Mark and Cynthia work for Bryson Supply Co If the company files for Chapter 7 bankruptcy before paying their last month of wages and benefits, will they be able to recover anything from the company?

Answer 1

One goal of the Bankruptcy Code is to ensure creditors are paid in the proper order. The Code places all claims into one of three classes: secured claims, priority claims, and unsecured claims. Secured claims are paid in full before priority claims are paid. Payments to employees for back wages and benefits for work performed during the 180 days prior to the filing of bankruptcy are in the class of priority claims. If Bryson has enough assets to pay all its secured claims and its priority claims, Mark and Cynthia will each be able to recover up to $12,475 for the work performed and pension, health, or life insurance plans for work performed during the 180 days prior to the date of Bryson's petition. There are subcategories of priority claims, and each subcategory must receive full payment before the next subcategory receives anything. If there are not enough funds to pay a whole subcategory, the claimants in that subcategory receive pro rata shares. The priority subcategories, in order, include: alimony and child support, administrative expenses, gap expenses, payments to employees, employee benefit plans, consumer deposits for goods to be purchased, taxes, and claims for injuries caused by a bankrupt driving under the influence.