NALA Bankruptcy Law — Questions and Answers
Question 1: Under the U.S. Bankruptcy Code, what is the 'automatic stay'?
- A court order requiring the debtor to stay in a specific state during proceedings.
- An injunction that immediately halts most collection actions, lawsuits, and foreclosures against the debtor upon filing. (Correct answer)
- A mandatory waiting period before a debtor can file for bankruptcy again.
- A freeze on the debtor's right to hire legal counsel.
Correct answer: An injunction that immediately halts most collection actions, lawsuits, and foreclosures against the debtor upon filing.
The automatic stay (11 U.S.C. § 362) takes effect the moment a bankruptcy petition is filed and immediately prohibits most creditors from continuing collection efforts, wage garnishments, foreclosures, and lawsuits against the debtor. It is one of the most powerful protections bankruptcy provides.
Question 2: A client with primarily consumer debts wants to eliminate unsecured debts entirely through bankruptcy. Which chapter of the Bankruptcy Code is MOST appropriate?
- Chapter 11 — Reorganization
- Chapter 7 — Liquidation (Correct answer)
- Chapter 12 — Family Farmer/Fisherman
- Chapter 9 — Municipality
Correct answer: Chapter 7 — Liquidation
Chapter 7 is a liquidation bankruptcy that allows eligible individual debtors to discharge most unsecured debts (credit cards, medical bills) relatively quickly. Chapter 11 is primarily for business reorganization; Chapter 12 is for family farmers and fishermen; Chapter 9 is for municipalities.
Question 3: Which test must individual debtors pass to be eligible to file Chapter 7 bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?
- The Credit Score Test
- The Net Worth Test
- The Means Test (Correct answer)
- The Asset Liquidation Threshold Test
Correct answer: The Means Test
BAPCPA introduced the 'means test,' which compares the debtor's average monthly income to the state median income and, if above it, calculates disposable income to determine whether Chapter 7 is available or whether the debtor must file Chapter 13 and repay creditors through a plan.
Question 4: Under Chapter 13 bankruptcy, how long may a debtor's repayment plan last?
- 6 months to 1 year
- 3 to 5 years (Correct answer)
- 7 to 10 years
- There is no time limit — it continues until all debts are paid in full.
Correct answer: 3 to 5 years
Chapter 13 plans must be 3 years if the debtor's income is below the state median, and may extend to 5 years if income is at or above the state median. Plans exceeding 5 years are not permitted under the Bankruptcy Code.
Question 5: In a bankruptcy case, which party is appointed to administer the debtor's estate, liquidate non-exempt assets, and distribute proceeds to creditors in a Chapter 7 case?
- The bankruptcy judge
- The U.S. Trustee
- The Chapter 7 trustee (Correct answer)
- The debtor-in-possession
Correct answer: The Chapter 7 trustee
A Chapter 7 trustee (a private individual appointed from a panel) administers the bankruptcy estate: collecting and liquidating non-exempt assets and distributing proceeds to creditors in the priority order set by the Code. The bankruptcy judge oversees the legal proceedings; the U.S. Trustee is a DOJ official who supervises trustees; 'debtor-in-possession' is a Chapter 11 concept.
Question 6: Which of the following debts is generally NON-DISCHARGEABLE in a Chapter 7 bankruptcy?
- Credit card debt
- Medical bills
- Student loans (absent undue hardship) (Correct answer)
- Utility bills
Correct answer: Student loans (absent undue hardship)
Under 11 U.S.C. § 523, student loans are non-dischargeable in bankruptcy unless the debtor proves 'undue hardship' — a very difficult standard. Credit card debt, medical bills, and utility bills are general unsecured debts that are typically dischargeable in Chapter 7.
NALA Bankruptcy Law
Under the U.S.
Bankruptcy Code, what is the 'automatic stay'?