Managing debt is a challenge that nearly every Salem business owner has to face. In those cases where such debts begin to seem insurmountable, then the realistic assessment as to their abilities to pay them off may be necessary. If repayment is not possible, bankruptcy protection may be the only choice business owners have to either restructure their companies to continue operations, or simply walk away without the threat of continued action from creditors. According to The United States Courts, 31,671 companies in the U.S. sought such protection in 2014.
When companies do choose to file for bankruptcy, they often may have creditors lining up to get paid. If a company has filed for Chapter 11 with the hopes of continuing under a different corporate structure, then it may need greater access to working capital. That will often come in the form of loan. In such cases, business owners need to make the repayment of these debts accrued after their filing dates to be a priority.
Once those payments are met, or for all other companies not filing a Chapter 11 bankruptcy, the U.S. Securities and Exchange Commission lists their repayment priorities as follows:
- Secured creditors
- Unsecured creditors
The business bankruptcy repayment schedule is determined by the amount of risk that a creditor assumes from its association with a company. For a secured investor like bank, its risk ranks the lowest because its credit is secured by collateral. That fact puts it first in line to reclaim its collateral if the company goes into bankruptcy.
Unsecured creditors like bondholders are repaid before stockholders because their bonds guarantee the repayment of the principle, plus interest. Stockholders, on the other hand, own the company. Their risk, therefore, is the greatest because it is directly tied to the company’s performance.