Certified Bankruptcy Specialist (CBS) — Questions and Answers

Question 1: A debtor proposes to pay a car loan at the 910-day cramdown value. The creditor objects, arguing the 910-day rule applies. The car was purchased 950 days before the petition date. Which party prevails?

Neither; the court must set a value equal to the original purchase price
The creditor, because motor vehicles can never be crammed down
The debtor, because the car was purchased more than 910 days before filing and the cramdown rule applies (Correct answer)
The creditor, because 950 days is close enough to 910 days

Correct answer: The debtor, because the car was purchased more than 910 days before filing and the cramdown rule applies

The 910-day hanging paragraph protection only applies to vehicles purchased within 910 days of the petition date; a purchase 950 days prior falls outside the restriction, allowing cramdown.

Question 2: Which of the following best describes 'blockage discount' in bankruptcy asset valuation?

A discount applied because the asset is illiquid and hard to transfer
A reduction for minority interest in a closely-held company
A discount reflecting the time needed to obtain regulatory approval for a sale
A reduction in per-share value when a large block of stock would depress the market if sold at once (Correct answer)

Correct answer: A reduction in per-share value when a large block of stock would depress the market if sold at once

A blockage discount recognizes that selling a large securities position would depress the market price below the quoted per-share value.

Question 3: Under 11 U.S.C. § 541(a)(5), an inheritance received within how many days after the petition date becomes property of the bankruptcy estate?

60 days
90 days
180 days (Correct answer)
365 days

Correct answer: 180 days

Property acquired by bequest, devise, or inheritance within 180 days after filing is included in the bankruptcy estate under § 541(a)(5).

Question 4: Which factor is most important for effective delegation in Certified Bankruptcy Specialist?

Keeping all important tasks for yourself
Matching tasks to team members' skills and development goals (Correct answer)
Assigning tasks to the newest team member
Delegating only unpleasant tasks

Correct answer: Matching tasks to team members' skills and development goals

Effective delegation considers team members' current skills and development goals to ensure tasks are completed well and people grow.

Question 5: A Chapter 11 debtor seeks to sell substantially all its assets outside the ordinary course of business. What is required?

Unanimous consent of all creditor classes
Filing an amended plan of reorganization first
Approval by the U.S. Trustee only
Court approval after notice and a hearing, typically through a § 363 sale (Correct answer)

Correct answer: Court approval after notice and a hearing, typically through a § 363 sale

Sales outside the ordinary course of business require court authorization under § 363(b) after notice to creditors and an opportunity for hearing.

Question 6: What standard governs approval of a Chapter 11 disclosure statement?

It must be certified by an independent auditor as accurate
It must be approved by a majority of unsecured creditors before filing
It must contain adequate information for a hypothetical reasonable investor to make an informed judgment about the plan (Correct answer)
It must contain a liquidation analysis approved by the U.S. Trustee

Correct answer: It must contain adequate information for a hypothetical reasonable investor to make an informed judgment about the plan

Under § 1125(a), a disclosure statement must provide 'adequate information'—enough for a reasonable creditor to evaluate the proposed plan.

Question 7: A debtor's home was damaged by fire two months before filing. Insurance proceeds of $40,000 are pending payment. Are these proceeds exempt under the homestead exemption?

Yes, automatically under federal law regardless of state law
No, because insurance proceeds are personal property, not real estate
No, because the home no longer exists as of the petition date
Yes, if state law extends the homestead exemption to insurance proceeds replacing the home (Correct answer)

Correct answer: Yes, if state law extends the homestead exemption to insurance proceeds replacing the home

Many states extend homestead exemption protection to insurance proceeds temporarily replacing the homestead, preserving the debtor's ability to rebuild.

Question 8: How does the Bankruptcy Code treat post-petition interest on unsecured claims in a solvent Chapter 11 debtor's estate?

