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Business Law Chapter 12 Study Guide
True/False
Indicate whether the statement is true or false.
1. All debts may be discharged under the Bankruptcy Act.
2. If a debtor defaults on a loan, the creditor does not have the right to
withhold money from the worker’s paycheck.
3. The Consumer Credit Protection Act is also known as the Truth in
Lending Law.
4. A lawyer’s duty of confidentiality to a client is essential to establish trust
and protect the interests of the client.
5. Debts caused by fraud or back taxes still have to be repaid even if you
qualify for bankruptcy.
6. Debit cards can no longer be used the minute a petition for bankruptcy is
filed.
7. Involuntary bankruptcy is when the debtor files for bankruptcy even
though he or she wants to retain some assets.
8. Bankruptcy law is not found in federal statutory law; instead, it is found in
each state’s statutes.
9. When filing for Chapter 7 bankruptcy, the debtor must have a family
income below the state’s average family income.
10. There are only two reasons a creditor may deny credit: low income or
large current debts.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
11. If you believe an error has been made on your credit card bill, how long
do you have to notify the creditor from the date of the credit card
statement?
a. one week
c. 30 days
b. 60 days
d. 90 days
12. To assist consumers who receive bills for charges they dispute, Congress
passed the
a. Fair Credit Billing Act.
c. Fair Credit Reporting Act.
b. Fair Debt Collection Practices d. Disputed Charges Reform Act.
Act.
13. The Fair Debt Collection Practices Act makes it illegal for
a. creditors to report you as being delinquent because you are
disputing a bill.
b. you to seek the services of a credit repair organization.
c. debt collectors to impersonate government officials.
d. banks and businesses to discriminate against potential creditors.
14. The moment a petition for bankruptcy is filed in the court,
a. all debts are cleared.
b. your credit cards no longer work.
c. lawsuits involving divorce and child custody are suspended.
d. an automatic stay goes into effect.
15. Ordinary bankruptcy is also called
a. Chapter 7.
c. Chapter 12.
b. Chapter 11.
d. Chapter 13.
16. The form of bankruptcy that lets family farmers develop a plan for debt
repayment and keep their business running is called
a. Chapter 7.
c. Chapter 12.
b. Chapter 11.
d. Chapter 13.
17. During the period of repayment under Chapter 13 bankruptcy,
a. businesses can keep 50% of their debt.
b. creditors may expect a minimum of $500 per month in repayment.
c. creditors may not continue collection activities.
d. businesses must reorganize their financial structure.
18. When the debtor’s property is sold to obtain cash, which debts are paid
first?
a. alimony and support
c. taxes
b. secured debts
d. unsecured debts
19. Which of the following is NOT one of the national credit reporting
agencies in the United States?
a. Equifax
b. Trans Union
c. Experian
d. Trans Credit
20. Under old English law, people who could not pay their bills were
a. put into debtor’s prisons.
b. put to work on farms until the debt was paid off.
c. sent out of the country.
d. sentenced to death.
Completion
Complete each statement.
21. Creditors have a right to ____________________ property when a debtor
defaults on a loan.
22. The ____________________ Law requires that lenders tell you both the
finance charge and the annual percentage rate (APR) of the loan.
23. Under the ____________________ Act, you have the right to know
anyone who has received a copy of your credit report in the past year.
24. ____________________ bankruptcy offers a method for businesses to
reorganize their financial affairs and still remain in business.
25. As part of the "fresh start" policy of the Bankruptcy Act, some assets,
called ____________________, can be kept by the debtor.
26. The ____________________ Act requires creditors to correct billing
errors that are brought to their attention.
27. The nonprofit organization that provides confidential debt-counseling
services is called the Consumer ____________________ Service.
28. Some debts, such as student loans (except in cases of extreme hardship) or
back taxes, cannot be ____________________ because of bankruptcy.
29. A bankruptcy filing remains on a debtor’s credit report for
____________________ years.
Matching
Match each term with its definition.
a. garnishment
f.
b. usury law
g.
c. Consumer Credit Protection Act h.
d. Fair Credit Reporting Act
i.
e. Equal Credit Opportunity Act j.
Fair Credit Billing Act
Chapter 7 bankruptcy
Chapter 11 bankruptcy
repossession
bankruptcy
30. A law that grants people the right to know their own personal information
that is in a credit reporting agency’s files
31. A law that makes it illegal to discriminate against credit applicants
32. A law restricting the amount of interest that can be charged
33. Allows individual debtors to discharge their debts and get a fresh start
34. Requires creditors to correct billing errors brought to their attention
35. Also known as the Truth in Lending Law
36. A legal procedure through which a worker’s earnings are withheld to pay
a debt
37. When a creditor reclaims property on which it was a lien
38. Allows businesses to reorganize their financial affairs and still remain in
business
39. The legal process by which a debtor can make a fresh start through the
sale of assets to pay off creditors
Short Answer
40. Explain why people or businesses might declare bankruptcy. Discuss the
four main kinds of bankruptcy. Compare voluntary and involuntary
bankruptcy.