Illustrate the priority of claims in bankruptcy proceedings

Question

Illustrate the priority of claims in bankruptcy proceedings?

Answer 1

In paying out claims, the trustee must pay claims in proper priority, or he may be personally liable to the creditors. Following identifies the priority among creditors:

Priority of Claims in Bankruptcy Proceedings:

1st: Secured Creditors:

Those with a security interest in a particular asset of the debtor or all of the debtor’s assets. Are exempt from the stay and can take possession of the secured assets for themselves.

2nd: Preferred Creditors Include creditors owed wages, taxes, rent, support payments, and administrative costs of trustee in bankruptcy. Have preference over unsecured creditors; preference and order of priority is defined by the Act.

3rd: General Unsecured Creditor’s Residual class of creditors. They are paid out rateably from the debtor’s liquidated assets after all other prior claims are settled.