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Payment of Claims

Bankruptcy Proceedings

If you have begun or are considering bankruptcy, you inevitably have some questions related to the process. Generally,  an individual's main concerns involve exemptions and how bankruptcy will affect his or her future.

When dealing with bankruptcy, there are some terms that you need to know. First, bankruptcy itself is described by the US federal court system as “a legal procedure for dealing with debt problems of individuals and businesses.”

Further, a bankruptcy estate is considered to be the sum of all legal or equitable interests the debtor may have in property at the time of the bankruptcy filing. The bankruptcy petition is what is filed by the debtor when the bankruptcy is voluntary, or by the creditors, when the case is involuntary. This petition begins the bankruptcy proceedings.

A common question relates to the order of how creditors are paid. There is relevant law on this subject and an experienced attorney will be able to answer your questions and help guide you through the process.

Generally, creditors are categorized by assigning each one a priority. The order of priorities dictates when the creditor gets paid. The highest priority creditors get paid first.

First Priority

11 U.S. CODE § 507 speaks to priorities. A first priority is described in section (A), as unsecured claims for domestic support obligations, that as of the date of filing the petition, are owed to or recoverable by a spouse, former spouse, or child of the debtor.

Second Priority

Administrative expenses, unsecured claims of any Federal reserve bank related to loans made through programs or facilities authorized under related sections of the Federal Reserve Act, and any fees and charges assessed against the estate are considered to be second priority.

Third Priority

Next, all unsecured claims that are allowed under section 502(f) are considered to be third priority. These claims relate to an involuntary case, a claim arising in the ordinary course of the debtor's business or financial affairs after the commencement of the case but before the earlier of the appointment of a trustee and the order for relief shall be determined as of the date such claim arises, and shall be allowed under subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition.

Fourth Priority

The fourth priority includes unsecured claims, but only up to $10,000 for each individual or corporation, earned within 180 days before the date of the bankruptcy filing or the date of the cessation of the debtor's business, whichever occurs first, for:

(A) wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual; or

(B) sales commissions earned by an individual or by a corporation with only 1 employee.

Fifth Priority

Fifth priority consists of unsecured claims for contributions to an employee benefit plan:

(A) arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first; but only

(B) for each such plan, to the extent of: (i) the number of employees covered by each such plan multiplied by $10,000; less (ii) the aggregate amount paid to such employees under this subsection, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan.

Sixth Priority

Sixth priority is reserved for unsecured claims of persons who have:

(A) engaged in the production or raising of grain, as defined in section 557 (b) of this title, against a debtor who owns or operates a grain storage facility, as defined in section 557 (b) of this title, for grain or the proceeds of grain, or

(B) engaged as a United States fisherman against a debtor who has acquired fish or fish produce from a fisherman through a sale or conversion, and who is engaged in operating a fish produce storage or processing facility, but only to the extent of $4,000 for each such individual.

Seventh Priority

The seventh priority is reserved for unsecured claims of of individuals, to the extent of $1,800 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided.

Eighth Priority

The eighth priority is for unsecured claims of governmental units, but only to the extent that the claims are for:

(A) a tax on or measured by income or gross receipts for a taxable year ending on or before the date of the filing of the petition: (i) for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition; (ii) assessed within 240 days before the date of the filing of the petition, exclusive of: (I) any time during which an offer in compromise with respect to that tax was pending or in effect during that 240-day period, plus 30 days; and (II) any time during which a stay of proceedings against collections was in effect in a prior case under this title during that 240-day period, plus 90 days; or (iii) other than a tax of a kind specified in section 523 (a)(1);

(B) or 523(a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case.

Should You Contact an Attorney?

When dealing with issues related to bankruptcy and paying creditors, it is best to work with bankruptcy professionals. Those who have experience and background in this area of the law are indispensable in bankruptcy matters.

The attorneys at 702 DEFENSE have many years of experience in this area of the law. Bankruptcy law involves both state and federal regulations and policies. This is a difficult process for any client and we at 702 DEFENSE are here to help.

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