Liquidating chapter 11
With an individual, the discharge gives the debtor a fresh start, enabling him to continue his or her life more comfortably.With companies, it works differently: Once the assets are liquidated and the proceeds are distributed, the company is dissolved permanently, at which time it ceases to exist.
Now, significant time constraints place pressure on a debtor to move faster.Chapter 7 bankruptcy is sometimes also called liquidation bankruptcy.Firms experiencing this form of bankruptcy are past the stage of reorganization and must sell off any un-exempt assets to pay creditors.In Chapter 7, the creditors collect their debts according to how they loaned out the money to the firm, also referred to as the "absolute priority".A trustee is appointed, who ensures that any assets that are secured are sold and that the proceeds are paid to the specific creditors.Although the goal of the trustee is to pay back the creditors, it is rare for creditors to get back much of their money.
In fact, with a Chapter 7 bankruptcy, a creditor that recovers even 25 cents on the dollar (a quarter of the money that is owed) is considered fortunate. Chapter 7 liquidation can be used by both individuals and by companies.
Broadly speaking, there are two different ways to go bankrupt: liquidation (Chapter 7) or reorganization (Chapter 11 or Chapter 13).
In the next two sections, I will introduce you to these two variations and explain, briefly, how they apply to both individuals and companies.
This disparity raises two compelling questions within the industry: Why is it so hard for troubled retailers to reorganize?
And what distinguishes retailers that shut down for good from those that live to fight another day?
Not all businesses and individuals are able to successfully complete Chapter 11 bankruptcy.