Explain the difference between chapter 7 and chapter 11 bankruptcy. Which group of claimants generally stands last in a chapter 7 filing?
What will be an ideal response?
Answer:
Chapter 7 bankruptcies are designed to liquidate remaining assets under the supervision of a court-appointed trustee. These bankruptcy proceedings are designed to terminate the life of a business and to satisfy creditors to the best of the firm's ability, following a specific set of guidelines.
Chapter 11 bankruptcies are a form of court-supervised reorganization for corporations. Here, with the help of a court-appointed trustee, a business is sheltered from creditor claims and given time to work out financial difficulties. Eventually, the firm may emerge from bankruptcy with a newly agreed-to set of claims from creditors and may continue in business in some form.
In chapter 7 bankruptcy, stockholders are residual claimants and stand last in line for compensation.
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What will be an ideal response?
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Indicate whether the statement is true or false