Priority of Claims in Bankruptcy

Debtor-creditor law does not only concern itself with bankruptcy proceedings, but of course, this does not mean that it excludes them from consideration either. As veterans of bankruptcy law understand, not every legitimate bankruptcy claim made by creditors may be evaded on the part of the debtor. Some debts are, by law, nondischargeable debts, and thus, must be included with all payments to be made in a rehabilitation/reorganization plan.

In attaching a priority to bankruptcy claims, it would make sense that these types of debts would be highest up on the list. Indeed, first on this list is the need of the debtor to cover all monthly domestic support charges. Following that are administrative expenses incurred in legal appeals for bankruptcy and claims related to the debtor’s normal business operations.

As with the policy on dischargeability of debts, bankruptcy claim priority is spelled out in Subchapter 5 of the Bankruptcy Code. The next category of bankruptcy claims that one would be able to assign in the Section 507 priority compendium revolves around a realization of the person's livelihood. One such bankruptcy claim is that of wages and sales commissions for regular income earners, but only to a maximum of $10,000. Another governs planned contributions to an "employee benefit plan."

As for the remaining claims on the priority list, they are harder to categorize, but they still have their place in the grand scheme of things. The seventh claim named in Section 507 is monies intended for use in securing a piece of real estate. Bankruptcy claims of the eighth and ninth order invoke the Federal Government as creditor, in particular, certain kinds of taxes and commitments to "a Federal depository institution’s regulatory agency (or predecessor to such agency) to maintain the capital of an insured depository institution." The final bankruptcy claim echelon is restitution for damages incurred in operating a land or sea vehicle while intoxicated.

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