Question

When a business is worth more if its assets are sold than if it continues to operate, then the business is liquidated, and the proceeds from the sale are used to satisfy any outstanding debt. Liquidation occurs when businesses file for bankruptcy under Chapter 7 of the Federal Bankruptcy Reform Act. This act provides for an equitable distribution of the debtor's assets among the creditors. The distribution of assets i:s governed by a certain priority of claims. Which of the following claimants has the highest priority according to Chapter 7? A. State taxes due B. Unsecured claims for customer deposits C. Wages due before three months of filing D. Legal and administrative fees to operate the bankrupt firm

Answer 1

Answer:

D. Legal and administrative fees to operate the bankrupt firm

Explanation:

Under chapter 7, priority debt includes unpaid wages, child support, income taxes, etc. But before any priority debts, non-priority debts or secured or unsecured loans are paid, the bankruptcy court and trustee is paid first. In other words, you must first pay the administrative fees and expenses resulting from the bankruptcy procedure before any debts are paid off. The trustee is the person appointed to liquidate the firm.