Which of the following is the best deﬁnition of bankruptcy?
A) A legal proceeding for liquidating or reorganizing a business. Also, the transfer of some or all of a ﬁrm's assets to its creditors.
B) The direct and indirect costs associated with going bankrupt or experiencing ﬁnancial distress.
C) The equity risk that comes from the ﬁnancial policy (i.e., capital structure) of the ﬁrm.
D) The use of personal borrowing to change the overall amount of ﬁnancial leverage to which the individual is exposed.
E) The diﬃculties of running a business that is experiencing ﬁnancial distress.

Question

Quizplus · Accepted Answer

Bankruptcy is a legal process where a business is either liquidated (assets sold off to pay off creditors) or reorganized (the business is allowed to continue operating with a repayment plan for creditors). The transfer of assets to creditors is also a key aspect of bankruptcy.

Which of the Following Is the Best Deﬁnition of Bankruptcy