Discussion
Bankruptcy occurs when:
Answer: D
Correct answer: a firm comes under the authority of a bankruptcy court
Bankruptcy is a legal status, not an economic condition. A firm may be economically failing, illiquid, or insolvent on a balance sheet test without being bankrupt, and it becomes bankrupt only when a court takes jurisdiction over it. The three other options describe economic failure, a liquidity crisis and balance sheet insolvency respectively - each a possible cause of a bankruptcy filing rather than the thing itself.
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