CHAPTER 7 LIQUIDATION FOR BUSINESS AND CONSUMERS
The liquidation process under Title 11 of the Bankruptcy Code allows Individuals, spouses filing a joint petition, and various types of business entities to liquidate assets for the benefit of creditors. Under Chapter 7 individuals and joint filing debtors are
allowed to retain certain of their assets classified as "Exempt Assets"
under the Bankruptcy Code. In addition, these debtors receive a discharge of certain unsecured and secured debts. In exchange secured creditors are entitled to the return of any assets securing the
debtor's nonexempt assets. Unsecured creditors are entitled to a pro-rata share of any financial proceeds recovered by the Chapter 7
Trustee from the sale of the debtor's nonexempt assets.
A Chapter 7 business proceeding is often utilized by the owners of a failing business to wind down the operations of the business in an orderly fashion. A federal bankruptcy Trustee is utilized to reduce the burden on the business owner and ensure that creditors of the business receive equitable treatment under the Bankruptcy Rules. Under a Chapter 7 business liquidation proceeding, a Chapter 7 Trustee is appointed to step in and take control of the business. The Trustee may either continue to operate the business for a short time or proceed immediately to liquidate the business assets. The business creditors are entitled to recover a pro-rata share of financial proceeds from the Trustee's liquidation of the business assets. A business entity under a Chapter 7 liquidation does not receive a bankruptcy discharge. The business entity is generally dissolved under applicable state law.
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