Question

Briefly explain why each of the following statements is true or false.

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

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

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

h. The basic doctrine of fairness states that all debt holders must be treated equally.

Answer 1

e. False.

Reason: The chapters 7, 13 deal with personal bankruptcy as well for credit cards and certain loans.

f. False.

Reason: The petitions can be voluntary or involuntary, can be filed by the management or the creditors.

g. False.

Reason: The primary test of feasibility is to test if the fixed obligations can be covered through the cash flows after reorganization.

h. False.

Reason: It states that the debt holders must be treated in the order of their legal and contractual priority.