An introduction to bankruptcy

Agency Sales,  Jul 2003  by Anderson, John H

• E-mail
• Print
• Link

Collecting On a Creditor Claim

In order to share in the distribution of the debtor's assets, a creditor must file a timely claim. A "claim" is a right to payment, whether or not reduced to judgment. A claim may be liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal or equitable, and secured or unsecured.

When a debtor defaults on a loan, a secured creditor is more likely to collect than an unsecured creditor.

Also, when the debtor files bankruptcy, a creditor is more likely to collect when his/her/its claim is a priority claim rather than a general claim.

Both the security, and whether a claim is a priority or general claim will often determine whether the creditor will be able to collect on the debt. For example, certain employee wage claims arising within 90 days before the debtor files bankruptcy (up to $4,650 per individual) take priority and should be paid prior to general unsecured creditors.

Agents should be aware that independent contractors have a right to file quasi-employee status for their commission claims. Many of the new bankruptcy provisions read as if the priority preferences are limited to those who are employees rather than independent contractors. The term "wages" would seem to so indicate. However, the classification of an individual's "employee status" by one branch of the government does not prohibit another branch of the government from classifying that same individual's "employee status" differently. Therefore, an agent may be deemed to be an independent contractor for labor law purposes and "an employee" for bankruptcy purposes.

Filing a Proof of Claim

Creditors should file a proof of claim in all bankruptcy cases unless the debtor has no assets or the court has told the creditor not to file.

The proof of claim must be filed within 90 days after the first date set for the meeting of creditors (which may not be the same as 90 days from the date the meeting of creditors is actually conducted).

Priorities

Claims and expenses have priority as follows:

First: Expenses associated with the administration of the bankrupt estate.

Second: Where the bankruptcy is involuntary, a claim arising after the beginning of the case, but before the appointment of a trustee.

Third: Certain unsecured claims, but only to the extent of $4,650 for each individual (or corporation) if that individual (or corporation) earned the money within 90 days of the date the bankruptcy petition was filed, or the date of the cessation of the debtor's business, whichever occurs first. This claim may be for wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by the individual, or for sales commissions earned by an individual (or corporation, if that corporation has only one employee) acting as an independent contractor in the sale of goods or services for the debtor in the ordinary course of the debtor's business if during the 12 months preceding that date, at least 75 percent of the amount that the individual (or corporation) earned by acting as an independent contractor in the sale of goods or services was earned from the debtor.

Fourth: Certain unsecured claims for contributions to an employee benefit plan arising from services rendered within 180 days before the date of the filing of the bankruptcy petition, or the date of the cessation of the debtor's business, whichever occurs first, but only to the extent of the number of employees covered by each such plan multiplied by $4,650, less the aggregate amount paid to such employees under the third priority listed above, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan.

Fifth: Certain claims related to:

* The production of grain.

* The production of "fish produce."

Sixth: Certain unsecured claims of individuals, to the extent of $2,100 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services for the personal, family, or household use of such individuals, that were not delivered or provided.

Seventh: Certain claims which are allowed for debts to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with state or territorial law by a governmental unit, or property settlement agreement, but not to the extent that such debt is assigned to another entity (either voluntarily, by operation of law, or otherwise) or includes a liability designated as alimony, maintenance, or support unless such liability is actually in the nature of alimony, maintenance, or support.

Eighth: Certain claims by governmental units.

Ninth: Certain unsecured claims based on any commitment by the debtor to "a Federal depository institution's regulatory agency" (or predecessor to such agency), to maintain the capital of an insured depository institution.