CFL Bankruptcy & Creditor Rights 2 — Questions and Answers
Question 1: In bankruptcy litigation, a 'lift stay' motion filed by a secured creditor is most likely to succeed when:
- The debtor has no equity in the collateral and the property is not necessary for reorganization (Correct answer)
- The automatic stay has been in place for more than 90 days
- The secured creditor holds a first-priority perfected lien
- The debtor has missed more than two adequate protection payments
Correct answer: The debtor has no equity in the collateral and the property is not necessary for reorganization
Section 362(d)(2) permits relief from the stay when the debtor has no equity in the property AND the property is not necessary for an effective reorganization.
Question 2: Under Article 9 of the UCC, a secured creditor must perfect its security interest in most personal property collateral by:
- Filing a financing statement (UCC-1) in the appropriate state office (Correct answer)
- Taking physical possession of the collateral
- Obtaining the debtor's notarized security agreement
- Recording the lien in the county where the debtor operates
Correct answer: Filing a financing statement (UCC-1) in the appropriate state office
For most Article 9 collateral, filing a UCC-1 financing statement in the debtor's state of organization or residence is the standard method of perfection.
Question 3: A Chapter 7 trustee discovers the debtor made a $500,000 transfer to a family member 18 months before the bankruptcy filing for no consideration. The trustee would seek to avoid this transfer under:
- Section 548 actual fraudulent transfer or state fraudulent transfer law (Correct answer)
- Section 547 preference payment rules
- Section 549 unauthorized post-petition transfer rules
- Section 544 strong-arm powers
Correct answer: Section 548 actual fraudulent transfer or state fraudulent transfer law
A transfer for no consideration (no reasonably equivalent value) with evidence of intent to hinder creditors is a classic actual fraudulent transfer under Section 548 or applicable state law.
Question 4: The 'strong-arm' power under Bankruptcy Code Section 544(a) allows the bankruptcy trustee to avoid any transfer that could be avoided by:
- A hypothetical lien creditor who perfected their lien on the petition date (Correct answer)
- Any judgment creditor who filed suit before the bankruptcy
- The debtor's largest unsecured creditor
- A federal tax authority with a tax lien
Correct answer: A hypothetical lien creditor who perfected their lien on the petition date
Section 544(a) gives the trustee the rights of a hypothetical judicial lien creditor who perfected on the petition date, allowing avoidance of unperfected liens.
Question 5: In a bankruptcy avoidance action for preferences, the 'new value' defense under Section 547(c)(4) allows a creditor to offset the preference by:
- The value of new credit or goods extended to the debtor after the preferential transfer (Correct answer)
- The amount the creditor loaned to the debtor in the 90-day period
- Any payment the creditor made to other creditors of the debtor
- The fair market value of collateral released by the creditor
Correct answer: The value of new credit or goods extended to the debtor after the preferential transfer
New value advanced after a preferential payment reduces the avoidable amount because the estate received an offsetting benefit from the creditor's subsequent extension of credit.
Question 6: Under Bankruptcy Code Section 523(a), which of the following debts is NOT dischargeable in a Chapter 7 individual bankruptcy?
- Debts arising from fraud or false financial statements (Correct answer)
- Credit card debts incurred before the petition date
- Unsecured medical bills
- Personal loan obligations to commercial lenders
Correct answer: Debts arising from fraud or false financial statements
Section 523(a)(2) excepts from discharge debts obtained through fraud, false financial statements, or material misrepresentation.
CFL Bankruptcy & Creditor Rights 2
In bankruptcy litigation, a 'lift stay' motion filed by a secured creditor is most likely to succeed when: