Scenario 10-1

Multiple Choice

Scenario 10-1. Franky's Lumber Yard works with primarily small construction companies building family homes. Franky has a serious cash flow problem. She has many customers with account balances over 90 days past due. Furthermore, the economy has been growing rapidly and interest rates have just been raised. New home construction is likely to dramatically decrease. This will make it even more difficult for her customers to pay their bills. Owing in large part to the expense of her inventory and her uncollected accounts receivable, it is highly likely Franky is insolvent.
-In Scenario 10-1, if Franky files for a Chapter 7 bankruptcy, then ______ will occur.

A) voluntary reorganization
B) involuntary reorganization
C) liquidation
D) repayment over a three- to five-year period