42. The __________ interest rate is based on the cost of borrowing offshore U.S. dollars in the global interbank market.
a.
International Rate Exchange
b.
Frankfurt International Trade Rate
c.
London Interbank Offered Rate
d.
New York Exchange Rate
c
Moderate
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
23–1c Description of Loan
Blooms: Comprehension
43. Interest is generally computed on a __________ basis.
a.
yearly
b.
monthly
c.
weekly
d.
daily
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1c Description of the Loan
Blooms: Comprehension
44. A state law that limits the maximum rate of interest that may be charged is called a(n) __________ law.
a.
interest
b.
usury
c.
rate
d.
term
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23-1 Description of the Loan
Blooms: Knowledge
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1c Description of the Loan
Blooms: Knowledge
45. A guaranty that covers all future obligations of the primary debtor to a lender is referred to as a __________ guaranty.
a.
b.
c.
d.
46. With a(n) __________ guaranty, subsidiaries guarantee, or pledge their assets as security for, the parent’s debt.
a.
downstream
b.
upstream
c.
leveraged
d.
subordination
Moderate
23–5g Fraudulent Conveyance Issues
Blooms:Comprehension
47. A(n) __________ subordination is an agreement between two secured creditors by which the subordinating party
agrees that the lien of the other creditor will have priority notwithstanding the relative priorities that the parties’ liens
would otherwise have under applicable law.
a.
unenforceable
b.
debt
c.
lien
d.
equitable
c
Moderate
23–6b Lien Subordination
48. One popular method in Chapter 11 cases is called a(n) __________ bankruptcy, in which the company solicits votes
on its plan of reorganization prior to filing bankruptcy.
a.
prepackaged
b.
cramdown
c.
workout
a
Moderate
23–5c Restricted Versus Continuing
d.
confirmation
49. In the In re Bryan Road case referenced in the text, the main issue before the Florida court was whether a pre
bankruptcy waiver of the automatic stay in a prepetition workout was enforceable. How did the court rule?
a.
After considering a number of factors, the court concluded that the waiver of the automatic stay would be
enforced.
b.
The court ruled as a matter of law that such agreements are contrary to the principles set forth in the federal
bankruptcy statutes and that such agreements are, therefore, unenforceable.
c.
The court ruled as a matter of law that such agreements are enforceable.
d.
The court ruled that such agreements are enforceable only if all other creditors are paid in full.
a
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23-11b Automatic Stay
Blooms: Analysis
50. A Chapter 7 discharge is not available to a debtor who has received a discharge in a bankruptcy filed in the preceding
_____ years or in a Chapter 13 case filed in the preceding _____ years.
a.
two; four
b.
six; seven
c.
eight; six
d.
seven; six
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–14 Individual Debtors
Blooms: Comprehension
51. In the Stern v. Marshall case discussed in the text, the U.S. Supreme Court addressed whether a counterclaim for
tortuous interference with an expected gift, filed in response to a bankruptcy claim for defamation, was a core matter
subject to the jurisdiction of the bankruptcy court. And if it was a core matter subject, did the authority conferred upon the
bankruptcy court violate Article III of the U.S. Constitution? How did the Court rule?
a.
The Court ruled that the tortuous interference counterclaim was a core proceeding but that the bankruptcy
court lacked the constitutional authority to enter a final judgment on the claim.
b.
The Court ruled that the tortuous interference counterclaim was a core proceeding and that the bankruptcy
court had the constitutional authority to enter a final judgment on the claim.
a
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
23-12g Prepackaged Chapter 11 Cases
Blooms: Comprehension
c.
The Court ruled that the tortuous interference counterclaim was not a core proceeding and that the bankruptcy
court lacked the constitutional authority to enter a final judgment on the claim.
d.
The Court ruled that the tortuous interference counterclaim was a core proceeding in part and that the
bankruptcy court had the constitutional authority to enter a final judgment on portions of the claim.
52. If the collateral from one loan is used to secure the obligations on another loan, this is called __________, or
sometimes called a “__________” clause.
a.
perfection, default
b.
cross-collateralization, dragnet
c.
floating lien, dragnet
d.
attached loan, dragnet
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
23–3e Security Agreements
Blooms: Application
53. __________ creditors must file a __________ stating the amount of their claim in a form provided by the bankruptcy
court within time periods established by the jurisdiction in which the case if filed.
a.
Unsecured, notice
b.
Unsecured, proof of claim
c.
Unsecured, automatic stay
d.
