Chapter 11: Creditor types and repayment priority

Jonathan Handles
Jonathan Handles
Xclaim contributor

Chapter 11: Creditor types and repayment priority

In Chapter 11 bankruptcy, there are different types of creditors based on their legal status and priority of repayment. The priority order, also known as the "absolute priority rule," determines the sequence in which creditors are paid back from the available assets of the bankrupt company. Here are the different types of creditors and their preference order:

  1. Secured Creditors: Secured creditors hold a security interest or collateral, such as a mortgage or a lien, which provides them with a legal claim on specific assets of the debtor. They have a higher priority for repayment compared to other creditors. If the debtor defaults, secured creditors have the right to seize and sell the collateral to satisfy their claims.

  2. Administrative Creditors: Administrative creditors are those who provide essential goods and services to the bankrupt company after the filing of Chapter 11. This can include professionals such as attorneys and accountants, as well as suppliers who continue to supply goods during the bankruptcy process. They have a higher priority than unsecured creditors but are subordinate to secured creditors.

  3. Priority Unsecured Creditors: Priority unsecured creditors have a higher priority for repayment compared to general unsecured creditors. They include specific types of claims that are granted priority status under bankruptcy laws, such as unpaid wages, employee benefits, certain tax obligations, and certain types of governmental claims.

  4. General Unsecured Creditors: General unsecured creditors do not have any collateral securing their claims. They are typically the last in line to receive payment and have the lowest priority for repayment. This category includes trade creditors, suppliers, contractors, and other creditors who do not fall into the higher priority categories.

It's important to note that in Chapter 11 bankruptcy, secured creditors must be paid at least the value of their collateral before unsecured creditors can receive any payment. After the secured and administrative creditors are paid, the remaining available funds are distributed among priority unsecured creditors and general unsecured creditors based on the priority order until the funds are exhausted.

It's advisable to consult with a bankruptcy attorney or financial professional for accurate and up-to-date information regarding the specific details of creditor preference in Chapter 11 bankruptcy cases, as they can vary based on individual circumstances and jurisdiction.

Please note that the information provided here is general in nature and not a substitute for professional legal advice. The bankruptcy process can be complex, and it is recommended to consult with an attorney to understand how the specific facts of your case may impact your options as a creditor. Have a question about your claim in one of the crypto bankruptcies? Reach out to an Xclaim representative. To learn more about Xclaim and recovering value from locked crypto accounts, please visit:

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