Which of the Following Is the Best Definition of Bankruptcy

question 130

Multiple Choice

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.

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Definitions:

Mentally Incompetent

A legal status indicating that an individual lacks the capacity to make decisions for themselves due to mental limitations or impairments.

Legally Binding

Refers to agreements or contracts that have legal force and are enforceable by law.

Disaffirm A Contract

The legal right of a party to renounce or reject a contract, which can be particularly relevant when one of the parties is a minor or otherwise lacks the capacity to contract.

Executory Contracts

Contracts under which both parties to the agreement have unfulfilled obligations that remain to be done.