Question

"Deft, CPA, is an unsecured creditor of Golf Co. for $18,000. Golf has a total of 10 creditors, all of whom are unsecured. Golf has not paid any of the creditors for three months. Under Chapter 11 of the U.S. Bankruptcy Code, which of the following statements is correct?

a) Deft, CPA, has a higher priority for repayment due to their professional status.
b) All unsecured creditors, including Deft, CPA, have equal standing in the repayment process.
c) Golf Co. must liquidate its assets immediately to settle debts with all unsecured creditors.
d) Deft, CPA, has the lowest priority for repayment among unsecured creditors due to the three-month delay."

Answer 1

In Chapter 11 bankruptcy, all unsecured creditors including Deft, CPA, are treated equally and have the same priority in the repayment process. Chapter 11 allows the debtor to reorganize and does not require immediate liquidation of assets. Therefore, the correct option is B.

Step-by-step explanation:

Under Chapter 11 of the U.S. Bankruptcy Code, the correct statement in the scenario you've provided is that all unsecured creditors, including Deft, CPA, have equal standing in the repayment process. Professional status or the duration of nonpayment does not generally affect the priority of repayment among unsecured creditors in a Chapter 11 bankruptcy. In a Chapter 11 case, the debtor (in this case, Golf Co.) is allowed to reorganize its business affairs, debts, and assets. It is a legal process that enables the company to keep operating while reorganizing its obligations under court supervision. This process does not necessitate immediate liquidation of assets but rather focuses on working out a plan to pay creditors over time. Each unsecured creditor does not have priority over another unless a specific legal rule gives that creditor a priority claim, such as a statutory lien or a wage claim up to a certain amount.