FiCEP Bankruptcy and Insolvency 1 — Questions and Answers
Question 1: Under Chapter 7 bankruptcy, what happens to a debtor's non-exempt assets?
- They are protected and returned to the debtor after discharge
- They are sold by a trustee and the proceeds are distributed to creditors (Correct answer)
- They are transferred to the debtor's spouse
- They are frozen for five years until the court reviews the case
Correct answer: They are sold by a trustee and the proceeds are distributed to creditors
In Chapter 7 liquidation bankruptcy, a court-appointed trustee sells the debtor's non-exempt assets and distributes the proceeds to creditors before the remaining eligible debts are discharged.
Question 2: Which type of bankruptcy allows individuals with regular income to repay debts through a 3-to-5-year court-approved repayment plan?
- Chapter 7
- Chapter 11
- Chapter 13 (Correct answer)
- Chapter 9
Correct answer: Chapter 13
Chapter 13, known as the 'wage earner's plan,' lets individuals with regular income restructure and repay all or part of their debts over a 3-to-5-year period while keeping their assets.
Question 3: What is the 'automatic stay' in bankruptcy proceedings?
- A court order requiring the debtor to stay in the jurisdiction during the case
- An immediate halt to most collection actions, lawsuits, wage garnishments, and foreclosures upon filing for bankruptcy (Correct answer)
- A delay in discharging debts pending a creditor review period
- A freeze on all bank accounts associated with the debtor
Correct answer: An immediate halt to most collection actions, lawsuits, wage garnishments, and foreclosures upon filing for bankruptcy
The automatic stay goes into effect immediately upon filing a bankruptcy petition and temporarily stops most creditor collection activities, including calls, lawsuits, repossessions, and foreclosures.
Question 4: Which of the following debts is generally NOT dischargeable in a Chapter 7 bankruptcy?
- Credit card balances
- Medical bills
- Student loans (in most cases) (Correct answer)
- Utility arrears
Correct answer: Student loans (in most cases)
Student loans are generally not dischargeable in bankruptcy unless the debtor can prove 'undue hardship' through a separate adversary proceeding, a very difficult standard to meet.
Question 5: The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) requires debtors to complete what before filing for bankruptcy?
- A financial literacy course approved by the IRS
- A credit counseling course from an approved agency within 180 days before filing (Correct answer)
- A two-year waiting period after becoming delinquent on debts
- A court-ordered mediation session with all creditors
Correct answer: A credit counseling course from an approved agency within 180 days before filing
BAPCPA requires individual debtors to complete a credit counseling course from a USCB-approved agency within 180 days before filing a bankruptcy petition.
Question 6: What is the 'means test' in Chapter 7 bankruptcy?
- A credit score threshold that determines if a debtor qualifies for bankruptcy protection
- A formula that compares the debtor's income to the state median to determine Chapter 7 eligibility (Correct answer)
- An asset evaluation to identify non-exempt property for liquidation
- A court hearing where creditors can challenge the debtor's good faith
Correct answer: A formula that compares the debtor's income to the state median to determine Chapter 7 eligibility
The means test calculates whether a debtor's income and expenses meet the criteria for Chapter 7; if income exceeds the state median, further calculations determine if they have disposable income to fund a Chapter 13 plan.
FiCEP Bankruptcy and Insolvency 1
Under Chapter 7 bankruptcy, what happens to a debtor's non-exempt assets?