Series 79: More On Priorities

More on Priorities

If there is insufficient money available to pay all creditors within a certain priority class, the available funds are distributed pro rata. In other words, if the claims for a particular class—general unsecured creditors, for example—total $1 million, but there is only $100,000 left to pay claims, then every creditor in the class would receive 10 cents on the dollar.

As a highly simplified example of how priorities work, consider the fictional Whale Oil Lamp Company (WOLC). Unable to adapt to marketplace changes and evolving consumer tastes, WOLC files Chapter 7 bankruptcy. It has $3 million in assets. Legal and administrative expenses for the bankruptcy total $100,000. The company’s primary creditor, Grand Bank of Newfoundla