How Does Chapter 7 Bankruptcy Work?

Chapter 7 bankruptcy liquidates the company.

Here is how Chapter 7 works:

When a company goes into Chapter 7 bankruptcy proceedings, the bankruptcy trustee takes control of the company to liquidate the assets and pay the creditors.

A Chapter 7 proceeding starts with a creditor filing a petition with the bankruptcy court.

The debtor must provide a list of assets and liabilities along with tax returns.

In the case of involuntary bankruptcy, a creditor can file to move to bankruptcy.

The debtor must provide a list of all creditors and how much is owed, a listing of all properties, and all sources of income for the debtor.

All debt collectors’ actions cease.

The debtor must provide all financial records and attend the hearings.

All creditors must file a proof of claim.

Once the bankruptcy trustee issues a discharge of the debts, the creditors can no longer pursue the debtor.

Any act of fraud could remove the discharge order.

Most bankruptcies take up to 180 days to complete. 

There are several alternatives to Chapter 7 bankruptcy which could be considered.

 

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.