The Legal Environment of Business and Online Commerce, 7e (Cheeseman)
Chapter 13 Credit, Secured Transactions, and Bankruptcy
1) The property in which the security interest is taken is called collateral.
2) Unsecured credits require collateral to protect the payment of the debt.
3) Legal action cannot be bought against a debtor who is judgment proof.
4) The creditor who has to rely on collateral to secure payment is known as an unsecured
creditor.
5) In a mortgage transaction, the creditor is known as the mortgagee.
6) An improperly recorded document is effective against either subsequent purchasers of the real
property.
7) The deficiency judgment protects the mortgagor from being recovered further in case there is
a foreclosure sale deficiency.
8) A lien release discharges a material person from a mechanic’s lien.
10) In a secured credit, the creditor cannot recover the collateral despite the debtor’s defaults on
the loan.
11) Article 9 of the Uniform Commercial Code governs secured transactions in personal
property.
12) To be valid, a security agreement must set forth the creditor’s rights upon the debtor’s default.
13) Attachment is a situation in which the value of the creditor’s collateral is insufficient to
satisfy the debt it is collated for.
14) A floating lien is a security interest in property that was not in the possession of the debtor
when the security agreement was executed.
15) Perfection of a security interest is establishes the right of a secured creditor against other
creditors who claim an interest in the collateral.
16) Perfection by investment of collateral is one of the methods of perfecting a security interest
under the UCC.
17) Purchase money security interest is an interest a creditor automatically obtains when he or
she extends credit to a consumer to purchase consumer goods.
18) The surety is primarily liable for paying the principal debtor’s debt when it is due in a surety
arrangement.
19) In a guaranty agreement, the guarantor is primarily liable on the debt.
20) There are separate state and federal bankruptcy laws.
21) A voluntary petition is a petition filed by a creditor that states that the debtor has debts.
22) Gifts that a debtor is entitled to receive within 180 days after the petition is filed are part of
the bankruptcy estate.
23) Liquidation is a form of bankruptcy in which the debtor’s exempt property is auctioned.
24) Under Chapter 13, a debtor retains more property than is exempt under Chapter 7 liquidation.
25) An executory contract refers to a contract or lease that has not been fully performed.
26) Ashton borrows $25,000 from Amanda. Amanda lends the money to Ashton without taking
an interest in collateral for the loan. Amanda is relying on Ashton’s credit standing when she
made the loan. What kind of creditor is Amanda?
A) unsecured creditor
B) secured creditor
C) administrative claim creditor
D) post-petition creditor
27) When is a creditor referred to as a secured creditor?
A) when the creditor has been guaranteed payment by a trustee
B) when the creditor gives a loan without security
C) when the creditor has been paid back his debt
D) when the creditor has acquired collateral
28) An arrangement where an owner of real property borrows money from a lender and pledges
the real property as collateral to secure the repayment of the loan is known as ________.
A) consignment
B) foreclosure
C) mortgage
D) assignment
29) A(n) ________ is an instrument that gives a creditor a security interest in the debtor’s real
property that is pledged as collateral for a loan.
A) credit report
B) letter of credit
C) note
D) deed of trust
30) A(n) ________ is an instrument that evidences a borrower’s debt to the lender for a real
property.
A) note
B) consignment
C) accommodation
D) deed of trust
31) The ________ is a statute that requires a mortgage or deed of trust to be recorded in the
county recorder’s office of the county in which the real property is located.
A) recording statute
B) real property statute
C) mortgage statute
D) compilation statute
32) To which of the following type of mortgages does the antideficiency statute apply?
A) foreign currency mortgages
B) home improvement mortgages
C) first purchase money mortgages
D) second purchase money mortgages
33) A contractor’s, laborer’s, and material person’s statutory lien that makes the real property to
which services or materials have been provided security for the payment of the services and
materials is known as ________.
A) material lien
B) judgment lien
C) tax liens
D) mechanic’s lien
34) ________ is a situation in which a creditor agrees to extend credit only if the purchaser
pledges some personal property as collateral for the loan.
A) Floating lien
B) Attachment
C) Mortgage
D) Secured credit
35) Which article of the Uniform Commercial Code governs secured transactions in personal
property?
A) Article 8
B) Article 9
C) Article 18
D) Article 19
36) When a creditor extends credit to a debtor and takes a security interest in some personal
property of the debtor, it is called a ________.
A) super-priority lien
B) collateral claim
C) collateral disposition
D) secured transaction
37) Which of the following transactions occurs when a seller sells goods to a buyer on credit and
retains a security interest in the goods?
