Under Chapter 7, the business ceases all its operations and goes totally out of occupation. A legal guardian is nominated to "liquidate" (trade) the company's assets and the revenue is utilized to pay off the debt, which might admit debts to investors and creditors.

The investors who assume the lowest risk are paid up first. For instance, guaranteed creditors take less risk of exposure because the credit that they extend is usually backed by collateral, such as a mortgage or other assets of the company. They know they will get paid first if the company declares bankruptcy.

Bondholders have a bigger prospective for recuperating their losings than shareholders, because bonds constitute the debt of the company and the company has accorded to pay bondholders involvement and to payoff their principal. Shareholders possess the company, and accept bigger risk. They may gain more revenue if the company hads best, but they may lose revenue if the company does badly. The proprietors are last in line to be refunded if the company goes wrong. Bankruptcy laws determine the order of payment.