Post-petition interest on unsecured claims must be approved by the court annually
Post-petition interest accrues only for creditors holding claims over $1 million
Unsecured creditors in a solvent estate may be entitled to post-petition interest before equity receives a distribution (Correct answer)
Post-petition interest is never allowed on unsecured claims in Chapter 11

Correct answer: Unsecured creditors in a solvent estate may be entitled to post-petition interest before equity receives a distribution

If the estate is solvent, the absolute priority rule and § 726(a)(5) logic require payment of post-petition interest to unsecured creditors before equity holders recover anything.

Question 9: Which costing method assigns only variable manufacturing costs to products and treats fixed overhead as a period cost?

Absorption costing
Activity-based costing
Standard costing
Variable (direct) costing (Correct answer)

Correct answer: Variable (direct) costing

Variable (direct) costing includes only direct materials, direct labor, and variable overhead in product cost, expensing fixed overhead immediately.

Question 10: A CBS professional advises a client to use a Debt Management Plan (DMP) post-bankruptcy for remaining non-dischargeable debts. Which agency typically administers DMPs?

The Federal Trade Commission
A nonprofit credit counseling agency (Correct answer)
The Consumer Financial Protection Bureau
The U.S. Trustee Program

Correct answer: A nonprofit credit counseling agency

DMPs are administered by nonprofit credit counseling agencies, which negotiate with creditors to consolidate payments and often reduce interest rates for enrolled clients.

Question 11: What happens to a debtor's net operating loss (NOL) carryforward when debt is discharged in a bankruptcy case?

The NOL can be carried forward without any reduction
The NOL must be reduced dollar-for-dollar by the amount of excluded cancellation of debt income (Correct answer)
The NOL is transferred to secured creditors as compensation
The NOL is completely eliminated upon discharge

Correct answer: The NOL must be reduced dollar-for-dollar by the amount of excluded cancellation of debt income

Under IRC Section 108(b), tax attributes such as NOLs must be reduced dollar-for-dollar by the amount of COD income excluded from gross income.

Question 12: A post-bankruptcy debtor disputes a collection account on their credit report that was discharged. The bureau verifies it as accurate without reinvestigation. What is the debtor's next step under the FCRA?

Request a new bankruptcy discharge
File a Chapter 13 petition to address the error
Sue the credit bureau in federal or state court (Correct answer)
Contact the U.S. Trustee's office

Correct answer: Sue the credit bureau in federal or state court

Under FCRA § 1681i, if a bureau fails to conduct a proper reinvestigation, the consumer may sue in federal or state court and seek actual and punitive damages.

Question 13: A secured creditor holds a lien on equipment appraised at $50,000 with a claim of $80,000. In a Chapter 13 plan, what interest rate must be paid on the secured portion under Till v. SCS Credit Corp.?

Zero percent because the creditor is partially unsecured
The federal judgment rate in effect on the confirmation date
The contract rate stated in the original loan agreement
Prime rate plus a risk adjustment reflecting the debtor's circumstances (Correct answer)

Correct answer: Prime rate plus a risk adjustment reflecting the debtor's circumstances

Till established the formula approach: prime rate plus an upward adjustment for risk, applied to the collateral's present value.

Question 14: Which valuation method is most appropriate for a debtor's closely-held business interest when the business is a going concern?

Income capitalization or discounted cash flow analysis (Correct answer)
Replacement cost of all fixed assets
Liquidation value of tangible assets only
Book value per the most recent tax return

Correct answer: Income capitalization or discounted cash flow analysis

Going-concern value of a closely-held business is best captured by income-based approaches such as capitalized earnings or DCF.

Question 15: A Chapter 11 debtor's balance sheet shows goodwill of $50M. Under fresh-start accounting at emergence, what happens to pre-petition goodwill?

It is eliminated and new goodwill may be recorded based on reorganization value (Correct answer)
It is reclassified as a liability subject to compromise
It is retained at its original amount
It is immediately expensed as a reorganization cost

Correct answer: It is eliminated and new goodwill may be recorded based on reorganization value

Pre-petition goodwill is eliminated entirely under fresh-start accounting; new goodwill is only recognized if reorganization value exceeds fair value of net assets.

