Chapter 15a If a debtor does not pay a mechanic’s lien, the debtor’s property

Document Type
Test Prep
Book Title
The Legal Environment of Business: Text and Cases: Ethical-- Regulatory-- Global-- and Corporate Issues 8th Edition
Frank B. Cross, Roger LeRoy Miller
1. If a debtor does not pay a mechanic’s lien, the debtor’s property can
be sold to satisfy the debt.
1. An artisan’s lien is possessory.
1. Federal law governs garnishment actions.
1. A surety is primarily liable for the debt of a principal.
1. If a creditor obtains a judgment against a debtor and the debtor cannot
or will not pay the judgment, the dispute is at an end.
1. Creditors may contract with a debtor for discharge of the debtor’s liqui-
dated debts.
1. A guarantor can be required to pay an obligation only after the
principal debtor defaults.
1. Payment of the principal obligation will not discharge the surety from
the obligation.
1. A homestead exemption allows a debtor to subtract the value of the
family home from the amount of a debt.
1. A debtor’s vehicle is never exempt from satisfaction of a judgment debt.
1. Any “person” may be a debtor in a liquidation proceeding.
1. If a debtor’s income is below the median income, there is a
presumption of bankruptcy abuse.
1. A bankruptcy estate consists of all the debtor’s interests in property
currently held, wherever located.
1. The basic duty of a trustee is to collect and reduce to cash the
property in the bankruptcy estate that is not exempt.
1. Certain debtors may not qualify to have all debts discharged in
1. One of the primary effects of a discharge is to relieve the liability of a
1. The same principles that govern the filing of a liquidation petition apply
to reorganization proceedings.
1. On the entry of an order for relief in a reorganization case, the
creditors generally take over the operation of the debtor’s business.
1. Certain liquidation cases may be converted to repayment plan cases
with the consent of the debtor.
1. In a repayment plan case, the plan must provide for payment of all
obligations in full.
1. Residence Painting Company has a claim against Stuart’s property to
satisfy a debt that takes priority over other claims against the same
property. This is
a. a lien.
b. a violation of most state laws.
c. a writ of attachment.
d. a garnishment.
1. Diego performs a contract with Elwood to add a swimming pool to
Elwood’s property, but Elwood does not pay. Diego can file a lien on
Elwood’s property if, from the last date labor or materials were
provided, he acts
a. immediately.
b. within 60 to 120 days.
c. within two years.
d. within a reasonable time.
1. Delia refuses to pay Ewing $500 in cash on their contract to repair cer-
tain theater sets, which Ewing still possesses. Ewing’s lien on the sets
will terminate
a. if Ewing continues to maintain possession.
b. if Ewing does not file a written notice of lien within thirty days.
c. if Ewing voluntarily surrenders possession.
d. within thirty days.
1. Francie’s debt to Gage is past due. Gage brings a legal action against
Francie to collect the debt. To ensure that a judgment in Gage’s favor
will be collectible, Gage asks the court to order the seizure of Francie’s
property. This is a request for
a. a guaranty (or suretyship) contract.
b. an order that would violate most state laws.
c. a writ of attachment.
d. an order of receivership.
1. Flip’s debt to George is past due. George brings a legal action against
Flip to collect the debt. George asks the court to order Home Bank, in
which Flip has an account, to pay a portion of the funds to George.
This is a request for
a. a writ of execution.
b. an order of garnishment.
c. an order that would violate most state laws.
d. an artisan’s lien.
1. Ping’s debt to Oak Furniture Warehouse is past due. Oak obtains a
judgment against Ping, but Ping refuses to pay it. Oak asks the court
for an order that directs the sheriff to seize and sell any of Ping’s
nonexempt real or personal property that is within the court’s
geographic jurisdiction. This is a request for
a. a writ of execution.
b. a composition agreement.
c. an order that would violate most state laws.
d. an order of garnishment.
1. Liu and Midge—Nero’s creditorscontract with Nero for the discharge of
Nero’s liquidated debts on payment of a lesser sum. This is
a. a composition agreement.
b. a subrogation.
c. a suretyship agreement.
d. in violation of most states’ laws.
1. Speedy Delivery Company buys a white van from Tom’s Terrific
Vehicles, on credit under a guaranty signed by Ulysses, Speedy’s presi-
dent, making him personally liable if Speedy does not pay. Ulysses is
a. a surety.
b. a lienor.
c. a guarantor.
d. a creditor.
1. Doral, Eduard, and Francesca are co-sureties of Glenda’s debt to Hi-
Credit Company. Doral pays Glenda’s entire debt. Doral’s right to seek
proportionate payments from Eduard and Francesca is the right of
a. contribution.
b. redemption.
c. reimbursement.
d. subrogation.
