What happens to unsecured creditors?
Minneapolis Bankruptcy attorney Steven Silton explains what happens to unsecured obligations under chapter 7 and chapter 11 bankruptcy.
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Unsecured creditors in a Chapter 7 liquidation or in a Chapter 11 liquidation are paid their pro rata share of any unsecured assets. So the assets are either accumulated by the Chapter 7 appointed trustee, or by the debtor, sold in an orderly fashion, and then the unsecured assets, the proceeds of those, are paid to a pro rata basis to the unsecured creditors.
In a Chapter 11 bankruptcy, the unsecured creditors are paid pursuant to the plan of reorganization. The plan of reorganization will state specifically what the unsecured creditors are gonna receive. Those unsecured creditors get the right to vote on whether they’re in support of the plan. And if the plan is confirmed, they will receive what contractually was provided for them under the plan of reorganization.