Chapter 15 Practice Exam Matching Questions Match the following terms with their definitions: (5) B. Fraudulent transfer (1) C. Exempt property (3) D. Reaffirmation 1. Property individual debtors can keep for themselves 3. Debtors promise to pay a debt after discharge 5. Payment made within the year before a petition is filed with the goal of hindering creditors True/False Questions Circle true or false: 1. T F One of the primary goals of the Code is to punish the debtor. 3. T F A creditor is not permitted to force a debtor into bankruptcy. 5. T F The Code permits individual debtors (but not organizations) to keep some property for themselves. Multiple-Choice Questions 7. CPA QUESTION: A voluntary petition filed under the liquidation provisions of Chapter 7 of the federal Bankruptcy Code: (a) Is not available to a corporation unless it has previously filed a petition under the reorganization provisions of Chapter 11 of the Code. (b) Automatically stays collection actions against the debtor except by secured creditors. (c) Will be dismissed unless the debtor has 12 or more unsecured creditors whose claims total at least $5,000. (d) Does not require the debtor to show that the debtor’s liabilities exceed the fair market value of assets. 9. Why did Kim Basinger (see the chapter introduction) file under Chapter 11 rather than Chapter 13? (a) Basinger’s debts were too low to meet the requirements of Chapter 13. (b) Basinger had committed fraud. (c) Basinger had acted in bad faith. (d) All individuals must file under Chapter 11. (e) Basinger’s debts exceeded the limits permitted by Chapter 13. Short-Answer Questions 11. ETHICS: On November 5, The Fred Hawes Organization, Inc., a small subcontractor, opened an account with Basic Distribution Corp., a supplier of construction materials. Hawes promised to pay its bills within 30 days of purchase. Although Hawes purchased a substantial quantity of goods on credit from Basic, it made few payments on the accounts until the following March when it paid

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Basic over $21,000. On May 14, Hawes filed a voluntary petition under Chapter 7. Does the bankruptcy trustee have a right to recover this payment? Is it fair to Hawes’s other creditors if Basic is allowed to keep the $21,000 payment? Answer: The bankruptcy court ruled that this payment was a voidable preference. It was not made in the ordinary course. Although Hawes was supposed to pay its bills within 30 days, it had in fact made no payments for four months and then promptly made a large one just before it filed for bankruptcy. In re Fred Hawes Org., Inc., 957 F.2d 239, 1992 U.S. App. LEXIS 2300 (6th Cir. 1990). 13. Lydia D’Ettore received a degree in computer programming at DeVry Institute of Technology, with a grade point average of 2.51. To finance her education, she borrowed $20,516.52 from a federal student loan program. After graduation she could not find a job in her field, so she went to work as a clerk at a salary of $12,500. D’Ettore and her daughter lived with her parents free of charge. After setting aside $50 a month in savings and paying bills that included $233 for a new car (a Suzuki Samurai) and $50 for jewelry from Zales, her disposable income was $125 per month. D’Ettore asked the bankruptcy court to discharge the debts she owed for her DeVry education. Should the court do so? Answer: The court refused to discharge D’Ettore’s debts. It reasoned that anyone who can afford to buy jewelry and a new car, while saving money, could also afford to pay her educational loans. If there was hardship, it was clearly caused by her extravagant purchases. In re D’Ettore 106 Bankr. 715 (Bankr. M.D. Fla. 1989). 15. Robert Britton was an office manager at the Academy of Cosmetic Surgery Medical Group. Mary Price made an appointment for a consultation about a lipectomy (removal of abdominal fat). Britton wore a name tag that identified him as a doctor, and was addressed as “doctor” by the nurse. Britton and the nurse then examined Price. Britton touched the area of her stomach where there was excess fat and showed her where the incision would be made. A doctor who worked for the Academy actually performed the surgical procedure on Price at the Academy’s offices, with Britton present. After the procedure, Price went to a hospital suffering from severe pain. The hospital staff found that a tube had been left in her body at the site of the incision. The jury awarded her $275,000 in damages in a fraud suit against Britton. He subsequently filed a Chapter 7 bankruptcy petition. Is this judgment dischargeable in bankruptcy court? Answer: Under Chapter 7, fraud claims are not dischargeable. In re Britton, 950 F.2d 602, 1991 U.S. App. LEXIS 28487 (9th Cir. 1991).