FiCEP Bankruptcy and Insolvency 5 — Questions and Answers
Question 1: Which bankruptcy chapter is specifically designed for family farmers and family fishermen?
- Chapter 7
- Chapter 11
- Chapter 12 (Correct answer)
- Chapter 13
Correct answer: Chapter 12
Chapter 12 was created specifically to provide a reorganization option for family farmers and family fishermen with regular income.
Question 2: What is a 'preference payment' in bankruptcy law?
- A payment a debtor makes to a favored creditor shortly before filing that the trustee may recover (Correct answer)
- A priority claim paid first from the bankruptcy estate
- A secured creditor's first right to collateral proceeds
- A debtor's choice of which exemptions to use
Correct answer: A payment a debtor makes to a favored creditor shortly before filing that the trustee may recover
A preference payment is a transfer made to a creditor within 90 days before filing (or 1 year for insiders) that the trustee can avoid to ensure equitable treatment among creditors.
Question 3: In the priority order of claims in a bankruptcy estate, which category is paid FIRST?
- General unsecured creditors
- Domestic support obligations
- Administrative expenses of the bankruptcy case (Correct answer)
- Secured creditors
Correct answer: Administrative expenses of the bankruptcy case
Administrative expenses of the bankruptcy case (trustee fees, attorney fees, etc.) are first-priority unsecured claims under 11 U.S.C. § 507(a)(2), paid before most other claims.
Question 4: What is the primary difference between 'insolvency' in the balance-sheet sense and 'cash-flow insolvency'?
- Balance-sheet insolvency means total liabilities exceed total assets; cash-flow insolvency means inability to pay debts as they come due (Correct answer)
- Cash-flow insolvency requires a bankruptcy filing; balance-sheet insolvency does not
- Balance-sheet insolvency only applies to businesses; cash-flow insolvency applies to individuals
- They are legally identical terms under the Bankruptcy Code
Correct answer: Balance-sheet insolvency means total liabilities exceed total assets; cash-flow insolvency means inability to pay debts as they come due
Balance-sheet insolvency occurs when total liabilities exceed total assets, while cash-flow insolvency occurs when a debtor cannot meet current obligations as they become due.
Question 5: Which of the following is an example of a 'fraudulent transfer' that a bankruptcy trustee could avoid?
- Paying a mortgage two months before filing
- Transferring a house to a family member for no consideration one year before filing (Correct answer)
- Making minimum credit card payments six months before filing
- Depositing a paycheck into a joint account three months before filing
Correct answer: Transferring a house to a family member for no consideration one year before filing
Transferring property to a family member for no fair consideration (no or below-market value) before bankruptcy is a classic fraudulent transfer that trustees can reverse.
Question 6: What does the term 'cramdown' mean in the context of Chapter 13 bankruptcy?
- Forcing a secured creditor to accept the collateral's current market value instead of the full loan balance (Correct answer)
- Reducing the interest rate on all unsecured debts to zero
- The trustee's power to reject executory contracts
- Compressing a 5-year plan into a 3-year plan
Correct answer: Forcing a secured creditor to accept the collateral's current market value instead of the full loan balance
A cramdown allows a Chapter 13 debtor to reduce a secured claim to the current market value of the collateral, with the remaining balance treated as unsecured debt.
Question 7: Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, what is required before a debtor can file for bankruptcy?
- Approval from a bankruptcy judge
- Completion of a credit counseling course from an approved agency within 180 days before filing (Correct answer)
- Written consent from all major creditors
- Proof of at least six months of missed payments
Correct answer: Completion of a credit counseling course from an approved agency within 180 days before filing
BAPCPA requires debtors to complete an approved credit counseling course within 180 days before filing a bankruptcy petition.
FiCEP Bankruptcy and Insolvency 5
Which bankruptcy chapter is specifically designed for family farmers and family fishermen?