Tennessee Private Investigator Licensing Practice Exam

What is the purpose of a Chapter 11 bankruptcy?

1. Liquidation for individuals

2. Liquidation for family farmers

3. Reorganization for larger companies

4. Discharge of personal debts

The correct answer is: Reorganization for larger companies

The purpose of a Chapter 11 bankruptcy is primarily to provide a framework for the reorganization of a debtor’s business affairs, debts, and assets. This type of bankruptcy is commonly utilized by larger companies that need to restructure their obligations while continuing to operate. It allows businesses to devise a plan to keep their business alive and pay creditors over time, rather than being forced into liquidation as with other bankruptcy chapters. Chapter 11 can result in extended repayment plans and may involve renegotiation of debts and contracts, enabling a company to emerge as a more viable entity while addressing its financial difficulties. In contrast, other bankruptcy types serve different functions: liquidation for individuals generally falls under Chapter 7, whereas Chapter 12 focuses on family farmers and their unique financial situations. Also, while Chapter 11 may ultimately lead to discharge of certain debts, its primary function is not to discharge personal debts but rather to facilitate the reorganization of a company’s debts so that it can continue operating.