bankruptcy priority order
Senior notes and bankruptcy?
In case of bankruptcy, which of the class of following debts has higher priority: Accounts payable, Notes Payable, Second mortgage, and senior notes. Please rank them in priority order.
Thanks alot
Priority in a Chapter 11 or Chapter 13 case will be dictated by both the Bankruptcy Code and the plan, while disbursement under a Chapter 7 is governed by the Bankruptcy Code and the secured status of the claims. Section 507 of the Bankruptcy Code outlines the priority ranking for various classification of debts. (site below) Section 1122 et. seq. for Chapter 11 and Section 1322 et. seq. outline the criteria for classification of various claims in the plan.
The first step in ranking the obligations you listed would be in determining the secured status of the various classes. Secured claims are usually paid first. In your example, if the home was being surrendered and after the first mortgage was satisfied there was nothing left for the second mortgage, then it is quite conceivable that all of the claims you listed would have an identical priority in most bankruptcy cases. It is equally conceivable that the different categories could be secured or fall within one of the priority provisions of 507 and completely alter the order.
For example here is one possible order that puts the second mortgage as being the last class to receive priority:
1. Notes Payable, but secured by deposits held by the bank which loaned the money. This would have top priority.
2. Accounts Payable: Debtor is placed in an involuntary case, a claim arising in the ordinary course of the debtor’s business or financial affairs after the commencement of the case, but before the appointment of a trustee and allowed under 507(a), (b) and (c).
3. Senior Notes: Unsecured debt, but given a higher claims ranking over other unsecured debt in the plan.
4. Second Mortgage: A second mortgage on a property surrendered to the first mortgage that consumed all the equity becomes an unsecured claim and is treated as a general unsecured claim in the plan.
Of course, the order could be completely re-arranged with different fact scenarios. Look to your specific facts and the language of the plan.
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Tax and pension claims in bankruptcy.(part 2): An article from: The Tax Adviser $5.95 This digital document is an article from The Tax Adviser, published by American Institute of CPA’s on September 1, 2003. The length of the article is 3898 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.Citation DetailsT… |
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Tax and pension claims in bankruptcy.(part 1): An article from: The Tax Adviser $5.95 This digital document is an article from The Tax Adviser, published by American Institute of CPA’s on August 1, 2003. The length of the article is 2804 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.Citation DetailsTitl… |
