T-Level Finance 1.2 Practice Test 2026 – The All-in-One Guide to Exam Success!

A business may file for bankruptcy primarily when it can no longer repay its debts. This situation typically arises when the company faces financial distress, struggling with cash flow issues or having obligations that exceed its financial resources. By filing for bankruptcy, a business seeks relief from creditors and aims to restructure its debts or liquidate assets in a controlled manner. This legal process allows the company to either reorganize its debts while continuing operations or to settle its obligations under court supervision.

The other scenarios are not conducive to filing for bankruptcy. For instance, if a company has sufficient cash reserves or is experiencing high profits, it would generally be in a strong financial position, making bankruptcy an unnecessary step. Similarly, a desire to expand operations, while potentially needing careful financial planning, does not lead to bankruptcy unless accompanied by overwhelming debt issues that the business cannot manage. Therefore, a business filing for bankruptcy is fundamentally linked to its inability to meet debt obligations.