Chapter 7

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DEFINITION of 'Chapter 7'

A bankruptcy proceeding in which a company stops all operations and goes completely out of business. A trustee is appointed to liquidate (sell) the company's assets, and the money is used to pay off debt.

BREAKING DOWN 'Chapter 7'

The investors who take the least risk are paid first. For example, secured creditors take less risk because the credit that they extend is usually backed by collateral, such as a mortgage or other asset of the company. Next in line are the unsecured creditors, and then the investors. This phenomenon is known as "absolute priority."

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RELATED FAQS
  1. What are the financial consequences of filing for bankruptcy?

    The financial consequences of filing for bankruptcy are substantial and can be long-lasting. They include impacts on your ... Read Full Answer >>
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    When a corporation faces severe financial challenges that cause its inability to repay debt obligations, filing for protection ... Read Full Answer >>
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    Filing for chapter 11 bankruptcy protection simply means that a company is on the verge of bankruptcy, but believes that ... Read Full Answer >>
  4. Does a shareholder lose all of their equity once a Chapter 11 bankruptcy is filed ...

    When a company files for Chapter 11 bankruptcy, the management of the company is still in charge of the daily operations. ... Read Full Answer >>
  5. What are the differences between chapter 7 and chapter 11 bankruptcy?

    Chapter 7 bankruptcy is sometimes also called liquidation bankruptcy. Firms experiencing this form of bankruptcy are past ... Read Full Answer >>
  6. What are some alternatives a company can attempt prior to resorting to liquidation?

    Some alternatives a company's owners can attempt prior to resorting to liquidation are selling the company, raising money ... Read Full Answer >>

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