Understanding Bankruptcy: Priority of Payment

Priority of Payment in Bankruptcy refers to how unsecured debts are paid in a bankruptcy filing.  Certain obligations will be paid first out of the bankrupt estate.  There are classes of priority unsecured claims.  Each class must be paid in full before the payment to the class below it.

The priority of payment is as follows:

• Administrative expenses, fees or charges against the bankrupt estate
• Unsecured claims in an involuntary filing arising from the debtor’s business or financial affairs before a trustee is appointed
• Wages or commissions of employees of debtor earned within 90 of filing date or ending of debtors business. Maximum of $4000 per individual or corporation
• Certain contributions to employee benefit plans within 180 days of bankruptcy filing or ending of debtor’s business.
• Unsecured claims of grain farmers and U.S. Fisherman to $4000
• Unsecured consumer claims up to $1800 for deposits per individual before the filing of bankruptcy for purchase, lease, rental of property or services for family, personal or household property were not delivered
• Certain spousal and child support
• unsecured claims by governmental units such as income or gross receipts tax, property tax, trust fund tax, employment tax, excise tax, customs duties, and certain penalties relating to those taxes 
• Unsecured claims based on commitment made by a debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured depository institution

Do you need a lawyer?

Filing a petition for bankruptcy can be complicated. There are different requirements under the different chapters of bankruptcy that must be met.  You should seek legal counsel experienced in bankruptcy to protect your rights and property when filing bankruptcy.