Information on Chapter 7 Bankruptcy for a Business
When a business accumulates so much debt that it cannot recover, it may file for Chapter 7 bankruptcy. Chapter 7 allows a business to legally liquidate its assets while it dissolves. Federal bankruptcy laws govern Chapter 7 bankruptcy.
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Filing
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Chapter 7 bankruptcy helps a business that cannot feasibly pay off debts and therefore has no future, but does have assets that it cannot regain after bankruptcy. It provides liquidation with no expense to shareholders. After filing, the business stops operations entirely.
Creditors
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Businesses do not qualify for legal elimination of debts, or discharges, through a bankruptcy case. However, filing for Chapter 7 bankruptcy may discourage creditor suits, which will protect the names of shareholders of the business, regardless of their debt liability. Creditors will receive payment based on the extent of the available assets.
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Stocks
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In most cases of a business filing Chapter 7, stock in the business become worthless. Stockholders may receive a fraction of the value of the stock, but that depends on how many assets the company has at the time of filing.
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