What Is Corporate Chapter 7 Bankruptcy?

Corporate Chapter 7 bankruptcy is similar to personal bankruptcy, except that the business must stop operations and lose all its assets to repay any creditor losses. Filing Chapter 7 bankruptcy does not affect a corporation owner's personal assets, because an incorporated business is a separate legal entity from an individual.

Assets

All assets, including cash, bank accounts, buildings, land and company vehicles are seized in corporate Chapter 7 bankruptcy. These are sold or offered to creditors to repay any debt claims.

Secured Creditors

Secured creditors, such as those holding a mortgage or auto loan for a corporation, are paid first in corporate Chapter 7, according to the U.S. Securities and Exchange Commission.

Unsecured Creditors

Any unsecured creditors, such as credit card companies or business lending institutions, are paid second in corporate Chapter 7.

Stockholders

Stockholders with claims are paid last in corporate Chapter 7 bankruptcy, which means they could end up with no money if there are not enough assets to repay them in full or in part.

Chapter 11 Option

Companies that wish to restructure so they can try to stay in business can file Chapter 11 bankruptcy, which allows the preservation of some assets.

Resources

• Corporate Bankruptcy