Part A (50% of final) - Write a short essay answer

Explain the basic differences between a Chapter 7 bankruptcy and a Chapter 11 bankruptcy, noting in particular what the usual different result is (1) for the bankrupt company that filed the action, and (b) for the general unsecured creditors of the bankrupt company.

Chapter 7, Liquidation: applies to all debtors except railroads, insurance companies, most banks and credit unions, and homestead associations. [2] A liquidation is a "straight" bankruptcy proceeding. It entails selling the debtor's nonexempt assets for cash and distributing the cash to the creditors, thereby discharging the insolvent person or business from any further liability for the debt. About 70 percent of all bankruptcy filings are Chapter 7.

Chapter 11, Reorganization: applies to anybody who could file Chapter 7, plus railroads. It is the means by which a financially troubled company can continue to operate while its financial affairs are put on a sounder basis. A business might liquidate following reorganization but will probably take on new life after negotiations with creditors on Saylor URL: http://www.saylor.org/books Saylor.org 1080 how the old debt is to be paid off. A company may voluntarily decide to seek Chapter 11 protection in court, or it may be forced involuntarily into a Chapter 11 proceeding.