Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

In a Chapter 11 bankruptcy proceeding, the priority of claims is established by the U.S. Bankruptcy Code, which outlines a specific hierarchy for creditors’ claims. Secured debt holders have the first claim priority because they hold an interest in specific collateral of the debtor. This means that if the debtor defaults, secured creditors can recover their debts by liquidating or seizing the collateral before other creditors are paid.

In contrast, equity holders are last in line, as they come after all debt obligations have been satisfied. Unsecured debt holders rank below secured creditors because they do not have collateral backing their claims, making their recovery far less secure. Administrative claim holders, which may include costs incurred from managing the bankruptcy process, also have priority but fall below secured debt holders. Therefore, in the context of Chapter 11, secured debt holders are the first to receive payment from the debtor’s assets, providing them with a more advantageous and secure position in the event of bankruptcy.