Reading Passage Question
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.
“In many Western societies, modern bankruptcy laws have undergone”- is a passage for the GMAT that addresses reading comprehension. Candidates must have a firm understanding of GMAT reading comprehension in English. This GMAT reading comprehension section consists of eight comprehension questions. The purpose of the GMAT Reading Comprehension questions is to assess a candidate's capacity to understand, evaluate, and apply knowledge or ideas. By responding to the GMAT Reading Comprehension Practice Questions section, candidates can actively practice.
Solutions and Explanation
- 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.
Answer: (A)
Explanation: It is necessary to pre-phrase the answer to any main point question before looking at the options. In this case, the main point is that bankruptcy laws in Western societies have evolved to better serve the public good. The first option is the correct answer because it provides a basic restatement of the pre-existing information. The author believes that bankruptcy laws have evolved and that we should not return to a system that prioritises punishment over the greater good of society.
- 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
Answer: (D)
Explanation: The author does not imply that creditors are surprised to receive any compensation in bankruptcy court, so the first option is incorrect. The second option is also incorrect because there is no indication that the creditors will be the primary beneficiaries. The third option is tricky, but it is incorrect because it contains distorted information. The final option is also incorrect because there is no indication that creditors were involved in the development of modern bankruptcy laws. As a result, the fourth option is the correct answer.
- 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
Answer: (A)
Explanation: The author believes that the old laws were counterproductive and harmful, and that the modern approach to bankruptcy is better for all parties involved. This interpretation holds that the first option is the correct answer because it reflects that. The second option is incorrect because it is too extreme. The statement in the third option is also distorted and thus invalid. The following two options are also incorrect because they are contradictory or inaccurate.
- 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
Answer: (E)
Explanation: The author's main goal is to compare the old and new approaches to bankruptcy and explain why the latter is preferable. The final option is the correct answer. This is due to the fact that the author discusses the foundation of the modern approach and provides several points in support of this viewpoint. The remaining options are incorrect answers because they are inappropriate for the question.
- 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.
Answer: (A)
Explanation: Only the first option is correct, and the remaining options are all wrong answers. This is due to the historical view of the insolvent as deserving of punishment. Punishment was a primary focus of the old perspective, so a proponent of this viewpoint would almost certainly advocate punitive sanctions.
- 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
Answer: (B)
Explanation: The second option is incorrect because it makes no sense at the end of this passage. The author supports today's bankruptcy laws and would not have such a positive attitude toward original intent. The third option is also incorrect because there is no mention of criminal law in the passage. The fourth option is inaccurate and thus incorrect. The final option is diametrically opposed. Finally, the second option is the correct answer.
- 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
Answer: (D)
Explanation: The first option is incorrect due to the word "always," the author makes no such absolute claims. The second option is also incorrect because there is no mention or implication that the courts paved the way. The third option is also invalid because it is not the same as claiming creditors' fierce opposition. Because there are no discussions or implications of such broad societal trends, the final option is also incorrect. As a result, the fourth option is the right answer.
- 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.
Answer: (E)
Explanation: The authors' defense of not punishing debtors harshly is that doing so would be economically counterproductive. The right response will somehow undermine or question this claim. This implies that the final choice is the right answer. The remaining options are all wrong as they do not weaken the argument.
Suggested GMAT Reading Comprehension Samples
- In Periods When there are more Qualified Candidates than Job Openings GMAT Reading Comprehension
- Although the European Central Bank (ECB) is Subject to Far More Constraints GMAT Reading Comprehension
- The Stock Market Tends to Move in Response to the Release of the U.S. Consumer Confidence Index (CCI) GMAT Reading Comprehension
- The World Wide Web, a Network of Electronically Produced and Interconnected GMAT Reading Comprehension
- In the Early 1970s, a New System of Organizing the Growing GMAT Reading Comprehension
- When Anton Van Leeuwenhoek made the First Recorded Estimation of Global Population GMAT Reading Comprehension
- Direct Observation of Contemporary Societies at the Threshold GMAT Reading Comprehension
- Jon Clark’s Study of the Effect of the Modernization of a Telephone Exchange GMAT Reading Comprehension
- Utilitarian Models of the State, Subordinating Individual Rights to a Calculus GMAT Reading Comprehension
- Bracken fern has been spreading from its woodland strongholds for centuries GMAT Reading Comprehension
- Sarah Meyers McGinty, in her useful new book Power Talk GMAT reading comprehension
- The hypothesis that people ascribe more value to things GMAT reading comprehension
- Since the dawning of antitrust regulation in America at the beginning of the twentieth century GMAT Reading Comprehension
- The term "editor" covers a number of functions ranging GMAT Reading Comprehension
- Lee Bollinger, rejecting traditional models of the defense GMAT Reading Comprehension
- The outsourcing of production factories to locations overseas from companies GMAT Reading Comprehension
- United States Corporations Seeking to Improve Productivity Relied on Cost-Cutting Measures GMAT Reading Comprehension
- “Strange Bedfellows!” Lamented the Title of a Recent Letter to Museum News GMAT Reading Comprehension
- For Business Executives, Managing Growth of a Company at an Appropriate Rate is a Central Challenge GMAT Reading Comprehension
- Historically, Relations Between Workers and Employers in the United States have Often Been Characterized GMAT Reading Comprehension
Comments