Primer For Construction Bankruptcies

In general, a company has two bankruptcy alternatives: liquidation under Chapter 7 and reorganization under Chapter 11.

Under Chapter 7, upon the filing of a bankruptcy petition, a trustee is appointed to gather and sell all of the debtor's assets as quickly as possible. Once the trustee liquidates all of the assets, it must pay creditors in accordance with the priority scheme mandated by the Bankruptcy Code:

• Claims secured by collateral;
• Claims entitled to priority or administrative expense priority treatment such as certain tax claims and the costs of administering the bankruptcy estate;
• General unsecured creditors; and
• Equity.

The trustee will pay creditors in whole dollars until it can no longer do so, in which case it will make a pro rata distribution to creditors at the same level of priority. There is no assurance that general unsecured creditors will receive any distribution.