What is Chapter 7?

A short overview of Chapters 7 and 11:

Chapter 7 of Title 11 of the United States Bankruptcy Code governs the process of liquidation under the bankruptcy laws of the U.S.  Chapter 7 is the most common form of bankruptcy in the United States.

A business that is financially troubled - i.e. badly in debt and unable to service that debt or pay its creditors - may file (or be forced by its creditors to file) for bankruptcy in a federal court under Chapter 7.  This means that the business would cease operations entirely, unless business operations are continued under the oversight of a court-appointed Chapter 7 Trustee.  A Chapter 7 Trustee can be a person, or a firm.   

A Trustee is usually appointed immediately, and is trusted to make decisions that are in the best interest of the bankrupt company's beneficiaries.  The Trustee has broad powers to examine the business's financial affairs.  

A Trustee would generally attempt to sell all the assets and distribute the proceeds to the business' creditors.

Chapter 11 is a chapter of the U.S. Bankruptcy Code which permits reorganization under the bankruptcy laws of the United States.  Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities because of the complexity and cost of the Chapter 11 process.

Chapter 7 vs. 11:

In contrast, Chapter 7 governs the process of an actual liquidation bankruptcy while Chapter 11 is typically a process for reorganization (although liquidation can also go under this chapter).

Recently in the news:
 
Casey Anthony filed for Chapter 7 bankruptcy with debt of $792,000 and assets valued at $1,084.  I have thoughts about Ms. Anthony and her situation, but my personal opinion about the little princess is obviously of no relevance to this post!

Atari U.S. Operations filed for Chapter 11 Bankruptcy.  According to its Chapter 11 petition, Atari owes $10 million to $50 million to at least 200 creditors and possibly as many as 999. It reported assets of $1 million to $10 million. This one is particularly sad, because Pong and Astroids provided my generation with many hours of mindless entertainment in our youth, especially before the advent of mobile devices that offer connectivity, news and entertainment on demand!