This article is a quick introduction to unsecured creditors’ committees.
When an individual or company files bankruptcy, there are generally two routes it can take (for the purpose of this discussion, Chapter 13, a limited form of reorganization for individuals, is omitted.)
The first route is Chapter 7 liquidation where assets are liquidated for payment to creditors.
A Chapter 7 bankruptcy is structured as follows: a Chapter 7 Trustee is appointed; the trustee is a professional whose job is to maximize the value of the assets (referred to as the Estate) and to pay creditors as much as possible. The Department of Justice oversees the Chapter 7 Trustee. Creditors may participate in this process but since the Chapter 7 Trustee is a professional, experienced and neutral, the role of creditors is limited. They may seek to protect themselves but generally stay out of the Chapter 7 Trustee’s business.
