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Chapter 7 bankruptcy for California-based company

Even though many experts and politicians would have the American people believe that the economy is improving, there are still daily signs of individuals, families and companies who are struggling. As recent evidence of this, a California-based company filed for Chapter 7 bankruptcy early this month.

The business, ThinkEquity LLC, listed both the company's assets and liabilities in the $1 million to $10 million range. The company had been engaged in trading stock and equity research. The bankruptcy filing seemed to be well forecast, as the business shut down operations in October.

Chapter 7, both for individuals and companies, is known as "liquidation" bankruptcy. This is because the bankruptcy trustee lists all of the filer's non-exempt assets and then proceeds to sell them off. The money earned from the sale of the assets is then applied toward the filer's debts. Any remaining debts are then discharged.

Many companies, however, will first attempt a restructuring of the business under Chapter 11 of the bankruptcy code. A filing under this type of bankruptcy protection allows a company to submit a plan to reorganize the company's business model and solidify a plan for repaying debt. All of this occurs as the business continues in operation in an effort to turn a profit.

However, it does not appear that this California company's leaders believed that a turnaround was possible under Chapter 11. So, under Chapter 7, the company will essentially end.

Chapter 7 can be a great way for individuals to deal with an unmanageable debt burden, but for companies, it is basically the end of the enterprise. But, it can be the best way to deal with the company's debts and obligations in a bad financial situation.

Source: Reuters, "Research firm ThinkEquity files for bankruptcy liquidation," Nov. 6, 2012

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