A) two-party secured
B) three-party secured
C) perfected
D) attached
38) A(n) ________ refers to a security interest in property that was not in the possession of the
debtor when the security agreement was executed.
A) floating lien
B) after-acquired property
C) attachment
D) future advance
39) ________ is a process that establishes the right of a secured creditor against other creditors
who claim an interest in the collateral.
A) Disposition of collateral
B) Retention of collateral
C) Perfection of a security interest
D) Repossession of a security interest
40) A(n) ________ refers to a document filed by a secured creditor with the appropriate
government office that constructively notifies the world of his or her security interest in personal
property.
A) security disclosure
B) financing statement
C) possession statement
D) custodial statement
41) ________ is an interest a creditor automatically obtains when he or she extends credit to a
consumer to purchase consumer goods.
A) purchase money security interest
B) cumulative security interest
C) future advance monetary interest
D) default interest
42) Which of the following has the highest priority of claim?
A) the first party to secure the interest
B) the first party to attach the interest
C) the first party to perfect the interest
D) the first party to file a financing statement
43) A(n) ________ is a statutory lien given to workers on personal property to which they
furnish services or materials in the ordinary course of business.
A) super-priority lien
B) floating lien
C) artisan’s lien
D) judgment lien
44) An arrangement in which a third party promises to be primarily liable with the borrower for
the payment of the borrower’s debt is referred to as ________.
A) garnishment
B) accommodation
C) surety arrangement
D) guaranty arrangement
45) Which of the following is true about the surety’s liability to pay in a surety arrangement?
A) The surety is secondarily liable for payment.
B) The surety is primarily liable for payment.
C) The principal debtor must be in default before the surety can be approached.
D) The surety can only be approached as a last resort to the creditor.
46) Which of the following is true of a guarantor in a guaranty arrangement?
A) The guarantor is primarily liable the principal debtor’s debt when it is due.
B) The guarantor can be approached even if the principal debtor is not in default.
C) The creditor can seek first remedy from a guarantor.
D) The guarantor has full legal rights to possession of the real property in this type of
arrangement.
47) 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
48) 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
49) 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
50) 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
51) ________ 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
52) 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.
53) Which of the following is determined by the means test?
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) A debtor can pay prepetition debts out of postpetition income.
D) A debtor who has sufficient disposable income to pay prepetition debts qualifies for Chapter
13 bankruptcy.
54) ________ 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
55) A(n) ________ provides for the reduction of a debtor’s debts.
A) extension
B) liquidation
C) limitation
D) composition
56) 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
57) 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
58) 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
59) 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
60) What does the Chapter 11 plan of reorganization set forth?
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
61) Distinguish between secured and unsecured credit.
62) Distinguish between two-party and three-party secured transactions with examples.
63) Outline the priority of claims in secured and unsecured transactions.
64) Explain in brief the constitution of a bankruptcy estate.
65) Explain in brief the Chapter 11 plan of reorganization.
66) The lender in a credit transaction is known as the ________.
67) ________ is a form of credit that does not require any security to protect the payment of the
debt.
68) Personal property that is subject to a security agreement is known as ________.
69) A(n) ________ is the instrument that gives the creditor a security interest in the debtor’s
property that is pledged as collateral.
70) A(n) ________ transaction occurs when a seller sells goods to a buyer who has obtained
financing from a third-party lender that takes a security interest in the goods sold.
71) The term ________ refers to a security interest in property that was not in the possession of
the debtor when the security agreement was executed.
72) ________ refers to an interest a creditor automatically obtains when he or she extends credit
to a consumer to purchase consumer goods.
73) In a(n) ________ arrangement, a third party promises to be primarily liable with the
borrower for the payment of the borrower’s debt.
74) In a(n) ________ arrangement, a third party promises to be secondarily liable for the
payment of another’s debt.
75) Chapter 7 of the Bankruptcy Code deals with ________ form of bankruptcy.
76) Chapter 11 of the Bankruptcy Code deals with ________ form of bankruptcy.
77) The term ________ refers to a document required to be filed by a creditor that states the
amount of his or her claim against the debtor.
78) The suspension of certain legal actions by creditors against a debtor or the debtor’s property
is known as a(n) ________.
79) A contract or lease that has not been fully performed is termed as a(n) ________ contract.
80) If unsecured creditors do not agree to a plan of reorganization, the court can use its ________
and make the dissenting class accept the plan.