Scenario 10-1

question 17

Multiple Choice

Scenario 10-1. Franky's Lumber Yard works with primarily small construction companies building family homes. Franky has a serious cash flow problem. She has many customers with account balances over 90 days past due. Furthermore, the economy has been growing rapidly and interest rates have just been raised. New home construction is likely to dramatically decrease. This will make it even more difficult for her customers to pay their bills. Owing in large part to the expense of her inventory and her uncollected accounts receivable, it is highly likely Franky is insolvent.
-In Scenario 10-1, which bankruptcy filing would keep creditors from foreclosing on debts during the reorganization period while including a repayment schedule for current creditors with a plan for operating more profitably in the future?

• A) Chapter 7
• B) Chapter 11
• C) Chapter 13
• D) Chapter 22

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Definitions:

Parens Patriae

A legal principle that allows the state to act as the guardian for those who are unable to care for themselves, including minors and the mentally ill.

Police Power

The capacity of a state to regulate behaviors and enforce order within its territory, often used for protecting health, safety, morals, and the general welfare of the public.

Involuntary Commitment

A legal process through which individuals with severe mental illnesses are hospitalized for treatment without their consent when deemed a danger to themselves or others.

Temporary Commitment

The involuntary admission of an individual to a psychiatric facility for a short period under emergency conditions, typically without a formal court order.