How are creditors paid in a Chapter 11 bankruptcy?

In a Chapter 11 Bankruptcy, creditors are paid in a specific order of priority. In Missouri, the law states that administrative claims, such as those related to the bankruptcy case itself, must be paid before any other claims. This includes costs related to the bankruptcy case, such as filing fees, attorney’s fees, and trustee fees. Once administrative claims are settled, then secured creditors must be paid. These claims are ones that have been secured by certain assets. For example, if a person has a car loan, the creditor of the loan has the right to the car if the person doesn’t make payments. After the secured creditors have been paid, then unsecured creditors with priority claims must be paid. These claims may include those related to certain taxes or wages. Lastly, unsecured creditors without priority claims must be paid. Examples of these claims are credit cards or medical bills. In a chapter 11 bankruptcy, creditors may create a plan of reorganization. This allows the debtor to propose a plan to pay creditors over a certain amount of time. The plan must be approved by the creditors and the court. Once approved, creditors must stick to the plan and can’t attempt to collect money outside of the plan. If the debtor successfully completes the plan, the remaining debt is discharged.

Related FAQs

How are creditors paid in a Chapter 11 bankruptcy?

Related FAQs

Related Blog Posts