Eight Examples of Priority Claims

Priority claims are paid ahead of non-priority claims--paid in full, that is. That means that by the time priority claims are filed, there may be nothing left for non-priority claims. This means that for creditors of a bankruptcy debtor, establishing priority can be the key to being paid.

Priority Claims are Unsecured Claims

Secured claims, or claims which have property or assets serving as collateral, are not priority claims. That's because they don't need priority--the collateral itself offers at least partial protection for the debt. Instead, it is certain types of unsecured claims (claims that don't have collateral) that are given priority because they are deemed more socially important than other claims.

Even Among Priority Claims, There is Higher and Lower Priority

The term "priority claims" is not a catch-all, with all priority claims being treated the same. Instead, priority claims are themselves ranked by priority--or importance--and all claims of a higher priority will be paid before any claims of a lower priority receive anything.

Priority Claims, in Order

The following are the categories of priority claims, from highest priority (#1) to lowest priority (#8).

1.  Claims for debts to a spouse or children for court-ordered support (after all, if the debtor doesn't support his spouse and children, the state would need to)

2.  Administrative expenses of the bankruptcy (bankruptcy courts, judges, etc. do not come cheap)

3.  Unsecured, post-petition claims in an involuntary case (sometimes, bankruptcy is thrust upon you by your creditors; when it is, people who provided goods or services, or advanced money, to the debtor after the petition is filed receive a higher priority)

4.  Wages due employees and independent salespersons, up to $10,000 per person (if they're not paid, the government, through various welfare or insurance programs, may end up picking up the tab)

5.  Contributions to employee benefit plans (e.g. 401(k)s), up to $10,000 per employee (again, if benefits are  not funded, the government may have to step in and pay)

6.  Claims of farmers and fishermen against debtors operating food or fish storage or processing facilities (due to our nation's agrarian heritage and the importance of a secure food supply, many laws, including bankruptcy, provide extra protection to farmers and fisherman)

7.  Layaway claims of individuals who didn't get an item on which they left a deposit (this is a matter of fairness; they put money down)

8.  Recent income, sales, employment, or gross receipts taxes (the government wants to get its money)

How an Attorney Can Help

If you're a creditor of a bankrupt debtor, an attorney can help you press your claim. In particular, a lawyer can evaluate whether you may have a priority claim, and, if so, make sure it’s presented to the court in the correct way and a timely manner, so that you get the priority payment to which you are entitled.