What is Chapter 7 Bankruptcy?
Often called the liquidation chapter, Chapter 7 is used by individuals, partnerships, or corporations who are facing difficult financial situation and have no hope of improving their situation. A trustee is appointed to take over the property of the estate and administer the case. In Chapter 7 asset cases, the debtor's estate is liquidated under the rules of the bankruptcy code. Liquidation is the process through which the debtor's non-exempt property is sold for cash by a trustee and the proceeds are distributed to creditors.
The majority of the consumer Chapter 7 cases that are filed with the court, however, are no-asset cases, where the debtors are able to keep some of their personal assets and even some equity in a real estate depending on the applicable exemption law for the state in which the debtor resides.
Corporate bankruptcies involve most of the same Code sections and legal doctrines as individual bankruptcies, but there are some important disctinctions. One fundamental difference between a corporate liqudation and a personal liqudiation is that there is no discharge for a corporate debtor. Section 727(a). When a corporation files for Chapter 7 bankruptcy, it does not discharge its debts, but instead it quitely expires under state corporate law following its financial demise in bankruptcy. In addition, there are no exemptions for corporate debtors; all assets of the corporation that are of substantial value may be liquidated to repay the creditors.
The information contained on this site is for general education only and it is not, nor is it meant to be, legal advice. You should seek advice from a bankruptcy attorney for your specific situation.