In my May 26th post, I raised several questions that unsecured creditors in any Chapter 11 case should know the answers to and take action where appropriate. One of those questions is "Am I entitled to priority payment?" This is also important to answer in a Chapter 7 case.

Your delinquent customer told you not to worry, you were first in line for payment, and that payment would be coming soon. Next thing you know, your customer has filed a bankruptcy and you have not been paid. As discussed in my June 24th post, you obtain a proof of claim form and are prepared to fill it out and file it before the deadline, but then you get to the last question, number 12 – "Is all or part of the claim entitled to priority under 11 U.S.C. § 507(a)?"

Your first impulse is to check "yes" – of course you are entitled to priority – the debtor told you that you were first place, a VIP for payment.

NOT so fast...most creditors' claims are "general" unsecured claims, and not entitled to priority treatment. Take a breath and ask yourself, does my claim fit into any of the following categories:

  • domestic & child support obligation;
  • salary, wages, or benefits owed to an employee;
  • deposit of less than $2,850.00 towards the purchase, lease, or rental of property or services for personal, family, or household use;
  • claim for contribution to an employee benefit plan;
  • claim of grain farmer or fisherman relating to storage and processing facility;
  • certain unsecured taxes or penalties owed to the government;
  • claim for death or personal injury resulting from operation of a motor vehicle or vessel by an intoxicated debtor;
  • customs duty arising out of the importation of merchandise; or
  • claim based on commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured deposition institution.

If you fall into one of these categories, GREAT, but chances are that you DO NOT! Resist the urge to check "other"! Check the "No" box, sign the bottom of the form and send it in.

Feeling angry and/or depressed? If your customer is in Chapter 11, you may want to consider joining a support group – perhaps the "Official Committee of Unsecured Creditors" – fondly referred to as the OCC or GUCCs. I'll be back to discuss that in a future blog post!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.