Many of our readers in Escondido probably associate Chapter 7 bankruptcy filings with individuals and families who are struggling with their finances. However, what some people may not know is that Chapter 7 bankruptcy can also be pursued by businesses that have come to the determination that the best option in a bad financial situation is to file for this so-called "liquidation" bankruptcy and shut down the company.
Similar to the Chapter 7 bankruptcy process for individuals, as soon as a company files a bankruptcy petition an automatic stay goes into effect regarding any collection activities by creditors. This means that those creditors will not be allowed to contact the business in an attempt to collect on debts owed.
Next, after a relatively short period of time a meeting will occur that must be attended by the filer, the bankruptcy trustee and any creditors who are owed debts. At this meeting a wide variety of topics about the company will be discussed, including the liabilities and assets the company holds, as well as revenue reports. The bankruptcy trustee and the creditors will be able to ask the company any questions they have regarding the bankruptcy filing and the company's finances.
Lastly, the bankruptcy trustee will review and marshal the company's assets, sell them off and then distribute the proceeds to the creditors who are owed debts by the company. This is the "liquidation" part of the process. Unlike individual filers under Chapter 7, companies are not entitled to bankruptcy exemptions.
Source: FindLaw, "What to Expect When Filing for Bankruptcy," Accessed Jan. 1, 2017