Bankruptcy Priority

Definition ∞ Bankruptcy priority defines the established sequence for distributing assets to creditors when an entity undergoes insolvency proceedings. This hierarchy dictates which claimants receive payment first, ranging from secured creditors to unsecured creditors and equity holders. Legal frameworks typically govern this order, ensuring a structured approach to asset allocation during liquidation.
Context ∞ In the digital asset sector, bankruptcy priority has become a central point of contention following the collapse of various crypto firms. A key discussion involves how digital assets held by insolvent platforms are classified, determining whether users are treated as secured creditors with direct claims or as general unsecured creditors with lower recovery prospects. Regulatory clarity on this matter remains a significant challenge.