FiCEP Bankruptcy and Insolvency 4 — Questions and Answers
Question 1: Which type of property is generally protected from liquidation in a Chapter 7 bankruptcy through federal or state exemptions?
- Investment portfolio stocks
- A second vacation home
- Equity in a primary residence (homestead exemption) (Correct answer)
- Rental property income
Correct answer: Equity in a primary residence (homestead exemption)
The homestead exemption protects a specified amount of equity in a debtor's primary residence from being liquidated in Chapter 7.
Question 2: What is the 'means test' in the context of Chapter 7 bankruptcy?
- A credit score threshold required to file
- A calculation comparing income to state median to determine eligibility (Correct answer)
- An exam administered by the bankruptcy trustee
- A test of the debtor's financial literacy
Correct answer: A calculation comparing income to state median to determine eligibility
The means test compares the debtor's average monthly income to the state median income to determine whether Chapter 7 is available or if Chapter 13 is required.
Question 3: Under the Bankruptcy Code, which of the following debts is NON-dischargeable in a Chapter 7 case?
- Medical bills
- Credit card balances
- Domestic support obligations (child support/alimony) (Correct answer)
- Personal loans from a bank
Correct answer: Domestic support obligations (child support/alimony)
Domestic support obligations such as child support and alimony are explicitly non-dischargeable under 11 U.S.C. § 523.
Question 4: What is a 'reaffirmation agreement' in bankruptcy?
- A court order requiring a creditor to accept reduced payment
- A debtor's voluntary agreement to remain personally liable on a specific debt (Correct answer)
- An agreement between co-debtors to split liability
- A creditor's promise not to pursue collection after discharge
Correct answer: A debtor's voluntary agreement to remain personally liable on a specific debt
A reaffirmation agreement is a voluntary contract where the debtor agrees to remain personally liable for a debt that would otherwise be discharged.
Question 5: In a Chapter 13 repayment plan, how long is the maximum repayment period allowed by law?
- 3 years
- 5 years (Correct answer)
- 7 years
- 10 years
Correct answer: 5 years
Chapter 13 repayment plans may not exceed 5 years (60 months) under the Bankruptcy Code.
Question 6: Which legal concept prevents creditors from taking collection actions once a bankruptcy petition is filed?
- Statute of limitations
- Automatic stay (Correct answer)
- Discharge injunction
- Means test stay
Correct answer: Automatic stay
The automatic stay (11 U.S.C. § 362) immediately halts most collection actions, lawsuits, foreclosures, and wage garnishments upon filing.
Question 7: A client has primarily student loan debt. What should a financial counselor advise regarding bankruptcy?
- Student loans are always discharged in Chapter 7
- Student loans can be discharged only in Chapter 13
- Student loans are non-dischargeable unless undue hardship is proven (Correct answer)
- Student loans are discharged after 10 years in repayment under any chapter
Correct answer: Student loans are non-dischargeable unless undue hardship is proven
Student loans are generally non-dischargeable in bankruptcy unless the debtor proves undue hardship through an adversary proceeding.
FiCEP Bankruptcy and Insolvency 4
Which type of property is generally protected from liquidation in a Chapter 7 bankruptcy through federal or state exemptions?