies to a debtor who has a median family income
that exceeds the state’s median family income for families the same size as the debtor’s family.
A) means test
B) median income test
C) Chapter 13 discharge
D) Chapter 13 plan of payment
56) A means test is used to determine whether ________.
A) the debtor’s median family income is less than the state’s median family income
B) the debtor’s median family income is more than the state’s median family income
C) the debtor has the capability to pay prepetition debts out of postpetition income
D) the debtor would qualify to file for bankruptcy under Chapter 13
57) If the value of the secured interest is lesser than the collateral securing the secured loan, the
secured creditor is a(n) ________.
A) the secured creditor is an undersecured creditor
B) the secured creditor is an oversecured creditor
C) the debtor is at default
D) the debtor does not qualify for Chapter 7 bankruptcy
58) Under the 2005 bankruptcy act, if non-exempt personal property of an individual debtor
secures a claim or is subject to an unexpired lease, the debtor ________.
A) must surrender the property
B) can appeal for exemption of the property
C) must terminate the lease with immediate effect
D) cannot redeem the property
59) What is Chapter 7 discharge?
A) The termination of the legal duty of an individual debtor to pay both secured and unsecured
secured debts before he or she is granted a court trial.
B) The termination of the legal duty of an individual debtor to pay unsecured debts that remain
unpaid upon the completion of a Chapter 7 proceeding.
C) The cancellation of all debts of a debtor that remain unpaid upon the completion of a Chapter
13 proceeding.
D) An instruction to the debtor to propose a plan to pay all or a portion of the debts he or she
owes in installments.
60) If a person’s debts are subject to a Chapter 7 discharge. What does this mean?
A) that he or she needs to repay only unsecured debts
B) that he or she needs to repay only secured debts
C) that he or she needs to pay his prepetition debts with his postpetition income
D) that he or she need not repay any debt
61) According to the 2005 bankruptcy act, when is a debtor granted Chapter 7 relief?
A) six years following Chapter 11 relief
B) four years following Chapter 11 relief
C) six years following Chapter 12 relief
D) twelve years following Chapter 13 relief
62) ________ is a rehabilitation form of bankruptcy that permits bankruptcy courts to supervise
the debtor’s plan for the payment of unpaid debts in installments over the plan period.
A) Chapter 7
B) Chapter 13
C) Chapter 11
D) Chapter 12
63) Which of the following is true of a Chapter 13 petition?
A) It can be filed by all individual debtors, irrespective of their income.
B) The petitioner need not demand an extension or composition.
C) To qualify for Chapter 13, the debts must primarily be consumer debt.
D) Creditors can file a Chapter 13 petition claiming payment from a debtor.
64) A(n) ________ provides for the reduction of a debtor’s debts.
A) extension
B) liquidation
C) limitation
D) composition
65) Which of the following constitutes the property of a Chapter 13 estate?
A) nonexempt property of the debtor before the case is closed
B) exempt property of the debtor before the case is closed
C) debtor’s income before and after the case is closed
D) property that is exempt from Chapter 7 estate
66) Paulo Dessario is the owner of Paulo’s Pizzeria, which has not been doing well in the last
year. He files for bankruptcy under Chapter 13. Which of the following is true in accordance
with the constitution of the Chapter 13 estate?
A) Paulo must terminate all his business operations in the United States.
B) If the pizzeria is not exempt from Chapter 13 estate, Paulo must surrender it.
C) Paulo is allowed to continue operating the pizzeria, irrespective of it being exempt.
D) Paulo can only operate the pizzeria but cannot remain in possession of it.
67) Which of the following is true of Chapter 13 discharge?
A) It is granted before a Chapter 13 plan of payment is enforced.
B) It is not granted if the debtor has received Chapter 7 discharge in the last four years.
C) It is granted only for the secured unpaid debts of a debtor.
D) All unpaid taxes are discharged under Chapter 13 discharge.
68) Which of the following bankruptcy methods allows the reorganization of the debtor’s
financial affairs under the supervision of the bankruptcy court?
A) Chapter 11
B) Chapter 13
C) Chapter 7
D) Chapter 12
69) A person filing for bankruptcy under Chapter 11 and left in place to operate the business
during the reorganization proceeding is known as the ________.
A) trustee
B) debtor-in-possession
C) consignor
D) regent
70) What is an executory contract?
A) a contract that cannot be discharged under Chapter 13
B) a contract that the debtor is obliged to perform despite filing for bankruptcy
C) an agreement between several creditors and a single debtor, dividing the debtor’s property
D) a lease that has not been fully performed
71) Which of the following does a Chapter 11 automatic stay provide?
A) automatic discharge of secured debts
B) suspension of certain legal actions against the debtor
C) creditors’ foreclosure on assets given as collateral for loans
D) automatic discharge of unsecured debts
72) Which of the following is true of Chapter 11 of the Bankruptcy Code?
A) Chapter 11 is a rehabilitation form of bankruptcy that permits bankruptcy courts to supervise
the debtor’s plan for the payment of unpaid debts.
B) The filing of a Chapter 11 petition immediately enables creditors to recover the debtor’s
property.
C) Chapter 11 helps the debtor reorganize with a new capital structure so that the debtor emerges
from bankruptcy as a viable concern.
D) Chapter 11 does not permit a debtor to reject executory contracts or unexpired leases.
73) Which of the following is a feature of the Chapter 11 plan of reorganization?
A) an equilateral division of the Chapter 11 estate among all creditors
B) division of the bankruptcy estate according to the debt to be paid to each creditor
C) discharge of a debtor’s unsecured debts and payment of secured debts
D) a proposed new capital structure for a debtor to assume when it emerges from Chapter 11
bankruptcy
74) A(n) ________ provision is a provision whereby the court confirms a plan of reorganization
over an objecting class of creditors if certain requirements are met.
A) cram-down
B) acceptance
C) discharge
D) liquidation
75) Describe the procedure for filing a bankruptcy petition.
76) How does a court order to discharge debts benefit the debtor? Under what consideration do
courts grant a discharge?
77) Explain in brief the constitution of a bankruptcy estate.
78) What is liquidation? How does the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 affect the process of liquidation?
79) Briefly explain the Chapter 11 plan of reorganization.