What happens at the end of successful Corporate Chapter 7 Bankruptcy?

When a corporate entity files for Chapter 7 Bankruptcy (liquidation), the business is essentially asking the bankruptcy trustee to manage the liquidation of corporate assets. The trustee will take any assets of value and distribute those assets to the creditors in order of priority.

A corporate entity does not receive a discharge of debts at the the end of the bankruptcy. Any assets which were not distributed by the trustee are abandoned back to the business which must now be dissolved by the owners. The owners may be subject to collection on debts of the company if they personally guaranteed any of those debts or failed to appropriately separate their personal and corporate assets. However, any strictly corporate debts not satisfied in the bankruptcy are owed solely by the corporate entity and any property abandoned back to the business could still be collected pursuant to state collection laws.

Practically speaking, any assets abandoned back to the business are probably so invaluable as to not be worth collecting. Once any remaining corporate debts are paid, the business can be dissolved and any remaining assets distributed to the owners.

What will I keep if I file for a Chapter 7 Bankruptcy?

When filing for Bankruptcy certain property of the debtor is exempt from the Bankruptcy estate, which means that it is not subject to being taken by the Trustee and used to pay your debts.

When filing a Bankruptcy as a resident of Massachusetts a debtor can choose to use the exemptions allowed under either State or Federal law, but you must choose one or the other. There are many exemptions that are similar under both schemes, such as the exemption of most qualified retirement plans. A table of the maximum exemptions as of April 14, 2009 in categories where the state and federal exemptions differ significantly can be found here. Please note that these figures are subject to change and you should consult with an attorney to obtain the most current figures and to decide which option you should choose.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.