Chapter 7 liquidation
Produced in partnership with Julie Lanz of Skadden Arps Slate Meagher & Flom LLP
Chapter 7 liquidation

The following Restructuring & Insolvency practice note Produced in partnership with Julie Lanz of Skadden Arps Slate Meagher & Flom LLP provides comprehensive and up to date legal information covering:

  • Chapter 7 liquidation
  • Chapter 7 purpose
  • Commencement of chapter 7 case
  • Creation of chapter 7 estate
  • Schedule of assets and liabilities
  • Appointment of interim chapter 7 trustee
  • Powers and duties of chapter 7 trustee
  • Funding of chapter 7 case liquidation process
  • Liquidation and closing of chapter 7 estate

Chapter 7 purpose

The purpose of chapter 7 of the US Bankruptcy Code is prompt liquidation of a debtor company’s assets. Unlike chapter 11, which is intended to provide a company with the opportunity restructure its liabilities and emerge from bankruptcy as a going concern (see Practice Note: The US chapter 11 process), chapter 7 is intended only for winding down a company’s business and liquidating its assets. Also unlike chapter 11, where incumbent management and directors typically remain in control of the business and reorganisation process, in chapter 7 a trustee is appointed to oversee the liquidation. While there are also ‘liquidating chapter 11’ cases, where the debtor’s existing management remains in control and oversees the liquidation process, these are less common.

Chapter 7 typically results in immediate cessation of business operations and loss of going concern value and employees, followed by an often disorderly and piecemeal liquidation of business assets and litigation claims.

Secured creditor recoveries and the value of their collateral may be substantially impaired in a chapter 7 case.

Commencement of chapter 7 case

A chapter 7 case may be commenced voluntarily by a debtor upon the debtor’s filing of a petition in the bankruptcy court (US Bankruptcy Code, s 301), or involuntarily by three petitioning unsecured creditors with non-contingent claims not subject to bona fide dispute if the debtor is generally not paying its

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