Rights and Duties of Creditors in Bankruptcy: Test Your Knowledge

Question 1

What is the primary purpose of a proof of claim in bankruptcy?

Accepted Answer

To provide evidence of a creditor's claim against the debtor

Answer

To request the appointment of a trustee

Answer

To participate in the distribution of assets

Answer

To initiate an involuntary bankruptcy case

Question 2

What is the general effect of a discharge in bankruptcy on a creditor's claim?

Accepted Answer

It releases the debtor from all obligations to the creditor

Answer

It reduces the amount of the debt owed to the creditor

Answer

It does not affect the creditor's claim

Answer

It gives the creditor priority over other creditors

Question 3

What is the principal role of a trustee in bankruptcy proceedings?

Accepted Answer

To administer the debtor's estate

Answer

To represent the interests of the creditors

Answer

To determine the validity of claims

Answer

To liquidate the debtor's assets

Question 4

Which of the following is NOT a right afforded to creditors in bankruptcy proceedings?

Accepted Answer

Forgiving their own claims

Answer

Filing a proof of claim

Answer

Voting on a plan of reorganization

Answer

Receiving distributions from the bankruptcy estate

Question 5

What is the primary objective of a Chapter 11 bankruptcy filing?

Accepted Answer

To allow the debtor to reorganize its business and continue operations

Answer

To liquidate the debtor's assets and distribute the proceeds to creditors

Answer

To discharge the debtor's debts and allow them to start over

Answer

To provide the debtor with a temporary stay from creditor collection actions

Question 6

Which of the following claims receives the highest priority in bankruptcy proceedings?

Accepted Answer

Taxes owed to the government

Answer

Wages owed to employees

Answer

Unsecured loans from banks

Answer

Claims for breach of contract

Question 7

What is the fundamental distinction between a secured claim and an unsecured claim in bankruptcy?

Accepted Answer

Secured claims are backed by collateral, while unsecured claims are not.

Answer

Unsecured claims are paid before secured claims in bankruptcy.

Answer

Secured claims have a lower priority than unsecured claims in bankruptcy.

Answer

There is no difference between secured and unsecured claims in bankruptcy.

Question 8

What is the primary purpose of a discharge in bankruptcy?

Accepted Answer

To release the debtor from personal liability for certain debts

Answer

To allow the debtor to keep all of their assets

Answer

To prevent creditors from collecting on their debts indefinitely

Answer

To automatically void all of the debtor's contracts

Question 9

What is the primary role of the bankruptcy trustee?

Accepted Answer

To administer the bankruptcy estate

Answer

To represent the interests of creditors exclusively

Answer

To prepare and file the debtor's bankruptcy petition

Answer

To determine whether the debtor is eligible for a discharge

Question 10

What is the primary distinction between a Chapter 7 and a Chapter 13 bankruptcy filing?

Accepted Answer

Chapter 7 is for liquidation, while Chapter 13 is for reorganization.

Answer

Chapter 13 is for individuals, while Chapter 7 is primarily for businesses.

Answer

Chapter 7 requires debtors to surrender all of their assets, while Chapter 13 allows debtors to retain some of their assets.

Answer

There is no meaningful difference between Chapter 7 and Chapter 13 bankruptcy filings.

Question 11

What is the purpose of the automatic stay in bankruptcy?

Accepted Answer

To prohibit creditors from initiating or continuing collection actions against the debtor

Answer

To allow the debtor a period of time to file a plan of reorganization

Answer

To provide a complete and permanent discharge of all the debtor's debts

Answer

To facilitate a meeting between the debtor and their creditors

Question 12

Under the Bankruptcy Code, which of the following is NOT a priority claim?

Accepted Answer

Secured claims

Answer

Administrative expenses

Answer

Wages and benefits earned within 90 days of the bankruptcy filing

Answer

Taxes

Question 13

What is the purpose of an automatic stay in bankruptcy?

Accepted Answer

To prevent creditors from pursuing collection actions against the debtor

Answer

To distribute assets to creditors equally

Answer

To allow the debtor to restructure its debts

Answer

To terminate all executory contracts

Question 14

What is the difference between a secured claim and an unsecured claim?

