CCP Bankruptcy & Insolvency in Credit Management 1 — Questions and Answers
Question 1: Which chapter of the U.S. Bankruptcy Code is primarily used by businesses seeking reorganization while continuing operations?
- Chapter 7
- Chapter 11 (Correct answer)
- Chapter 13
- Chapter 15
Correct answer: Chapter 11
Chapter 11 allows businesses to restructure debts and continue operations under a court-approved plan of reorganization.
Question 2: What is an 'automatic stay' in bankruptcy proceedings?
- A delay granted to debtors to file schedules
- A court injunction that halts most collection actions against the debtor upon filing (Correct answer)
- A temporary freeze of the debtor's assets pending audit
- A mandatory waiting period before a trustee is appointed
Correct answer: A court injunction that halts most collection actions against the debtor upon filing
The automatic stay immediately stops virtually all collection efforts, lawsuits, and creditor actions against the debtor upon the filing of a bankruptcy petition.
Question 3: Under Chapter 7 bankruptcy liquidation, what is the primary role of the trustee?
- Negotiate a repayment plan with creditors
- Oversee the debtor's continued business operations
- Liquidate non-exempt assets and distribute proceeds to creditors (Correct answer)
- Approve the debtor's plan of reorganization
Correct answer: Liquidate non-exempt assets and distribute proceeds to creditors
In Chapter 7, the trustee collects and sells the debtor's non-exempt assets, then distributes the proceeds to creditors according to statutory priority.
Question 4: A 'preference payment' in bankruptcy refers to a transfer made by the debtor:
- To a secured creditor within 2 years before filing
- To an unsecured creditor within 90 days before filing that improves their position over other creditors (Correct answer)
- To pay employee wages within 30 days before filing
- To a government tax authority within 1 year before filing
Correct answer: To an unsecured creditor within 90 days before filing that improves their position over other creditors
A preference is a payment to a creditor within 90 days (or 1 year for insiders) before filing that enables that creditor to receive more than they would in liquidation, making it potentially recoverable by the trustee.
Question 5: Which of the following creditor classes has the HIGHEST priority in a Chapter 7 liquidation distribution?
- General unsecured creditors
- Secured creditors with perfected liens (Correct answer)
- Equity interest holders
- Subordinated debenture holders
Correct answer: Secured creditors with perfected liens
Secured creditors with perfected liens are paid first from the collateral proceeds, ahead of unsecured and subordinated creditors, and far ahead of equity holders.
Question 6: What does 'discharge' mean in the context of a bankruptcy proceeding?
- The trustee is removed from the case
- The debtor is released from personal liability for specific debts (Correct answer)
- The court dismisses the bankruptcy petition
- All estate assets have been fully liquidated
Correct answer: The debtor is released from personal liability for specific debts
A discharge is a court order that releases the debtor from personal liability for certain debts, meaning creditors can no longer pursue the debtor personally for those obligations.
Question 7: A credit manager files a 'proof of claim' in a bankruptcy case. What is the purpose of this document?
- To request the automatic stay be lifted
- To formally assert the amount and basis of the creditor's claim against the estate (Correct answer)
- To report suspected fraud by the debtor to the trustee
- To object to the debtor's proposed plan of reorganization
Correct answer: To formally assert the amount and basis of the creditor's claim against the estate
A proof of claim is the document a creditor files with the bankruptcy court to establish the amount owed and the legal basis for their claim, which is necessary to receive any distribution from the estate.
CCP Bankruptcy & Insolvency in Credit Management 1
Which chapter of the U.S.
Bankruptcy Code is primarily used by businesses seeking reorganization while continuing operations?