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Chapter 10 - Copy

Chapter 10 - Copy - CHAPTER 10 ANSWERS TO QUESTIONS 1...

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CHAPTER 10 ANSWERS TO QUESTIONS 1. Extension of payment periods. The debtor continues to manage the business, and the creditors merely extend the payment due date(s) for existing debts. Composition agreements. A composition agreement is an agreement between the debtor company and its creditors under which the creditors agree to accept less than the full amount of their claims. Formation of a creditor’s committee. The debtor company and its creditors agree to form a committee of creditors responsible for managing the debtor’s business affairs for the period during which plans are developed to rehabilitate, reorganize, or liquidate the business. Voluntary assignment of assets. An insolvent debtor elects to voluntarily place his property under the control of a trustee for the benefit of his creditors. 2. In a voluntary petition, the debtor files a petition with a bankruptcy court for liquidation under Chapter 7 or for reorganization under Chapter 11. The bankruptcy judge may refuse a voluntary petition if refusal is considered to be in the best interest of the creditors. In an involuntary petition, creditors initiate the action by filing a petition for liquidation or reorganization with the bankruptcy court. If there are twelve or more creditors, the petition must be signed by three or more of such creditors whose claims aggregate at least $5,000 more than the value of any liens on the property of the debtor. If there are fewer than twelve creditors, the petition may be filed by one or more of such creditors whose claims aggregate at least $5,000 more than the value of any liens on the debtor’s property. 3. Fully secured claims. Those claims with liens against specific assets whose realizable value is equal to or in excess of the claim. Partially secured claims. Those claims with liens against specific assets whose realizable value is less than the amount of the claim. Unsecured claims. Those claims that are not secured by liens against specific assets and are, therefore, paid from whatever total money remains after secured creditors are satisfied. Some unsecured claims take priority over others under federal bankruptcy law. 10 - 1
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4. The five categories of unsecured claims with priority are: a. Administrative expenses, fees, and charges incurred in administering the bankrupt’s estate. b. Unsecured claims for wages, salaries, or commissions earned by an employee within 90 days before the date of filing a petition in bankruptcy, limited to the extent of $4,650 per employee. c. Claims for contributions to employee benefit plans from services rendered within 180 days before the date of filing a petition in bankruptcy, but subject to certain limitations. d. Unsecured claims of individuals, to the extent of $2,100 for each such individual, arising from the deposit of money in connection with the purchase, lease, or rental of property or services that were not delivered or performed.
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