How are creditors paid in a Chapter 11 bankruptcy?

In a Chapter 11 bankruptcy in California, creditors are generally paid in a prescribed order. When a debtor files for Chapter 11 bankruptcy, a court-appointed trustee is appointed to oversee the case. The trustee is responsible for managing the debtor’s assets and ensuring that they are used to pay creditors according to the applicable law. The priority of creditor claims is set forth in the Bankruptcy Code and is based on how urgent their claims are. Creditors are paid in reverse order of priority, with the most urgent claims, such as secured creditors, being paid first. Secured creditors are those who have provided a loan to the debtor and have taken collateral to secure their loan, such as a mortgage or car loan. The creditors with the second priority claim are priority creditors such as the IRS and state income tax authorities. The third priority claim is made by unsecured creditors, such as credit card companies and medical debt. The creditors who have the lowest priority claims, such as general unsecured creditors, may not receive any payment from the debtor’s estate. After the trustee has paid the creditors according to their priority, the debtor may be able to keep some of their assets that have not been pledged to secure the creditor’s claim. In some cases, the court may also approve a payment plan for the debtor to make regular payments to their creditors over a period of time.

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How are creditors paid in a Chapter 11 bankruptcy?

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