Explore commonly used personal finance terms.
The absolute priority rule is a legal principle in bankruptcy proceedings that prioritizes debt repayments in a specific order, ensuring that senior creditors are paid in full before junior creditors or equity holders receive any funds. This rule protects creditors by establishing a hierarchy of claims, with secured creditors receiving priority over unsecured creditors and shareholders. Understanding the absolute priority rule is essential for investors in distressed assets, as it impacts recovery potential based on claim rank.
