In a bankruptcy situation, who has the first claim to payment, the FBO with possessory lien or the bank?

• A. The FBO, as they have the aircraft
• B. The bank, as they filed the security interest
• C. The FBO, for having performed the installation
• D. Neither, as all claims go to the bankruptcy court

Answer: (A)

In a bankruptcy situation, the correct assertion is that the Fixed Base Operator (FBO) has the first claim to payment due to their possessory lien on the aircraft. A possessory lien is a legal right that allows an entity to retain possession of property until a debt associated with that property is settled. The FBO typically holds the aircraft, which means they have leverage since they have the physical control of the asset.

This lien is particularly strong because it directly ties the debt to the actual property, granting the FBO rights that are prioritized over other claims, including those of a bank that may have a security interest in the aircraft. While banks often secure loans with a security interest in collateral, which is typically recorded officially, the existence of a possessory lien allows the FBO to maintain a superior position due to their immediate control over the aircraft.

This principle holds in bankruptcy proceedings, where the possessory nature of the lien translates into a stronger claim for the recovery of debts owed than mere unsecured or even secured claims by creditors like a bank that may have not exercised their rights to seize control of the asset. Overall, this hierarchy reflects the importance of property possession in determining priority of claims during bankruptcy.