Debtor Asset Pool
Senior Secured
Junior Secured (PMSI or 2nd lien)
Priority Unsecured
General Unsecured Pool
Distribution Waterfall
Your claim at the bottom of the waterfall?
LegalCollects.ai's 30-day pre-filing sequence often secures payment before insolvency ever happens — when unsecured creditors still recover 100¢. Flat 15% contingency.
Submit a ClaimHow the Waterfall Works in California
In a Chapter 7 liquidation, 11 U.S.C. §726 distributes the estate in this order:
- Secured claims up to collateral value (deficiencies drop to general unsecured)
- Administrative expenses under §503(b) and §507(a)(1) (trustee, professionals)
- Priority unsecured under §507(a) (wages up to statutory cap, contributions to employee benefit plans, consumer deposits, tax claims)
- General unsecured claims — pro rata from remaining assets
- Subordinated claims and equity last
Out-of-court workouts follow UCC and contract priority (UCC §9-317/§9-322). ABCs under Cal. Code Civ. Proc. §1800 follow substantially similar tiers, with the assignee paying admin costs first and distributing the residue pro rata.
FAQ
Does this tool give legal advice?
No. It is an educational model. Waterfall outcomes depend on the facts, documents, and jurisdiction. Always consult a California insolvency attorney for matter-specific advice.
Why does my general unsecured recovery shrink so fast?
Because priority claims are paid first and in full before general unsecured creditors receive any distribution. In most California commercial insolvencies, general unsecured recoveries fall in the 0–15% range.
How can I improve my priority?
Perfect a UCC-1, obtain a personal guaranty, obtain collateral, convert to a priority claim (where available), or — most effectively — collect before insolvency through an aggressive pre-filing sequence.