Startup Funding Espresso – How Does Chapter 7 Bankruptcy Work?

How Does Chapter 7 Bankruptcy Work?

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Chapter 7 bankruptcy liquidates the company.

Here is how Chapter 7 works:

When a company goes into Chapter 7 bankruptcy proceedings, the bankruptcy trustee takes control of the company to liquidate the assets and pay the creditors.

A Chapter 7 proceeding starts with a creditor filing a petition with the bankruptcy court.

The debtor must provide a list of assets and liabilities along with tax returns.

In the case of involuntary bankruptcy, a creditor can file to move to bankruptcy.

The debtor must provide a list of all creditors and how much is owed, a listing of all properties, and all sources of income for the debtor.

All debt collectors' actions cease.

The debtor must provide all financial records and attend the hearings.

All creditors must file a proof of claim.

Once the bankruptcy trustee issues a discharge of the debts, the creditors can no longer pursue the debtor.

Any act of fraud could remove the discharge order.

Most bankruptcies take up to 180 days to complete. 

There are several alternatives to Chapter 7 bankruptcy which could be considered.

 

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