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# In many Western societies, modern bankruptcy laws have undergone a

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In many Western societies, modern bankruptcy laws have undergone a  [#permalink]

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New Project RC Butler 2019 - Practice 2 RC Passages Everyday
Passage # 359, Date : 29-Sep-2019
This post is a part of New Project RC Butler 2019. Click here for Details

In many Western societies, modern bankruptcy laws have undergone a shift away from a focus on punishment and toward a focus on bankruptcy as a remedy for individuals and corporations in financial trouble-and perhaps unexpectedly, for their creditors. This shift has coincided with an ever increasing reliance on declarations of bankruptcy by individuals and corporations with excessive debt, a trend that has drawn widespread criticism. However, any measure seeking to make bankruptcy protection less available would run the risk of preventing continued economic activity of financially troubled individuals and institutions. It is for this reason that the temptation to return to a focus on punishment of individuals or corporations that become insolvent must be resisted. Modern bankruptcy laws, in serving the needs of an interdependent society, serve the varied interests of the greatest number of citizens.

The harsh punishment for insolvency in centuries past included imprisonment of individuals and dissolution of enterprises, and reflected societies' beliefs that the accumulation of excessive debt resulted either from debtors' unwillingness to meet obligations or from their negligence. Insolvent debtors were thought to be breaking sacrosanct social contracts; placing debtors in prison was considered necessary in order to remove from society those who would violate such contracts and thereby defraud creditors. But creditors derive little benefit from imprisoned debtors unable to repay even a portion of their debt. And if the entity to be punished is a large enterprise, for example, an auto manufacturer, its dissolution would cause significant unemployment and the disruption of much-needed services.

Modern bankruptcy law has attempted to address the shortcomings of the punitive approach. Two beliefs underlie this shift: that the public good ought to be paramount in considering the financial insolvency of individuals and corporations; and that the public good is better served by allowing debt-heavy corporations to continue to operate, and indebted individuals to continue to earn wages, than by disabling insolvent economic entities. The mechanism for executing these goals is usually a court-directed reorganization of debtors' obligations to creditors. Such reorganizations typically comprise debt relief and plans for court-directed transfers of certain assets from debtor to creditor. Certain strictures connected to bankruptcy-such as the fact that bankruptcies become matters of public record and are reported to credit bureaus for a number of years-may still serve a punitive function, but not by denying absolution of debts or financial reorganization. Through these mechanisms, today's bankruptcy laws are designed primarily to assure continued engagement in productive economic activity, with the ultimate goal of restoring businesses and individuals to a degree of economic health and providing creditors with the best hope of collecting.

1. Which one of the following most accurately expresses the main point of the passage?

(A) The modern trend in bankruptcy law away from punishment and toward the maintenance of economic activity serves the best interests of society and should not be abandoned.
(B) Bankruptcy laws have evolved in order to meet the needs of creditors, who depend on the continued productive activity of private citizens and profit-making enterprises.
(C) Modern bankruptcy laws are justified on humanitarian grounds, even though the earlier punitive approach was more economically efficient.
(D) Punishment for debt no longer holds deterrent value for debtors and is therefore a concept that has been largely abandoned as ineffective.
(E) Greater economic interdependence has triggered the formation of bankruptcy laws that reflect a convergence of the interests of debtors and creditors.

2 . In stating that bankruptcy laws have evolved "perhaps unexpectedly" (Highlighted) as a remedy for creditors, the
author implies that creditors

(A) are often surprised to receive compensation in bankruptcy courts
(B) have unintentionally become the chief beneficiaries of bankruptcy laws
(C) were a consideration, though not a primary one, in the formulation of bankruptcy laws
(D) are better served than is immediately apparent by laws designed in the first instance to provide a remedy for debtors
(E) were themselves active in the formulation of modern bankruptcy laws

3. The author's attitude toward the evolution of bankruptcy law can most accurately be described as

(A) approval of changes that have been made to inefficient laws
(B) confidence that further changes to today's laws will be unnecessary
(C) neutrality toward laws that, while helpful to many, remain open to abuse
(D) skepticism regarding the possibility of solutions to the problem of insolvency
(E) concern that inefficient laws may have been replaced by legislation too lenient to debtors

4. The primary purpose of the passage is to

(A) offer a critique of both past and present approaches to insolvency
(B) compare the practices of bankruptcy courts of the past with those of bankruptcy courts of the present
(C) criticize those who would change the bankruptcy laws of today
(D) reexamine today's bankruptcy laws in an effort to point to further improvements
(E) explain and defend contemporary bankruptcy laws

5. Which one of the following claims would a defender of the punitive theory of bankruptcy legislation be most likely to have made?

(A) Debt that has become so great that repayment is impossible is ultimately a moral failing and thus a matter for which the law should provide punitive sanctions.
(B) Because insolvency ultimately harms the entire economy, the law should provide a punitive deterrent to insolvency.
(C) The insolvency of companies or individuals is tolerable if the debt is the result of risk-taking, profit-seeking ventures that might create considerable economic growth in the long run.
(D) The dissolution of a large enterprise is costly to the economy as a whole and should not be allowed, even when that enterprise's insolvency is the result of its own fiscal irresponsibility.
(E) The employees of a large bankrupt enterprise should be considered just as negligent as the owner of a bankrupt sole proprietorship.

