Chapter 7 bankruptcy is commonly referred to as which term?

Chapter 7 bankruptcy is commonly referred to as which term?

• A. Liquidation
• B. Reorganization
• C. Debt Settlement
• D. Asset Liquidation

Answer: (A)

Liquidation is the term used for Chapter 7 because the process centers on selling the debtor’s non-exempt assets to pay creditors, under the court and a trustee’s supervision. After the assets are liquidated, most remaining dischargeable debts are wiped out, giving the debtor a fresh start. This distinguishes Chapter 7 from reorganization, which applies to Chapter 11 (and sometimes Chapter 13 for individuals) and focuses on restructuring debts rather than selling assets. Debt settlement is a negotiation outside bankruptcy, not a bankruptcy chapter. Asset liquidation describes the selling of assets, but the standard label used is simply liquidation.

Liquidation is the term used for Chapter 7 because the process centers on selling the debtor’s non-exempt assets to pay creditors, under the court and a trustee’s supervision. After the assets are liquidated, most remaining dischargeable debts are wiped out, giving the debtor a fresh start. This distinguishes Chapter 7 from reorganization, which applies to Chapter 11 (and sometimes Chapter 13 for individuals) and focuses on restructuring debts rather than selling assets. Debt settlement is a negotiation outside bankruptcy, not a bankruptcy chapter. Asset liquidation describes the selling of assets, but the standard label used is simply liquidation.