Paralegal Advanced Competency Exam (PACE) Practice Exam

What does bankruptcy often benefit the debtor by doing?

1. Increasing their asset portfolio

2. Erasing most outstanding debts

3. Securing additional financial loans

4. Providing a break from work obligations

The correct answer is: Erasing most outstanding debts

Bankruptcy often benefits the debtor primarily by erasing most outstanding debts. When an individual files for bankruptcy, they can obtain relief from their financial obligations, which can significantly reduce or eliminate debts that they are unable to repay. This process is designed to give individuals a fresh start, allowing them to reorganize their financial situation without the burden of overwhelming debt. In many bankruptcy cases, particularly Chapter 7 bankruptcy, debtors can discharge various types of unsecured debt, such as credit card debt and medical bills, meaning they are no longer legally required to pay those debts. This can lighten the financial load and enable individuals to begin rebuilding their credit and financial health after the bankruptcy is processed. The other options generally do not align with the fundamental principles of bankruptcy. For example, bankruptcy does not typically increase an asset portfolio; rather, it may lead to the liquidation of certain assets in order to pay creditors. It does not secure additional financial loans as bankruptcy can negatively impact credit ratings, making it harder to obtain new loans. Lastly, while bankruptcy can provide relief from certain financial obligations, it doesn't offer a direct break from work obligations. The relief provided by bankruptcy specifically concerns debts, not employment responsibilities.