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The priority in which the debt claims are paid by a firm in the event of bankruptcy or liquidation is the main difference between subordinated debt and senior debt. <\/p>
If a company has both subordinated debt and senior debt and has to file for bankruptcy or face liquidation, the senior debt gets paid first before the subordinated debt. <\/p>
Once the senior debt is completely paid off, the company then goes to repay the subordinated debt.<\/p>\n
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So if a company files for bankruptcy, the payment of senior debt claims is made first. <\/p>
All other debt is subordinated or junior to the main debt. To pay off senior secured debt, collateral from asset-backed debts may be sold. <\/p>
Then senior unsecured debt is paid using the company’s other assets. If any assets remain, then subordinated debt gets paid. <\/p>
This is the reason why subordinated creditors may lose some or all of the principal and interest payments that they are owed and why their interest rates are high.<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t