Question 16: Under Chapter 11, what is the voting threshold required for a class of creditors to accept a reorganization plan?

Three-fourths in amount and two-thirds in number of claims voting
At least two-thirds in amount and more than one-half in number of allowed claims voting (Correct answer)
Unanimous consent of all creditors within the class
A simple majority in both amount and number of claims voting

Correct answer: At least two-thirds in amount and more than one-half in number of allowed claims voting

Under § 1126(c), a class of claims accepts a plan when holders of at least two-thirds in amount and more than one-half in number of allowed claims actually voting approve it.

Question 17: How does restructuring corporate debt differ from individual debt restructuring?

It always results in liquidation of company assets.
It involves negotiations with multiple creditors and institutions. (Correct answer)
It follows the same process as personal debt consolidation.
It does not require creditor approval.

Correct answer: It involves negotiations with multiple creditors and institutions.

Corporate debt restructuring is a complex process involving large sums and numerous stakeholders, including banks, bondholders, and other financial institutions. Unlike individual debt, which might involve a few personal loans, corporate debt often requires intricate negotiations and legal agreements to modify terms or reduce principal amounts across a diverse group of sophisticated creditors. This complexity necessitates extensive negotiations with multiple parties.

Question 18: In a Chapter 13 plan, how must domestic support obligations (DSOs) such as child support be treated?

DSOs may be deferred until after all secured claims are paid
DSOs must be paid in full as first-priority claims, and the debtor must remain current on post-petition DSO payments (Correct answer)
DSOs are treated as general unsecured claims and paid pro rata
DSOs are discharged upon plan completion if the debtor pays at least 50%

Correct answer: DSOs must be paid in full as first-priority claims, and the debtor must remain current on post-petition DSO payments

Under §§ 507(a)(1) and 1322(a)(2), DSOs hold first priority and must be paid in full; additionally, the debtor must be current on all post-petition DSO payments to obtain confirmation and discharge.

Question 19: What is the primary goal of Business Bankruptcy & Reorganization in Certified Bankruptcy Specialist?

Maximizing revenue at all costs
Avoiding all risk
Ensuring accuracy, compliance, and financial integrity (Correct answer)
Minimizing all expenses

Correct answer: Ensuring accuracy, compliance, and financial integrity

Business Bankruptcy & Reorganization in Certified Bankruptcy Specialist focuses on maintaining accuracy, compliance, and financial integrity.

Question 20: Under ASC 852, how should a debtor-in-possession reclassify liabilities that are subject to compromise?

They are reclassified as contingent liabilities in the footnotes only
They remain in their original balance sheet classifications
They are written off entirely until the plan is confirmed
They are moved to a separate 'Liabilities Subject to Compromise' line item (Correct answer)

Correct answer: They are moved to a separate 'Liabilities Subject to Compromise' line item

ASC 852 requires that liabilities subject to compromise be segregated and presented as a separate line item on the balance sheet.

Question 21: A Chapter 11 plan provides that Class 3 unsecured creditors will receive 30 cents on the dollar over five years. Class 3 votes to reject. For cramdown, the plan must not discriminate unfairly and must be:

Confirmed by at least one impaired class
Approved by the U.S. Trustee
Fair and equitable (Correct answer)
Supported by the creditors' committee

Correct answer: Fair and equitable

Under § 1129(b), a plan may be confirmed over a rejecting class if it does not discriminate unfairly and is fair and equitable with respect to that class.

Question 22: Which statement accurately describes the 'cramdown' mechanism in Chapter 11 under 11 U.S.C. § 1129(b)?

It eliminates the absolute priority rule for individual debtors only
It allows confirmation over a dissenting class if the plan is fair and equitable and does not discriminate unfairly (Correct answer)
It allows confirmation despite objections from all creditor classes if feasibility is shown
It requires full payment of all secured claims regardless of collateral value

Correct answer: It allows confirmation over a dissenting class if the plan is fair and equitable and does not discriminate unfairly

Cramdown under § 1129(b) permits plan confirmation over a rejecting class if the plan does not discriminate unfairly and is fair and equitable as to that class.

