Q&A Hero

Q: A corporate debtor must be "out of business" before it can file a bankruptcy petition for reorganization under Chapter 11.

Q: Before obtaining a discharge in bankruptcy, a consumer-debtor must attend a consumer education course.

Q: If, within a certain time after a discharge, it is discovered that a debtor concealed property to defraud a creditor, the discharge may be revoked.

Q: In a bankruptcy proceeding, if a discharge is denied to a debtor, the creditors are denied the distribution of the debtor's assets.

Q: No student loans are dischargeable in a Chapter 7 bankruptcy.

Q: If the assets in a debtor's estate in bankruptcy are insufficient to pay fully all creditors, none of the creditors are paid.

Q: In general, the claims of all of the creditors of an estate must be satisfied before any remaining amounts can be given to the debtor.

Q: Classes of debts owed to unsecured creditors are paid in the order of their priority.

Q: Once a debtor files for bankruptcy, a secured creditor cannot recover more on a debt than the value of the collateral covering the debt.

Q: A trustee has the power to avoid a sale of the debtor's property.

Q: A creditor with a purchase-money security interest may prevail against a trustee.

Q: The principal duty of a trustee is to liquidate and close up the debtor's estate as quickly as possible.

Q: Proof of claims by creditors must normally be filed within one year of the creditor's meeting with the debtor following the granting of the order for relief.

Q: The filing of a petition for bankruptcy will automatically stay most legal actions against the debtor.

Q: A bankruptcy court looks at a debtor's income to determine whether the debtor's petition for bankruptcy constitutes substantial abuse.

Q: Concealing assets from a bankruptcy court is a crime.

Q: Only an individual can be a debtor under Chapter 7.

Q: Bankruptcy proceedings are held in federal bankruptcy courts.

Q: Bankruptcy law has one goalto ensure equitable treatment to creditors who are competing for a debtor's assets.

Q: Lyle buys a motorcycle from Moto Cycle Corporation and finances the purchase through National Credit Company (NCC). Lyle defaults on the loan. NCC takes possession of the motorcycle. NCC's notice to Lyle states that $5,000 is required to redeem the vehicle, which will be sold if it is not redeemed before May 15. The actual redemption amount is $4,000, and the sale is held on May 5. On what ground might Lyle file a successful suit against NCC?

Q: Edie needs $1,500 to buy textbooks and other school supplies. Frank agrees to loan Edie $1,500, accepting as collateral Edie's car. They put their agreement in writing and sign it. Edie keeps possession of the car. Does Frank have an enforceable security interest? How can Frank let other creditors know of his interest in the car?

Q: Computer World (CW), after repossessing a multimedia system from Dave, a consumer, decides to keep system instead of reselling it. CW sends written notice to Dave. CW can now keep the system a. only after attempting an unsuccessful public sale of the system. b. only after notifying any other appropriate secured party. c. unless Dave objects. d. under any circumstances.

Q: Easy Credit, Inc., repossesses a TV set (a consumer good that is not a purchase-money security interest) from Fran, intending to install it in Easy's office instead of reselling it. Easy tells Fran of this intent. Easy must notify a. all of Fran's creditors. b. all of Fran's secured creditors. c. none of Fran's secured creditors. d. secured parties who have notified Easy of claims to the set and those whose claims to the set are in the public records.

Q: Green Landscape Company buys a backhoe on credit from Heavy Equipment Corporation, but does not make a payment on the loan for several months. Heavy repossesses the backhoe by towing it from a public street. Green sues Heavy for breach of the peace. Green will probably a. not prevail, because Heavy did not use judicial process. b. not prevail, because the repossession was not a breach of the peace. c. prevail, because Green did not default on the loan. d. prevail, because the repossession was a breach of the peace.

Q: Ann holds a security interest in inventory owned by Brad. Ann assigns her interest in the inventory to Curt. Curt becomes the secured party of record a. automatically. b. if Ann advises Brad of the assignment. c. if Curt advises Brad of the assignment. d. if Curt files a uniform amendment form.

