Free Creditors Rights Practice Questions

Question 1

A manufacturer buys a milling machine for use in its plant. Bank has a continuously perfected security interest in all existing and after-acquired equipment. Finance Company pays the machine's purchase price, takes an otherwise enforceable purchase-money security interest, and properly files 14 days after the manufacturer receives the machine. Finance Company did not notify Bank before delivery. Under UCC Article 9, which priority conclusion is correct?

Accepted Answer

Finance Company prevails because it perfected its equipment PMSI within 20 days after possession.

Answer

Bank prevails because its financing statement was filed before the machine was purchased.

Answer

Bank prevails because Finance Company gave no advance notice to the existing equipment lender.

Answer

Finance Company prevails because a purchase-money interest in business equipment perfects automatically when the security interest attaches.

Question 2

Collection counsel holds cleared settlement funds in trust. Counsel and the creditor client agree that $75,000 belongs to the client; they genuinely dispute counsel's entitlement to the remaining $9,000 as a fee. No third party claims the money, and the client requests its undisputed share now. How should counsel handle the funds under ABA Model Rule 1.15?

Accepted Answer

Promptly release $75,000 to the client and keep the disputed $9,000 in trust.

Answer

Keep all $84,000 in trust until the fee dispute is resolved.

Answer

Pay the client $75,000 and transfer the claimed $9,000 fee to the operating account.

Answer

Send all $84,000 to the client because disputed attorney fees cannot be retained in trust.

Question 3

A collection supervisor places every account on hold for 30 days after the consumer receives an FDCPA validation notice. On day 12, an employee proposes a payment reminder that preserves the remaining dispute period, imposes no earlier deadline, and otherwise complies with collection law. This consumer has made no dispute, information request, or cease-communication request. Does the validation period itself prohibit the reminder?

Accepted Answer

No; collection may continue if it does not overshadow or contradict the consumer's validation rights.

Answer

Yes; receipt of a validation notice suspends every collection effort for 30 days.

Answer

No, provided the consumer first signs a waiver of the remaining validation period.

Answer

Yes; the agency must first supply verification even though the consumer has made no request or dispute.

Question 4

At 8:30 a.m., counsel reviews the file for a warehouse foreclosure auction scheduled for 10:00 a.m. In the owner's Chapter 11 case, the bankruptcy court entered an order yesterday granting the lender's noticed motion for relief from the automatic stay. The order does not address immediate effectiveness. The stay has not otherwise terminated, no appeal has been filed, and the state-law sale requirements have been met. What instruction should counsel give the auctioneer?

Accepted Answer

Postpone the sale unless the court first waives the 14-day stay of its relief order.

Answer

Proceed today because entry of the relief order immediately lifted the automatic stay.

Answer

Proceed today unless the debtor obtains a separate stay before the auction begins.

Answer

Postpone the sale until the lender obtains an abandonment order removing the warehouse from the bankruptcy estate.

Question 5

A part-time employee earns $360 for a weekly pay period. Deductions required by law total $90, and a voluntary retirement contribution deducts another $30. The employer receives a garnishment for an ordinary credit-card judgment. There are no other garnishments, and state law supplies no greater protection. Using a federal minimum hourly wage of $7.25, what is the maximum the employer may withhold for this judgment from that week's earnings under the Consumer Credit Protection Act?

Accepted Answer

$52.50

Answer

$22.50

Answer

$67.50

Answer

$90.00

Question 6

An insolvent corporation transfers unencumbered equipment worth $75,000 to its shareholder in full payment of a genuine, unsecured $75,000 loan made two years earlier. The corporation files Chapter 7 twenty days later. Without the transfer, the shareholder would have received only a small distribution on that loan. The trustee finds no evidence of actual fraudulent intent, and no statutory preference defense applies. Which characterization best identifies the trustee's avoidance theory?

Accepted Answer

A preferential transfer: paying a valid antecedent debt does not defeat avoidance under the preference statute.

Answer

A constructively fraudulent transfer: repaying an antecedent debt does not provide reasonably equivalent value.

Answer

An actually fraudulent transfer: the shareholder's insider status alone establishes the required fraudulent intent.

Answer

An unavoidable repayment: equal value was exchanged, so the transfer falls outside both preference and fraudulent-transfer avoidance.

Question 7

In a federal guaranty action, the defendant's first Rule 12 motion asserts only failure to state a claim. After losing that motion, the defendant's answer raises a service defect that was known and available earlier. The insufficient-service defense is:

Accepted Answer

Waived by omission from the earlier Rule 12 motion.

Answer

Preserved because it appears in the first answer.

Answer

Preserved if asserted before the trial begins.

Answer

Nonwaivable because defective service deprives the court of subject-matter jurisdiction.

Question 8

One lawyer jointly represents two lenders in a workout. Their collateral dispute escalates into an adversary proceeding in which Lender North asserts a claim against Lender South. Both lenders ask the lawyer to represent them in that proceeding, one prosecuting and the other defending the claim, and offer informed written consent. Under ABA Model Rule 1.7, what prevents the proposed dual representation?

Accepted Answer

Representing both sides of the same tribunal claim creates a conflict that consent cannot cure.

Answer

Their waivers must receive judicial approval before litigation between the clients may proceed.

Answer

Each lender must receive independent advice before its written consent becomes effective.

Answer

The lawyer must first disclose each lender's confidential information to the other before obtaining an effective waiver.

Question 9

Before the IRS properly files a Notice of Federal Tax Lien, Bank has a written lending agreement and a perfected security interest in the taxpayer's existing equipment securing present and future advances. Bank actually learns of the filed notice 11 days after filing, but voluntarily makes another advance on day 22. All other requirements of 26 U.S.C. § 6323(d) are satisfied, and no other priority exception applies. For the day-22 advance, how do the competing interests rank?

Accepted Answer

The tax lien prevails over the new advance because Bank already knew of the filing.

Answer

Bank's new advance prevails because it occurred within 45 days after the notice was filed.

Answer

Bank's new advance prevails because its earlier perfected agreement covers future advances on the same equipment.

Answer

The tax lien prevails over both the new advance and Bank's earlier balance once notice is filed.

Question 10

Voting has closed on a corporate Chapter 11 plan. An impaired class contains 15 holders, each with one allowed claim, totaling $1,800,000. Four holders with $780,000 in claims vote to accept; five holders with $220,000 vote to reject; six holders do not vote. Every ballot is valid, and no vote is excluded. Which assessment applies both voting tests in 11 U.S.C. § 1126(c) correctly?

Accepted Answer

Not accepted: the relevant votes are 4 of 9 holders and $780,000 of $1,000,000.

Answer

Accepted: $780,000 of $1,000,000 is sufficient, regardless of the number of accepting holders.

Answer

Not accepted: the relevant votes are 4 of 15 holders and $780,000 of $1,000,000.

Answer

Not accepted: the relevant votes are 4 of 15 holders and $780,000 of $1,800,000.

Free Creditors Rights Practice Questions

Domain 1: General Creditors' Rights Law

Question 1

Question 2

Question 3

Question 4

Question 5

Question 6

Domain 2: Ethics Section

Question 7

Question 8

Domain 3: Sub-Specialty Section

Question 9

Question 10

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