CFL Bankruptcy & Insolvency Litigation

Question 1

What is the 'automatic stay' in a bankruptcy proceeding and what does it prevent?

Accepted Answer

An immediate injunction that stops virtually all collection actions, lawsuits, and enforcement of judgments against the debtor upon filing

Answer

The automatic stay under 11 U.S.C. § 362 halts nearly all actions against the debtor and their property immediately upon filing, giving the debtor breathing room to reorganize.

Question 2

What is a 'preference payment' under 11 U.S.C. § 547, and why is it subject to avoidance in bankruptcy?

Accepted Answer

A payment made to a creditor within 90 days before filing that allows the creditor to receive more than they would in a Chapter 7 liquidation

Answer

Section 547 allows the trustee to claw back transfers made within 90 days (one year for insiders) that give the transferee more than they would have received in a Chapter 7 distribution.

Question 3

Under the Bankruptcy Code, what is the 'absolute priority rule' in Chapter 11 reorganizations?

Accepted Answer

Senior creditors must be paid in full before junior creditors or equity holders receive any recovery under a reorganization plan

Answer

The absolute priority rule requires that each class of creditors be paid in full — or consent to lesser treatment — before any junior class receives anything under a plan.

Question 4

What is a 'fraudulent conveyance' in the context of bankruptcy litigation?

Accepted Answer

A transfer of assets made with actual intent to hinder, delay, or defraud creditors, or a transfer made for less than reasonably equivalent value while the debtor was insolvent

Answer

Bankruptcy Code Section 548 allows avoidance of intentional fraudulent transfers and constructive fraudulent transfers made without fair consideration while insolvent.

Question 5

What is 'equitable subordination' under 11 U.S.C. § 510(c) in bankruptcy proceedings?

Accepted Answer

A court-ordered remedy that lowers a creditor's priority to below other creditors if the creditor engaged in inequitable conduct that harmed other creditors

Answer

Equitable subordination allows courts to reorder a claimant's priority level as a remedy for inequitable conduct, typically requiring misconduct, harm to other creditors, and inconsistency with bankruptcy law.

CFL - Certified Financial Litigator Practice Test

CFL - Certified Financial Litigator Practice Test

CFL Bankruptcy & Insolvency Litigation