Chapter 7 Proceedings

Chapter 7 Proceedings

Provisions of the Bankruptcy Reform Act under which the debtor firm's assets are liquidated by a court because reorganization would fail to establish a profitable business.

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Chapter 7

In the United States, a type of bankruptcy where a person's or company's assets are required to be liquidated. The court appoints a trustee, who may or may not be a part of the company, to oversee the liquidation process. If a company files for chapter 7, it ceases operations. The company's creditors receive the proceeds from liquidation according to the system of absolute priority; that is, secured creditors are paid first, then if anything is left unsecured creditors are paid, then preferred stockholders, and finally common stockholders. A company files for chapter 7 proceedings when its management believes that reorganizing according to a court-mandated plan would not result in the company becoming profitable.