Chapter 7 bankruptcy business is often one of the most misunderstood types of bankruptcy filings. This is particularly true since changes in the law regarding bankruptcy occurred in 2005. Unlike other forms of bankruptcy, under Chapter 7 bankruptcy business, a company will ultimately be dissolved. The company will not continue operating, as would be the case with other forms of bankruptcy, such as with Chapter 11. There are many differences between Chapter 11 and Chapter 7.

Under Chapter 7 bankruptcy filings, a trustee will be assigned to the case. The primary role of the trustee in the case is to liquidate the nonexempt assets of the debt in a way that will maximize the return of unsecured debt to the debtor’s creditors. This is done by selling nonexempt property that is clear of liens. The key word is that only assets and property that are nonexempt will be sold to satisfy debts. In addition, the trustee has other methods that may be used under Chapter 7 bankruptcy business filings as well. One of those methods is known as ‘avoiding powers.’ This simply means that the trustee has the power to set aside transfers that have been made to creditors within a period of up to 90 days prior to the bankruptcy petition.

In addition, the trustee may also choose to essentially undo any security interests as well as any transfers of property that were made prior to the bankruptcy petition under certain circumstances. Depending upon the situation, the court may also authorize the trustee to operate the business in question for a period of time. This does not happen in each case, instead it is determined by the court on a case by case basis. If the court finds that fraud or gross mismanagement has occurred, then the trustee may be put in charge of operating the company. In addition, the court may also choose to place the trustee in charge of business operations if the court deems that doing so would benefit the creditors and result in improved liquidation of assets.

In an ideal world, all of the debts of a business would be satisfied under Chapter 7 business bankruptcy filings, but that does not always happen. Claims are classified under six categories and priority claims are paid first by the trustee through the liquidation of assets. Each designated class must be paid in full before a lower class can be paid anything.

Once the bankruptcy case has been discharged, the business owner will be released from personal liability and creditors will be prevented from taking any further collection actions against the business owner.

While Chapter 7 business bankruptcy is not the most ideal result of a business that was begun with hope and enthusiasm, in some cases it may be the only option that is left remaining to many business owners. If you are not sure whether you qualify for Chapter 7 business bankruptcy filings, it is a good idea to consult an experienced attorney.

© 2009, Bankrupt business. All rights reserved.

Related posts:

1. Chapter 11 Business Bankruptcy

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