R01 Bankruptcy and insolvency: free practice questions
5 free questions on Bankruptcy and insolvency, part of learning outcome 3 (Legal concepts). Pick an answer to check it, or open the answer to see why each option is right or wrong.
Question 1 of 5
Which terms correctly describe financial failure for individuals and companies?
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The answer is A: Bankruptcy for individuals; insolvency for companies
Bankruptcy applies to individuals; insolvency applies to companies.
Why the other options are wrong
B
Insolvency applies to companies.
C
Bankruptcy applies to individuals.
D
This reverses the terms.
Question 2 of 5
What is a significant advantage of an IVA over bankruptcy for a homeowner?
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The answer is C: The debtor keeps their home, though they may have to remortgage
Under an IVA the debtor keeps their home, though they may be asked to release equity by remortgaging. It stays on the credit file for at least six years, and set-up and supervisor fees apply.
Why the other options are wrong
A
Debts are repaid through the arrangement, not written off at once.
B
An IVA stays on the credit reference file for at least six years.
D
There are nominee and supervisor fees.
Question 3 of 5
How can a creditor prove a debtor can't pay, before a bankruptcy order is made?
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The answer is A: An unmet statutory demand after 21 days, or an unenforced court order
The debtor's inability to pay is shown by an unmet statutory demand after 21 days or an unsuccessful enforcement of a court order, such as bailiffs failing to recover goods.
Why the other options are wrong
B
A bank letter isn't the legal test.
C
The FCA has no role in personal bankruptcy petitions.
D
One missed payment isn't enough to prove inability to pay.
Question 4 of 5
In what order does a trustee in bankruptcy pay out from the bankrupt's estate?
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The answer is C: Costs, preferential debts, floating charges, unsecured creditors, spouse
First the costs of administering the bankruptcy, then preferential debts (with HMRC as secondary preferential), then floating charge holders, then unsecured creditors, and finally debts owed to the bankrupt's spouse or civil partner.
Why the other options are wrong
A
Debts to a spouse or civil partner are paid last.
B
The costs of administering the bankruptcy come first.
D
Unsecured creditors come after costs, preferential debts and floating charges.
Question 5 of 5
What is the aim of administration as an alternative to liquidation?
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The answer is C: To rescue the company as a going concern
In administration an administrator runs the company's affairs and tries to rescue it as a going concern. Liquidation brings the company to an end.
Why the other options are wrong
A
Administration doesn't change the company's legal form.
B
Ending the company is liquidation.
D
Transfer to employees isn't the purpose of administration.
Practise all 10 Bankruptcy and insolvency questions
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