A:

Creditors have a right to company assets before company owners do during bankruptcy proceedings. Company assets are liquidated to provide payment of outstanding debts held by the company. Publicly traded companies that have issued stocks and corporate bonds must pay bond owners and other creditors before distributing assets to owners of stock. After loans are repaid, any remaining assets may be paid to shareholders based on the type of stock owned. Some shares have preferred status, and owners of these shares are paid before common stock owners.

Secured creditors are paid first. These creditors offered loans at lower rates and required their loans to be secured with collateral. Bond owners may not receive direct payments but they may receive stock or new bonds during the bankruptcy. After the company emerges, stock and bonds may have lost much of their value. Bond owners, as creditors, are more likely to receive the full value of their investments back.

Bond owners receive regular payments from the company according to a schedule. This continues until the debt is fully repaid unless bankruptcy occurs. Other creditors, depending on the loan terms offered to the company, may receive more or less frequent payment than bond owners. These terms also dictate the order of payment in the event of bankruptcy. Riskier loan agreements reduce the likelihood that the creditor is repaid or place the creditor at a lower priority for repayment. Creditors are still taking a risk by loaning to a successful company and may still lose substantially if the company goes bankrupt.

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