Question 23: What ethical consideration is paramount in Asset Valuation & Exemptions for Certified Bankruptcy Specialist?

Maximizing profits
Following personal judgment only
Minimizing workload
Maintaining objectivity, transparency, and fiduciary duty (Correct answer)

Correct answer: Maintaining objectivity, transparency, and fiduciary duty

Ethical practice in this area requires objectivity, transparency, and adherence to fiduciary responsibilities.

Question 24: For Chapter 7 asset cases, the trustee must file a report of no distribution (no-asset report) or administer assets. What triggers an asset case designation?

Any asset listed on Schedule A/B regardless of exemption status
Assets exceeding $1,000 in aggregate non-exempt value
Creditor claims totaling more than the debtor's exempt property
The trustee identifies non-exempt assets that are not burdensome and have realizable value (Correct answer)

Correct answer: The trustee identifies non-exempt assets that are not burdensome and have realizable value

A case becomes an asset case when the trustee finds property that is not fully exempt, is not burdensome, and has sufficient value to justify administration.

Question 25: A secured creditor holds a lien on a debtor's commercial building worth $500,000 with a $600,000 claim. What is the creditor's unsecured deficiency claim?

$500,000
$0 because liens survive bankruptcy
$100,000 (Correct answer)
$600,000

Correct answer: $100,000

The deficiency claim equals the amount by which the secured claim exceeds the collateral value: $600,000 - $500,000 = $100,000.

Question 26: Under Chapter 11, what is the effect of a confirmed plan binding on a creditor who did not receive actual notice of the bankruptcy but had a claim against the debtor?

The U.S. Trustee automatically represents unknown creditors and their claims are deemed accepted
If the creditor was unknown and not scheduled, the discharge may not bind them as due process requires notice (Correct answer)
Unknown creditors have 30 days after confirmation to file late claims and participate in distributions
All creditors, known or unknown, are bound by a confirmed plan regardless of whether they received notice

Correct answer: If the creditor was unknown and not scheduled, the discharge may not bind them as due process requires notice

The Supreme Court in Tulsa Professional Collection Services v. Pope held that due process requires notice to known creditors; creditors without notice may not be bound by the discharge.

Question 27: A debtor exempts a vehicle worth $8,000 using the federal motor vehicle exemption of $4,450 and the federal wildcard exemption. The wildcard is $1,475 plus unused homestead. The debtor has no homestead. What is the maximum vehicle equity the debtor can protect?

$4,450
$8,000
$7,000
$5,925 (Correct answer)

Correct answer: $5,925

The motor vehicle exemption ($4,450) plus the base wildcard ($1,475) totals $5,925 in protected equity.

Question 28: What is a 'cram down' in the context of Chapter 11 bankruptcy?

Eliminating all unsecured debt without creditor consent
Confirming a plan over the objection of a dissenting class of creditors if the plan meets statutory requirements (Correct answer)
Forcing the debtor to liquidate assets immediately upon filing
Requiring secured creditors to accept below-market interest rates

Correct answer: Confirming a plan over the objection of a dissenting class of creditors if the plan meets statutory requirements

A cram down under § 1129(b) allows plan confirmation over a rejecting class if the plan is fair and equitable and does not discriminate unfairly.

Question 29: What is the role of documentation in Business Bankruptcy & Reorganization for Certified Bankruptcy Specialist?

Only for tax season
Creating an auditable trail of all transactions and decisions (Correct answer)
Optional paperwork
Management reports only

Correct answer: Creating an auditable trail of all transactions and decisions

Thorough documentation creates an auditable trail essential for compliance and transparency.

Question 30: How does technology support Business Bankruptcy & Reorganization in Certified Bankruptcy Specialist?

