Question 1

What is Section 507 of the Bankruptcy Code?

Accepted Answer

Section 507 (11 U.S.C. 507) establishes the priority scheme for unsecured claims in bankruptcy. Priority claims are paid before general unsecured claims. The order: (1) domestic support obligations (alimony and child support), (2) administrative expenses (costs of the bankruptcy case: trustee fees, attorney fees), (3) involuntary case gap claims, (4) employee wages (up to $15,150 per employee, earned within 180 days before filing), (5) employee benefit plan contributions, (6) grain farmers and fishermen, (7) consumer deposits (up to $3,350), (8) tax claims, (9) FDIC claims, and (10) death or personal injury from DUI.

Question 2

How does Section 507 priority affect Florida bankruptcy distributions?

Accepted Answer

FL distributions: priority claims must be paid in full before general unsecured creditors receive anything. In Chapter 7: the trustee distributes liquidation proceeds in priority order; if insufficient to pay all priority claims, they are paid pro rata within each priority class. In Chapter 13: the plan must provide for full payment of priority claims during the plan period. In Chapter 11: the plan must pay all priority claims in full on the effective date (unless the creditor agrees to different treatment).

Question 3

What are the most common priority claims in Florida bankruptcy?

Accepted Answer

Common FL priority: domestic support obligations (DSOs: alimony and child support arrears; these have the highest priority), tax claims (IRS income taxes, Florida sales taxes, and property taxes that meet specific timing requirements), employee wages (unpaid wages for employees of a business debtor), and administrative expenses (the costs of administering the bankruptcy case). Non-priority unsecured claims (credit cards, medical bills, personal loans): are paid last, often receiving little or no distribution in Chapter 7.

Section 507

Section 507 (Priority Claims)

Priority Order

Distribution

Related Terms

Barnes Walker Bankruptcy

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