What triggers bankruptcy?

• A. A legal proceeding involving a person or business unable to repay debts; petition filed by the debtor or creditors
• B. A tax audit
• C. A donation drive
• D. A corporate merger

Answer: (A)

Bankruptcy is triggered when a person or business cannot repay their debts. The process starts with a formal petition filed in bankruptcy court, and this petition can be brought by the person or business themselves or by creditors who are owed money. Once the filing happens, the court oversees the case and decides how debts will be handled, whether through liquidating assets or reorganizing obligations. The essential idea is the failure to meet debt obligations coupled with a legal step to start the process. Events like a tax audit, a donation drive, or a corporate merger don’t initiate bankruptcy because they don’t involve declaring an inability to pay debts and starting a formal court proceeding.