(B)Automatically Stays Collection Actions Against the Debtor Except by Secured Creditors

Multiple Choice Questions

1.CPA QUESTIONA 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

Answer: (d) Sometimes debtors file for bankruptcy protection because they are having cash flow problems even if their assets exceed liabilities. CPA Examination, May 1991, #30.

2.CPA QUESTIONDecal Corp. incurred substantial operating losses for the past three years. Unable to meet its current obligations, Decal filed a petition of reorganization under Chapter 11 of the federal Bankruptcy Code. Which of the following statements is correct?

(a)A creditors’ committee, if appointed, will consist of unsecured creditors.

(b)The court must appoint a trustee to manage Decal’s affairs.

(c)Decal may continue in business only with the approval of a trustee.

(d)The creditors’ committee must select a trustee to manage Decal’s affairs.

Answer: (a) A creditor’s committee generally consists of the seven largest unsecured creditors who are willing to serve. CPA Examination, May 1991, #35.

3.CPA QUESTIONUnger owes a total of $50,000 to eight unsecured creditors and one fully secured creditor. Quincy is one of the unsecured creditors and is owed $6,000. Quincy has filed a petition against Unger under the liquidation provisions of Chapter 7 of the federal Bankruptcy Code. Unger has been unable to pay debts as they become due. Unger’s liabilities exceed Unger’s assets. Unger has filed papers opposing the bankruptcy petition. Which of the following statements regarding Quincy’s petition is correct?

(a)It will be dismissed because the secured creditor failed to join in the filing of the petition.

(b)It will be dismissed because three unsecured creditors must join in the filing of the petition.

(c)It will be granted because Unger’s liabilities exceed Unger’s assets.

(d)It will be granted because Unger is unable to pay Unger’s debts as they become due.

Answer: (d) CPA Examination, May 1991, #29.

4. Dale is in bankruptcy proceedings under Chapter 13. Which of the following statements is true?

(a)His debtors must have filed an involuntary petition.

(b)His unsecured creditors will be worse off than if he had filed under Chapter 7.

(c)All of his debts are discharged as soon as the court approves his plan.

(d)His creditors have an opportunity to voice objections to his plan.

Answer: (d)

5. Grass Co. is in bankruptcy proceedings under Chapter 11. ______serves as trustee. In the case of ______the court can approve a plan of reorganization over the objections of the creditors.

(a)the debtor in possession/a cramdown

(b)A person appointed by the U.S. Trustee/fraud

(c)The head of the creditors’ committee/reaffirmation

(d)U.S. Trustee/voidable preference

Answer: (a)