What is the order of collections paid from bankruptcy proceeds, and is there any way to prioritize certain creditors?
The order of collections paid from bankruptcy proceeds is determined by the Bankruptcy Code and is based on the type of claim held by each creditor. There are a few priority claims, such as administrative expenses, that must be paid before other creditors. The other creditor claims are then paid in a specific order based on their classification—secured claims first, unsecured priority claims second, and general unsecured claims last. This order is followed unless the court decides to deviate from it.
I don’t think I’ve ever seen it different, although I’ve been told that it is possible to prioritize certain creditors in a bankruptcy proceeding, depending on the type of claim held by each creditor. Secured creditors, such as those who hold liens on property, are typically first in line to be paid, as they hold a valid claim to the debtor’s assets. Unsecured priority creditors, such as those with claims for child support or certain taxes, are generally second in line. General unsecured creditors, such as credit card debt holders, are typically last in line to receive a distribution from the bankruptcy estate.
In certain cases, a court may decide to deviate from this order to allow for a particular creditor to be paid ahead of others. This could be done, for instance, if one creditor holds a particularly large claim and the court believes that the other creditors will receive a larger distribution if the large creditor is paid first. Additionally, a court may modify the order if it determines that the creditors are entitled to an equitable distribution of the estate. Ultimately, the court has the discretion to prioritize certain creditors in a bankruptcy proceeding if they believe it is in the best interests of the estate and all creditors involved.
I hope that answers your question. If you need help with due diligence in the future, call this lawyer.
Jeremy Eveland
17 North State Street
Lindon UT 84042
(801) 613-1472
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