SnowDonuts, a maker of snow tubes, owes many thousands of dollars to s

QUESTION

SnowDonuts, a maker of snow tubes, owes many thousands of dollars to suppliers of the plastic from which the tubes are made. The suppliers have asked the courts to force SnowDonuts to repay.

But SnowDonuts just got its three biggest orders ever. What would the courts likely do?
A) have SnowDonuts file voluntary Chapter 7 bankruptcy: liquidation
B) have SnowDonuts file involuntary Chapter 7 bankruptcy: liquidation
C) have SnowDonuts file voluntary Chapter 11 bankruptcy: business reorganization
D) have SnowDonuts file involuntary Chapter 11 bankruptcy: business reorganization
E) have SnowDonuts file involuntary Chapter 13 bankruptcy: wage earner’s reorganization

ANSWER

Answer: D
Explanation: D) Because the suppliers have already asked the courts to make SnowDonuts file bankruptcy, the filing is involuntary. Chapter 7—liquidation—probably would not be used, because SnowDonuts has its three biggest orders ever, which, if filled, could earn the company income that it could use to help pay off its debts. Chapter 13 is most often used by individuals. That leaves Chapter 11, business reorganization.