CBS Financial Counseling & Risk Assessment 3 — Questions and Answers
Question 1: A Chapter 13 debtor's plan proposes to pay unsecured creditors 15 cents on the dollar over 60 months. The liquidation analysis shows unsecured creditors would receive 20 cents on the dollar in a Chapter 7 liquidation. What is the plan's deficiency?
- The plan exceeds the allowed plan length
- The plan fails the best-interest-of-creditors test (Correct answer)
- The plan improperly classifies secured claims
- The plan violates the absolute priority rule
Correct answer: The plan fails the best-interest-of-creditors test
Under 11 U.S.C. §1325(a)(4), a Chapter 13 plan must pay unsecured creditors at least as much as they would receive in a Chapter 7 liquidation.
Question 2: A financial counselor is reviewing a client's budget for a proposed Chapter 13 plan. Monthly net income is $4,500 and allowed expenses per IRS standards total $3,800. What does the $700 surplus represent?
- The client's projected disposable income available for plan payments (Correct answer)
- The amount of secured debt the client may cramdown
- The maximum allowable trustee fee
- The floor for administrative expense claims
Correct answer: The client's projected disposable income available for plan payments
The surplus after allowed expenses is the projected disposable income that the debtor must commit to the Chapter 13 plan for applicable commitment period.
Question 3: Which debt cannot be discharged in a Chapter 7 bankruptcy under any ordinary circumstance?
- Medical bills over $10,000
- Credit card balances used for luxury goods 89 days before filing
- Student loans absent undue hardship (Correct answer)
- Personal loans from friends
Correct answer: Student loans absent undue hardship
Student loans are non-dischargeable under 11 U.S.C. §523(a)(8) unless the debtor proves undue hardship through the applicable court test.
Question 4: A client owns a home with $40,000 equity in a state with a $25,000 homestead exemption. They are considering Chapter 7. What is the trustee likely to do?
- Abandon the property because all equity is exempt
- Sell the property and distribute the non-exempt $15,000 to creditors (Correct answer)
- Allow the debtor to retain the home without any payment
- Treat the home as exempt because it is the primary residence
Correct answer: Sell the property and distribute the non-exempt $15,000 to creditors
The trustee will sell the home, pay the debtor the $25,000 exempt amount, and distribute the remaining $15,000 equity to unsecured creditors.
Question 5: A CBS practitioner conducts a risk assessment and determines a client's primary financial stressor is cash flow, not total debt load. Which non-bankruptcy intervention is most appropriate to explore first?
- Immediate Chapter 7 filing
- Debt management plan through a nonprofit credit counseling agency (Correct answer)
- Chapter 11 reorganization
- Assignment for benefit of creditors
Correct answer: Debt management plan through a nonprofit credit counseling agency
A debt management plan can reduce interest rates and consolidate monthly payments, addressing cash flow problems without a bankruptcy filing.
Question 6: Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), an individual must complete credit counseling from an approved agency within what time frame before filing?
- 30 days before filing
- 180 days before filing (Correct answer)
- 90 days before filing
- 60 days before filing
Correct answer: 180 days before filing
BAPCPA requires debtors to obtain credit counseling from an approved agency within the 180-day period before the bankruptcy petition is filed.
Question 7: A client has $30,000 in credit card debt, $10,000 in medical debt, and owns a car worth $8,000 with no loan. The car is exempt up to $5,000. In Chapter 7, what happens to the car?
- The trustee sells it and pays the client $5,000; the remaining $3,000 goes to creditors (Correct answer)
- The client keeps the car entirely because it is a necessary vehicle
- The trustee abandons the car because its value is de minimis
- The client must reaffirm the car to keep it
Correct answer: The trustee sells it and pays the client $5,000; the remaining $3,000 goes to creditors
Non-exempt equity of $3,000 ($8,000 value minus $5,000 exemption) is available to creditors; the trustee would sell the vehicle and remit the exempt portion to the debtor.
CBS Financial Counseling & Risk Assessment 3
A Chapter 13 debtor's plan proposes to pay unsecured creditors 15 cents on the dollar over 60 months.
The liquidation analysis shows unsecured creditors would receive 20 cents on the dollar in a Chapter 7 liquidation.
What is the plan's deficiency?