The priority bondholders, judgment creditor, and shareholders have entirely different purposes and results in a business that is obviously having credit problems, especially since the judgment creditor is involved. If bankruptcy is the route chosen, many bankruptcy options are available to them. A lot depends on what type of business is involved and what the situation is:
• Chapter 7 – Liquidation
• Chapter 13 – An income for an income on a regular basis, requiring specific adjustments.
• Chapter 12 – Families of farmers, and their debt adjustments.
• Chapter 11 – Reorganization
• Chapter 9 – Adjustment of debts of a municipality
• S.I.P.A. – Securities Investor Protection Act
When it comes to priority bondholders, judgment creditor, or shareholders, a closer look at each one on an individual basis would simplify things as to their purposes. All are involved in creditor problems, with bankruptcy a big consideration.
Bankruptcy rates have been on the up for the past couple of years, with forced bankruptcy filings occurring for businesses, corporations, and even private individuals, with the larger organizations due to bond contracts requiring the debtor to be making timely payments on its other obligations. And altogether, this influences the economy of society and the lives of each and every person. The old saying “money talks,” has never been truer than in today’s society where finances are at world low.
The priority bondholders, judgment creditor are situations are at two different ends of the liquidation and bankruptcy process. Priority bondholders get priority over other creditors, as they have already invested into the business. In mortgage-backed securities, VADM bonds use early principal and interests to pay priority bondholders. However, mortgage-backed securities and other callable bonds may have negative convexity that cushions the price raise of the bond, accelerating its fall.
Most people are unaware of the different stages of finances, and how they affect priority bondholders, judgment creditor, and stockholder positions. The stockholder actually has the most invested in the company and is considered the “owner” of the business, whereas the two other groups—priority bondholders, judgment creditor—are more or less divided, with the priority bondholders having very little invested while the judgment creditor simply wants his/her money back for products or items already purchases or used.
Many companies are forced into bankruptcy court due to improperly using asset sales to keep their companies going instead of paying their contracted debts. In a similar manner, many private individuals are placed in the same situation when their belongings and home are sold because of outstanding debts, yet the money is not used to pay off creditors but instead used to maintain their daily living.