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Lecture Notes: Bankruptcy |
Who is a debtor under the bankruptcy law: when can a person take advantage of bankruptcy law?
Classification
of Claims: How does bankruptcy law classify claims against the debtor?
Classification of Claims of Creditors and Parties in Interest:
There are two kinds of claims - secured and unsecured. There are two kinds of unsecured claims, priority, and non-priority. (Think of it as three different kinds of claims for purposes of administering the claim: secured, priority, unsecured.)
A secured claim is one where there is collateral. The creditor has a right to take some specific property in satisfaction of the unpaid debt. The specific property is a secured asset. Example: a mortgage on the debtor's home, a security interest in debtor's car.
A priority claim does not have collateral. But, when the debtor's unsecured assets are liquidated and there is value to be distributed to the creditors, the unsecured creditors who have priority claims come first. Priority claims are:
-Administrative expenses of the bankruptcy administration.-If the debtor is an employer, unpaid wages, up to $4K per employee, if earned w/in 90 days of filing, including vacation, severance, sick pay.-If the debtor is an emplyer, employee benefit plans unpaid within 180 days of filing, up to $4k per employee.-Farmers for their deposits, where the debtor is a grain elevator.-Fishermen.for claims against debtor fish processors.-Consumers who have made deposits for goods or services not yet delivered-. Debts to a former spouse for unpaid support, alimony, but not for future payments not yet due..-Taxes.
Unsecured claims are claims where the creditor doesn't have a priority and has no collateral or security interest in any specific property.. Examples: hospital bills, credit card charges, personal loans from Aunt Minnie. Unsecured claims without priority are last in line to receive the unsecured assets. Frequently, there is nothing left for non-priority claims after taking care of the unsecured priority claims. If a secured property, when liquidated, did not bring enough money to pay off the entire claim of a secured creditor, the balance of the creditor's claim is unsecured without priority.