Understanding the Purpose and Usage of Chapter 7

When people or businesses apply for Chapter 7 bankruptcy, unless their claim is an attempt at an abuse of the system, it is something of a last resort for them. Especially with regard to liquidation of assets, Chapter 7 bankruptcies involve loss in a very tangible sense, as those who file for this course of action must live with the decision to permanently dispose of many of their possessions, which will have an impact on them both physically and emotionally.

It should be noted that Chapter 7 bankruptcy is different from Chapter 13 bankruptcy per sé. Chapter 7 bankruptcy generally does not allow for applicants to keep their property the way Chapter 13 bankruptcy does, unless those assets are specifically exempt from being reclaimed.

Though this may not be a pressing concern of owners and contributors with a financial stake in a company, business-oriented Chapter 7 bankruptcies may also be a means of selling the rights to the organization without getting rid of everyone involved. Specifically, those employed by a corporation filing for bankruptcy may not necessarily lose their jobs, as the buyers, following liquidation, may choose to incorporate both the infrastructure of the old entity and the employees who helped maintain it. Under such a scenario, the luckiest of these workers would become new agents of the larger association that absorbed them.

NEXT: What You Need to Know About Getting Legal Representation