Q: Fact Pattern 29-2 General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation for a security interest in the equipment. The next day, GLC borrows $500,000 from Interstate Bank, also for a security interest in the equipment. Two weeks after GLC takes possession of the equipment, Helpful and Interstate file financing statements, with Interstate filing first. GLC defaults on the loans.Refer to Fact Pattern 29-2. Suppose that Helpful perfects its security interest when GLC takes possession of the equipment. In that circumstance, under the result in Case 2, In re Rebel Rents, Inc., the party with priority to the collateral on GLC's default would be a. GLC. b. Helpful and Interstate proportionately. c. Helpful only. d. Interstate only.

Q: Fact Pattern 29-2 General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation for a security interest in the equipment. The next day, GLC borrows $500,000 from Interstate Bank, also for a security interest in the equipment. Two weeks after GLC takes possession of the equipment, Helpful and Interstate file financing statements, with Interstate filing first. GLC defaults on the loans.Refer to Fact Pattern 29-2. Under the result in Case 29.2, In re Rebel Rents, Inc., the party with priority to the equipment is a. GLC. b. Helpful and Interstate proportionately. c. Helpful only. d. Interstate only.

Q: American Investments, Inc., and First State Bank are secured parties with security interests in property owned by U.S. Manufacturing Corporation. Priority between these security interests is determined by a. the amount of the claim. b. the custom in the trade. c. the time of perfection. d. the time the security agreement was signed.

Q: First Financial Corporation is a secured party with a security interest in property owned by Retail Sales Company. Perfection of this security interest may not protect First Financial against the claim of a. a bank. b. a buyer in the ordinary course of business. c. a subsequent lien creditor. d. a trustee in bankruptcy.

Q: City Bank's financing statement in collateral owned by Delta Corporation will expire in less than a year. Filed timely, a continuation statement could extend the effectiveness of the financing statement for a. one year. b. two years. c. five years. d. ten years.

Q: Fine Furniture Store sells household consumer goods. To create a purchase-money security interest, Fine Furniture must a. assign, to a collecting agent, a portion of its accounts payable. b. assign, to a collecting agent, a portion of its accounts receivable. c. extend credit for part or all of the purchase price of the goods. d. refer purchasers to a third-party lender.

Q: Fact Pattern 29-1 Technical Support Corporation uses its office equipment as collateral for a loan from United Bank. The bank files a financing statement with the secretary of state in the state in which Technical Support was chartered. One year later, Technical Support changes its name to Vector, Inc. Refer to Fact Pattern 29-1. To continue the effectiveness of its original filing, United Bank must a. file a continuation statement after the original filing expires. b. file a continuation statement before the original filing expires. c. file a new financing statement within four months of the name change. d. repossess the equipment that served as collateral for the loan.

Q: Fact Pattern 29-1 Technical Support Corporation uses its office equipment as collateral for a loan from United Bank. The bank files a financing statement with the secretary of state in the state in which Technical Support was chartered. One year later, Technical Support changes its name to Vector, Inc. Refer to Fact Pattern 29-1. United Bank's perfection will remain effective for a. five years from the date of the name change. b. five years from the date of the original filing. c. six months from the date of the name change. d. no time.

Q: Pure Capital Corporation wants to perfect a security interest in a negotiable instrument owned by Quality Securities, Inc., and payable to Real Investment Company. This can be accomplished by a. contacting the party to whom the instrument is payable. b. filing a financing statement. c. notifying the appropriate federal officer. d. taking possession of the instrument.

Q: Regional Bank wants to perfect its security interest in timber owned by Standard Lumber, Inc. Most likely, a financing statement should be filed with a. the local chamber of commerce. b. the county clerk. c. the federal loan officer. d. the secretary of state's office.

Q: Alice, a debtor, and Britney, a creditor, sign a security agreement containing a specific description of the collateral. Britney later files a financing statement that contains a more general description. This description a. invalidates the financing statement and the security agreement. b. invalidates the financing statement only. c. invalidates the security agreement only. d. is sufficient.

Q: Rich Financial, Inc., files a financing statement regarding a transaction with Standard Business Company. To be valid, the financing statement must contain all of the following except a. a description of the collateral. b. a statement of the purpose for the transaction. c. Rich's name. d. Standard's name.

Q: First Federal Bank wants to perfect its security interest in the property of Global Services Company. The most common method of perfecting a security interest is for a. the creditor to file a financing statement in a public office. b. the creditor to retain possession of the collateral. c. the debtor to give value to the creditor. d. the interest to attach automatically.

