PT156.S1.P3.Q18 > Analytics

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Traditionally, corporate bankruptcy law placed highest priority on the orderly discharge of debts; courts generally ordered failed businesses to pay all creditors a set percentage of the amounts owed. ███

Traditional Approach · Discharge of debts is top priority

Modern Approach · “Reorganization” allows company to continue operating

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Argument for Traditional Approach · Bankruptcy is solely to pay back creditors

Example of traditionalist: Jackson

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Critique of Traditional Approach · Traditionalists do not consider other interests (employees, communities)

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Argument for Modern Approach · Fairness for all parties through (1) inclusion and (2) rational planning

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Main Conclusion · Modern approach is more equitable but also has weaknesses

Premise 1 · Credit will be more expensive

Premise 2 · No way of assessing vulnerability to loss

Passage Style

Critique or debate

18.

It can be inferred from ███ ███████ ████ ███████ █████ ██ ████ ██████ ██ █████ ████ █████ ███ ██ ███ █████████ ███████████

Question Type

Implied

Other’s perspective

The correct answer is likely to be supported by the end of P1, where the author discusses Jackson’s view. “Thomas H. Jackson, for example, argues that bankruptcy law is best seen simply as a "collectivized debt collection device." Such a compulsory regime, Jackson argues, guarantees that claims will be fairly adjudicated and that the collection process will be efficient.” Jackson is all about debt collection — bankruptcy law should be about making sure debtors pay back creditors.

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Anti-supported. Jackson is in favor of the traditional approach, which doesn’t consider what will happen to a business that is forced to close.

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We have no evidence that Jackson thinks the creditors with the largest amounts of money owed should be given the highest priority in bankruptcy proceeds. Maybe he thinks the creditors who were owed money earlier should get priority? We have no idea.

20%

Bankruptcy law should █████ ████████ ██ ██████ █████████ ████ ███ ██████████ ██ █████ ██████ ██████████

This is best supported, because we know Jackson supports the traditional approach. The traditional approach argues that “bankruptcy law's sole task should be to make the largest possible asset pool available for settling creditors' preexisting contractually secured claims.” We have no reason to think Jackson believes the well-being of employees relates to making sure creditors get paid back.

63%

Bankruptcy laws that █████████ ██████████ ██████ ██ █████████ ██ █████ ██ █████ ████ █████ █ ███████ ████████ ██ ███████

Jackson is in favor of the traditional approach, which he argues is “efficient.” So it wouldn’t make sense for him to want greater fairness at the expense of efficiency.

The legal system ██████ ████████ ██ █ ████ ██████████ ███████ ████ ██ █████ ██ █████ ████████████ ████ ███ █████ ██████ ████ ██████████ ███████ ██ ████ ██ █████████

Not supported, because Jackson doesn’t put any conditions on when bankruptcy law should function as a debt collection service. He would think that even if a corporation can stay in business, bankruptcy law should still function as a debt collection service.

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PrepTest 156 - Section 1 - Passage 3 - Question 18

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PrepTest 156 - Section 1 - Passage 3 - Question 18

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