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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. When this process is concluded a final distribution is made to the company’s creditors. This is almost always less than what is actually owed; usually this final distribution is made a number of years after the company is ordered liquidated.
In most cases, the liquidation will not yield sufficient money to pay claims in full; and most are not able to 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 company’s creditors not covered by the guaranty funds (among them large corporate entities that opt to buy less expensive alternative risk products) and usually receive only partial payment on their claims.

faq | by Dr. Radut