Q: Each of the following owns a Cut-Rite brand food processor: Diner's Restaurant; Eve, a consumer; Frank, a cooking-school student; and Great Deals, a discount store. As collateral, the processor that would be classified as inventory is owned by a. Diner's Restaurant. b. Eve. c. Frank. d. Great Deals.

Q: Ace Loan Company has a security interest in collateral owned by Best Tool & Die Company. A security interest in collateral a. eliminates the need for a financing statement. b. is enforceable when attachment occurs. c. is lost when attachment occurs. d. must be obtained by possession.

Q: After the proper disposition of collateral, if the secured party has not collected all that the debtor owes, the creditor must accept the deficiency.

Q: When collateral consists of consumer goods subject to a purchase-money security interest, the secured party must "purchase" the goods on the debtor's default.

Q: When a secured debt is paid, the secured party must file a termination statement regardless of the goods' classification.

Q: A secured party can release the collateral described in a filed financing statement only if the debtor has paid the debt.

Q: When two parties have perfected security interests in the same collateral, neither party has priority.

Q: A buyer in the ordinary course of business takes goods free of any security interest in the seller's inventory.

Q: The concept of the floating lien does not apply to future advances.

Q: The concept of the floating lien applies to after-acquired inventory.

Q: A secured creditor's right to cash proceeds exists for twenty days after receipt only if the cash is forwarded to the secured party.

Q: A financing statement is effective for five years from the date of filing.

Q: A purchase-money security interest in consumer goods is perfected automatically at the time of a credit sale.

Q: A pledge is a promise by a debtor to take reasonable care of the collateral.

Q: An improper filing renders a secured party unperfected.

Q: A security agreement's description of collateral as "all the debtor's assets" is sufficient to reasonably identify the property.

Q: A financing statement is effective only if it is filed electronically.

Q: A financing statement is not effective if it is filed electronically.

Q: For a creditor to have an enforceable security interest, the debtor must have title to the collateral.

Q: Collateral is the subject of a security interest.

Q: A security interest is not enforceable after the creditor's rights have attached to the collateral.

Q: A security interest is enforceable only if the collateral is not in the debtor's possession.

Q: Consumer Credit Corporation loans $15,000 to Dave to buy a car, which is used as collateral to secure the loan. Dave pays less than half of the loan, before he defaults. What are the lender's alternatives?

Q: Eagle Stores, Inc., borrows $5,000 each from EZ Loan Corporation, First National Bank, and Great Products Corporation. Eagle uses its "present inventory and any thereafter acquired" to secure the loans from EZ Loan and First National. EZ Loan perfects its interest on April 1, followed by First National on April 5. Eagle buys new inventory on April 10 from Great Products and signs a security agreement, giving Great Products a purchase-money security interest in the new inventory. On the same day, Great Products perfects its interest and notifies EZ Loan and First National. Eagle takes possession of the new inventory on April 15. On April 20, Eagle defaults on all of the loans. Whose security interest has priority?

Q: Hal's Hardware Store defaults on a debt to Intrastate Bank, which takes possession of the collateral securing the debt. Intrastate sells the collateral. The proceeds from the sale are applied first to a. Hal's debt to Intrastate. b. Hal's debts to other creditors. c. Intrastate's fees for the sale. d. payments Hal's made on the debt to Intrastate.

Q: Ron does not make a payment on his car loan for several months. The dealer, Star Auto, repossesses the car by towing it from a public parking lot. Ron sues Star for breach of the peace. Ron will probably a. prevail, because Ron has not formally defaulted on the car loan. b. prevail, because the car was parked in a public lot when it was towed. c. not prevail, because the repossession was not a breach of the peace. d. not prevail, because a creditor can repossess property in which it holds an interest if no threats or force are used against a debtor.

Q: Ed repays his debt, incurred to buy consumer goods, to First City Bank and immediately files a written request for a termination statement. First City a. must comply within one month of receipt of the letter. b. must comply within twenty days of receipt of the letter. c. must refund $500 to Ed. d. need not comply.

Q: Fred, a debtor, wishes to know the amount of his outstanding secured debt with Genuine Credit Corporation. Fred may submit a written statement for approval to Genuine Credit, without paying a fee, a. never. b. once. c. once every five years. d. once every six months.

