2. Avoiding formal bankruptcy 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. Term Description 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. A process in which the debtor transfers the title of its assets to a third party that liquidates the assets and then distributes the proceeds to creditors on a prorated basis. 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. False True