VA Bar Creditors Rights 3 — Questions and Answers
Question 1: When a bankruptcy petition is filed, the automatic stay under 11 U.S.C. § 362 immediately halts which of the following?
- A criminal prosecution against the debtor
- An action by a domestic support creditor to collect child support from exempt property
- A secured creditor's attempt to repossess collateral (Correct answer)
- A government action to enforce its police powers
Correct answer: A secured creditor's attempt to repossess collateral
The automatic stay broadly stops creditor collection actions including repossession; criminal proceedings and police-power actions are excepted.
Question 2: In a Chapter 7 bankruptcy, the trustee may avoid a preferential transfer to a non-insider creditor if made within how many days before the petition date?
- 30 days
- 60 days
- 90 days (Correct answer)
- 1 year
Correct answer: 90 days
The preference look-back period is 90 days for non-insiders and 1 year for insiders under 11 U.S.C. § 547(b)(4).
Question 3: Under Virginia's bankruptcy exemptions, the homestead exemption (Va. Code § 34-4) allows an individual debtor to exempt up to:
- $5,000 in property (Correct answer)
- $25,000 in real or personal property
- $500,000 in the primary residence
- Unlimited homestead for heads of household
Correct answer: $5,000 in property
Virginia's homestead exemption is $5,000 (plus $500 per dependent) in any property the debtor selects.
Question 4: A bankruptcy trustee seeks to avoid a fraudulent transfer under 11 U.S.C. § 548. For an actually fraudulent transfer, the trustee must show the debtor transferred property with:
- Intent to hinder, delay, or defraud creditors (Correct answer)
- Receipt of less than reasonably equivalent value while insolvent
- A transfer to an insider within one year
- All of the above equally satisfy the standard
Correct answer: Intent to hinder, delay, or defraud creditors
Actual fraud under § 548(a)(1)(A) requires proof of actual intent to hinder, delay, or defraud; constructive fraud uses the insolvency/value test.
Question 5: In a Chapter 11 reorganization, a plan of reorganization is confirmed over the objection of a dissenting class of creditors under the 'cramdown' provision when:
- A majority of all creditors vote in favor
- The plan is fair and equitable and does not unfairly discriminate (Correct answer)
- The debtor proposes to pay all creditors in full
- The bankruptcy court finds the debtor acted in good faith
Correct answer: The plan is fair and equitable and does not unfairly discriminate
Cramdown under 11 U.S.C. § 1129(b) requires the plan to be fair and equitable and not unfairly discriminate against the dissenting class.
Question 6: Which of the following debts is generally NON-DISCHARGEABLE in a Chapter 7 bankruptcy under 11 U.S.C. § 523?
- Credit card debt incurred more than 90 days before filing
- Medical bills from two years ago
- Student loans, unless undue hardship is proven (Correct answer)
- A mortgage deficiency after foreclosure
Correct answer: Student loans, unless undue hardship is proven
Student loans are non-dischargeable absent a showing of undue hardship; general unsecured debts like credit cards and medical bills are dischargeable.
Question 7: In bankruptcy, the 'absolute priority rule' in a Chapter 11 cramdown means:
- Secured creditors must be paid before any plan is confirmed
- A junior class cannot receive anything unless a senior dissenting class is paid in full (Correct answer)
- Unsecured creditors have priority over administrative expenses
- The debtor's equity interest is always wiped out
Correct answer: A junior class cannot receive anything unless a senior dissenting class is paid in full
The absolute priority rule bars junior classes from receiving value under a plan unless all senior dissenting classes are paid in full.
VA Bar Creditors Rights 3
When a bankruptcy petition is filed, the automatic stay under 11 U.S.C. § 362 immediately halts which of the following?