FiCEP Bankruptcy and Insolvency 5

Question 1

Which bankruptcy chapter is specifically designed for family farmers and family fishermen?

Accepted Answer

Chapter 12

Answer

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?

Accepted Answer

A payment a debtor makes to a favored creditor shortly before filing that the trustee may recover

Answer

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?

Accepted Answer

Administrative expenses of the bankruptcy case

Answer

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'?

Accepted Answer

Balance-sheet insolvency means total liabilities exceed total assets; cash-flow insolvency means inability to pay debts as they come due

Answer

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?

Accepted Answer

Transferring a house to a family member for no consideration one year before filing

Answer

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.

FiCEP - Financial Counseling Certification Program Practice Test

FiCEP - Financial Counseling Certification Program Practice Test

FiCEP Bankruptcy and Insolvency 5