The person or business that has filed a bankruptcy case is called the debtor. A creditor is any person or business to whom the debtor owed a debt on the date the bankruptcy case was filed.

Claims

Claims in bankruptcy include a right to payment or a right to a court-ordered remedy directing parties to do on not do something. A claim is unsecured if there aren't assets securing the debt.

Priority

Priority refers to the order in which unsecured claims are paid from the money available in the bankruptcy estate. In bankruptcy, the debtor's debts are assigned priorities for payment.

Before any of the priority expenses are paid, a debtor can keep exempt property. Most states allow a debtor to keep basic items such as clothing and household furnishings. Some states let debtors keep their house. The balance is used to pay the claims according to their priority.

Priority claims are certain expenses, support obligations, debts and taxes. Claims in the higher priority are paid in full before claims in a lower priority receive anything.

Superpriority

A claim having superpriority status is superior to other claims. They have priority over every other allowable unsecured claim except superpriority claims and liens granted to post petition lenders.

If the trustee provides adequate protection of the interest of a secured creditor's allowable claims then the creditor's claims have priority over every other priority claim. This type of claim is for the amount not covered by adequate protection.

Adequate Protection

Adequate protection may be required to protect the value of the creditor's interest in the property. The debtor may make cash payments or provide an additional or replacement lien that will result in the creditor's property interest being adequately protected.

Adequate protection protects the secured creditor from a decrease in the value of the creditor's interest in property during the bankruptcy case.

Establishing the Right to a Superpriority Claim

A creditor may not assert a superpriority claim unless:

  • The trustee provided adequate protection
  • The creditor has an allowable claim
  • The claim arose from either the stay of action; the use, sale or lease of property; or the granting of a lien

Questions for Your Attorney

  • What if there are several superpriority claims, are they all paid an equal share of the estate if there aren't enough funds to pay all of the claims in full?
  • Are superpriority claims of post-petition creditors paid before other superpriority claims?
  • Does a creditor need to take additional steps to get superpriority status for its claims?