Priorities In Bankruptcy

Throughout Bankruptcy in Brief, we refer to “priority claims” and “priority taxes”.

Just what are the priorities of the Bankruptcy Code?

Priority refers to the order in which unsecured claims in a bankruptcy case are paid from the money available in the bankruptcy estate. Claims in the higher priority are paid in full before claims in a lower priority receive anything.

Within a class, creditors share the available funds in proportion to the size of their claim.

The order of payment, as set out in § 507, is as follows:

  1. Claims for debts to spouse or children for court ordered support
  2. Administrative expenses of the bankruptcy
  3. Unsecured, post petition claims in an involuntary case
  4. Wage claims of employees and independent salespersons up to $10,000 per claim
  5. Contributions to employee benefit plans up to $10,000 per employee
  6. Claims of farmers and fishermen against debtors operating storage or processing facilities.
  7. Layaway claims of individuals who didn’t get the item they made the deposit on
  8. Recent income, sales, employment or gross receipts taxes

In the case of an individual debtor, some of these kinds of claims are also non dischargeable in Chapter 7, such as support and taxes.

Secured claims are paid from the proceeds of the collateral;  if the collateral is insufficient to pay the claim in full, the balance becomes an unsecured claim.

About the Author
Northern California bankruptcy lawyer Cathy is a 30+ year veteran of bankruptcy practice in the Silicon Valley. She is known for energetic representation of clients and her command of bankruptcy law.