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What's the difference between Chapter 11 and Chapter 7 bankruptcy?
Answer
Chapter 11 = reorganization. The company keeps operating, renegotiates its debt with creditors, and emerges as a healthier entity. Management often stays. Used when the business has going-concern value (Hertz, JCPenney, Toys R Us). Chapter 7 = liquidation. The company stops operating, an appointed trustee sells off all assets, and proceeds are distributed to creditors by seniority. Used when the business has more value broken up than as a going concern.
Why interviewers ask this
Default to Ch 11 in RX banker conversations — that's what advisors actually work on. Ch 7 is the worst-case scenario where there's no business left to save. Some companies start in Ch 11 and convert to Ch 7 if reorganization fails (Toys R Us US ultimately liquidated).
bankruptcyChapter 11Chapter 7