It replaces all human judgment
It automates processes, reduces errors, and improves reporting (Correct answer)
It is not needed
It complicates processes

Correct answer: It automates processes, reduces errors, and improves reporting

Technology automates routine processes, reduces manual errors, and enables better reporting and analysis.

Question 31: Which of the following assets is NOT excludable or exemptible under any provision of the Bankruptcy Code regardless of state law?

ERISA-qualified 401(k) plans
Non-ERISA deferred compensation with no anti-alienation clause (Correct answer)
Education savings accounts under § 529
IRA accounts up to the statutory cap

Correct answer: Non-ERISA deferred compensation with no anti-alienation clause

Non-ERISA deferred compensation lacking anti-alienation restrictions cannot rely on § 541(c)(2) exclusion and may have limited or no exemption under state law.

Question 32: What happens when errors are discovered in Business Bankruptcy & Reorganization for Certified Bankruptcy Specialist?

Ignore them
Investigate, correct, document, and implement preventive measures (Correct answer)
Blame others
Wait until audit

Correct answer: Investigate, correct, document, and implement preventive measures

Errors must be promptly investigated, corrected, documented, and followed by measures to prevent recurrence.

Question 33: A post-Chapter 13 debtor received a hardship discharge before completing all plan payments. How does Fannie Mae treat this for mortgage qualification purposes?

Same as a completed Chapter 13 discharge — 2-year wait
No waiting period if the hardship was outside the debtor's control
Same as a Chapter 7 discharge — 4-year wait from filing date (Correct answer)
The debtor is permanently ineligible for conventional financing

Correct answer: Same as a Chapter 7 discharge — 4-year wait from filing date

Fannie Mae treats a Chapter 13 hardship discharge like a Chapter 7, imposing a 4-year waiting period from the filing date rather than the 2-year period for completed plans.

Question 34: What is the 'new value exception' to the absolute priority rule in Chapter 11?

Senior creditors waive the absolute priority rule if they receive new equity in the reorganized company
Administrative claimants may defer payment if they provide new services to the reorganized debtor
Unsecured creditors can receive equity in lieu of cash payments without violating priority rules
Existing equity holders may retain interests if they contribute new money or value equal to or exceeding the value they receive (Correct answer)

Correct answer: Existing equity holders may retain interests if they contribute new money or value equal to or exceeding the value they receive

The new value exception allows pre-petition equity to retain interests if they contribute reasonably equivalent new capital, though its scope remains debated post-203 North LaSalle.

Question 35: What is 'substantive consolidation' in multi-entity Chapter 11 cases?

The appointment of a single trustee to oversee all affiliated debtors
The merger of multiple bankruptcy cases into one docket for administrative efficiency only
The consolidation of all secured and unsecured claims into a single class
The pooling of assets and liabilities of multiple affiliated debtors into a single estate for distribution purposes (Correct answer)

Correct answer: The pooling of assets and liabilities of multiple affiliated debtors into a single estate for distribution purposes

Substantive consolidation pools the assets and liabilities of related entities so creditors of each entity share in the combined estate rather than only their obligor's assets.

Question 36: In Chapter 11, what is the role of the Official Committee of Unsecured Creditors (UCC)?

To replace the debtor in possession as the operator of the business
To serve as the court's appointed expert on valuation matters
To represent the interests of general unsecured creditors and participate in plan negotiations (Correct answer)
To approve or reject all DIP financing arrangements

Correct answer: To represent the interests of general unsecured creditors and participate in plan negotiations

The UCC under § 1102 is appointed by the U.S. Trustee and has standing to investigate the debtor, negotiate the plan, and retain professionals at estate expense.

Question 37: Why is credit counseling important for individuals facing financial difficulties?

It guarantees debt forgiveness.
It helps individuals manage debt and improve financial literacy. (Correct answer)
It allows individuals to avoid repaying loans.
It removes the need for personal budgeting.

Correct answer: It helps individuals manage debt and improve financial literacy.

