What are Priorities?

As you may know that the claims settlement for creditors is done under the priority claims which is set under the Bankruptcy Code, Section 507. We have been asked many times what are the priority claims. We had dealt with this issue separately. However, we are briefly detailing this one more time as many of our readers continuously ask this question.

Priority means and it refers to the order in which unsecured claims in a bankruptcy case are paid from the money available in the bankruptcy estate. As you may know, claims in the higher priority are paid in full before claims in a lower priority receive anything. Sometimes there is nothing left for the trailer claims. 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:
– Claims for debts to spouse or children for court ordered support
– Administrative expenses of the bankruptcy
– Unsecured, post petition claims in an involuntary case
– Wage claims of employees and independent salesperson up to $10,000 per claim
– Contributions to employee benefit plans up to $10,000 per employee
– Claims of farmers and fishermen against debtors operating storage or processing facilities.
Layaway claims of individuals who didn’t get the item they made the deposit on

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.

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