Briefly explain the three classes of creditors specified in the Bankruptcy Code.

Question

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Answer 1

The Bankruptcy Code specifies three classes of creditors whose claims have the following priorities: (1) secured creditors, (2) creditors with priority, and (3) unsecured creditors.

Secured creditors have liens, or security interests, on specific assets, often called "collateral."
A creditor with such a legal interest in a specific asset has the highest priority claim on that asset. Creditors with priority are unsecured creditors having no collateral claim against specific assets, who have priority over other unsecured creditors. Creditors with priority are the first to be paid from any proceeds available to unsecured creditors. General unsecured creditors are paid only after secured creditors and unsecured creditors with priority are satisfied to the extent of any legal limits. Often the general unsecured creditors receive less than the full amount of their claim.