What occurs in Chapter 7 bankruptcy?

In Chapter 7 bankruptcy, the process involves the liquidation of a debtor's assets. When a business files for Chapter 7, a bankruptcy trustee is appointed to oversee the case. The trustee is responsible for selling off the company's non-exempt assets to pay creditors. This often means that the business will be closed down, and its assets may be sold immediately or in an auction.

The primary focus is on converting assets into cash to settle debts, rather than restructuring or reorganizing the business, which would characterize a different type of bankruptcy. Employees may lose their jobs as a result of the liquidation process, and the business does not continue operations in a meaningful way as it might during a reorganization under Chapter 11. Therefore, knowing that the essence of Chapter 7 is asset liquidation rather than operational continuity clarifies why this choice accurately encapsulates the core process associated with Chapter 7 bankruptcy.