Final answer:
The correct answer is option d. both (b) and (c). Governmental entities must seek bankruptcy protection if they are unable to pay their current year debt and have expenditures exceeding revenues.
Step-by-step explanation:
To seek protection under the federal bankruptcy code, a governmental entity must be unable to pay its debt in its current year and have budgeted expenditures in excess of revenues. So, the correct option is d. both (b) and (c).
Unlike private-sector firms, government agencies do not operate in a competitive market; they are funded through tax dollars. These agencies, such as the U.S. Department of Education or the U.S. Department of Defense, cannot go bankrupt in the way private-sector firms can, due to poor performance.
Instead, governments must manage their finances responsibly, as excessive borrowing can lead to financial crises and create an impact on the private sector. High-profile cases like Detroit's bankruptcy highlight situations where a municipality cannot meet its debt obligations, partly due to expenditures being significantly higher than revenues, which is one of the criteria for a government entity to seek protection under the bankruptcy code.