What happens to commissions if a real estate brokerage goes bankrupt?

In the event of a bankruptcy of a real estate brokerage, commissions owed to agents are classified as unsecured creditor claims. This classification arises because the agents do not possess any collateral or a prior claim on the brokerage's assets, unlike secured creditors who have specific collateral backing their claims. Consequently, when a brokerage goes bankrupt, agents may find it challenging to recover the commissions owed to them, as these funds are distributed among creditors according to the bankruptcy proceedings.

This understanding is crucial for real estate professionals, as it highlights the inherent risk involved in relying on commissions from a brokerage that faces financial instability. Agents should be aware of their position in the event of bankruptcy and may consider seeking alternative arrangements or safeguards to protect their interests.