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Priority Debts: Administrative Expenses and Extensions of Credit

by Adam Mack

Mosttypes of priority debts are related to business bankruptcy, including bankruptcy for individuals who own a small business. Two such types of debts are administrative expenses and extensions of credit.

Administrative Expenses
A set of three different types of priority debts outlined in 11 U.S.C. 507(a)(2) canbe grouped together as “administrative expenses.” The three different types include 1) administrativefees, fines and taxes for administering thebankruptcy estate itself, 2) certain loans made by Federal reserve banks that are themselves filing bankruptcy, and 3) judicial fees or fines assessed against the bankruptcy estate by a Federal court. The last two are not common in consumerbankruptcy, usually only becoming relevant when a sole proprietor files bankruptcy. The first one, however, includes attorney’s fees as paid in a Chapter 13 filing, making that particular administrative expense far more common. (SeeIn re Puetz, 370 B.R. 386 (Bkrtcy.D.Kan. 2007).)

Extensions of Credit
This is another business-related priority debt, and it only occurs in involuntary business bankruptcies making it a truly rare type of priority debt. Any “claim arising in the ordinary course of the debtor’s business or financial affairs” after the filing of the bankruptcy petition but before the appointing of a trustee is considered priority. (See 11 USC 507(a)(3) and 502(f).) This would include wages owedto employees or any other ordinary cost of business, but only those costs arising during that narrow window of time. (SeeIn re Oread, Inc., 269 B.R. 871 (Bkrtcy.D.Kan. 2001).)

The Most Important Part
Small business owners are usually an independent group used to fulfillingmost if not all of their business needs on their own. Bankruptcy is not a DIY-friendly process, however. There are ins and outs that confuse even attorneys if they aren’t experienced in bankruptcy law. Many if not most of your creditors will have attorneys to represent them; you deserve a legal ally who is experienced in bankruptcy law to help you get your fresh start. Contact us today!


These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!