ch-11 Who gets paid

[dogg]

Another quick question for anyone in the know: When a company is in chapter 11, who gets to decide what bills get paid, what bills get deferred and what bills only get partial payment?

As it relates to the United / US Air situation, could a Sky West or a Air Wisconsin a Mesa for that matter, find themselves at the end of a long line of companies waiting to be paid for their services.
If you do the math on 3000.00 per departure, that adds up quickly and in the case of Air Wisconsin, where their only income is from United, I wonder how much of a payment deferral they can survive.....any thoughts on the subject are appreciated

 

[Accent]

If a company liquidates, a bankruptcy court will decide who gets paid and how much. All you can do is stand in line with the rest of the customer’s creditors and hope for the best. However, if the debtor reorganizing by filing Chapter 11 bankruptcy, its debts can be classified in one of two ways:

1. Prepetition trade debt, which is money owed at the time the bankruptcy is granted, or

2. Postpetition trade debt, which is credit extended to the company after the bankruptcy goes into effect.

Chapter 11 protects companies from pre-petition trade debt during the reorganization period. Therefore, many reorganizing companies place a lower priority on prepetition debt. The notion is that if a company emerges from Chapter 11, it will be able to pay its bills.

Postpetition trade debt is different. It gets top priority because if a company can’t function, reorganization isn’t possible. The assumption is that by getting protection for this bankruptcy period, the company will eventually rebound and pay old creditors.

 

[dispatchguy]

Just keep this in mind, I just read that in the USAir re-org plan they just filed - unsecured creditors get a whopping 2 cents on the dollar!

 

[dogg]

Thanks for the reply.
Based on that if United owed money to United express prior to ch-11 then they may have to wait for it. But they will be paid in a timeley manner for services rendered during ch-11. By the way, what is the differenced between secured and unsecured debt? Thanks...

 

[larry]

Secured is like your car or house payment. If you don't pay the bank takes away your car or house, thus the debt is 'secured'

Unsecured is your credit card or your buddy loaning you some money. If you decide not to pay a bad mark goes on your credit rating but there is really not much else anyone can do to make you pay.

 

[TXCAP4228]

Secured vs. unsecured

Accent explained pre and post petition trade debt but did not address "security". Secured debt always has a higher priority than unsecured. This is especially true for a liquidation, but it matters in a reorg as well.

Ultimately the Bankruptcy court and the trustee decide who will get what.