Describe briefly the priority of claims in a formal liquidation.

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Describe briefly the priority of claims in a formal liquidation.

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Describe briefly the priority of claims in a formal liquidation.

Explanation & AnswerSolution by a verified expert

Explanation

The priority of claims defines the order in which the creditors are paid. It is a part of Chapter 7 of the Bankruptcy Reform Act of 1978 that ensures equitable distribution of its assets among its creditors at liquidation. Secured creditors are the priority for the payment, followed by unsecured creditors, suppliers, employees, and banks.
Following is the priority of claims-

Secured creditors
Trustee's costs
Expenses incurred after beginning an involuntary case.
Worker's wages due
Claims to employee benefit plans for unpaid contributions.
Unsecured claims
Taxes due to the federal, state, or local government.
General or unsecured creditors.
Preferred stockholders.
Common stockholders.

Verified Answer

The priority of claims is a part of Chapter 7 of the Bankruptcy Reform Act of 1978 that ensures equitable distribution of the company's assets among its creditors at liquidation.
Following is the priority of claims-

Secured creditors
Trustee's costs
Expenses incurred after beginning an involuntary case.
Worker's wages due
Claims to employee benefit plans for unpaid contributions.
Unsecured claims
Taxes due to the federal, state, or local government.
General or unsecured creditors.
Preferred stockholders.
Common stockholders.

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