why would any lender agree to that one reason is that they may receive a higher interest rate from the borrower in return for taking on the greater risk they may also receive fees 1
a subordination agreement must be signed and acknowledged by a notary and recorded in the official records of the county to be enforceable examples of subordinationsubordination can come into play when either a business or individual declares bankruptcy in the case of a business suppose a public company has 670 000 in senior debt 460 000 in subordinated debt and total assets with a value of 900 000 the business files for chapter 7 bankruptcy and its assets are liquidated at market value 900 000 the senior debt holders will be paid in full and the remaining 230 000 will be distributed among the subordinated debt holders for cents on the dollar those may include investors who own any bonds the company had issued earlier an exception would be secured bonds which entitle the lender to claim whatever collateral was used to back them stockholders in the company would most likely receive nothing in the liquidation process because stockholders are last in line subordinate to all other types of creditors 2