When a corporate entity files for Chapter 7 bankruptcy and the assets are liquidated in its entirety, there is an order of priority in which creditors and third parties will have the right to their claim.
Creditors with Secured Debt
If the creditors are owed secured debt, that is, debt that is secured by assets of the company which are then sold, the creditors will have priority over other creditors.
Administrative Costs
After payment to the secured creditors, payments are then applied to the trustee and the administrative expenses of the bankruptcy proceeding. This also includes any attorney and accounting fees that were incurred as a result of the proceeding.
Priority Tax Claims
The next creditors are the priority tax claims.
Employee Claims
In some circumstances, there can also be employee claims up to a certain dollar amount within a certain period of time (possibly within 90 days prior to bankruptcy).
Creditors with Unsecured Debt
The next parties that are paid are all the other creditors with unsecured debt.
Shareholders and Business Owners
After these parties are paid, shareholders and business owners may have a share of the liquidation. As a practical matter, if the corporate entity had enough to pay unsecured creditors, they would not generally file for Chapter 7 Bankruptcy.
About the Finkel Law Group
Finkel Law Group, with offices in San Francisco and Oakland, has more than 40 years of experience assisting our clients navigate federal bankruptcy laws and state insolvency statutes. Our attorneys have the experience and expertise needed to help you and your management team successfully complete the liquidation or reorganization of your corporation, partnership or limited liability company.
When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with the bankruptcy and reorganization issues confronting your company please contact us at (415) 252-9600, (510) 344-6601, or info@finkellawgroup.com to speak with one of our attorneys about your matter for a cost-free consultation.