What happens when a company is liquidated?

The state insurance commissioner or a representative is appointed receiver and begins the process of collecting assets and determining the company’s outstanding liabilities.

In most cases, an estate lacks the ability to pay its obligations in full and cannot pay claims in a timely manner.  For this reason, one or more guaranty funds step in (depending on the number of states in which the failed company wrote business) to cover certain claims.  The guaranty funds are focused on protecting covered policyholders and claimants from experiencing undue hardship as a result of the liquidation. Some creditors are not covered by the guaranty funds, and instead work directly with the receiver to resolve any outstanding claims against the insolvent company.

When the receivership has concluded the process of marshalling assets and paying liabilities to the best of its abilities, a final distribution of remaining assets is ordered and the liquidation is closed.

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