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What are the Priorities of Claims in a Business Bankruptcy?


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:

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:

  1. Administrative expenses of the bankruptcy.
  2. Unsecured debts in an involuntary bankruptcy
  3. 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.
  4. Contributions to employee benefit plans, up to a maximum of $10,950 per employee.
  5. Recent taxes, including sales, income, employment, and gross receipts taxes.
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