CIRA Legal & Regulatory Environment 2 — Questions and Answers
Question 1: Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, which provision most significantly affects large corporate debtors?
- Mandatory credit counseling requirement
- Strict 18-month limit on exclusivity period (Correct answer)
- Means test for Chapter 7 eligibility
- Prohibition on executive retention bonuses
Correct answer: Strict 18-month limit on exclusivity period
BAPCPA capped the exclusivity period at 18 months (plan filing) and 20 months (acceptance), ending the debtor's ability to indefinitely extend exclusivity.
Question 2: A Chapter 11 debtor wishes to pay prepetition wages to key employees. Which legal authority permits this without a full plan confirmation?
- Section 363 of the Bankruptcy Code
- The critical vendor doctrine under Section 105
- The first-day wage order approved under Section 507 priority (Correct answer)
- The Doctrine of Necessity under Section 105(a)
Correct answer: The first-day wage order approved under Section 507 priority
Courts routinely approve first-day wage orders based on Section 507(a)(4) priority status, allowing payment of prepetition wages up to the statutory cap.
Question 3: Which statement best describes the automatic stay under Section 362 of the Bankruptcy Code?
- It applies only to secured creditors holding perfected liens
- It is triggered upon filing and halts most collection actions against the debtor (Correct answer)
- It requires a court order to become effective
- It permanently enjoins all creditor actions against the estate
Correct answer: It is triggered upon filing and halts most collection actions against the debtor
The automatic stay under Section 362 takes effect immediately upon filing and broadly halts collection actions, lawsuits, and enforcement of liens against the debtor.
Question 4: In a Chapter 11 case, which party has the exclusive right to file a reorganization plan during the first 120 days?
- Any creditor holding more than 10% of total claims
- The U.S. Trustee
- The debtor-in-possession (Correct answer)
- The unsecured creditors' committee
Correct answer: The debtor-in-possession
Section 1121(b) grants the debtor-in-possession an exclusive 120-day period to file a reorganization plan, extendable by the court up to 18 months.
Question 5: What is the primary purpose of the absolute priority rule in bankruptcy reorganizations?
- To ensure secured creditors receive payment before operating expenses
- To require that senior classes be paid in full before junior classes receive any value (Correct answer)
- To prioritize tax claims over general unsecured claims
- To mandate equal treatment of all creditors within the same class
Correct answer: To require that senior classes be paid in full before junior classes receive any value
The absolute priority rule requires that each senior class of claims be paid in full before any junior class receives value, protecting creditor hierarchy.
Question 6: Under which circumstances can a bankruptcy court confirm a 'cramdown' plan over the objection of a dissenting class?
- When the dissenting class receives less than liquidation value but more than zero
- When at least one impaired class accepts the plan and the plan satisfies Section 1129(b) requirements (Correct answer)
- When the debtor demonstrates positive EBITDA for the preceding 12 months
- When the U.S. Trustee endorses the plan and no criminal proceedings are pending
Correct answer: When at least one impaired class accepts the plan and the plan satisfies Section 1129(b) requirements
Section 1129(b) permits cramdown when at least one impaired class accepts the plan and the plan is fair and equitable and does not discriminate unfairly.
Question 7: Which federal agency administers the U.S. Trustee Program, which oversees bankruptcy case administration?
- Federal Trade Commission
- Securities and Exchange Commission
- Department of Justice (Correct answer)
- Federal Reserve Board
Correct answer: Department of Justice
The U.S. Trustee Program is a component of the Department of Justice and is responsible for overseeing the administration of bankruptcy cases.
CIRA Legal & Regulatory Environment 2
Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, which provision most significantly affects large corporate debtors?