6. Which one of the following sentences could most logically be appended to the end of the last paragraph of the passage?

(A) Only when today's bankruptcy laws are ultimately seen as inadequate on a large scale will bankruptcy legislation return to its original intent.
(B) Punishment is no longer the primary goal of bankruptcy law, even if some of its side effects still function punitively.
(C) Since leniency serves the public interest in bankruptcy law, it is likely to do so in criminal law as well.
(D) Future bankruptcy legislation could include punitive measures, but only if such measures ultimately benefit creditors.
(E) Today's bankruptcy laws place the burden of insolvency squarely on the shoulders of creditors, in marked contrast to the antiquated laws that weighed heavily on debtors

7. The information in the passage most strongly suggests which one of the following about changes in bankruptcy laws?

(A) Bankruptcy laws always result from gradual changes in philosophy followed by sudden shifts in policy.
(B) Changes in bankruptcy law were initiated by the courts and only grudgingly adopted by legislators.
(C) The adjustment of bankruptcy laws away from a punitive focus was at first bitterly opposed by creditors.
(D) Bankruptcy laws underwent change because the traditional approach proved inadequate and contrary to the needs of society.
(E) The shift away from a punitive approach to insolvency was part of a more general trend in society toward rehabilitation and away from retribution

8. Which one of the following, if true, would most weaken the author's argument against harsh punishment for debtors?

(A) Extensive study of the economic and legal history of many countries has shown that most individuals who served prison time for bankruptcy subsequently exhibited greater economic responsibility.
(B) The bankruptcy of a certain large company has had a significant negative impact on the local economy even though virtually all of the affected employees were able to obtain similar jobs within the community.
(C) Once imprisonment was no longer a consequence of insolvency, bankruptcy filings increased dramatically, then leveled off before increasing again during the 1930s.
(D) The court-ordered liquidation of a large and insolvent company's assets threw hundreds of people out of work, but the local economy nevertheless demonstrated robust growth in the
immediate aftermath.
(E) Countries that continue to imprison debtors enjoy greater economic health than do comparable countries that have ceased to do so.

• Source: LSAT Official PrepTest 50 (Sep 2006)
• Difficulty Level: 700

Originally posted by ccheryn on 28 Sep 2019, 20:37.
Last edited by SajjadAhmad on 01 Oct 2019, 08:50, edited 3 times in total.
Updated.
Manager
Joined: 15 Jun 2019
Posts: 151
Re: In many Western societies, modern bankruptcy laws have undergone a  [#permalink]

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28 Sep 2019, 21:49
3
Question #1: The correct answer choice Is (A)

Before looking at the choices, you should be sure to prephrase the answer to any Main Point question. In this case, the Main Point is that bankruptcy laws in Western societies have changed to better serve the interests of the greater good.

Answer choice (A): This is the correct answer choice, as it provides a basic restatement of our prephrase above. The author believes that bankruptcy laws have changed, and we should not go back to a system that focuses on punishment rather than on the greater good of society.

Answer choice (B): Although the author points out that modern bankruptcy laws do help creditors, the author does not claim that creditors' needs caused the evolution of these laws, so this answer choice is incorrect.

Answer choice (C): Modern bankruptcy laws are based in part on humanitarian concerns, but the author does not assert that the earlier approach was more efficient. In fact, the passage specifically points out that the imprisonment of debtors could not benefit creditors (line 29).

Answer choice (D): According to the passage, the old approach was focused on punishment and was an inefficient means of dealing with insolvency. The author does not discuss the issue of deterrence and does not assert that a lack of deterrence caused the discussed changes in the laws.

Answer choice (E): Economic interdependence allows for the interests of debtors and creditors to be aligned, but the author does not claim that increased interdependence has triggered current laws, so this answer choice is incorrect.

Question #2: The correct answer choice is (D)

The "unexpected remedy" Implies that the creditors may not have expected to gain from laws meant to help debtors.

Answer choice (A): The author does not imply that creditors are surprised to get any compensation in bankruptcy court, so this answer should be eliminated.

Answer choice (B): There is no implication that the creditors would be the chief beneficiaries, only that they might benefit.

Answer choice (C): This is a potentially tricky wrong answer choice. The referenced implication is that the creditors might unexpectedly benefit from laws that serve an interdependent society, but the author does not discuss whether the creditors were considered when the bankruptcy laws were formulated.

Answer choice (D): This is the correct answer choice. The implication, as prephrased, is that creditors may, surprisingly, benefit from laws intended to help debtors.
Answer choice (E): There is no implication that the creditors were involved in formulating modern bankruptcy laws. Further, the author implies that the creditors were surprised to benefit from the laws, so it seems unlikely that they were involved in their formulation.

Question #3: The correct answer choice is (A)

The author's attitude is that the old laws were counterproductive and detrimental, and the modern approach to bankruptcy makes more sense for all parties involved.

