To file for Chapter 7 bankruptcies, the debtor files a petition with the bankruptcy court serving the area where the debtor lives or where the business debtor operates the business, or where the debtor has most of their assets. You are permitted to retain certain “exempt property” but all remaining assets are liquidated (sold) by the bankruptcy court Trustee. You should also understand that if you file a chapter 7 bankruptcy you could loose some or all or your property! This may be an advantage or disadvantage depending on how much equity you have in the asset.
Chapter 7 bankruptcy is an “order of relief” that triggers an “automatic stay” thus all creditors and collectors are prohibited from pursuing you or your property outside of the bankruptcy proceeding is provided by chapter 7 of bankruptcy laws.
This may or may not mean that all employees will lose their jobs. When a very large company enters Chapter 7 bankruptcy, entire divisions of the company may be sold intact to other companies during the liquidation. Chapter 7 of the Title 11 of the United States code (Bankruptcy Code) governs the process of liquidation under the bankruptcy laws. Chapter 7 is the most common form of bankruptcy.
The debts of the corporation or partnership theoretically continue to exist until applicable statutory periods of limitations expire. In the case of fraud, (for example, charging up credit cards with the intent to file a bankruptcy) the court may deny the discharge of the debt. For the court to take such drastic measures to limit or deny the discharge in a Chapter 7 proceeding, the creditor has the burden of proving that the debtor obtained credit by fraudulent practices or has engaged in other prohibited behavior. In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge-instead, the entity is dissolved. 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.
Often these debts will be liquidated with the use of a CRO. This is a court appointed officer who is required to auction the properties of the concerned company. In the case of L.I.D. for example, the CRO was Consensus Advisors LLC. They performed an initial due diligence to find a suitable “stalking horse bidder.” The stalking horse bidder was then required to provide a guarantee that at some minimum “reserve”.
In a Chapter 7 filing, once the property distribution occurs, the court will most likely discharge the debtor from further repayment obligations to the unsecured creditors. However, there are some exceptions to this general rule. The discharge of the debt may not be allowed by the court if evidence shows the debtor used fraudulent behavior to incur the debt.
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