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Quizzes > Business & Finance > Finance & Economics

Test Your Bankruptcy IQ: Should You File?

Think you know bankruptcy? Jump into our bankruptcy quiz and test your knowledge!

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
Paper art on coral background shows debt papers scales coins quiz symbol for bankruptcy filing options debt relief recovery

Wondering "should i file for bankruptcy quiz" is more than just a question - it's your gateway to confidence about debt relief choices. Our free bankruptcy quiz is designed as a bankruptcy knowledge quiz that will truly test your bankruptcy knowledge, from Chapter 7 basics to credit rebuilding steps. Engage with this bankruptcy trivia quiz to uncover myths, evaluate filing options and set your path to recovery. Ready to see where you stand? Jump in now and, for extra fun, explore our banking trivia questions or boost your budget skills with a financial planning quiz !

What is Chapter 7 bankruptcy?
A process for liquidating non-exempt assets to pay creditors
A restructuring plan for long-term debts
A voluntary debt counseling program
An agreement to delay creditor actions
Chapter 7 involves selling a debtor's non-exempt assets and distributing the proceeds to creditors. Most remaining unsecured debts are then discharged without a repayment plan. Debtors must pass a means test to qualify. Learn more
What is the 'automatic stay'?
An injunction that halts most creditor actions upon filing
A court order to liquidate assets
A requirement to attend credit counseling
A plan to reaffirm secured debts
The automatic stay goes into effect immediately when a bankruptcy petition is filed and stops most collection activities. It protects the debtor from foreclosure, repossession, and wage garnishment. Creditors must seek court permission to resume actions. Learn more
Who typically qualifies for Chapter 13 bankruptcy?
Individuals with regular income under debt limits
Any business seeking debt reorganization
Creditors seeking to collect debts
Anyone with medical debt only
Chapter 13 is designed for individuals (and sole proprietors) who have a regular income and whose secured and unsecured debts do not exceed statutory limits. They propose a repayment plan lasting three to five years. This differs from Chapter 7, which liquidates assets. Learn more
What is the primary goal of filing for bankruptcy?
To obtain a legal discharge of certain debts
To hide assets from creditors
To avoid paying taxes
To increase interest rates on loans
The central purpose of bankruptcy is to give honest debtors a fresh start by discharging eligible debts. It also sets up an orderly process for creditors to recover what they can. Bankruptcy law balances debtor relief with creditor rights. Learn more
Which types of assets are commonly protected by state or federal exemptions?
Homestead and limited vehicle value
All luxury items
Business inventory only
Debtor credit card accounts
Exemption laws safeguard a debtor's primary residence (homestead), personal vehicles up to a certain value, and tools of the trade needed for employment. These rules vary by state but prevent total asset loss. Non-exempt assets may be sold to satisfy creditors. Learn more
What does 'discharge' mean in bankruptcy?
A court order that releases a debtor from personal liability for certain debts
An order to sell all assets immediately
An agreement to repay debts in full
A notice of public auction
A discharge eliminates the debtor’s obligation to pay specific unsecured debts. After discharge, creditors cannot legally pursue the debtor for discharged obligations. Not all debts are dischargeable. Learn more
What is the 'means test' in bankruptcy?
A calculation comparing a debtor’s income against state median levels to qualify for Chapter 7
A credit score requirement for filing
A test of business profitability
A measure of asset liquidity
The means test determines eligibility for Chapter 7 by comparing current monthly income to the state median. If income exceeds the median, the debtor may have to file Chapter 13 instead. It prevents high-income filers from abusing Chapter 7. Learn more
How soon can a debtor receive a second Chapter 7 discharge after a prior one?
8 years from the date of the prior filing
2 years from the prior discharge date
4 years from the prior filing date
1 year after credit counseling
The Bankruptcy Code requires an 8-year waiting period between Chapter 7 discharges. This rule prevents serial filers from repeatedly liquidating debts. Chapter 13 discharges require a shorter interval when following a Chapter 7. Learn more
Which agency oversees mandatory debtor credit counseling?
U.S. Trustee Program within the Department of Justice
Federal Reserve Board
Consumer Financial Protection Bureau
Internal Revenue Service
The U.S. Trustee Program certifies and monitors nonprofit agencies that provide required credit counseling and debtor education. Debtors must complete counseling within 180 days before filing. This ensures informed decision-making. Learn more
