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 Proceedings

Bankruptcy court proceedings in which a 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. The company's creditors receive the proceeds from liquidation according to the system of absolute priority; that is, secured creditors are paid first, followed, if anything is left, by unsecured creditors, 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.