Treatment of Claims in Bankruptcy

Summary

This practice note discusses secured, superpriority, priority, and non-priority claims and the distribution scheme in bankruptcy cases. Among others, Sections 364, 503, and 507 of the Bankruptcy Code address the priority of certain claims. The Bankruptcy Code generally reflects the overall principle that the debtor's limited resources should be equally distributed to all of its creditors. The Bankruptcy Code also recognizes other legal and policy considerations that warrant paying certain claims ahead of other claims even if the outcome is that certain creditors or equity holders do not receive any distributions. Congress addressed these competing principles, in part, by creating categories of priority unsecured claims that are entitled to payment before general unsecured claims and equity holders.