What is a reaffirmation agreement?
A contract where the debtor agrees to remain liable on a secured debt
A trustee’s request to liquidate assets
A plan to discharge all debts automatically
A creditor’s waiver of interest
Reaffirmation allows a debtor to keep and continue paying secured property (like a car) in exchange for reaffirming personal liability. It must be filed with the court and approved by a judge or trustee. Otherwise, the debt is discharged. Learn more
What role does the bankruptcy trustee play?
Administers the bankruptcy estate and distributes assets to creditors
Provides legal advice to debtors
Determines allowable exemptions
Approves reaffirmation agreements without court review
A trustee collects and sells non-exempt assets, reviews creditor claims, and distributes proceeds per priority rules. The trustee also oversees the 341 meeting of creditors. They ensure the process follows bankruptcy law. Learn more
What is the difference between secured and unsecured debt?
Secured debt is backed by collateral; unsecured debt is not
Unsecured debt accrues no interest
Secured debt cannot be discharged
Unsecured debt has higher priority in bankruptcy
Secured debts, like mortgages or car loans, are tied to collateral that creditors can repossess. Unsecured debts, such as credit cards or medical bills, lack collateral and rank lower in repayment priority. Both types can be discharged, though secured creditors may enforce liens. Learn more
What is the first formal step in filing for bankruptcy?
Filing a petition with the bankruptcy court
Selling all non-exempt assets
Signing a reaffirmation agreement
Scheduling a creditor meeting
The debtor begins the process by filing a bankruptcy petition, schedules of assets and liabilities, and statement of financial affairs with the court. This triggers the automatic stay. All further actions stem from this filing. Learn more
Which of the following debts is generally non-dischargeable?
Most student loans
Credit card balances
Medical bills
Unsecured personal loans
Student loans are presumptively non-dischargeable unless the debtor proves undue hardship in an adversary proceeding. Other unsecured debts like credit cards and medical bills are usually dischargeable. Tax and domestic support obligations also remain except in rare cases. Learn more
What does 'reorganization' mean in bankruptcy?
Creating a court-approved plan to restructure debts over time
Liquidating all assets immediately
Entering into informal creditor negotiations
Converting secured debts to unsecured
Reorganization (Chapters 11 and 13) allows debtors to retain assets while paying creditors under a judicially supervised plan. The plan often proposes reduced interest rates or extended payment terms. Upon completion, remaining eligible debts are discharged. Learn more
What is the purpose of the 341 meeting of creditors?
To allow the trustee and creditors to question the debtor under oath
To finalize asset sales
To discharge debts automatically
To approve reaffirmation agreements
Also called the meeting of creditors, the 341 hearing lets the trustee verify the debtor’s identity and review asset schedules. Creditors may attend and ask questions but often do not. It must occur within 30–60 days after filing. Learn more
Which chapter is primarily used by small businesses to reorganize?
Chapter 11
Chapter 7
Chapter 12
Chapter 13
Chapter 11 allows businesses to continue operations while restructuring debts under court supervision. It provides flexibility with debtor-in-possession status. Small business debtors may elect streamlined procedures. Learn more
What is a 'cramdown' in Chapter 13 bankruptcy?
Court approval of a plan that pays secured creditors less than the collateral value
Trustee sale of exempt assets
Automatic discharge of all debts
An agreement to convert to Chapter 7
A cramdown lets debtors reduce secured debt balances to the collateral’s current value and pay over the plan term. It must meet statutory protections for creditor interest. It is not allowed for primary residence mortgages. Learn more
How often can an individual receive a Chapter 7 discharge?
Once every eight years
Once every six years
Unlimited times
Once every ten years
Bankruptcy law imposes an eight-year waiting period between Chapter 7 discharges. This interval is measured from the date of the prior petition. Filing earlier will result in dismissal without discharge. Learn more
What is the general priority order of claims in bankruptcy?
Administrative expenses, secured claims, priority unsecured, general unsecured
General unsecured, priority unsecured, secured, administrative
Secured, general unsecured, priority unsecured, administrative
Priority unsecured, general unsecured, secured, administrative
Administrative expenses (like trustee fees) top the list, followed by secured claims enforced against collateral. Priority unsecured claims (taxes, child support) come next, and finally general unsecured debts. Equity holders are last if anything remains. Learn more