Accepted Answer

A secured claim is backed by collateral, while an unsecured claim is not

Answer

An unsecured claim has priority over a secured claim

Answer

A secured claim can only be filed by individuals, while an unsecured claim can only be filed by businesses

Answer

There is no difference between a secured claim and an unsecured claim

Question 15

In bankruptcy proceedings, what is a primary ethical obligation of attorneys representing creditors?

Accepted Answer

Fully disclosing all relevant information to the bankruptcy court and other parties involved

Accepted Answer

Diligently avoiding potential conflicts of interest, such as representing multiple creditors in the same case

Answer

Aggressively pursuing maximum recovery for clients, even using questionable tactics

Answer

Unconditionally following clients' instructions, regardless of personal ethical concerns

Question 16

In bankruptcy, how do reaffirmation agreements impact the discharge of debts?

Accepted Answer

By reaffirming the discharged debt and making the debtor personally liable for it.

Answer

By removing the discharged debt from the bankruptcy process.

Answer

By having no impact on the discharge of debts.

Answer

By being void if the debtor does not receive new consideration for the debt.

Question 17

Which of the following is NOT a right of creditors in bankruptcy proceedings?

Accepted Answer

Initiate a lawsuit against the debtor for pre-petition debts

Answer

File a motion to dismiss the bankruptcy petition

Answer

Vote on the debtor's reorganization plan

Answer

Receive dividends from the bankruptcy estate

Question 18

What is the primary goal of a Chapter 13 bankruptcy?

Accepted Answer

To restructure debts and create a repayment plan

Answer

To discharge all debts

Answer

To liquidate the debtor's assets

Answer

To allow the debtor to keep their home without making any payments

Question 19

What is the primary responsibility of a bankruptcy trustee?

Accepted Answer

To administer the bankruptcy estate

Answer

To represent the debtor in court

Answer

To negotiate with creditors on behalf of the debtor

Answer

To determine the debtor's eligibility for bankruptcy

Question 20

What is the effect of a discharge in bankruptcy on a creditor's claim?

Accepted Answer

It extinguishes the debt

Answer

It suspends the debt

Answer

It reduces the amount of the debt

Answer

It transfers the debt to another party

Question 21

What is the underlying principle behind the "fresh start" concept in bankruptcy law?

Accepted Answer

To provide debtors with an opportunity to rebuild their lives

Answer

To punish creditors for irresponsible lending practices

Answer

To encourage debtors to file for bankruptcy

Answer

To prevent debtors from abusing the bankruptcy system

Question 22

What is the bankruptcy court's primary role in handling creditor claims?

Accepted Answer

Determining the validity and priority of creditor claims

Answer

Appointing a trustee to manage and sell the debtor's assets

Answer

Granting a discharge of the debtor's outstanding debts

Question 23

What is the primary purpose of an automatic stay in bankruptcy?

Accepted Answer

To prevent creditors from collecting debts owed by the debtor

Answer

To give the debtor time to reorganize its finances

Answer

To protect the debtor's assets from being sold

Answer

To allow the bankruptcy court to review the debtor's financial situation

Question 24

Which type of claim takes precedence over all other claims in bankruptcy?

Accepted Answer

Administrative claims

Answer

Secured claims

Answer

Priority unsecured claims

Answer

General unsecured claims

Question 25

What is the primary role of a bankruptcy trustee?

Accepted Answer

To manage and distribute the debtor's assets

Answer

To investigate the debtor's financial affairs

Answer

To represent the interests of creditors

Answer

To determine whether the debtor is eligible for bankruptcy

Question 26

What is the primary purpose of a discharge in bankruptcy?

Accepted Answer

To release the debtor from personal liability for certain debts

Answer

To restore the debtor's credit rating

Answer

To allow the debtor to start over financially

Answer

To prevent creditors from pursuing collection actions against the debtor

Question 27

Which of the following is NOT a type of secured claim?

