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.

INVESTOPEDIA EXPLAINS '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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