What does the homestead exemption protect?
A certain amount of equity in a primary residence
All investment properties
Vacation homes only
Only personal property inside the home
The homestead exemption shields a specified amount of equity in a debtor’s primary residence from creditors. The amount varies by state or federal scheme. Excess equity may be sold for creditor distribution. Learn more
What is debtor-in-possession financing?
New credit granted to a Chapter 11 debtor that has priority over existing claims
A loan that must be repaid before filing
A grant from the bankruptcy court
A secured loan taken out by the trustee
Debtor-in-possession (DIP) financing keeps operations running during Chapter 11 reorganization. These loans are often senior to existing debt and have court approval. They incentivize lenders to fund a reorganization. Learn more
How does bankruptcy fraud commonly occur?
Concealing assets or providing false statements to the court
Filing under the wrong chapter
Failing to complete credit counseling
Reaffirming a secured debt
Bankruptcy fraud includes hiding assets, lying about income, or transferring property to avoid creditor claims. It carries criminal penalties and potential denial of discharge. Courts investigate via trustee and U.S. Trustee Program oversight. Learn more
What must a debtor do to reaffirm a vehicle loan?
File a reaffirmation agreement and obtain court or trustee approval
Wait until after discharge
Convert to Chapter 7 first
Pay off the loan in full before filing
Reaffirming a car loan requires a formal agreement filed with the court and judicial or trustee approval. The debtor remains personally liable and continues payments. Without it, the lender can repossess after discharge. Learn more
How does Chapter 11 differ from Chapter 13?
Chapter 11 is for businesses or high-debt individuals; Chapter 13 is for wage-earning individuals under debt limits
Chapter 11 offers no discharge; Chapter 13 does
Chapter 11 liquidates assets; Chapter 13 reorganizes
Chapter 11 requires no plan; Chapter 13 does
Chapter 11 allows businesses (and individuals above Chapter 13 debt caps) to reorganize debts with court oversight. Chapter 13 is limited to individuals with regular income and statutory debt limits. Both provide discharge upon plan completion. Learn more
What remedy does a secured creditor have in bankruptcy?
Enforce the lien by repossession or foreclosure
Receive an administrative claim only
Convert unsecured claims to secured
Block the discharge entirely
Secured creditors may repossess or foreclose on collateral if the debtor does not reaffirm or pay pursuant to a plan. They file a proof of claim secured by the asset. They rank ahead of unsecured creditors. Learn more
What is a bankruptcy discharge injunction?
A permanent court order barring collection of discharged debts
A temporary stay on all lawsuits
An order requiring reaffirmation
A trustee directive to sell assets
The discharge injunction prohibits creditors from taking collection actions on debts that were discharged. Violation can result in contempt of court. It remains in effect permanently for those debts. Learn more
Who can initiate an adversary proceeding in bankruptcy?
The debtor, trustee, or creditors to resolve discrete disputes
Only the trustee
Only the bankruptcy judge
Any third party unrelated to the case
An adversary proceeding is a lawsuit within bankruptcy to challenge dischargeability, recover assets, or avoid transfers. Debtor, trustee, or a creditor with standing may file. It follows Federal Rules of Bankruptcy Procedure Part VII. Learn more
What is the role of the U.S. Trustee in bankruptcy?
To supervise administration of cases and ensure compliance with law
To represent debtors in court
To defend creditors' rights
To decide exemption amounts
The U.S. Trustee Program oversees private trustees, monitors case administration, and combats fraud. It conducts 341 meetings and ensures trustees perform fiduciary duties. It may object to discharge or plan confirmation. Learn more
What is a proof of claim?
A form filed by a creditor to assert a right to payment
A debtor’s declaration of assets
The court’s order approving a plan
A trustee’s report on assets recovered
Creditors submit proofs of claim to document the amount and basis of their claims against the bankruptcy estate. Only filed claims can share in distributions. Debtors may object to improper claims. Learn more
How does bankruptcy affect cosigners on discharged debts?
Cosigners remain liable unless they file separately
They are automatically discharged with the principal debtor
Debt is converted to secured
They can claim the exemption instead
A discharge only releases the debtor’s personal liability. Cosigners or guarantors do not receive this protection unless they also file. Creditors can pursue cosigners for the full debt. Learn more
When must required credit counseling be completed before filing?
