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Unsecured Creditors' Committee

Originally published: April 2013


A Voice for Smaller Claim Holders in Chapter 11 Proceedings

In a Chapter 11 bankruptcy, unsecured creditors often have the most to lose. They also have the least amount of leverage in protecting their interests. Their claims against the debtor are low priority, falling to the bottom of a list that begins with:
  1. Secured claims: claims that are secured by property. Secured creditors receive either their collateral or the value of the collateral in cash. If the collateral is worth less than their claim, it is bifurcated into a secured claim (which must be paid in full) and an unsecured claim, which receives a share of the payments made to unsecured creditors.
  2. Priority unsecured claims: an unsecured claim that is given priority of payment by the Bankruptcy Code. They are grouped into 10 categories with descending levels of priority which cannot be modified or circumvented by state law.
The only creditor class lower than unsecured creditors is “shareholders and other ’interest holders’”.