According to an essay published online on the Encyclopedia of Credit website, the Bankruptcy Act is a federal law that provides an organized procedure under the supervision of a federal court judge for dealing with insolvent debtors. The U.S. bankruptcy code consists of eight chapters. Chapters 1, 3 and 5 contain administrative provisions that apply to all bankruptcies. Chapters 7, 9, 11, 12 and 13 are the operative chapters for filing different types of bankruptcies. In this paper, we will examine filings under Chapter 7 and Chapter 11 bankruptcy filing rules ("U.S. Bankruptcy Code - Summary")
According to an essay published online on the Encyclopedia of Credit website titled "Chapter 7 Bankruptcy," a Chapter 7 bankruptcy is the most common type of bankruptcy based on the number of bankruptcies filed. A Chapter 7 bankruptcy, sometimes called a straight bankruptcy, involved the liquidation of the assets of a company. If General Motors filed for Chapter 7 bankruptcy protection, a trustee would be appointed by the Bankruptcy Court. The trustee would be responsible for taking possession of the debtor company's assets, marshalling them and selling them to the highest bidder. The trustee would then be responsible for distributing the proceeds of the sale of assets to the creditors of General Motors. This distribution is always done based on a methodology described in detail in the U.S. Bankruptcy Code. The proceeds from the sale of assets are distributed in order of priority to specific classes of creditors.
According to the essay referenced above, there may be many classes of creditors in a Chapter 7 bankruptcy. In the case of General Motors, it is likely that there would be multiple classes of secured and unsecured creditors. Generally, a secured creditor is a creditor that has a perfected security interest in the assets of the debtor company. These assets would have been pledged by General Motors ...