Within 180 days before filing the petition
After filing the petition
At least 30 days before discharge
Only if requested by the trustee
Federal law mandates completing an approved credit counseling course within 180 days before the bankruptcy petition date. Failure to do so can result in dismissal. It ensures debtors understand alternatives. Learn more
What is the 'absolute priority rule' in Chapter 11?
It prohibits junior classes from receiving any distribution until senior classes are paid in full
It sets interest rates on secured claims
It allows equity holders to vote before creditors
It requires 100% repayment of all debts
The absolute priority rule ensures that senior creditors are paid in full before junior creditors or equity holders receive any value under a reorganization plan. It protects creditor priorities established by bankruptcy law. Exceptions may apply through cramdown or consent. Learn more
How does lien stripping work in Chapter 13?
It removes second or junior liens on property valued below mortgage balance
It accelerates first mortgage payments
It consolidates multiple liens into one
It reassesses lien validity only for tax debt
Lien stripping wipes out unsecured junior liens (like second mortgages) when the property’s value is less than the senior mortgage balance. The stripped lien becomes an unsecured claim paid pro rata under the plan. This tool helps debtors reduce secured obligations. Learn more
What is a subordination agreement in bankruptcy?
An arrangement where one creditor agrees to be paid after another
A debtor’s waiver of discharge for certain debts
A trustee’s order to sell assets
A plan to convert secured debt to unsecured
Subordination agreements shift the priority of claims so that one creditor ranks below another for distribution purposes. They often arise in complex financing or intercreditor negotiations. Courts must approve subordination in bankruptcy unless it follows statutory rules. Learn more
What constitutes a fraudulent transfer under Section 548?
Transferring assets for less than fair value when insolvent
Selling assets after discharge
Transferring exempt property
Gifting to charity within one year
A Section 548 fraudulent transfer occurs if a debtor transfers property for less than reasonably equivalent value while insolvent or within two years before the petition date. Trustees can claw back such transfers to maximize creditor distribution. Intent or actual insolvency triggers the avoidance. Learn more
What is the safe harbor for repurchases of securities under bankruptcy law?
Certain repurchases within 90 days of filing are not avoidable as preferences
All stock buybacks are voidable
Insider trades are automatically exempt
Government bonds cannot be reclaimed
Section 546(g) provides a safe harbor for repurchases of securities by a debtor’s broker, dealer, or financial institution in the ordinary course. These transactions are protected from avoidance as preferential transfers. It stabilizes capital markets during distress. Learn more
How did the 2005 BAPCPA amendments affect bankruptcy exemptions?
Limited use of certain state exemptions for people moving shortly before filing
Eliminated all federal exemptions
Doubled homestead exemption nationwide
Required prepayment of trustee fees
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) added residency requirements for choosing state versus federal exemptions. Debtors moving shortly before filing may be restricted from higher state exemptions. It also capped homestead exemptions in cases of fraud. Learn more
Who is a post-petition debtor-in-possession?
A debtor who continues to operate the business under Chapter 11 without a trustee
A debtor after discharge
A trustee managing assets post-discharge
A creditor filing a claim late
In Chapter 11, the debtor generally remains in possession of assets and continues business operations as a ‘debtor-in-possession’ unless a trustee is appointed. They must comply with fiduciary duties similar to a trustee. This status preserves going-concern value. Learn more
What is a preference under Section 547?
A transfer to a creditor within 90 days before filing that gives them more than general creditors
A secured loan taken post-petition
An ordinary course payment
A post-discharge payment
A preference is an avoidable transfer made within 90 days before filing that benefits one creditor over others. Trustees can recover preferences to redistribute assets equitably. Certain safe harbors apply for ordinary-course payments. Learn more
What priority does DIP financing have in Chapter 11?
It generally has priority over existing secured and unsecured claims
It is treated as general unsecured debt
It ranks below priority tax claims
It cannot be repaid until after discharge
Debtor-in-possession financing typically receives superpriority status, meaning it gets paid before existing claims if the plan succeeds. This incentivizes lenders to fund the reorganization. Court approval is required. Learn more