1. Laurel defaults on a loan owed to Maverick Bank. As a creditor,
Maverick may attempt to place liens on all of Laurel’s property except
a. motor vehicles used to commute to work.
b. stock in various corporations.
c. items that Laurel selects.
d. vacant commercial property.
1. Kenyon files a petition for bankruptcy. Kenyon must include with the
a. a plan to turn over his future income to the trustee.
b. a certificate proving attendance at a credit-counseling briefing.
c. a provision of adequate means for the petition’s execution.
d a statement of preference for one creditor over another.
1. Verna files a petition in bankruptcy in a liquidation proceeding. If the
court administers the means test and concludes that Verna is abusing
the bankruptcy process by filing for a liquidation, the court will most
a. force Verna to file for relief through an individual repayment plan.
b. discharge Verna’s debts.
c. distribute Verna’s property to Verna’s creditors.
d. issue an automatic stay against any actions by Verna’s creditors.
1. Hasty Pastries declares bankruptcy, idling Hasty’s delivery vehicles. The
court can compel Hasty to make periodic cash payments to a creditor
with a secured interest in the vehicles to offset the depreciation in their
value. This is
a. the adequate protection doctrine.
b. the avoidance doctrine.
c. a preferential transfer.
d. the automatic stay.
1. Teona files a voluntary petition in bankruptcy for relief through a
liquidation. Debts that will not be discharged include claims for
a. domestic-support obligations.
b. money to be paid for goods not delivered.
c. contributions to employee benefit plans.
d. long overdue credit-card debt.
1. Reconstruction Building Services receives a discharge in bankruptcy,
even though some creditors hold judgments on overdue debts against it
and others filed actions to collect on overdue debts before the bank-
ruptcy. Reconstruction’s discharge will
a. absolve the liability of any co-debtors.
b. permit the debtor to enter into reaffirmation agreements.
c. allow the debtor to file a petition for a reorganization.
d. prohibit actions and void judgments regarding overdue debts.
1. Ronaldo agrees to pay Simplex Cash Store a debt that is otherwise
dischargeable in bankruptcy. This is
a. a reaffirmation.
b. a liquidation.
c. a reorganization.
d. a petition.
1. Swim & Trim Fitness Corporation wants to formulate a plan under
which it pays a portion of its debts and is discharged of the remainder
while continuing in business. To accomplish this goal, Swim & Trim
should file a petition in bankruptcy for relief through
a. a liquidation.
b. a reorganization.
c. a repayment plan.
d. a family-farmer bankruptcy plan.
1. To adjust debt and institute a repayment plan, Charliewho is not a
corporation, a partnership, or a family farmer or fishermanmay file a
petition in bankruptcy for relief through
a. a liquidation.
b. a reorganization.
c. a repayment plan.
d. a family-farmer bankruptcy plan.
1. Tippi believes that she needs to obtain a discharge in bankruptcy
through an individual’s repayment plan. This proceeding can be initiated
by a filing of a petition by
a. a creditor.
b. a debtor.
c. a corporation.
d. a partnership.
1. Wilbur files a petition in bankruptcy for relief through an individual’s
repayment plan. Wilbur is granted a discharge. Debts that will not be
discharged include claims for
a. contributions to employee benefit plans.
b. money to be paid for services not rendered.
c. fraudulently incurred debt.
d. long overdue credit-card debt.
1. Smartt Software Company borrows $10,000 from Term ‘N All Loans,
Inc., but cannot repay the loan when it comes due. Term ‘N All refuses
to extend the time for repayment unless Smartt can provide an
acceptable surety. Uno Venture Corporation agrees to act as a surety
for the loan after Smartt offers the firm a discount on software and
shows Uno financial statements, compiled with Term ‘N All’s assistance,
that misrepresent Smartt’s financial situation. Later, after Uno uses the
discount to buy software, Smartt again defaults on repayment of the
loan, and Term ‘N All files a suit against Uno to collect the amount of
the debt. Is Uno liable? Why or why not?
1. Current City (CC) is a retail seller of television sets. CC sells Dhani a
$5,000 large-screen, high-definition, plasma set on a retail installment
security agreement in which he pays $100 down and agrees to pay the
balance in equal installments. CC retains a security interest in the set,
and perfects that interest by filing a financing statement centrally. Two
months later, Dhani is in default on the payments to CC and is
involuntarily petitioned into bankruptcy by other creditors. Discuss CC’s
right to repossess the TV set and whether CC has priority over the
trustee in bankruptcy to any proceeds from the disposal of the set.

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