CFL Bankruptcy & Insolvency Litigation 3

Question 1

What is the 'ordinary course of business' defense to a preference claim under 11 U.S.C. § 547(c)(2)?

Accepted Answer

A payment is not avoidable if it was made in the ordinary course of the debtor's and creditor's business or financial affairs, and made according to ordinary business terms

Answer

Section 547(c)(2) protects payments made in the ordinary course of the parties' dealings or according to ordinary industry terms, recognizing that routine commercial transactions should not be disturbed.

Question 2

What is the difference between a 'Chapter 7' and a 'Chapter 11' bankruptcy filing for a corporate debtor?

Accepted Answer

Chapter 7 is a liquidation proceeding where a trustee sells assets to pay creditors; Chapter 11 allows the debtor to reorganize and continue operating while restructuring debts

Answer

Chapter 7 results in immediate cessation of business operations and liquidation of assets, while Chapter 11 provides a framework for the debtor to propose a reorganization plan while continuing operations.

Question 3

What is a 'proof of claim' in bankruptcy proceedings, and what happens if a creditor fails to file one?

Accepted Answer

A formal document filed by a creditor asserting the right to a distribution from the estate; failure to file may result in disallowance and no distribution

Answer

A proof of claim is the creditor's assertion of a right to payment from the estate; creditors who fail to file by the bar date generally receive nothing from the estate.

Question 4

What are 'executory contracts' in bankruptcy and what right does the debtor have regarding them?

Accepted Answer

Contracts where both sides still have material unperformed obligations; the debtor may assume them (taking benefits and burdens) or reject them (treated as a pre-petition breach)

Answer

Under 11 U.S.C. § 365, the trustee may assume profitable executory contracts (curing defaults) or reject burdensome ones (creating a pre-petition damages claim for the counterparty).

Question 5

What is the role of the 'Official Committee of Unsecured Creditors' (UCC) in a Chapter 11 case?

Accepted Answer

To represent the collective interests of unsecured creditors by investigating the debtor's affairs, reviewing the reorganization plan, and negotiating with the debtor on behalf of the class

Answer

The UCC is appointed by the U.S. Trustee and serves as the primary watchdog for general unsecured creditors, with authority to retain counsel and financial advisors at estate expense.

CFL - Certified Financial Litigator Practice Test

CFL - Certified Financial Litigator Practice Test

CFL Bankruptcy & Insolvency Litigation 3