CAN A CREDITOR GET A JUDGMENT AGAINST THE DEBTOR AFTER AN ASSIGNMENT IS MADE?
Priority of claims depends on state law, but the various priority schemes generally follow this hierarchy: • 1. Secured creditors (with valid, perfected liens on assets of the business) 2. Claims of any agency of the federal government (including taxes) 3. Administrative costs of the Assignee 4. Wages and benefits due employees accrued and not paid within a specific time period before the assignment was made, usually 90 days 5. State and local taxes 6. General unsecured creditor claims 7. Shareholder claims for equity or stock in the business • Note that each tier must be paid in full before the tier below it receives anything. For example, if there are insufficient funds to satisfy secured claims in full, secured creditors get what funds there are and no other creditors receive anything. If secured creditors are paid in full and there is, say, $25,000 leftover and the federal government has claims totaling $50,000, then those claims will be paid at 50 cents on the dollar and creditors
Creditors are not typically barred from seeking to collect on their claims through a lawsuit that results in a judgment. However, creditors should be cautious in this regard because an Assignee automatically obtains a lien under state law when the assignment is made. So while a creditor still can litigate the matter to judgment, the judgment will be junior to the lien of the Assignee and will not give the creditor any greater chance of recovery from the assets of the business than the creditor had at the moment right before the assignment was made.
Related Questions
- If you want to start a wage garnishment and already have a writ of judgment do you need to follow the laws in the creditors state or the debtors state?
- If a creditor has obtained a judgment against the debtor prior to his filing, does that mean the judgment will survive the bankruptcy?
- CAN A CREDITOR GET A JUDGMENT AGAINST THE DEBTOR AFTER AN ASSIGNMENT IS MADE?
