American Airlines Group Inc (AAL)

[ronnies]

Levels of Financial Obligations

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A business files for bankruptcy because it cannot meet its debt obligations. Usually, all creditors do not receive full payment. There is a hierarchy of creditor payment obligations a company in Chapter 11 must abide by. The first level is secured creditors, often banks. The company pledged collateral against these loans. The collateral may be real estate, equipment or investments. The second level is unsecured creditors, including bondholders, vendors and suppliers. Many will settle for a percentage of what is owed. The bottom rung of the payment obligation ladder is common stockholders. In most Chapter 11 bankruptcies, stockholders lose all of their investment. The stockholders cannot receive anything unless all secured and unsecured creditors are paid in full.