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5:00The Bankruptcy Waterfall: Who Gets Paid First
When a company runs out of money, there is never enough to go around. A single rule decides who is made whole and who gets pennies, and shareholders are almost always last.
When a US company files for bankruptcy it picks a chapter of the Bankruptcy Code. Chapter 7 is liquidation: a court-appointed trustee sells every asset and divides the cash. Chapter 11 is reorganisation: the company keeps trading as a debtor-in-possession, restructures its debts, and emerges (or, if that fails, converts to Chapter 7). The chapter decides the *path*, but the *order of payment* is governed by the same principle in both: the absolute priority rule.
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