Tennessee Private Investigator Licensing Practice Exam

In bankruptcy, which statement is true regarding allowed exceptions in liquidation?

1. All assets can be liquidated without exception

2. Some debts, like government debts, are not discharged

3. Assets cannot have any exceptions under the law

4. Only personal property can be liquidated

The correct answer is: Some debts, like government debts, are not discharged

The statement that some debts, like government debts, are not discharged in bankruptcy is true. In bankruptcy proceedings, particularly in Chapter 7 liquidation, certain types of debts are considered non-dischargeable, meaning that they cannot be eliminated through the bankruptcy process. Examples of these non-dischargeable debts commonly include federal and state taxes, student loans, and child support obligations. This distinction is crucial for those considering bankruptcy, as it helps individuals understand that not all their financial obligations will be forgiven and that they may still remain responsible for specific types of debts even after liquidating their assets. The other proposed options do not accurately reflect the nature of bankruptcy. The notion that all assets can be liquidated without exception does not take into consideration exempt assets that individuals may retain. Additionally, asserting that assets cannot have any exceptions under the law overlooks the legal exemptions that allow individuals to keep certain property. Lastly, the idea that only personal property can be liquidated is misleading, as both personal property and certain types of real property may be subject to liquidation in bankruptcy.