Question

ABC Company’s creditors include: First City Bank, with a perfected security interest in ABC’s building and equipment; Real Construction, with a properly filed mechanic’s lien on the building that predates First City’s security interest; and National Supplies, Inc., with an unperfected security interest. ABC files a bankruptcy petition for Chapter 7 liquidation. In what order are the creditors entitled to be paid? Explain your answer

Answer 1

The creditors would be entitled to repay all debts.

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Money from the sale goes toward paying your creditors. The balance of what company owe is eliminated after the bankruptcy is discharged. Chapter 7 bankruptcy can't get you out of certain kinds of debts. You'll still have to pay court-ordered alimony and child support, taxes, and student loans.