Tennessee Private Investigator Licensing Practice Exam

What is the main function of reorganization in a bankruptcy context?

1. To sell all assets immediately

2. To stop creditor collection activities

3. To erase all types of debts

4. To liquidate personal property for quick cash

The correct answer is: To stop creditor collection activities

The primary function of reorganization in a bankruptcy context is to provide a structured plan that allows the debtor to continue their business operations while coming up with a feasible repayment plan for creditors. This process aims to halt creditor collection activities, giving the debtor an opportunity to stabilize their situation without the pressure of immediate debt collection. In a reorganization bankruptcy, such as under Chapter 11, the debtor proposes a plan to restructure their finances, which may include adjusting debts and establishing a workable schedule for repayment. This is essential for the debtor to control their financial future and maintain operations without the constant threat of lawsuits or aggressive collection actions from creditors. In contrast, other options describe processes that do not align with the intent of reorganization. Selling all assets immediately or liquidating personal property focuses on a rapid disposal of assets, which is more aligned with liquidation bankruptcy. Erasing all types of debts implies a discharge of debts, which occurs under different circumstances and is not the primary purpose of reorganization. Thus, stopping creditor collection activities is a critical mechanism within the broader framework of reorganization, allowing for a more sustainable path forward for the debtor.