Understanding Preferential Creditors: Types & Bankruptcy Priority

Preferential creditors are creditors that are eligible to receive payments first from a bankrupt person or business. These creditors will be in line first to claim any assets that are available when an individual goes bankrupt. Here are a few different types of preferential creditors.

1. Employees

If a company goes bankrupt, the employees of that company will be first in line to be paid. If the company owes them wages, this is considered to be the top priority when it comes to dissolving the company.

2. Revenue Officials

Another type of preferential creditor is the revenue officials. If you owe taxes, the government is at the top of the list to be paid from the person or business.

3. Tort Victims

If a business or an individual has wronged someone, and a lawsuit has been filed against them, the victims could be next in line for part of the assets. 

4. Environmental Clean Up

If a business files for bankruptcy and it is determined that they need to clean up the environment as a result of their business actions, the environmental clean up will get preferential treatment. The courts will allocate a designated amount of money to pay for the cleanup efforts.