Secured, reaffirmation agreement
Moderate
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
23–10f Administration of Claims
Blooms: Application
54. Under a guaranty of __________, the guarantor’s obligation to pay the lender is triggered automatically when the
debtor fails to make a payment when due.
a.
b.
c.
d.
c
a
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–10a Bankruptcy Courts
Blooms: Analysis
55. Which of the following expresses the effect of the D’Oench, Duhme doctrine in relation to federally insured banks?
a.
It makes it harder for federal agencies to bring criminal charges against bank officials who negligently, but not
intentionally, made bad loans.
b.
It makes it easier for federal agencies to bring criminal charges against bank officials who negligently, but not
intentionally, made bad loans.
c.
It makes it harder for federal agencies to collect on outstanding loans by specifically providing that an oral
loan commitment is enforceable so long as at least two bank officials confirm the existence of the oral
agreement and there is no indication that the debtor involved acted in an illegal manner.
d.
It makes it easier for federal agencies to collect on outstanding loans by barring enforcement of any
agreements unless the agreements are in writing and approved contemporaneously by the bank’s board or loan
committee and recorded in the bank’s written records.
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23-8 Special Provisions Applicable to Failed Banks and Other Financial Institutions
Blooms: Comprehension
56. In a __________ bankruptcy under Chapter 11, the debtor solicits votes on its plan of reorganization and only files for
Chapter 11 protection after it has obtained the required votes in favor of the plan.
a.
preapproved
b.
preplanned
c.
prepackaged
d.
prenegotiated
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–13a Workouts
Blooms: Comprehension
57. In CASE 23.3 United States Department of Justice v. Sperry (2013), Sperry, the sole owner of a Subchapter S
corporation that filed bankruptcy, made payments to other creditors before paying the corporation’s federal tax
obligations. Sperry countered that he was released from the tax liens, and claimed the corporation—not him—owed the
‘trust fund taxes.’ The IRS sued. How did the court rule and why?
a.
For the IRS, because Sperry was never properly incorporated and was therefore personally liable.
b.
For Sperry, because the Subchapter S corporation—not Sperry—was liable for the tax obligations.
c.
For the IRS. Sperry’s payments and loans triggered personal liability.
d.
For Sperry, because the IRS failed to give proper notice before seizing the company’s assets.
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–5a Payment Versus Collection
Blooms: Comprehension
Fact Pattern 23-1
Bailey has been making large credit card purchases for months. He has also borrowed money from Jack and Susan,
friends of his, so that he can continue his rather lavish lifestyle involving foreign travel. He borrowed $1,000 from Jack
and $2,000 from Susan. He also borrowed $500 from his mother. Bailey finally decides that he can no longer continue to
make even the minimum payments on his credit cards and considers filing for bankruptcy. He does, however, want to pay
some of his debts. Bailey, therefore, puts off the credit card companies and saves his cash. He starts the New Year off by
paying on January 1 all funds owed to his mother. He was particularly concerned about repaying his mother because he
still lived at home and had some concerns that she would kick him out of the house if he did not repay her. Then, on June
1 he pays Jack; and on July 4, he pays Susan. Bailey proceeds to file bankruptcy on August 2 because he has repaid
anyone he really cares about. He plans to complete the bankruptcy and move to the Caribbean.
58. Refer to Fact Pattern 23–1. Which of the following is true regarding the repayment of the loan to Bailey’s mother?
a.
It will be considered a preference because Bailey’s mother would be considered an insider, and it was made
within one year of the filing for bankruptcy.
b.
Although Bailey’s mother would not be considered an insider, the payment would be considered a preference
because it was made within one year of the filing for bankruptcy.
c.
The filing will be considered a preference only if Bailey and his mother had an agreement that she would
advance the amounts to him again once the bankruptcy was completed.
d.
The payment would not be considered a preference because it was not made within 30 days of the filing for
bankruptcy.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–5f Voidable Preferences
Blooms: Analysis
59. Refer to Fact Pattern 23–1. Which of the following is true regarding the repayment of the loans from Jack and Susan?
a.
The payment to Susan would be considered a preference because it was made within 30 days of the filing for
bankruptcy, but the payment to Jack would not be considered a preference because it was made more than 30
days prior to the bankruptcy filing.
b.
Payments to both Jack and Susan would be considered preferences because they were made within 90 days of
the filing for bankruptcy.
c.
Payments to both Jack and Susan would be considered preferences because Jack and Susan are insiders, and
the payments were made within one year of the bankruptcy filing.
d.
The payments would not be considered preferences.
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
23–11f Personal Liability for Unpaid Taxes
Blooms: Analysis
60. Bank president Spencer had approved significant loan amounts to Bob for the purpose of developing a shopping
center. Spencer was satisfied that the land collateralizing the shopping center loan was sufficient, and Spencer was not
particularly concerned about that loan. Bob, however, requested an additional loan for the purpose of starting a temporary
employee agency. Bob offered to collateralize that loan with his office equipment, but Spencer was uneasy that such
collateral was insufficient. If Spencer decides to go forward with the loan involving the temporary employee agency,
which of the following is true regarding his options?
a.
