Chapter 7
Corporate Credit Analysis glossary · Corporate Credit Analysis
Definition
The liquidation chapter of the US Bankruptcy Code. A court-appointed trustee sells assets and distributes proceeds to creditors in order of priority; the firm ceases to exist.
Chapter 7 in plain English
Chapter 7 is the version of U.S. bankruptcy where a company basically gives up and gets sold for parts. A court picks an independent referee called a trustee who sells off everything the company owns — buildings, machines, inventory — and hands the cash to the people it owed money to, following a strict pecking order (some lenders get paid before others). Think of a failed restaurant whose tables, ovens, and fryers are auctioned off, with the money split among whoever it owed. When it's over, the company is gone for good — it doesn't reopen.
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