What are the Causes of Bankruptcy?
According to the essay referenced above, there may be many classes of creditors in a Chapter 7 bankruptcy. In the case of General Motors, it is likely that there would be multiple classes of secured and unsecured creditors. Generally, a secured creditor is a creditor that has a perfected security interest in the assets of the debtor company. These assets would have been pledged by General Motors to these creditors typically as an inducement to the creditor to extend credit or to lend money to GM. Secured creditors would be paid by the trustee in GM's Chapter 7 bankruptcy before unsecured creditors. As a general rule, a class of creditor holding a higher priority claim under the U.S. bankruptcy code to the proceeds of the sale or liquidation of the assets of a bankrupt company must be paid in full before creditors holding lower priority claims receive any payment.

According to the essay referenced above, a trustee would have other responsibilities in this Chapter 7 bankruptcy. In addition to taking possession and control of the assets of the debtor company, in a bankruptcy filing of this size, the trustee would almost certainly investigate the financial affairs and hire experts to examine the books and records of GM to determine if the bankruptcy resulted from fraud, embezzlement, or simple mismanagement. The trustee would examine the Proof of Claim documents filed by creditors of GM and could objec

 
 
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