Accepted Answer

Credit card debt

Answer

Mortgage

Answer

Car loan

Answer

Tax lien

Question 28

What happens if a creditor fails to file a proof of claim in bankruptcy by the deadline?

Accepted Answer

The claim is disallowed.

Answer

The claim is allowed in full.

Answer

The claim amount is reduced by a percentage.

Question 29

Which of the following is **not** a right of a creditor in bankruptcy proceedings?

Accepted Answer

Initiate involuntary bankruptcy proceedings

Answer

File a proof of claim

Answer

Receive distributions from the bankruptcy estate

Answer

Vote on the bankruptcy plan

Question 30

The primary duty of a creditor in bankruptcy proceedings is to:

Accepted Answer

File a timely proof of claim

Answer

Cooperate with the bankruptcy trustee

Answer

Pay all administrative expenses

Answer

Vote on the bankruptcy plan

Question 31

Which of the following is **not** a priority claim in bankruptcy?

Accepted Answer

Unsecured personal loans

Answer

Wages and salaries of employees

Answer

Taxes owed to the government

Answer

Rent for premises used in the debtor's business that accrued within 3 months of the bankruptcy filing

Question 32

What is the effect of a discharge in bankruptcy?

Accepted Answer

Eliminates only dischargeable debts under the Bankruptcy Code

Answer

Eliminates all of the debtor's debts

Answer

Allows the debtor to continue operating their business without interference

Answer

Requires the debtor to repay all of their debts over time

Question 33

What is the primary purpose of a Chapter 11 bankruptcy proceeding?

Accepted Answer

Reorganize the debtor's debts and allow the debtor to continue operating their business

Answer

Liquidate the debtor's assets and distribute proceeds to creditors

Answer

Allow the debtor to discharge all of their debts

Answer

Provide the debtor time to catch up on their mortgage payments

Question 34

Which of the following is **not** a potential benefit of filing for bankruptcy?

Accepted Answer

Receiving a large sum of money from the bankruptcy estate

Answer

Stopping foreclosure proceedings

Answer

Eliminating dischargeable debts

Answer

Starting over with a clean slate financially

Question 35

Which of the following is **not** a potential risk of filing for bankruptcy?

Accepted Answer

Improving the debtor's financial literacy

Answer

Damaging the debtor's credit score

Answer

Making it difficult to get a job

Answer

Losing property

Question 36

What is the main difference between a secured creditor and an unsecured creditor?

Accepted Answer

Secured creditors have a lien on collateral while unsecured creditors do not

Answer

Unsecured creditors are always paid in full before secured creditors

Answer

Secured creditors are more likely to file an involuntary bankruptcy petition against the debtor

Answer

There is no difference between secured and unsecured creditors

Question 37

What is the primary role of the bankruptcy trustee?

Accepted Answer

Administer the debtor's estate and distribute assets to creditors

Answer

Represent the interests of the debtor

Answer

Investigate the debtor's financial affairs

Answer

File a Chapter 13 bankruptcy petition on behalf of the debtor

Question 38

In a bankruptcy proceeding, how are the rights of a secured creditor holding a mortgage on the debtor's real property impacted?

Accepted Answer

The secured creditor must obtain bankruptcy court approval to exercise their rights.

Answer

The secured creditor's mortgage is automatically nullified.

Answer

The secured creditor can immediately begin foreclosure proceedings on the property.

Question 39

In a Chapter 13 bankruptcy proceeding, how is a secured creditor's claim typically treated?

Accepted Answer

The secured creditor's claim is limited to the value of the collateral.

Answer

The secured creditor receives immediate payment in full.

Answer

The secured creditor's claim is considered unsecured.

Answer

The secured creditor has the option to seize the collateral.

Question 40

A creditor submits a proof of claim for $100,000, but it is reduced to $75,000 by the bankruptcy court. What is the amount of the creditor's allowed claim?

Accepted Answer

$75,000

Answer

$100,000

Answer

The court's decision on the allowed claim amount is not binding on the creditor.

Answer

The creditor can file an appeal with the district court to contest the allowed claim amount.

