Which one of the following statements related to Chapter 7 bankruptcy is correct?
A) A company in Chapter 7 bankruptcy is reorganizing its operations such that it can return to being a viable concern.
B) Under a Chapter 7 bankruptcy, a trustee will assume control of the company's assets until those assets can be liquidated.
C) Chapter 7 bankruptcies are always involuntary on the part of the firm.
D) Under a Chapter 7 bankruptcy, the claims of creditors are paid prior to the administrative costs of the bankruptcy.
E) Chapter 7 bankruptcy allows a firm to restructure its equity such that new shares of stock can be issued.

Question

Quizplus · Accepted Answer

Under a Chapter 7 bankruptcy, a court-appointed trustee takes control of the company's assets, liquidates those assets, and distributes the proceeds to creditors in a specific order of priority dictated by bankruptcy law. This is different from Chapter 11 bankruptcy, which allows a company to reorganize and continue operating under a court-approved plan.

Which One of the Following Statements Related to Chapter 7