Bankruptcy & Insolvency in Credit Management Flashcards
7 cards from real CCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Bankruptcy & Insolvency in Credit Management flashcards as text
Chapter 13 bankruptcy is primarily designed for:
Answer: Individuals with regular income who want to repay debts through a 3-to-5-year plan
Chapter 13 allows individuals with regular income to propose a repayment plan lasting 3 to 5 years, enabling them to catch up on arrears and keep property they would otherwise lose in Chapter 7.
A secured creditor's claim in bankruptcy is generally limited to:
Answer: The value of the collateral, with any excess treated as an unsecured claim
Under the Bankruptcy Code, a secured claim is allowed only to the extent of the collateral value; if the debt exceeds collateral value, the deficiency becomes an unsecured claim — this is known as bifurcation.
A Section 363 sale in bankruptcy allows the debtor to:
Answer: Sell assets outside the ordinary course of business free and clear of liens, subject to court approval
A 363 sale permits the bankruptcy estate to sell assets free and clear of most liens and encumbrances with court approval, often used to quickly sell distressed businesses to preserve going-concern value.
Which of the following debts is generally NON-DISCHARGEABLE in an individual Chapter 7 bankruptcy?
Answer: Student loans absent undue hardship
Student loan debt is generally non-dischargeable in bankruptcy unless the debtor can demonstrate 'undue hardship' under a strict judicial standard, unlike most unsecured consumer debts.
From a credit management perspective, which early warning signal most strongly indicates a customer may be approaching insolvency?
Answer: Sudden increase in the number of disputed invoices combined with deteriorating DSO
A sudden spike in invoice disputes coupled with lengthening DSO often indicates cash flow stress, as struggling debtors create disputes to buy time before insolvency.
When a company files for Chapter 11, what happens to executory contracts and unexpired leases?
Answer: The debtor in possession may assume or reject them, subject to court approval
The Bankruptcy Code gives the debtor in possession the right to assume favorable contracts or leases (and cure any defaults) or reject burdensome ones, subject to court approval and within statutory time limits.
A credit professional receives a notice that a customer has filed Chapter 11. Which action should the credit professional take FIRST?
Answer: Immediately demand return of any goods shipped in the last 20 days via a reclamation demand
A seller has the right under UCC and the Bankruptcy Code to demand reclamation of goods delivered within 45 days before filing (20 days for administrative priority) if the buyer was insolvent at delivery, making a timely reclamation demand a top priority.