2. Avoiding formal bankruptcy Aa Aa During financial distress, businesses and individuals need to identify whether their financial problems are temporary or permanent. Based on their analyses, businesses and individuals can strategize solutions to resolve financial problems. Because of the costs related to bankruptcy, businesses and individuals can find ways of resolving their credit other than by declaring formal bankruptcy. Some elements of settlements that do not need to go through formal bankruptcy are described in the table. Identify the terms associated with each description. Description Term A debt workout plan in which the debtor negotiates with the creditor to reduce the payments by reducing the principal amount and interest rate on the debt Composition A group, usually associated with a credit managers association, that convenes to realign the debt structure to give the debtor a more practical arrangement for meeting financial obligations True or False: In a composition, creditors agree to accept cash or securities that have a combined value that is less than the amount the debtor owes them. O True O False