Spencer should request a cross-default provision and also a cross-collateralization provision.
b.
Spencer should only request a cross-default provision because Article 9 makes cross-collateralization
provisions unenforceable.
c.
Spencer should only request a cross-collateralization provision because Article 9 makes cross-default
provisions unenforceable.
d.
Spencer should request a guarantee from a solvent person or entity because Article 9 makes both cross-default
and cross-collateralization provisions illegal.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1h Events of Default
Blooms: Application
61. Matthew has filed for Chapter 7 bankruptcy relief. He had borrowed money from his best friend, Rick, for the
purchase of a car. Matthew really wants to repay Rick, but does not want to jeopardize his bankruptcy relief and the
discharge of a number of other debts. What option, if any, is open to Matthew?
a.
No options are open to Matthew because any payment to Rick would be considered a voidable preference.
b.
Matthew can reaffirm the debt to Rick, and the bankruptcy judge has no authority to interfere in that decision.
c.
Matthew can reaffirm the debt to Rick, but the bankruptcy judge has the authority to disapprove of the
agreement if the court finds that it is not in Matthew’s best interest.
d.
Matthew can reaffirm the debt to Rick but only up to 50% of the maximum amount owed, and the bankruptcy
judge has the authority to disapprove of the agreement if the court finds that it is not in Matthew’s best interest.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–14a Individual Debtors
Blooms: Analysis
62. Bob goes bankrupt. He has several creditors and a small amount in savings. He owes XYZ Bank $200,000 for which
he used his home as collateral. XYZ Bank properly perfected its interest in the home. Bob additionally owes $3,000 in
alimony to an ex-wife, Sue; $50,000 in unsecured credit card bills; and $5,000 in unsecured debt to his friend Tina. After
all exemptions are satisfied, $205,000 from the sale of the home and $5,000 in a small bank account remain for
distribution to creditors. Which of the following is true regarding priority?
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–5f Voidable Preferences
Blooms: Analysis
a.
All funds are added together and disbursed to the claimants based upon the percentage of each creditor’s claim.
b.
Tina has first priority, the credit card companies are then paid, and XYZ Bank is entitled to any remainder.
c.
XYZ Bank receives $200,000 from the sale of the home, Sue receives $3,000, and the remainder is divided
between the credit card companies and Tina.
d.
Tina has first priority, XYZ Bank is then paid, and the credit card companies divide the remainder.
63. Alice, the president of ABC Bank, had a meeting with Fred to discuss the fact that he was having difficulty making the
payments on his loan that was guaranteed by Sylvia. Fred requested that Alice provide a grace period to Fred and allow
him to miss a few payments without penalty in order to catch up his finances. Alice had no objection. Assuming the
guaranty agreement did not address such situations, is Alice acting prudently and why or why not?
a.
Yes, because Sylvia, as a guarantor, has no rights to oppose any action of the bank.
b.
Yes, because while Sylvia has certain rights in regard to actions taken by the bank, she had no right to oppose
the provision of a grace period since it is unlikely that allowing such a grace period would impair Sylvia’s
interests.
c.
No, because Alice should have obtained the written consent of Sylvia in the form of an affirmation of the
guaranty in view of the grace period.
d.
No, because as a matter of equitable business practice, Alice should have put Sylvia on notice although Alice
did not increase the bank’s exposure by failing to do so.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–5d Discharging the Guarantor
Blooms: Application
64. What is required in a filing for a voluntary petition in bankruptcy? An involuntary petition?
creditor(s) must have valid unsecured claims of at least $10,000 in the aggregate. The
debtor must file the same schedules filed by voluntary debtors.
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23-10g Distribution of Property
Blooms: Application
65. What is a preference under the bankruptcy code? What time period is reviewed to determine if a preference has
occurred? When does a long-term debt payment to a bank qualify under the ordinary course of business exception?
66. Set forth the five events referenced in the text that usually constitute events of default.
67. Define the terms security interest, dragnet clause, and perfection. What are the methods of perfecting a security
interest?
68. Discuss the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) in regards to whether
Chapter 7 or Chapter 13 relief is appropriate.
69. Several commentators have criticized the Bankruptcy Code as too easily excusing individuals and businesses from
honoring their lawful obligations. From a societal standpoint, do you believe that the Bankruptcy Code plays a positive
role in social and economic relationships? What changes, if any, would you recommend?