A chapter 7 bankruptcy can be filed (or can be even forced to file by creditors) in federal court when a business is badly in debt and unable to service that debt or to pay back its creditors. A chapter 7 bankruptcy means that the business ceases its operation.
The cessation of business operation by debtors does not mean that all employee of the company will loose their job. When a very large company enters Chapter 7 bankruptcy, entire divisions of the company may be sold intact to other companies during the liquidation.
The debtors’ petition filed in the court includes detailed financial information like his/her assets, debts, income and list of the assets that are being claimed as exempt. The court appoints a trustee whose roles is to review the bankruptcy filing, conduct the meeting of creditors, review the debtor’s eligibility for a discharge, liquidate (sell) any non-exempt assets and to distribute the proceeds to creditors. The court proceedings normally take 3-4 months
The debtor attends a meeting with its creditors, usually 1 month after the petition filed. The objective of this meeting is to put debtors under oath and confirm all the financial declaration mentioned in the petition is true and accurate. The debtors have the right to ask questions regarding debtor’s assets and liabilities. In case of any disputes or complications debtors may have to attend a court hearing or additional Chapter 7 Bankruptcy Law examinations, and he will receive such notice from the court or his attorney.
If there are no objections to the debtor’s discharge, then the debtor receives a written notice from the court, stating that he has been discharged of all of his dischargeable debts.
Secured creditors like landholders, etc. have a higher-priority claim on the proceeds than unsecured creditors, such as vendors who have not yet been paid for products they previously delivered to the company.
In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge. Only an individual can receive a Chapter 7 discharge. Once all assets of the corporate or partnership debtor have been fully administered, the case is closed. The debts of the corporation or partnership theoretically continue to exist until applicable statutory periods of limitations expire.
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