FiCEP Bankruptcy and Insolvency 2 — Questions and Answers
Question 1: In a bankruptcy case, what is a 'proof of claim'?
- A document filed by the debtor listing all assets and liabilities
- A form filed by a creditor stating the amount owed and the basis for the debt (Correct answer)
- A court order confirming the debtor's repayment plan
- An attorney's certification that the bankruptcy petition is accurate
Correct answer: A form filed by a creditor stating the amount owed and the basis for the debt
A proof of claim is a written statement filed by a creditor in a bankruptcy case that asserts the creditor's right to receive payment from the debtor's bankruptcy estate.
Question 2: How long does a Chapter 7 bankruptcy typically remain on a consumer's credit report?
- 3 years
- 5 years
- 7 years
- 10 years (Correct answer)
Correct answer: 10 years
A Chapter 7 bankruptcy filing remains on a consumer's credit report for 10 years from the filing date, as permitted under the Fair Credit Reporting Act (FCRA).
Question 3: What is the difference between 'secured' and 'unsecured' debt in the context of bankruptcy?
- Secured debt is owed to the government; unsecured debt is owed to private creditors
- Secured debt is backed by collateral; unsecured debt has no collateral and relies only on the borrower's promise to repay (Correct answer)
- Secured debt can be discharged in bankruptcy; unsecured debt cannot
- Secured debt has lower interest rates and is always paid first in bankruptcy regardless of type
Correct answer: Secured debt is backed by collateral; unsecured debt has no collateral and relies only on the borrower's promise to repay
Secured debt is tied to specific collateral (like a car or home) that the creditor can repossess if unpaid, while unsecured debt (like credit cards) has no collateral backing.
Question 4: What is a 'reaffirmation agreement' in bankruptcy?
- An agreement between the debtor and trustee to extend the repayment plan
- A voluntary agreement where a debtor agrees to remain personally liable for a specific debt that would otherwise be discharged (Correct answer)
- A court order requiring a creditor to restructure loan terms
- A document confirming that a debt has been fully discharged
Correct answer: A voluntary agreement where a debtor agrees to remain personally liable for a specific debt that would otherwise be discharged
A reaffirmation agreement is a legally binding contract in which a Chapter 7 debtor voluntarily agrees to continue paying a specific debt (such as a car loan) in exchange for keeping the collateral.
Question 5: Which bankruptcy chapter is most commonly used by businesses to reorganize debts while continuing operations?
- Chapter 7
- Chapter 11 (Correct answer)
- Chapter 12
- Chapter 13
Correct answer: Chapter 11
Chapter 11 allows businesses (and some high-debt individuals) to restructure debts through a reorganization plan while continuing to operate, subject to court and creditor approval.
Question 6: What is 'preference payment' in bankruptcy law, and why is it important?
- The amount a debtor chooses to pay creditors based on personal relationships
- A payment made to a creditor within 90 days before filing bankruptcy (or one year for insiders) that may be recovered by the trustee (Correct answer)
- The court's decision about which creditors get paid first during liquidation
- An agreement where secured creditors agree to reduce interest rates
Correct answer: A payment made to a creditor within 90 days before filing bankruptcy (or one year for insiders) that may be recovered by the trustee
A preference payment is a transfer made to a creditor shortly before bankruptcy that gave that creditor an unfair advantage; the trustee can 'avoid' (reverse) such payments to redistribute funds equitably.
FiCEP Bankruptcy and Insolvency 2
In a bankruptcy case, what is a 'proof of claim'?