FRM Financial Risk Manager Practice Test

Category - Terms and concepts

Bankruptcy refers to a situation when a court judges that a debtor (or a borrower) is unable to make the payments owed to a creditor (or a lender). America’s bankruptcy code for corporate entities can be found in
  1. Chapter 8.
  2. Chapter 9.
  3. Chapter 10.
  4. Chapter 11.
Explanation
Chapter 11 is a chapter of American’s bankruptcy code which permits reorganization of corporate entities under the bankruptcy laws in America. This chapter protects firms from their creditors. It is particularly friendly to troubled borrowers, allowing them to borrow more money and giving them time to work out their problems.

Key Takeaway: In 2001, Enron, the giant American energy corporation, filed for bankruptcy protection. It tried to repay its debts by selling off any asset it had.
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