Credit counseling provides invaluable support to individuals struggling with debt by offering expert advice and resources. Counselors help clients understand their financial situation, develop realistic budgets, and explore options like debt management plans. This process enhances financial literacy, enabling individuals to make better financial decisions and work towards debt repayment.

Question 38: Under the '240-day rule' for income tax debt dischargeability, the IRS assessment must have occurred:

More than 240 days before the bankruptcy petition date (Correct answer)
At least 240 days after the tax return due date
Exactly 240 days before the bankruptcy petition date
Less than 240 days before the bankruptcy petition date

Correct answer: More than 240 days before the bankruptcy petition date

The 240-day rule requires that the IRS assessed the tax liability more than 240 days before the bankruptcy petition date as one condition for potential dischargeability.

Question 39: A Chapter 13 debtor seeks to strip off (avoid) a wholly unsecured junior mortgage lien. Which condition must be met?

The debtor must have at least 20% equity in the home after the strip-off
The junior mortgage must be more than 10 years old
The value of the collateral must be less than the amount owed on senior liens, leaving the junior lien entirely unsecured (Correct answer)
The first mortgage must be in default

Correct answer: The value of the collateral must be less than the amount owed on senior liens, leaving the junior lien entirely unsecured

Lien stripping of a junior mortgage is permitted when the property's value does not exceed the amount owed on senior liens, making the junior mortgage wholly unsecured.

Question 40: How does technology support Asset Valuation & Exemptions in Certified Bankruptcy Specialist?

It complicates processes
It is not needed
It replaces all human judgment
It automates processes, reduces errors, and improves reporting (Correct answer)

Correct answer: It automates processes, reduces errors, and improves reporting

Technology automates routine processes, reduces manual errors, and enables better reporting and analysis.

Question 41: When a Chapter 11 reorganized debtor emerges from bankruptcy, how are pre-petition tax attributes such as NOLs typically treated?

They are reduced by the amount of COD income excluded from gross income during the bankruptcy case (Correct answer)
They are auctioned off to creditors as part of the plan of reorganization
They are permanently forfeited upon confirmation of the reorganization plan
They are fully preserved and available to the reorganized entity without any reduction

Correct answer: They are reduced by the amount of COD income excluded from gross income during the bankruptcy case

Under IRC Section 108(b), pre-petition tax attributes including NOL carryforwards must be reduced by the excluded COD income, reducing future tax benefits in exchange for the upfront exclusion.

Question 42: Which exemption system applies when a debtor has been domiciled in multiple states during the 730 days before filing?

The exemptions of whichever state the debtor resided in longest during the 730-day period (Correct answer)
The exemptions of the debtor's prior state of domicile for the entire 730-day period
Federal exemptions always apply when domicile is disputed
Exemptions of the state where the debtor resides on the petition date

Correct answer: The exemptions of whichever state the debtor resided in longest during the 730-day period

Under § 522(b)(3)(A), if the debtor has not been domiciled in one state for the full 730 days, exemptions are determined by the state where the debtor resided for the greater portion of those 730 days.

Question 43: Which regulatory framework most impacts Creditor Rights & Negotiations in Certified Bankruptcy Specialist?

No regulations apply
Only internal policies
Federal and state regulatory requirements specific to the industry (Correct answer)
International standards only

Correct answer: Federal and state regulatory requirements specific to the industry

Creditor Rights & Negotiations is governed by federal and state regulations that must be followed for compliance.

Question 44: What is 'cancellation of debt' (COD) income and how does bankruptcy affect it?

A tax credit given to debtors who successfully discharge debt
Income recognized when a debt is forgiven; bankruptcy provides an exclusion from gross income under IRC Section 108 (Correct answer)
Income generated by selling assets during the bankruptcy process
A penalty the IRS assesses for filing bankruptcy

Correct answer: Income recognized when a debt is forgiven; bankruptcy provides an exclusion from gross income under IRC Section 108

COD income arises when a creditor cancels a debt, which the IRS treats as taxable income; however, IRC Section 108(a)(1)(A) excludes COD income from gross income when the discharge occurs in a Title 11 bankruptcy case.

