a.

Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are governed solely by state laws.

b.

All bankruptcy petitions are filed by creditors seeking to protect their claims against firms in financial distress. Thus, all bankruptcy petitions are involuntary as viewed from the perspective of the firm’s management.

c.

Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act.

d.

“Restructuring” a firm’s debt can involve forgiving a certain portion of the debt, but it cannot call for changing the debt’s maturity or its contractual interest rate.

e.

Our bankruptcy laws were enacted in the 1800s, revised in the 1930s, and have remained unaltered since that time.

a.

The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan.

b.

The basic doctrine of fairness states that all debtholders must be treated equally.

c.

Since the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the “public interest” is not a relevant concern.

d.

While a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely.

e.

To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.