Who is senior in bankruptcy: bondholder or stockholder?

• A. Stockholder
• B. Bondholder
• C. They share priority equally
• D. It depends on the specific security type

Answer: (B)

In bankruptcy, the money from liquidated assets flows to creditors before any value goes to shareholders. Bondholders are creditors with a claim on the company’s assets, while stockholders are equity owners who get whatever remains after debts are paid. The standard order, or waterfall, starts with secured creditors (often secured bonds), then unsecured creditors, then preferred stockholders, and finally common stockholders. Because bondholders sit ahead of equity in this hierarchy, they are senior to stockholders. The exact amount a bondholder receives can depend on whether the bond is secured or unsecured, but the fundamental principle that debt holders outrank equity remains.