How can foreign creditors participate in U.S. bankruptcy under Chapter 15?
By obtaining recognition of their foreign proceeding and coordinating with the U.S. case
They are barred from filing any claims
They must convert to U.S. creditors first
They can only file after discharge
Chapter 15 provides a mechanism for cooperation between U.S. courts and foreign insolvency proceedings. Foreign representatives may seek recognition and relief in U.S. courts. It enhances cross-border asset recovery. Learn more
What is cross-border insolvency?
The handling of bankruptcy cases involving debtors or assets in multiple countries
Bankruptcy of foreign governments only
Liquidation of all offshore accounts
An international debt consolidation plan
Cross-border insolvency addresses the complexity when a debtor has assets or creditors across jurisdictions. Chapter 15 employs the UNCITRAL Model Law to facilitate coordination among courts. It prevents conflicting orders and maximizes value. Learn more
What is a cram-up plan in Chapter 11?
A plan confirmed over the objection of a dissenting impaired class
A balloon payment shareholder agreement
A short-term DIP financing facility
A voluntary conversion to Chapter 7
A cram-up allows a plan to be confirmed despite an impaired class voting against it, provided it meets statutory cramdown requirements and does not unfairly discriminate. The plan must be fair and equitable to dissenters. This option preserves reorganizations when consensus is lacking. Learn more
How are insider claims treated differently in bankruptcy?
They may be subordinated or scrutinized for preferential treatment
They are always non-dischargeable
They rank above secured claims
They cannot file proofs of claim
Insider transactions receive heightened scrutiny for fraud or preferences. Courts may equitably subordinate these claims below other creditors if abuse is found. This protects unbiased creditor recovery. Learn more
What is the role of the Creditors' Committee in large Chapter 11 cases?
Represents unsecured creditors in negotiations and plan formulation
Files the bankruptcy petition
Collects assets post-discharge
Appoints the trustee
The Official Committee of Unsecured Creditors is selected to represent the interests of general unsecured creditors during Chapter 11. It consults with the debtor, investigates operations, and negotiates the plan. Courts often defer to its recommendations. Learn more
How does the automatic stay apply to government tax claims?
It stays tax collection but not criminal tax proceedings
It provides no protection against tax claims
It only applies to local taxes
It lifts automatically after 30 days
The automatic stay generally halts tax collection, including levies and liens, but does not bar criminal tax investigations or prosecutions. It may not enjoin audits. Specific rules in Section 362 and the IRC govern exceptions. Learn more
What is substantive consolidation in complex bankruptcy cases?
A judicial remedy combining assets and liabilities of related entities into one estate
A debtor election to move between chapters
A trustee’s power to reject executory contracts
A way to convert secured to unsecured debt
Substantive consolidation treats multiple affiliated debtors as a single entity, pooling assets and liabilities. Courts grant it only when separate estates would be misleading or inequitable. It simplifies administration but can prejudice some creditors. Learn more
What effect does a Section 363 sale have on secured liens?
It can sell assets free and clear of liens, with liens attaching to sale proceeds
It dissolves all liens permanently
It transfers liens to the buyer without consent
It requires unanimous creditor approval
A Section 363 sale authorization lets debtors sell property free of interests, subject to court approval. Existing liens transfer to proceeds, ensuring secured creditors maintain claims. It expedites sales and preserves going-concern value. Learn more
What is interim debtor-in-possession (DIP) financing?
Short-term funding approved before a final DIP order is entered
A post-confirmation loan
A grant from the U.S. Trustee
Financing that replaces existing secured debt
Interim DIP financing allows debtors to secure immediate funding under a preliminary court order while negotiating final loan terms. It ensures critical liquidity continues. Lenders receive superpriority status pending final approval. Learn more
What is a 'Texas two-step' bankruptcy strategy?
Spinning off liabilities into a new entity before bankruptcy to limit exposure
Filing in Texas state court to exploit local exemptions
Filing back-to-back Chapter 7 petitions
Consolidating all debts into one Chapter 13 plan
The Texas two-step involves creating a new affiliate to hold liabilities, then bankrupting that affiliate, leaving assets sheltered in the original company. Critics call it a way to avoid full creditor recovery. Its legality is under judicial scrutiny. Learn more
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Study Outcomes