Q: Qwik Credit Corporation lends $20,000 to Ross. Qwik files a financing statement on May 1, but a security agreement is not signed until Ross gets the money on May 4. Ross also borrows money from State Bank, which advances funds, files a financing statement, and signs a security agreement on May 2. Ross uses the same property as collateral for both loans. In a dispute between the lenders over rights to the collateral, Qwik will a. lose, because State perfected its interest first. b. lose, because State's interest attached first. c. win, because Qwik filed its financing statement first. d. win, because Qwik's interest attached first.

Q: A-1 Capital Company and First National Bank are secured parties with security interests in property owned by Interstate Commercial Corporation. The first security interest to be filed or perfected has priority over another filed or perfected security interest in a. all circumstances. b. states that have not adopted Article 9 of the UCC. c. states that require a security agreement to be signed and dated by the creditor. d. no circumstances.

Q: Dependable Credit Corporation asks Eagle Supply Company to agree to a security agreement that provides for coverage of the proceeds from the sale of after-acquired property. This is a. a first-in, first-out rule. b. a floating lien. c. a funds guaranty. d. a future advance.

Q: Agricultural Investments, Inc., files a financing statement to provide notice of its security interest in the property of Bay Farms. The initial effective term of a financing statement is a period of a. one year. b. two years. c. five years. d. ten years.

Q: EZ Loans, Inc., takes possession of Frank's stock in Gamma Corporation to perfect EZ's security interest in the stock. This is a. after-acquired property. b. a pledge. c. a purchase-money security interest. d. proceeds.

Q: Mona lives in New Jersey, but she works in New York. Mona borrows $1,000 from National Bank, using her motorcycle as collateral. To perfect its security interest, the bank must file its financing statement in at least a. every state. b. New Jersey. c. New Jersey and New York. d. New York.

Q: County Bank wants to perfect its security interest in collateral owned by Delta Sales Company. Most likely, a financing statement should be filed with a. the local chamber of commerce. b. the county clerk. c. the federal loan officer. d. the secretary of state's office.

Q: Credit Extender, Inc. (CE), a creditor, wants to perfect its interest in property owned by Dandy Goods, Inc. (DG). Filing a financing statement a. gives notice to other creditors of CE's security interest. b. is a technicality that has no practical effect. c. reduces CE, on DG's bankruptcy, to an unsecured creditor. d. transfers DG's property into CE's possession.

Q: AAA Appliance Company allows Burt to take a set of kitchen appliances that he bought from AAA even though he has not paid the full price. AAA's legally sufficient financing statement in the goods need not include a. AAA's name. b. a description of the collateral. c. a statement of the reason for allowing Burt to take the goods. d. Burt's name.

Q: Show-Me Display Company, a creditor, agrees to sell display cases to Total Retail, Inc. (TRI). TRI agrees to make monthly payments on the cases, which serves as collateral for the debt until the balance is paid. To protect its claim in the collateral, Show-Me should a. personally contact TRI's other creditors. b. file a financing statement with the appropriate state or local official. c. send notice by mail to TRI's potential customers. d. station a Show-Me employee on TRI's premises.

Q: Fact Pattern 29-1 Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.Refer to Fact Pattern 29-1. Ira, a police officer, buys an Excel from Fine to drive in his off-duty hours. Ira's Excel is a. a consumer good. b. an accession. c. equipment. d. inventory.

Q: Fact Pattern 29-1 Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.Refer to Fact Pattern 29-1. Holly, a professional driver, buys an Excel from Fine to drive in a Grand Prix race. Holly's Excel is a. a consumer good. b. an accession. c. equipment. d. inventory.

Q: Fact Pattern 29-1 Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.Refer to Fact Pattern 29-1. Greg buys an Excel from Fine and buries it in the ground as a protest against air pollution. Considered a politically charged work of art, Greg's Excel is a. a consumer good. b. an accession. c. equipment. d. inventory.

Q: Fact Pattern 29-1 Excel Vehicles, Inc., makes and sells automobiles to auto dealers, including Fine Auto Sales. Fine sells the cars to consumers and businesses.Refer to Fact Pattern 29-1. A car in Fine's possession is probably a. a consumer good. b. an accession. c. equipment. d. inventory.