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

What type of bankruptcy allows businesses to reorganize their financial affairs and continue operating?

1. Chapter 7 Bankruptcy

2. Chapter 11 Bankruptcy

3. Chapter 13 Bankruptcy

4. Chapter 12 Bankruptcy

The correct answer is: Chapter 11 Bankruptcy

Chapter 11 Bankruptcy is specifically designed for businesses that need to reorganize their financial affairs while still maintaining their operations. This type of bankruptcy allows a company to propose a plan of reorganization to keep its business alive and pay creditors over time. In this process, the company can restructure its debts, renegotiate contracts, and potentially obtain new financing, all while attempting to maximize the value of its assets for the benefit of its stakeholders. Unlike Chapter 7 Bankruptcy, which involves liquidating the company's assets to pay creditors, Chapter 11 allows the business to stay operational and work towards regaining profitability. It also differs from Chapter 13 Bankruptcy, which is tailored for individuals with regular income seeking to repay debts over time but does not apply to businesses. Chapter 12 Bankruptcy is specifically created for family farmers and fishermen, providing them with special provisions not applicable to other types of businesses. Therefore, Chapter 11 is the most appropriate avenue for businesses looking to reorganize and continue operating.