 Hello and welcome to this session. This is Professor Farhad and this session would look at Chapter 7 bankruptcy. This topic is covered in advanced accounting. Now this topic you could also you might also see it in business law. Actually, it's more it's covered more in depth in a business law course. It's also covered on the CPA exam direct section and you need to know a little bit about bankruptcy for far when you have that restructuring. As always, I would like to remind you my viewers to connect with me. If you don't have a LinkedIn account, please create one and connect with me. It's very important for your professional image. YouTube is where you need to subscribe. I have 1500 plus accounting, auditing and tax lectures. If you like my lectures, please like them, share them, put them in playlist. Let the world know about them. If you're benefiting from my lectures, other might benefit as well. So share the wealth. This is my Instagram account. This is my Facebook page. I do have a website where I always have CPA offer right now. I have an offer from Becker, which will take $1000 off if you sign up for the CPA course with Becker with unlimited access. Let's talk about Chapter 7 bankruptcy. In the prior session, we looked at options that the business would have in case they cannot pay their bills. And one of the options was to voluntary submit their assets for sale. So basically, if you remember the last option in the prior session was to voluntarily, voluntarily assignment of asset. So what they would do, they will transfer their asset to a trustee voluntarily. Another option, which is a more legal and formal option, is to file for bankruptcy. And specifically, we're going to be looking at Chapter 7 bankruptcy. Here, what's happening, the business is closing. The business is closing their door. Liquidation bankruptcy is Chapter 7 bankruptcy means liquidation. That's it. We're going out of business. Chapter 7 can be voluntarily or involuntarily petitioned. So basically, the business can say, I would like to file for a bankruptcy or the creditors can ask to file for a bankruptcy. Now, for the creditors to file, we looked at the requirement in the prior chapter, in the prior recording of the prior chapter. Upon filing, the bankruptcy court must decide whether to accept or dismiss the petition. Now, if involuntary was filed, the debtor might try to reject, might try to dismiss the case. Okay, dismissal often occur infrequently. Because think about it, if the creditor is being paid, why would they file for a bankruptcy? And why would they involuntarily force you into a bankruptcy? So most of the time, you may not be paying your bills. And that's why it's the dismissal occur infrequently. Okay, the debtor may dispute the involuntary petition in which case a trial will be held to determine whether the petition should be dismissed. Then a trial will be held to find out if it should be dismissed or not dismissed. All what they have to show, all what the creditors have to show is you are not paying your bills. And once it shows you're not paying your bills, they will force you into bankruptcy. Okay. If the petition is accepted, an order of relief is entered and the bankruptcy court will appoint an interim trustee to oversees the activity until a permanent trustee is selected. Simply put, the court will assign either a lawyer or an accountant or some person that's going to run the business in the meanwhile. Okay. Also, the court will call for a meeting between the debtors and the creditors. Okay. The debtors creditors, not the debtors and the creditors, the debtors creditors who will select a trustee and elect the creditors committee to assist in the administration of the estate. So simply put, the debtors will meet together and they will select a trustee. Now if they cannot agree on a trustee, the trustee that the court appoints will be the trustee. Now bear in mind, the only creditors that can be involved in this process is who filed a claim at or before the meeting are entitled to vote. Those are the only creditors who are entitled to vote, who have filed the claim at or before the meeting or before the meeting. Okay. The interim trustee examined the claims and accept them and if the claim is improper, if there is a claim that's not legitimate, they will dismiss them basically. Okay. Now the debtor must attend the creditors meeting. Why? Because the debtor knows about their business. They need to answer questions by the creditors and the trustee to clarify the content of something called the statement of a fair, which we're going to look at the statement of the fair later. Basically, it shows you your assets, your liabilities at fair market value also include questionnaires about additional information and to generally assist the trustee in the preparation of an inventory of property and the examination of the claim. Think about it, as a debtor you are basically given up your business activities to a trustee. So that's why it's reasonable that you are expected as the debtor to assist the trustee. Now what are the duties of the trustee? Well, the duties of the trustee, one is to collect all the money, collect and reduce to money the property of the estate. It means sells everything and turn it into a pile of money, cash, because what creditors want is cash. So they will go and they will liquidate everything. They will account for all the money and property received. Of course, they have to know how much they receive. They have to investigate the financial affair of the debtor. They want to see if the debtor sold any asset, hid any assets, it's not reporting certain liabilities. So they would do an investigation, examine claims and this allow any of that are improper. They would look at each claim and determine whether the claim is proper or not. Maybe some people say this business owes us money. Well, we're going to investigate if that claim is proper. Furnish reasonable request for information about the estate and administration to parties of interest. So a lawyer's of a creditor would like to have information about the trustee, about the trustee. The trustee is expected to furnish this information. Also, they're expected to operate the business of the debtor during the liquidation period of authorized by the court and file periodic report and summaries of operation with the court, which we'll look at those later. They would also need to pay creditors as promptly as possible given the due regard to secured claim and priorities. And we talked about secured claim and priorities in the prior session in case you're wondering who gets their money first. So you can look at this in case you're interested. Also, they would need to file a final report on the administration of the estate, including the statements of receipts and disbursements, basically a final income statement, cash inflow and cash outflow. Now, in addition, the trustee can hire attorneys, accountant, appraisers and other professionals as needed to assist in the affair of the of the liquidation. Now, bear in mind, once again, this topic is covered much more in details in a business law course. And hopefully in here, it's good enough to keep going for advanced accounting. If you have any questions about this topic, please email me. If you happen to visit my website for additional lectures, please consider donating. If you're studying for your CPA exam, as always, study hard, it's worth it. And see you on the other side of success.