Question

Rodney (a fictional person) was self-employed, running a successful business, seemingly healthy, and never thought he would have financial problems. Being self-employed, he lacked health insurance. One day on the job, Rodney suffered a heart attack and was hospitalized for a week. As a result, he owed more than $100,000 in hospital and medical bills to the hospital. After the heart attack, Rodney could not work in his physically demanding line of work, and his business suffered dramatically. The bills and mortgage payments kept piling up, and Rodney was sinking fast. On top of the medical bills and mortgage, he owed thousands of dollars to multiple companies and creditors. Rodney considered selling his house to get out of the financial crisis he was in, but the value of the house had dropped significantly. After much consideration, Rodney decided to file for Chapter 7, bankruptcy. In the end, he decided he would rather have a bankruptcy on his record instead of dealing with a mountain of debt.

For each question, provide the correct answer and a complete explanation of why it is the correct answer.

1. In Chapter 7 bankruptcy, ___________occurs when a debtor turns over all assets to a trustee, an individual who takes over administration of the debtor's estate.

a. An order of relief

b. An automatic stay

c. Relief

d. Liquidation

e. Bankruptcy

2. Who is defined as a debtor for liquidation purposes under Chapter 7? Can Rodney file for Chapter 7 bankruptcy?

a. Banks; Rodney cannot file.

b. Individuals; Rodney can file.

c. Health Maintenance Organizations; Rodney cannot file.

d. Partnerships: Rodney cannot file

e. Corporations; Rodney cannot file

3. Suppose that Rodney did not intend to file for voluntary liquidation. Could he be forced into bankruptcy under Chapter 7?

a. No, he must file the Chapter 7 bankruptcy himself.

b. Yes, because he has more than 12 creditors.

c. Yes, because he has a single creditor with a claim of more than $14,425 in debt.

d. No, because people who are self-employed cannot be forced into filing for Chapter 7.

4. Rodney has a lot of creditors that are trying to sue him for the debt he owes. One benefit of filing for Chapter 7 is that once a petition is filed, the code provides for a(n) _______________for almost all creditor litigation against the debtor.

a. Liquidation

b. Order of relief

c. Creditor’s meeting

d. Preferential payment

   e. Automatic stay

5. If the filing of Rodney's voluntary petition is proper, the petition automatically becomes a(n)

a. Fraudulent transfer

b. Creditor’s meeting

c. Preferential payment

d. Discharged debt

   e. Order of relief.

6. Suppose Rodney fails to show up at his creditors' meeting with his creditors because he is scared to meet with the hospital representatives. What is a possible consequence of his failure to show?

a. His creditors will be allowed to sue him for failure to show.

  b. The court may refuse to grant the bankruptcy

c. Rodney will be charged with a criminal offense.

d. There is no penalty for missing a creditor’s meeting.

e. His appointed trustee will be penalized, but Rodney will not.

Answer 1

1. Liquidation is when a debtor turns all their asses over to a trustee which is usually a bankruptcy lawyer (Kubasek et al., 2014). The debtors are individuals, partnerships, and corporations. The trustee distributes the funds to the debtor’s creditors from the sale proceeding of the nonexempt possessions.
   (Answer : D - Liquidation)
   
2. Debtors are individuals, partnerships, and corporations for liquidation purposes. Rodney would be an individual who could file bankruptcy under Chapter 7. Rodney voluntarily decided to file Chapter 7 because of the mountain of debt piling up due to his recent heart attack and not able to continue working. He must show he understands the other types of bankruptcy and is choosing liquidation. Rodney also needs to show he owes money to creditors. Once liquidation is chosen he must present information under oath about his financial matters and conceal assets nor give false information.
   (Answer : B - Individuals; Rodney can file)
   
3. In this scenario, Rodney owes multiple creditors thousands of dollars, but he also owes more $14,425 in debt to the hospital. The creditors could attempt to force him into bankruptcy since he is not paying is debt to them. They do this by filing an involuntary petition under Chapter 7. Once the petition is filed Rodney will be required to relinquish all his assets and the cash from the sale of the items are dispersed to the creditors. There are people who cannot voluntarily file Chapter 7 or forced to liquidate their property as farmers, nonprofit organizations, ranchers, railroads, insurance companies, banks, savings, loan associations, credit unions, and health maintenance organizations.
   (Answer : C - Yes, because he has a single creditor with a claim of more than $14,425 in debt.)
   

4. During an automatic stay creditors are forbidden to continue or start a legal action towards the debtor or their belongings. Even if the debtor had received a financial judgment it cannot be enforced after the bankruptcy has been filed. The stay will automatically be terminated 30 days after the case filing if the bankruptcy is dismissed within the year it was recorded. Additionally, legal actions for alimony and child support are not included in the stay. If a secured creditor can be excluded from the stay if they can show the court they do not have sufficient protection in the stay. The court can force the debtor to make payments to the secured creditors to provide protection for interest property.
   (Answer : E - Automatic stay)

5. First, the bankruptcy relief is ordered and the movement forward can continue especially if it is voluntary the relief is automatic. An interim trustee will be appointed by the United States trustee, to the petition to start collecting the debtor’s assets and to liquidate it into cash. If the bankruptcy is involuntary the judge will grant the order of relief if one of the two stipulations happen; the custodian took ownership of most of the debtor’s property within 120 days before debtor filed the petition or the debtor is not paying on due dates.
   (Answer : E - Order of Relief)
   

6. If the debtor fails to appear at the meeting, the court may refuse to grant the bankruptcy.” (Kubasek). It is important that Rodney attends the meeting because it will enable the creditors and trustee to examine him under oath regarding his financial affairs. The creditors are interested in the way the debtor is handling his assets and property. This is also a good avenue for Rodney to prove that he is not concealing property. The trustee will also ask Rodney pertinent questions regarding his financial status, and trustee will also ensure that Rodney is aware of the other forms of bankruptcy relief as well as the consequences of filing for bankruptcy. Also, it is important for Rodney to attend the meeting because at the creditors' meeting there is the election of a permanent trustee. The interim trustee might become the permanent trustee, or the creditors might elect a different one. The creditors are the ones to elect the trustee because the trustee generally represents the creditors.
   (Answer : B - The court may refuse to grant the bankruptcy)

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