Question

On February 28, 2005, Master, Inc., had total assets with a fair market value of $1,200,000 and total liabilities of $990,000. On January 15, 2005, Master made a monthly installment note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note.
On March 15, 2005, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold for less than the balance due on the note to Acme.

If a creditor challenged Master's right to file, the petition would be dismissed:

A. If Master had fewer than 12 creditors at the time of filing.
B. Unless Master can show that a reorganization under Chapter 11 of the Federal Bankruptcy Code would have been unsuccessful.
C. Unless Master can show that it is unable to pay its debts in the ordinary course of business or as they come due.
D. If Master is an insurance company.

Answer 1

Answer:

D) If Master is an insurance company.

Explanation:

Generally all individuals and most companies can file for Chapter 7 bankruptcy, and all that is required is that the individuals and companies have some type of debt with a certain amount. You cannot file for bankruptcy before you actually owe money that you cannot pay.

But certain types of businesses are not allowed to file under Chapter 7, and they include insurance companies, credit unions, municipalities, etc.

If Master Inc. is an insurance company, then they cannot file under Chapter 7.

Answer 2

Answer:

Unless Master can show that it is unable to pay its debts in the ordinary course of business or as they come due would be correct option.