Final answer:
The claim that planned bankruptcy is referred to as a bust out is false. Planned bankruptcies, such as Chapter 11, are legitimate legal processes that allow businesses to reorganize their debts and continue operations with the aim of eventual recovery. These are different from bust-outs, which are fraudulent schemes intended to exploit the company's assets before filing for bankruptcy.
Step-by-step explanation:
The statement that a planned bankruptcy is usually referred to as a "bust out" is false. A bust-out typically refers to a fraudulent business scheme where a business's assets and lines of credit are exploited and depleted to the benefit of the perpetrators before declaring bankruptcy to avoid debt. On the other hand, many firms in the United States file for bankruptcy each year and continue operating in an effort to reorganize their debt structure, obtain financial relief, and eventually return to profitability. The ability to continue operating during bankruptcy proceedings is possible under certain types of bankruptcy filings, such as Chapter 11, which allows for business reorganization under the bankruptcy code.
The reason firms opt for this instead of completely shutting down is to preserve the value of their enterprise, protect jobs, and maximize the return to creditors. In some cases, as observed during the financial crisis, even banks were faced with having to deal with potential bankruptcy. Many financial institutions are heavily invested in securities which, during the crisis, became volatile, leading to unexpected losses and bankruptcy risks. The legal processes under bankruptcy protection can offer companies, including banks, a chance to adjust their financial obligations and work towards restoring their financial health.