When a troubled business is badly in debt and unable to service that debt or pay its creditors, the business may file or be forced by its creditors to file for bankruptcy in a federal court under Chapter 7.
A Chapter 7 filing means that the business ceases operations unless continued by the Chapter 7 Trustee. A Chapter 7 Trustee is appointed almost immediately. The Trustee generally sells all the assets and distributes the proceeds to the creditors.
In law, liquidation is the process by which a company or part of a company comes to an end and the assets and property of the company are redistributed. Liquidation can also be referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation.
Liquidation is either compulsory or known as a creditors' liquidation; or voluntary, referred to as a shareholders' liquidation, although some voluntary liquidations are controlled by the creditors.
After winding up the company's affairs, the liquidator must call a final meeting of the members, creditors, or both. The liquidator is then usually required to send final accounts to the Registrar and to notify the court. The company is then considered -- dissolved.
In most jurisdictions, the court has discretion for a period of time after dissolution to declare the dissolution void in order to enable the completion of any unfinished business
Chapter 7, as with other bankruptcy chapters, is not available to people who have had bankruptcy cases dismissed within the prior 180 days under specified circumstances.
In a Chapter 7 bankruptcy, you are allowed to keep certain exempt property. The value of property that can be claimed as exempt varies from state to state. Other assets are sold or liquidated by the interim trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7.
Bankruptcy discharge stays on your credit report for up to 10 years for most cases. This may make credit less available and/or terms less favorable, although high debt can have the same effect. Consumer credit and creditworthiness is a complex subject, however. Future ability to obtain credit is dependent on multiple factors and difficult to predict.
Another aspect to consider is whether the debtor can avoid a challenge by the United States Trustee to his (or her) Chapter 7 filing as abusive. Can the debtor afford to repay some or all of his or her debts out of disposable income in the five year time frame provided by Chapter 13? If yes, then the U.S. Trustee may succeed in preventing the debtor from receiving a discharge under Chapter 7, effectively forcing the debtor into Chapter 13.
Do you need a Pennsylvania bankruptcy attorney to file a Chapter 7 bankruptcy?
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