Answer choice (A): This is the correct answer choice, and reflects our prephrase above. The author approves of the modern approach as more reasonable and effective than the historical approach.

Answer choice (B): This answer goes too far. The author agrees with the changes that have taken place, but does not go so far as to claim that no further changes to the laws will ever be necessary.

Answer choice (C): The author's attitude is not neutral; it is supportive of the changes that have taken place, so this answer choice Is incorrect.

Answer choice (D): The author is not skeptical, but supportive of the idea that bankruptcy under the modern approach can serve the interests of both debtors and creditors.

Answer choice (E): The author supports modern legislation, and never suggests that newer intent, so this answer choice should be eliminated.

Question #4: The correct answer choice is (E)

The author's main purpose is to discuss the old and new approaches to bankruptcy, and explain the modern approach is preferable.

Answer choice (A): The passage does discuss both past and present approaches, but the purpose is more than to provide a critique of each.. The author clearly wants to support the modern approach and warn against going back to the historical approach.

Answer choice (B): The author does compare the old approach to the new approach, but this is not the primary purpose, which is to lend support to the modern perspective on bankruptcy.

Answer choice (C): The author does not seek to criticize currently proposed changes, but to warn against the historical, punishment-based perspective.

Answer choice (D): The author supports the modern perspective on bankruptcy, and does not discuss further improvements.

Answer choice (E): This is the correct answer choice. The author discusses the basis of the modern approach, and provides several points in support of this perspective.

Question #5: The correct answer choice is (A)

To prephrase the answer to this question, we should consider what drove the historical perspective. This comes from the discussion in the second paragraph, in which the author explains that insolvent debtors were seen as negligent or unwilling to pay, and it was necessary to punish and remove these
contract breakers from society.

Answer choice (A): This is the correct answer choice. The historical perspective saw the insolvent as deserving of punishment. Punishment was a primary focus of the old perspective, so a propoent of this perspective would likely call for punitive sanctions.

Answer choice (B): This is a popular wrong answer, as it seems a reasonble defense of a punitive approach. The passage does not present deterrence as a driving justification for the historical approach, however, so this answer choice is incorrect.

Answer choice (C): A proponent of the historical perspective would likely have little tolerance for insolvency, regardless of the long term prospects.

Answer choice (D): This answer choice represents the modern perspective, and that of the author, rather than the viewpoint associated with the historical approach to bankruptcy.

Answer choice (E): There is no reference or implication regarding this specific assigment of negligence, so we cannot be sure of the historical perspective on this issue

Question #6: The correct answer choice is (B)

If we are to prephrase an answer to this passage expansion question, it is valuable to consider how the passage ended. In this case the closing point was that modern bankruptcy laws may be punitive on some level, but they are intended to promote economic activity and help all parties involved.
The right answer choice will likely either continue this general theme, or reference the passage in general.
Answer choice (A): This response would make no sense at the end of this passage. The author is a fan of today's bankruptcy laws, and would not have such a positive tone with regard to original intent.
Answer choice (B): This is the correct answer choice, as this response logically restates the point with which the author ends the passage.

Answer choice (C): There is no reference to criminal law in the passage, so this answer choice would not logically follow.

Answer choice (D): The author mentions the punitive facet of current bankruptcy law, but never references prospective punitive measures in the future, so this answer choice should be eliminated.

Answer choice (E): The author believes that modern law favors all parties concemed involved, in stark contrast to this answer choice.

Question #7: The correct answer choice Is (D)

Answer choice (A); We can rule out this answer choice based on the word "always" since the author makes no such absolute claims. Further, in the one example discussed, it seems that a change in policy was followed by a gradual change in philosophy among creditors.

Answer choice (B): There is no reference or implication that the courts led the way, so this answer choice is incorrect.

Answer choice (C): The author implied that benefit to creditors may have been unexpected, but this is not the same as claiming a bitter opposition on the part of the creditors.
Answer choice (D): This is the correct answer choice. The author discusses several points of inadequacy of the historical approach, and asserts that the new laws are an improvement, so we can assume that the changes were a result of these inadequacies.

Answer choice (E): Since there are no discussions or implications o f such broad societal trends cannot be the right answer choice.

Question #8: The correct answer choice Is (E)

The authors argument against harsh punishment for debtors is that this treatment is economically counterproductive. The correct answer choice will somehow weaken or cast doubt on this point.

Answer choice (A): This answer choice does not weaken the basic argument that bankrupt individuals cannot be productive while in prison.

Answer choice (B): This choice supports the author's argument against harsh punishment.

Answer choice (C): This answer choice would not weaken the general claims about non-productivity, only that there may have been many who needed bankruptcy but had been afraid to make a claim.

Answer choice (D): A single example of immediate growth does not disprove the author's more general claims about bankruptcy, so this answer choice is incorrect.

Answer choice (E): This is the correct answer choice, as it strengthens the assertion that harsh debtor punishment is good for an economy.
Re: In many Western societies, modern bankruptcy laws have undergone a   [#permalink] 28 Sep 2019, 21:49