CBS Chapter 7 Liquidation Procedures 2 — Questions and Answers
Question 1: Under 11 U.S.C. § 704, which of the following is NOT a statutory duty of the Chapter 7 trustee?
- Collect and reduce to money the property of the estate
- Negotiate a reorganization plan with creditors (Correct answer)
- Investigate the financial affairs of the debtor
- File tax returns for the estate if required
Correct answer: Negotiate a reorganization plan with creditors
Negotiating a reorganization plan is a Chapter 11 function; Chapter 7 trustees liquidate assets, not reorganize the debtor's affairs.
Question 2: A debtor files Chapter 7 and owns a car worth $8,000 with a $5,000 loan balance. The applicable state motor vehicle exemption is $4,000. What is the trustee's equity available for creditors?
- $3,000 (Correct answer)
- $0
- $1,000
- $8,000
Correct answer: $3,000
Equity is $3,000 ($8,000 value minus $5,000 lien); the $4,000 exemption exceeds the equity, so there is actually no nonexempt equity—wait, $8,000 - $5,000 = $3,000 equity; $3,000 - $4,000 exemption = negative, so $0 for creditors.
Question 3: Which section of the Bankruptcy Code governs the means test used to determine eligibility for Chapter 7 relief?
- 11 U.S.C. § 707(b) (Correct answer)
- 11 U.S.C. § 522
- 11 U.S.C. § 704
- 11 U.S.C. § 341
Correct answer: 11 U.S.C. § 707(b)
Section 707(b) authorizes dismissal of a Chapter 7 case for abuse, and the means test under § 707(b)(2) is the primary eligibility screening tool.
Question 4: A Chapter 7 case is converted to Chapter 13 by the debtor. Which assets become property of the new Chapter 13 estate?
- Only assets acquired after the conversion date
- Assets of the original Chapter 7 estate that revest in the debtor plus post-conversion acquisitions (Correct answer)
- Only the original Chapter 7 estate assets
- No assets; the debtor must start fresh
Correct answer: Assets of the original Chapter 7 estate that revest in the debtor plus post-conversion acquisitions
Upon conversion, property of the Chapter 13 estate includes property of the Chapter 7 estate that revested in the debtor plus property acquired after conversion.
Question 5: Under the absolute priority rule applicable in Chapter 7 distribution, which class is paid immediately after secured creditors but before general unsecured creditors?
- Equity interest holders
- Administrative expense claims under § 507(a)(2) (Correct answer)
- Subordinated claims
- Post-petition interest on unsecured claims
Correct answer: Administrative expense claims under § 507(a)(2)
Administrative expenses under § 507(a)(2) are first-priority unsecured claims and are paid before general unsecured creditors in the § 726 waterfall.
Question 6: Which document must a Chapter 7 debtor file to formally claim property as exempt?
- Statement of Financial Affairs
- Schedule C (Correct answer)
- Form 122A-1 (Means Test)
- Schedule E/F
Correct answer: Schedule C
Schedule C is the official form on which debtors list property claimed as exempt under applicable federal or state law.
Question 7: A trustee sells estate property for $50,000. Of that, $20,000 pays off a perfected security interest and $5,000 covers trustee fees. How much remains for unsecured creditors before considering priority claims?
- $25,000 (Correct answer)
- $30,000
- $45,000
- $50,000
Correct answer: $25,000
$50,000 proceeds minus $20,000 secured claim minus $5,000 trustee fees leaves $25,000 available for priority and general unsecured claims.
CBS Chapter 7 Liquidation Procedures 2
Under 11 U.S.C. § 704, which of the following is NOT a statutory duty of the Chapter 7 trustee?