Question: What are the Priorities of Claims in a Business Bankruptcy?
In a business bankruptcy, claims of creditors are paid in a specific order of priority. Here is a discussion of that priority order:
Answer:
The U.S. Bankruptcy Code lists debt claims of creditors in a specific order. Secured claims (those backed by property) are paid first, usually by selling the property. Then unsecured claims are paid, in the following priority order:
- Administrative expenses of the bankruptcy.
- Unsecured debts in an involuntary bankruptcy
- Claims for payment of unpaid wages for employees and salespersons. These wages must have been earned within 180 days prior to the bankruptcy, but only to the maximum of $10,950 for each individual. Claims in excess of $10,950 will be general unsecured claims unless they qualify for some other special treatment.
- Contributions to employee benefit plans, up to a maximum of $10,950 per employee.
- Recent taxes, including sales, income, employment, and gross receipts taxes.
