Question 1

Drew and Earl are brothers. They agree to act as guarantors on a loan made by their sister, Flo. Flo defaults on the payments and Drew refuses to pay. Earl pays the debt. Earl can recover from

Accepted Answer

Under the right of contribution, Earl can recover from Drew for his share of the debt as they were co-guarantors. Drew can be held liable for the proportionate amount of the debt that he agreed to pay. However, Flo cannot be held liable for the same debt twice.

Under the right of subrogation, Earl can step into Flo's shoes and recover from her any amounts that he pays on her behalf. However, Drew cannot be held liable for more than his agreed share of the debt, so he cannot be pursued for reimbursement.

Therefore, the best choice is C.

Question 2

Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from First Street Motors. If, after the loan agreement is signed, Dina agrees to a higher rate of interest without telling Edie, then Edie is

Accepted Answer

The answer of Dina asks Edie to co-sign a credit...

Question 3

Bobby has fifteen creditors. To force Bobby into bankruptcy proceedings, at least three creditors must join the petition and their unsecured claims must add up to at least

Accepted Answer

The answer of Bobby has fifteen creditors. To force Bobby...

Question 4

Gerald files a bankruptcy petition. The resulting automatic stay will apply to Gerald's

Accepted Answer

The answer of Gerald files a bankruptcy petition. The resulting...

Question 5

William is a surety for Jeannie's loan from Richard. Richard knows of William's existence. When the loan comes due, Jeannie tries to pay Richard, but Richard rejects the payment. William is

Accepted Answer

The answer of William is a surety for Jeannie's loan...

Question 6

Norma Jean files for Chapter 7 bankruptcy. She turns her assets over to Addie, who sells the assets and then distributes the proceeds to Norma Jean's creditors. Addie is a

Accepted Answer

Addie is a bankruptcy trustee, which is a person appointed to manage the assets of a bankrupt individual or business and distribute them to creditors. This is a common role in Chapter 7 bankruptcy cases.

Question 7

Dana defaults on a debt to Rachel. Rachel will NOT be able to recover the debt from

Accepted Answer

The answer of Dana defaults on a debt to Rachel....

Question 8

Bess wishes to appeal a decision from a federal bankruptcy court. Bess must appeal to

Accepted Answer

Since Bess wishes to appeal a decision from a federal bankruptcy court, the next court in the appeal process would be a federal district court. The U.S. Supreme Court would only hear the case if there were constitutional issues involved or if the decision by the federal district court is challenged. A county court or a state court would not have jurisdiction over a federal bankruptcy court decision.

Question 9

Fact Pattern 21-1 
Mary's home is in a state that has a $30,000 homestead exemption. Mary defaults on a $60,000 debt that she owes to Nina. Mary's home is sold at auction for $80,000.
-Refer to Fact Pattern 21-1. Mary will receive

Accepted Answer

Mary is entitled to the $30,000 homestead exemption, which means that the first $30,000 of the sale proceeds must go to her before any remaining funds go towards paying off her debt to Nina. Thus, Mary will receive the $30,000 exemption amount, and the remaining $50,000 will go towards satisfying her debt to Nina. Mary will not receive any additional funds beyond the $30,000 exemption.

Question 10

Donna goes through an involuntary bankruptcy proceeding. An involuntary bankruptcy occurs when

Accepted Answer

An involuntary bankruptcy occurs when a debtor's creditors force the debtor into bankruptcy proceedings. It is initiated by a group of creditors who believe that the debtor is not paying its debts and is not managing its assets responsibly. A petition is filed with the bankruptcy court, and the court decides whether or not to grant the involuntary bankruptcy request.

Question 11

Consumer Credit, Inc. (CCI), lends $1,000 to Joe. Kay acts as Joe's surety. If Kay pays the loan, she gets

Accepted Answer

When Kay acts as Joe's surety, she becomes responsible for repaying the loan if Joe defaults. As a result, she gains any right that CCI had against Joe, as well as a right to be reimbursed by Joe for the amount she paid. Therefore, choice C is the correct answer.