  1. Assess Bankruptcy Eligibility -

    Understand the key criteria - such as income thresholds and debt levels - that determine whether you qualify to file for bankruptcy.

  2. Differentiate Between Filing Options -

    Identify the main types of bankruptcy (e.g., Chapter 7 vs. Chapter 13) and learn the advantages and drawbacks of each option.

  3. Evaluate Debt Relief Strategies -

    Analyze how bankruptcy compares to other debt-relief methods like negotiation or consolidation to make informed decisions.

  4. Apply Decision-Making Criteria -

    Use real-world scenarios to practice weighing personal financial factors and decide if filing for bankruptcy is the right move.

  5. Debunk Common Myths -

    Learn to recognize and correct widespread misconceptions about bankruptcy's impact on credit scores and future finances.

Cheat Sheet

  1. Bankruptcy Eligibility & the Means Test -

    Understanding eligibility under the U.S. Bankruptcy Code (Title 11) is crucial for the "should i file for bankruptcy quiz." You apply the means test by comparing your current monthly income to your state's median, then subtracting allowed expenses to see if you qualify for Chapter 7 relief (U.S. Trustee Program). A quick mnemonic: "Income minus Expenses = Discharge Address" helps you remember the formula!

  2. Chapter 7 vs. Chapter 13 Essentials -

    Knowing when to choose Chapter 7 (liquidation) versus Chapter 13 (repayment plan) can boost your quiz score and guide real-world decisions (Administrative Office of the U.S. Courts). Chapter 13 lets you reorganize debt over 3 - 5 years, whereas Chapter 7 offers faster discharge but may require asset liquidation. Think "7-day sprint vs. 13-month marathon" to recall the main difference!

  3. Automatic Stay & Creditor Protections -

    Section 362 of Title 11 imposes an automatic stay that halts creditor actions the moment you file your petition, a key fact in any bankruptcy trivia quiz (Cornell Law LII). This powerful injunction stops garnishments, repossessions, and lawsuits instantly, giving you breathing room to reorganize finances. Remember: "File it, freeze it!" to lock in creditor relief.

  4. Exemptions & Asset Shielding -

    State and federal exemptions determine which assets you keep - homestead, vehicle, and wildcard exemptions are commonly tested on bankruptcy knowledge quizzes (National Consumer Law Center). For example, many states allow a homestead exemption up to $25,000 - $50,000 to protect your home's equity. Tip: "Home safe, car safe, wild card in face" helps you recall the big three exemption categories.

  5. Credit Impact & Recovery Strategies -

    Filing shows on your credit report for 7 - 10 years, a fact often featured in test your bankruptcy knowledge sections (Consumer Financial Protection Bureau). Post-discharge, rebuilding credit with secured cards and timely payments is essential: start small, pay on time, and watch your score climb. Use the motto "Step by step, score rep" to reinforce a steady recovery plan.

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