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Bankruptcy
Bankruptcy MCQs
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Chapter 7 of the Federal Bankruptcy Code will grant a debtor a discharge when the debtor
Is a corporation or a partnership.
Is an entity, other than a partnership or corporation, that could successfully reorganize under Chapter 11 of the Federal Bankruptcy Code.
Is an insurance company.
Unjustifiably destroyed information relevant to the bankruptcy proceeding.
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Which of the following is indicative of insolvency?
Payments to creditors are late.
The market value of the firm’s stock has declined substantially.
Operating cash flows of the firm cannot meet current obligations.
Dividends are not declared because of inadequate retained earnings.
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A plan of reorganization formulated under Chapter 11 must be submitted to the creditors for acceptance and to the court for confirmation. Which of the...
The effect of confirmation is to make the plan binding on all parties and to grant the debtor a discharge from claims not protected by the plan.
A plan cannot be confirmed if any impaired class of claims or interests rejects it.
If no class of claims or interests accepts a plan, the court may nevertheless confirm it if the plan is in the best interests of the creditors.
A class that is not impaired is presumed to accept, but more than half of the claims in a class by amount must accept if the class is impaired.
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Which of the following is not an early signal of potential financial distress?
Negative earnings.
Employee layoffs.
Rapidly falling stock prices.
Stagnant cash flows.
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A plan of reorganization under Chapter 11
May be filed by any party in interest for 120 days after entry of the order for relief.
Must be filed by the trustee and approved by the creditors within 180 days after entry of the order for relief.
Must treat all classes of claims and ownership interests equally.
Must treat all claims or interests in the same class equally.
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Insolvency is
A low cash balance.
Lack of liquidity.
Not being able to pay one’s debts.
Lack of borrowing capacity.
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Which of the following is the most likely option to be chosen by an insolvent firm?
Increase R&D and capital expenditures.
Purchase a stable firm.
File for bankruptcy.
Repurchase stock.
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A firm may benefit from insolvency in all but which of the following ways?
Being forced to focus upon core operations.
Realigning its capital structure.
Entering Chapter 11 bankruptcy proceedings and reorganizing the firm.
Being forced to liquidate the business.
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Which of the following, if any, may be commenced by the filing of a voluntary or an involuntary petition in a bankruptcy court? Chapter 7 Liquidation...
Yes Yes
Yes No
No Yes
No No
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After a petition for bankruptcy liquidation has been filed and the court has issued an order for relief,
The court usually appoints a permanent trustee to take control of the debtor’s estate.
Creditors must immediately cease their collection activities.
The bankruptcy judge notifies creditors, collects the debtor’s nonexempt property, and distributes that property to the creditors.
A meeting is held by the creditors to vote on a plan of reorganization.
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The creditors of a firm have filed an involuntary petition seeking a Chapter 7 liquidation of the firm under federal bankruptcy law. The firm contests...
A custodian took possession of the debtor’s property to enforce a lien 60 days prior to filing.
A custodian took possession of the debtor’s property to enforce a lien 20 days prior to filing.
The debtor has 12 creditors and three creditors with unsecured claims totaling $15,325 joined in the petition.
The debtor has 10 creditors and one creditor with a claim of $10,000 filed.
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The correct priority of claims in a bankruptcy liquidation is
Administrative expenses, wage claims of no more than $12,475, taxes due, claims of general or unsecured creditors, and shareholder claims.
Administrative expenses, wage claims of no more than $12,475, taxes due, shareholder claims, and debtholder claims.
All wage claims, administrative expenses, debtholder claims, taxes due, and shareholder claims.
All wage claims, administrative expenses, debtholder claims, shareholder claims, and taxes due.
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A discharge in bankruptcy under Chapter 7 (liquidation) may be obtained by a(n) Individual Corporation Partnership
Yes Yes Yes
No Yes Yes
Yes No No
No No Yes
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Chapter 11 of the bankruptcy law concerns reorganizations. Under Chapter 11,
Individuals are not eligible debtors.
A case may be commenced only by a voluntary petition.
Insolvency is condition precedent to the filing of a petition.
The primary purpose is usually the continuation of the business.
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Which of the following is a true statement about a plan of reorganization in a Chapter 11 bankruptcy case?
A debtor may have the exclusive right to file a plan of reorganization for a certain period.
A plan of reorganization must treat all creditors similarly.
Only a committee of creditors may file a plan of reorganization.
The plan of reorganization must be approved by a supermajority of each class of creditors.
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The trusteeship function in a Chapter 11 bankruptcy reorganization is usually performed by the
Court.
Debtor-in-possession.
Committee of creditors.
Examiner.
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A firm is being liquidated several months after its Chapter 7 bankruptcy filing. The receiver has compiled the following information. Assets $100,000...
53%
64%
81%
100%
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A company in financial distress is often faced with filing for either liquidation or reorganization. While each type of filing offers unsecured credit...
Reorganization, speculating that the firm’s financial condition can improve and that they can recover a larger portion of the debt.
Liquidation, receiving the immediate payment of their portion of the debt.
Reorganization, as they will become senior as more debt is issued.
Liquidation, as the costs of reorganizing deplete the firm’s assets.
