Which One of the Following Statements Related to Chapter 7

question 57

Multiple Choice

Which one of the following statements related to Chapter 7 bankruptcy is correct?

• A)A firm in Chapter 7 bankruptcy is reorganizing its operations such that it can return to being a viable concern.
• B)Under a Chapter 7 bankruptcy, a trustee will assume control of the firm's assets until those assets can be liquidated.
• C)Chapter 7 bankruptcies are always involuntary on the part of the firm.
• D)Under a Chapter 7 bankruptcy, the claims of creditors are paid prior to the administrative costs of the bankruptcy.
• E)Chapter 7 bankruptcy allows a firm to restructure its equity such that new shares of stock are generally issued prior to the firm coming out of bankruptcy.

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Definitions:

Passive Activity

An economic activity in which the taxpayer does not materially participate, often referring to certain rental activities or business ventures.

Tax Preference Items

Certain types of income, deductions, or credits that are treated favorably under the tax code to encourage specific activities or investments.

Nonrecourse Debt

A type of loan where the lender's recovery options in case of default are limited to seizing the collateral securing the loan, without pursuing further compensation from the borrower.

At-Risk

The term "at-risk" generally refers to the exposure to potential loss or damage, but in finance, it often involves the amount of money invested in a business venture to the extent that it can be lost.