Question 41

Which of the following is NOT included in the scope of the automatic stay in bankruptcy?

Accepted Answer

Debtors

Answer

Creditors

Answer

Lienholders

Answer

Landlords

Question 42

True or False: A creditor is allowed to file a proof of claim for a debt that has not yet become due.

Accepted Answer

True

Answer

False

Question 43

What is the primary purpose of a Chapter 11 reorganization plan?

Accepted Answer

To reorganize the debtor's debts and assets to enable continued operation.

Answer

To liquidate the debtor's assets and distribute the proceeds to creditors.

Answer

To convert the debtor's case from Chapter 11 to Chapter 7.

Answer

To dismiss the debtor's bankruptcy case.

Question 44

Which of the following is NOT a power or duty of a Chapter 7 trustee?

Accepted Answer

Discharging the debtor's debts

Answer

Avoiding fraudulent transfers

Answer

Selling the debtor's nonexempt property

Answer

Collecting and distributing assets to creditors

Question 45

Which of the following entities is ineligible to file for bankruptcy under the Bankruptcy Code?

Accepted Answer

Foreign governments

Answer

Individuals

Answer

Corporations

Answer

Municipalities

Question 46

What is the fundamental objective of the Bankruptcy Code?

Accepted Answer

To provide debtors with a fresh start

Answer

To maximize creditor recoveries

Answer

To punish debtors for financial mismanagement

Answer

To facilitate increased credit availability

Question 47

In bankruptcy proceedings, what is the primary role of the bankruptcy court?

Accepted Answer

Supervisory

Answer

Administrative

Answer

Ministerial

Answer

Advisory

Question 48

What is the purpose of an automatic stay in bankruptcy?

Accepted Answer

To prevent creditors from taking action to collect debts from the debtor without court approval

Answer

To allow the debtor to continue operating its business without interference

Answer

To distribute the debtor's assets to creditors

Question 49

Which of the following is NOT a duty of a creditor in bankruptcy?

Accepted Answer

To interfere with the bankruptcy proceedings

Answer

To file a proof of claim

Answer

To cooperate with the bankruptcy trustee

Answer

To attend the creditors' meetings

Question 50

What is the difference between a secured claim and an unsecured claim in bankruptcy?

Accepted Answer

A secured claim is backed by collateral, while an unsecured claim is not.

Answer

A secured claim is filed before an unsecured claim.

Answer

A secured claim is paid in full before an unsecured claim.

Question 51

What is the purpose of a Chapter 7 bankruptcy?

Accepted Answer

To liquidate the debtor's nonexempt assets and distribute the proceeds to creditors

Answer

To allow the debtor to reorganize its debts and continue operating its business

Answer

To discharge the debtor's debts without any payment to creditors

Question 52

Which of the following is NOT a ground for involuntary bankruptcy?

Accepted Answer

The debtor has filed a voluntary bankruptcy petition

Answer

The debtor has failed to pay its debts when due

Answer

The debtor has made a fraudulent transfer of assets

Question 53

What is the effect of a discharge in bankruptcy?

Accepted Answer

It releases the debtor from personal liability for most dischargeable debts

Answer

It restores the debtor's credit rating to its pre-bankruptcy level

Answer

It allows the debtor to continue operating its business without interference

Question 54

Which of the following is a type of preference in bankruptcy?

Accepted Answer

A transfer made by the debtor to a creditor within 90 days of bankruptcy

Answer

A transfer made by the debtor to a relative within 1 year of bankruptcy

Answer

A transfer made by the debtor to a charity within 2 years of bankruptcy

Question 55

What is the purpose of a bankruptcy trustee?

Accepted Answer

To administer the debtor's estate and distribute the proceeds to creditors

Answer

To represent the debtor in bankruptcy court

Answer

To investigate the debtor's financial affairs

Question 56

Which of the following is NOT a factor that a bankruptcy court considers when determining whether to grant a discharge?

Accepted Answer

The debtor's income

Answer

The debtor's assets

Answer

The debtor's debts

Answer

The debtor's prior bankruptcy filings