Question 12

Joe files a voluntary petition for Chapter 7 bankruptcy. His petition does not need to include

Accepted Answer

The occupations of Joe's creditors are not required information in a Chapter 7 bankruptcy petition. The petition does, however, need to include a list of secured and unsecured creditors as well as their addresses.

Question 13

Wilson wants to file an ordinary, or straight, bankruptcy. Wilson should file using

Accepted Answer

Chapter 7 is the appropriate choice for an ordinary, or straight, bankruptcy. This type of bankruptcy allows for the liquidation of assets to pay off debts, and is usually the quickest and simplest form of bankruptcy.

Question 14

Fact Pattern 21-1 
Mary's home is in a state that has a $30,000 homestead exemption. Mary defaults on a $60,000 debt that she owes to Nina. Mary's home is sold at auction for $80,000.
-Refer to Fact Pattern 21-1. Other property Mary may own that may be exempt from satisfaction of judgment debts includes

Accepted Answer

The fact pattern indicates that Mary's state has a homestead exemption of $30,000, which means that this amount of equity in her home is protected from judgment creditors. However, the fact pattern does not indicate that Mary has any other property that is exempt from satisfaction of judgment debts, except for tools that she uses in her trade. Some states have specific exemptions for tools and equipment that are necessary for an individual's occupation, and these exemptions can vary widely depending on the state. Therefore, based on the information given in the fact pattern, the best choice is D, tools that Mary uses in her trade.

Question 15

Fact Pattern 21-1 
Mary's home is in a state that has a $30,000 homestead exemption. Mary defaults on a $60,000 debt that she owes to Nina. Mary's home is sold at auction for $80,000.
-Refer to Fact Pattern 21-1. Nina may recover

Accepted Answer

The homestead exemption protects Mary's home equity up to $30,000 from being used to satisfy creditor claims. In this case, Mary's equity in her home is $50,000 ($80,000 sale price - $30,000 exemption), and Nina's claim is for $60,000. Therefore, Nina may recover up to the amount of Mary's equity, which is $50,000.

Question 16

Daphne defaults on a debt to Country Loan Corporation (CLC). As a creditor, CLC can place liens on all of Daphne's property except

Accepted Answer

Under most state laws, motor vehicles used to commute to work are exempt from being seized by creditors.

Question 17

Maggie is a surety for Juli's debt to Bill. Bill and Juli decide to make material changes to the original contract without consulting Maggie. Maggie is

Accepted Answer

When the terms of the original contract are materially changed without the consent of the surety, the surety is discharged from any further obligations under the contract. Therefore, Maggie is no longer bound by the contract as a surety.

Question 18

Roland files for Chapter 7 bankruptcy. After all his assets have been sold and the proceeds distributed among his creditors, Roland's remaining debts

Accepted Answer

Chapter 7 bankruptcy is known as a "liquidation bankruptcy" in which the debtor's assets are sold off to pay creditors. Any remaining debts are discharged, meaning the debtor is released from their obligation to pay them. Therefore, Roland's remaining debts will be discharged after the sale of his assets.

Question 19

Fact Pattern 21-1 
Mary's home is in a state that has a $30,000 homestead exemption. Mary defaults on a $60,000 debt that she owes to Nina. Mary's home is sold at auction for $80,000.
-Refer to Fact Pattern 21-1. If Nina recovers less than she is owed, she can realize the difference from

Accepted Answer

Nina can recover the difference from any nonexempt property that Mary owns, as the homestead exemption protects $30,000 of the home's value, leaving $50,000 available to satisfy the debt.

Question 20

Muffins-2-Go buys a truck from Street Vehicles, Inc., under a contract signed by Riley, Muffins-2-Go's president, making him personally liable if Muffins-2-Go does not pay the loan. Riley is

Accepted Answer

The answer of Muffins-2-Go buys a truck from Street Vehicles,...

Quiz 21: Creditors Rights and Bankruptcy