What is a priority creditor?

A priority creditor is a creditor whose claim for money or property is given priority over the claims of other creditors during a bankruptcy or liquidation. In Tennessee, this is determined according to the Tennessee Uniform Commercial Code. The Code states that among creditors, priority is determined by the date that the claim for money or property arose. In other words, the creditor who had a claim first will receive first priority. This is known as “first in line” priority. The Code also states that certain types of creditors are given priority over others even if their claims arose later. These types of creditors are called “priority creditors” and include secured creditors, tax creditors, and certain creditors related to government agencies such as labor unions. Secured creditors are lenders who have given a loan to a business or individual with the promise of collateral. In case of default, they are allowed to take the collateral. Tax creditors are entities to whom a business or individual owes income or property taxes. Additionally, creditors related to labor unions may also receive priority status. Regardless of the order in which creditors’ claims arise, priority creditors will have their claims satisfied first. This is intended to give creditors an incentive to lend money or provide goods and services on credit, as well as to ensure that taxes, labor, and government agencies are paid first.

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