Preferential Creditor In Bankruptcy Proceeding Receives Preferential Right To Payment

Written by Adam Peck Category: Nursing Homes January 23rd, 2013 2 min read

A preferential creditor (in some jurisdictions called a preferred creditor) is a creditor who receives a preferential right to payment upon the debtor’s bankruptcy under applicable insolvency laws. says Los Angeles Bankruptcy Attorney Steven C. Peck.

In most legal systems, some creditors are given priority over ordinary creditors, either for the whole amount of their claims or up to a certain value. In some legal systems, preferential creditors take priority over all other creditors, including creditors holding security, but more commonly the preferential creditors are only given priority over unsecured creditors[citation needed]. Some legal systems operate a hybrid approach; in the United Kingdom preferential creditors have priority over secured creditors whose security is in the nature of a floating charge, but creditors with fixed security take ahead of the preferential creditors generally.

Classes of preferred creditors:
Creditors who are characteristically preferred creditors are:

employees
revenue authorities
in some countries, environmental clean-up costs
in some countries, tort victims
In the United Kingdom employees are preferential creditors for their wages (subject to a statutory limit), as are occupational pension schemes. The right of the Crown as a preferential creditor was removed by the Enterprise Act 2002

Creditors, and sometimes individual assets, are also placed in classes by specific laws for specific events, such as a deposit insurance scheme triggered by a bank failure. For example, Switzerland’s deposit protection has Class I (first-class), Class II (second-class) and Class III (third-class) unsecured creditors.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.