Excerpt from Recent Evidence on the Distribution Patterns in Chapter 11 Reorganizations When a firm files a bankruptcy petition, it will generally either be liquidated under Chapter 7 of the Bankruptcy Code or be reorganized, under' Chapter 11. (occasionally; a. Debtor 'will liquidate under Chapter Once a company files for protection under the Bankruptcy Code, the company generally becomes a debtor-ih-possession, and continues to operate its business under the supervision of the court. The purpose of the Bankruptcy Code is to give the debtor: (1) time to decide whether to reorganize or liquidate; and (2) time to formulate a plan of chosen action. When a firm is liquidated, creditors receive distributions based on the absolute priority rule to the extent assets are available The absolute priority rule is the principle that senior creditors are paid in full before junior creditors are paid anything.1 For secured creditors and unsecured creditors, the absolute priority rule guarantees their seniority to equity holders. In liquidations, the absolute priority rule generally holds. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books.

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