Chapter 7 Bankruptcy And Liquidation
In the process of considering filing for bankruptcy, you will be required to decide upon an exact chapter to file under. Each chapter has specific purposes and goals; however, they are all different even though they all result in helping resolve severe financial problems. What one chapter is able to do, another chapter may not be able to offer you. In this respect Chapter 7, bankruptcy is what we are going to look at.
Chapter 7 is considered the liquidation chapter. The reason for this is because businesses that file under Chapter 7 are forced to close and liquidate or sell all of their assets in order to pay their debts. While this sounds all well and good for a business that does not wish to remain open, it is seldom that all assets are able to cover all debts, after all depreciation does occur which drives down the prices of the assets.
However, to ensure that the best prices possible are achieved a trustee is assigned to the case. It is the job of the trustee in the Chapter 7 bankruptcy to see that assets of the estate are all sold and for fair prices. The trustee is also responsible for ensuring that payments are made to creditors in the order of importance decided upon by the courts and the trustee.
While Chapter 7 bankruptcy may seem so final in the scheme of financial affairs, it actually is not. Most courts will allow you to convert a Chapter 7 bankruptcy to another chapter as long as it is done in a reasonable amount of time. However, typically, additional charges apply for this ability, and a judge can always deny the conversion. This means that you would need to prove that the business really does stand a chance of surviving with normal management techniques. If however, it appears that there is no hope of the business surviving no matter what, then the judge is likely to deny the conversion leaving your business still in a Chapter 7 bankruptcy. While some consider this to be the end of the world, it is a good hope that you can walk away from a bad business venture without being completely destroyed yourself. As you can imagine before you file a Chapter 7 bankruptcy it is a good idea to consult with a lawyer. The reason to consult with a lawyer before filing a Chapter 7 bankruptcy is because it is the liquidation chapter. Since it is often so difficult to convert from this chapter, you should make sure this is what you want before filing the papers. Consult with your lawyer to determine for sure and ask plenty of questions. Always resolve any doubts you have before filing if any way possible. Converting to a different chapter is more expensive in the long run than choosing the appropriate chapter to begin with, so often paying for an hour of a lawyers time can save you money when trying to decide what chapter to file.
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