Insurance, Secured Transactions, and Bankruptcy

Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.

1. Sally and Carl have received a foreclosure notice. The foreclosure sale is set to take place in seven days. They contact a bankruptcy attorney. The attorney tells them the foreclosure proceedings will be halted, at least temporarily, if they file bankruptcy, due to the
A. federal exemptions.
B. state exemptions.
C. automatic stay.
D. means test.

2. Tom operates a large business, and his business is in financial trouble. Tom wants to continue the business and work out a plan to deal with his business creditors. He should file bankruptcy under Chapter
A. 11.
B. 7.
C. 13.
D. 12.

3. Terry has medical coverage under Medicare. From this fact alone, you can infer it's likely that Terry is
A. age 65 or over.
B. poor.
C. disabled.
D. in a long-term care facility.

4. Carl applies for fire insurance for his house. Before the application is processed, Carl's house burns down. Carl will have coverage if the insurance company
A. makes coverage retroactive.
B. issued a binder.
C. chooses to accept the application.
D. doesn't find out about the fire until after the policy issues.

5. Liza borrows money from First Finance Company for miscellaneous expenses. Liza and First Finance agree that Liza's diamond ring shall serve as collateral for the loan. Two weeks later, Liza takes a loan from Second Finance Company listing the same diamond ring as collateral. Neither First Finance nor Second Finance takes any additional steps. Liza defaults on both loans. Second Finance demands possession of the diamond ring and Liza gives it to them. Which of the following statements regarding this set of facts is
true?
A. Neither finance company possesses a valid security interest in the diamond ring, and neither possesses any remedy due to thefailure to file a financing statement.
B. First Finance Company possesses the priority claim because it loaned the money to Liza before Second Finance.
C. Both First Finance and Second Finance possess equal rights in the diamond ring and must equally divide any proceeds fromthe sale of the ring.
D. Second Finance Company possesses the priority claim because it perfected its security interest first.

6. Carl is in a car accident caused by Frank. Carl was able to collect damages and medical expenses from his own insurance company even though fault had yet to be determined. Carl probably lives in a state that requires __________ insurance.
A. uninsured motorist
B. collision
C. no-fault
D. liability

7. Tom is a consumer with regular income who's able to pay more than 25% of his debt over the next three years but probably can't pay it all. If he qualifies, the best chapter in bankruptcy for Tom is Chapter
A. 11.
B. 12.
C. 7.
D. 13.

8. Charlie files Chapter 11 bankruptcy. __________ creditors have the right to vote on the plan.
A. Impaired
B. Secured
C. No
D. All

9. Tom gave a mortgage to Big Bank. Big Bank failed to record the mortgage. Then Tom gave a mortgage to Second Bank. Second Bank recorded the mortgage and didn't know about the mortgage to Big Bank. After Second Bank recorded, Big Bank recorded its mortgage. After both mortgages are recorded, Tom defaults on both debts. Which of the following statements is true?
A. If these are the only two mortgages on the property, they'll share the proceeds pro-rata based on the amount due each.
B. Tom doesn't owe the debt to Big Bank because Big Bank failed to record the mortgage promptly.
C. Second Bank has a first mortgage.
D. Big Bank has a first mortgage.

10. Victor applies for life insurance. On the application, when asked if he had ever been diagnosed with cancer, he falsely said no. Later Victor died, and the insurance company found out about the previous diagnosis of cancer and refused to pay. What were the most likely grounds?
A. Estoppel
B. Misrepresentation
C. Concealment
D. Failure to pay premiums

11. Tom contacts an attorney about filing bankruptcy. The attorney says that Tom will have to pass a means test. This suggests the attorney is planning to file Tom's bankruptcy under Chapter
A. 12.
B. 7.
C. 13.
D. 11.
12. Tom is a family farmer with less than $3 million in debt. He wants to know if there are any chapters in the bankruptcy code specifically geared to debtors such as him. You would recommend to him Chapter

A. 13.
B. 11.
C. 7.
D. 12.

13. Sammy took out a home insurance policy on the home of his neighbor, Ed. Three months later, Ed's home mysteriously burned down. Sammy attempted to collect on the policy he purchased earlier. Which of the following statements regarding this set of facts is true?
A. Sammy can't collect the insurance proceeds because he lacked an insurable interest at the time of the loss.
B. Sammy can't collect the insurance proceeds because he lacked an insurable interest at the time the policy was purchased.
C. Sammy may collect the insurance proceeds because as long as the premium was paid, it's unnecessary that he have an insurable interest at any time.
D. Sammy may collect the insurance proceeds, so long as he wasn't guilty of any wrongdoing regarding the destruction of thehouse.

14. Tom's life insurance has no cash surrender value. It must be
A. straight life.
B. endowment.
C. term life insurance.
D. limited-payment life insurance.

15. Louie and Freda married last year, and their income is low. Both are about to graduate from college, and over the next few years, their incomes should begin to rise steadily. They would like to buy a house now, as Freda is pregnant, but are afraid it will be a couple of years before they have the income for a mortgage payment. What type of mortgage would you recommend to them?
A. Deed of trust
B. Variable-rate mortgage
C. Graduated-payment mortgage
D. Reverse mortgage

16. What type of life insurance would most likely be used to cover the outstanding balance of a home mortgage?
A. Universal life
B. Endowment
C. Decreasing term insurance
D. Straight life

17. Bob is concerned that Social Security retirement income won't be enough to meet his needs. He is looking for a financial product that would provide him with steady retirement income later in life. You would recommend
A. universal life insurance.
B. term life insurance.
C. annuity.
D. straight life insurance.

18. Carl gave Ted a mortgage. Which of the following is most likely collateral for the mortgage?
A. Personal property
B. A vehicle
C. Real property
D. Inventory in a business

19. An intentional withholding of a fact that would be of material importance to the insurer's decision to issue a policy is called a/an
A. estoppel.
B. misrepresentation.
C. adhesion contract.
D. fraudulent concealment.

20. Candy purchase a life insurance policy. Six months later, Candy falls into a severe depression and kills herself. Which of the following statements is true?
A. Life insurance will pay nothing, as there was death by suicide less than two years after purchasing the policy.
B. Life insurance will pay proceeds if there's evidence that Candy suffered from a diagnosed psychological condition that accounts for why she committed suicide.
C. The life insurance will pay double under the double indemnity provision.
D. Life insurance will pay unless the suicide was an assisted suicide and the person assisting was the beneficiary of the policy.