PSI Virginia Real Estate Practice Exam

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Which scenario does NOT lead to the termination of agency due to bankruptcy?

Principal files for bankruptcy
Broker files for bankruptcy
Licensee representing a broker files for bankruptcy
Client files for bankruptcy

The correct answer is: Licensee representing a broker files for bankruptcy

In the context of agency relationships in real estate, an agent's bankruptcy generally affects the agency's existence only when it pertains to the principal or the broker rather than the individual licensee working under the broker. When a principal files for bankruptcy, it can impact their ability to fulfill contractual obligations, potentially leading to the termination of the agency relationship. If the broker files for bankruptcy, it affects the agency relationship directly as the broker is responsible for the management of agency duties. Consequently, the agency relationship may be terminated because the broker cannot operate effectively during bankruptcy proceedings. On the other hand, when a licensee representing a broker files for bankruptcy, it does not inherently impact the agency relationship between the principal and the broker. The licensee's financial issues do not affect the broker's capacity to represent the principal or fulfill the agency's obligations. The broker remains responsible for the agency's duties, and the agency relationship can continue independently of the individual licensee's financial status. Thus, this scenario does not lead to the termination of the agency due to bankruptcy.