how a subordination agreement works
individuals and businesses turn to lending institutions when they need to borrow funds and they may take on multiple debts for a variety of purposes if they declare bankruptcy there may not be enough money to repay all of their creditors when that happens a trustee appointed by the court will attempt to repay as much of the debt as possible starting with the debts that have the highest priority those are often referred to as senior debt lower on the priority list are obligations classified as junior debt or subordinated debt lenders of senior debts have a legal right to be repaid in full before lenders of subordinated debts receive anything as a result the lenders with lower priority debts might receive only partial repayment or none at all 