Future Business Leaders of America (FBLA) Business Law Practice Exam

What must a debtor prove to successfully file for voluntary bankruptcy?

1. Incapacity to pay debts

2. Connection to organized crime

3. Excessive income levels

4. History of financial mismanagement

The correct answer is: Incapacity to pay debts

To successfully file for voluntary bankruptcy, a debtor must demonstrate an incapacity to pay debts. This means that the individual is unable to meet their financial obligations and is overwhelmed by liabilities that they cannot discharge through regular means. In a voluntary bankruptcy proceeding, the debtor seeks relief from these debts, often under Chapter 7 or Chapter 13 of the Bankruptcy Code. The requirement of proving incapacity is essential because bankruptcy is a process designed to provide relief to those genuinely unable to manage their debts. The filing aims to give individuals a fresh start, allowing them to eliminate certain debts or create a manageable repayment plan. This notion is at the core of the bankruptcy system, which acknowledges that financial distress can happen to anyone. The other options involve criteria that are not relevant or necessary for filing bankruptcy. For instance, showing a connection to organized crime has no bearing on the legitimate process of seeking bankruptcy protection, nor do excessive income levels, which might actually disqualify someone from filing certain types of bankruptcy. Similarly, a history of financial mismanagement may provide context to the debtor's situation but is not a specific requirement to file for bankruptcy. Therefore, the key component that must be established is the debtor's incapacity to pay their debts.