What is Priority claims in bankruptcy?
In short
In bankruptcy, secured creditors are paid from their collateral first. Unsecured claims are then paid in a set order of priority, starting with domestic support obligations and administrative expenses, before general unsecured creditors share what is left pro rata.
Key takeaways
- Priority claims include certain employee wages and benefit contributions earned shortly before filing, up to a cap.
- Certain recent taxes also have priority.
- Secured creditors whose collateral falls short have an unsecured claim for the rest.
Where it's tested
REG: Debtor-Creditor & Bankruptcy — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A creditor takes a purchase money security interest in equipment and files a financing statement 15 days after the debtor receives possession. An earlier creditor had already perfected a security interest covering all of the debtor's equipment. Who has priority in the new equipment?