Question 45: Which 'badges of fraud' is most commonly cited as evidence of actual fraudulent intent in transfer avoidance litigation?

The transfer was made to an unrelated third party
The debtor had substantial assets remaining after the transfer
The transfer was made for fair market value
The transfer was made to an insider shortly before filing bankruptcy (Correct answer)

Correct answer: The transfer was made to an insider shortly before filing bankruptcy

Transfers to insiders (family members, business partners) shortly before bankruptcy are classic badges of fraud indicating intent to hinder creditors.

Question 46: A debtor files Chapter 7 and owes income taxes from 5 years ago — the return was filed on time and the IRS assessed the tax 3 years ago. No fraud was involved. Are these taxes potentially dischargeable?

Yes, but only if the debtor also completes a tax repayment plan first
No, because income taxes owed to the federal government are always non-dischargeable
No, because the assessment must occur more than 5 years before filing
Yes, because the 3-year, 240-day, and no-fraud requirements are all satisfied (Correct answer)

Correct answer: Yes, because the 3-year, 240-day, and no-fraud requirements are all satisfied

Income taxes may be discharged in bankruptcy when (1) the return was due more than 3 years ago, (2) the IRS assessed the tax more than 240 days ago, and (3) the return was not fraudulent — all three are satisfied here.

Question 47: Under the Internal Revenue Code, what is a 'bankruptcy estate' for tax purposes?

The amount owed to the IRS at the time of filing
A separate taxable entity created when an individual files Chapter 7 or Chapter 11 bankruptcy (Correct answer)
A special trust established by the bankruptcy court
The total assets listed in the bankruptcy petition

Correct answer: A separate taxable entity created when an individual files Chapter 7 or Chapter 11 bankruptcy

Under IRC Section 1398, the bankruptcy estate is a separate taxable entity created when an individual files Chapter 7 or Chapter 11 bankruptcy.

Question 48: What is a 'prepackaged' Chapter 11 bankruptcy?

A liquidating Chapter 11 with a pre-arranged sale to a single buyer
A reorganization where the debtor solicits creditor votes on a plan before filing the bankruptcy petition (Correct answer)
A bankruptcy filing where all assets are pre-sold to a stalking horse bidder
A Chapter 11 case where the debtor pre-negotiates DIP financing before filing

Correct answer: A reorganization where the debtor solicits creditor votes on a plan before filing the bankruptcy petition

In a prepackaged Chapter 11, creditors vote on and accept the plan before the bankruptcy petition is filed, allowing for a faster reorganization.

Question 49: Which bankruptcy chapter allows a debtor to repay non-dischargeable priority tax debts in a structured plan without ongoing interest penalties?

Chapter 11
Chapter 7
Chapter 13 (Correct answer)
Chapter 12

Correct answer: Chapter 13

Chapter 13 allows individuals with regular income to repay non-dischargeable priority tax debts over a 3-to-5-year plan, often halting penalty accrual and providing an organized repayment structure.

Question 50: What is IRS Form 982 used for in the context of a bankruptcy discharge?

To request an IRS audit reconsideration following a bankruptcy discharge
To file the bankruptcy estate's annual income tax return with the IRS
To report the exclusion of COD income from gross income and document the corresponding reduction of tax attributes (Correct answer)
To apply for innocent spouse relief from joint tax liability after bankruptcy

Correct answer: To report the exclusion of COD income from gross income and document the corresponding reduction of tax attributes

Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) is attached to the debtor's tax return to claim the Title 11 exclusion and report the mandatory reduction of tax attributes like NOLs.

Certified Bankruptcy Specialist (CBS)

The CBS credential, awarded by the American Board of Certification (ABC), certifies attorneys in consumer bankruptcy, business bankruptcy, or creditors' rights law. The exam tests expertise in bankruptcy law and procedures, debtor-creditor rights, asset valuation, exemptions, reorganization plans, and tax implications.

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