If I am a counterparty to a contract (swap, cds etc.) with an entity that went bankrupt and I am due some payment, how "senior" is my claim (amongst the other creditors where do I rank)?

I'm sorry if posted in the wrong place but I don't know where else to put it.

  • 1
    Was what you hold issued by the company in question? If this was a derivative as I understand them, the company isn't involved regardless. e.g. an exchanged traded option will be priced based on the company stock price, but the company itself isn't involved. Jan 21, 2013 at 1:04
  • Swaps, CDS are OTCs(en.wikipedia.org/wiki/Over-the-counter_%28finance%29). There is no legal body which enforces the counterparty to oblige. Other than a downgrade on default(which is a big deal) or taking one to court, you cannot legally make the counterparty do anything they don't like.
    – DumbCoder
    Jan 21, 2013 at 11:24
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    @JoeTaxpayer I believe the OP is referring to the derivative counterparty. That is, the legal underwriter of the option/swap etc, not the issuer of the underlying asset. Exchange traded options will generally be underwritten by a central clearing house, but most derivative contracts are traded OTC and the holder has a direct exposure to the firm which issued the contract. Dodd Frank is aimed at moving much more business towards the central clearing model to reduce credit risk like this. Jan 21, 2013 at 13:41
  • DC - great article you linked to. So, OP is concerned about the couterparty, not the underlying asset. Jan 21, 2013 at 14:44

1 Answer 1


Derivatives are most "senior" because they have special protections from bankruptcy court. Actually, they're almost totally immune from bankruptcy protection.

They're immune from automatic stay, and can essentially be closed and forcibly collected immediately despite the contracts "unsecured" structure.

No derivative type is exempted.

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