What is bankruptcy primarily designed to do?

Bankruptcy is primarily designed to provide relief to organizations and individuals so that they can reorganize their debts under the legal framework of bankruptcy law. This process allows debtors to create a structured plan to pay back their debts over time, often at reduced amounts, giving them a chance to restore their financial stability.

The reorganization process can help prevent liquidation of assets, enabling the business or individual to continue operations while working through their financial issues. This is particularly beneficial in Chapter 11 bankruptcy cases, where the focus is on reorganization rather than the immediate liquidation of assets.

This approach seeks to balance the interests of both debtors and creditors. While creditors may face some losses, the intention is to create a scenario where the debtor can eventually return to solvency and continue to operate, which may also allow creditors to recover more funds over time than they would through a rapid liquidation process. Therefore, focusing on reorganization is a key element in the purpose of bankruptcy, making the choice that highlights this aspect correct.