Priority Claim
What does "Priority Claim" mean in law?
A priority claim is an unsecured claim that Congress has designated for preferential treatment in the distribution of estate assets under 11 U.S.C. section 507, meaning it must be paid in full before general unsecured creditors receive any distribution. The statutory priority categories, listed in descending order, include domestic support obligations, administrative expenses of the bankruptcy case, gap claims in involuntary cases, employee wages earned within 180 days pre-petition (up to a statutory cap), employee benefit plan contributions, certain consumer deposits, and specified tax claims. In a Chapter 11 plan, priority claims generally must be paid in full on the effective date unless the claimant agrees to different treatment. The priority scheme reflects policy judgments about which creditors' interests are most deserving of protection.
Definition
A priority claim is an unsecured claim that Congress has designated for preferential treatment in the distribution of estate assets under 11 U.S.C. section 507, meaning it must be paid in full before general unsecured creditors receive any distribution. The statutory priority categories, listed in descending order, include domestic support obligations, administrative expenses of the bankruptcy case, gap claims in involuntary cases, employee wages earned within 180 days pre-petition (up to a statutory cap), employee benefit plan contributions, certain consumer deposits, and specified tax claims. In a Chapter 11 plan, priority claims generally must be paid in full on the effective date unless the claimant agrees to different treatment. The priority scheme reflects policy judgments about which creditors' interests are most deserving of protection.
Example
The IRS held a priority claim for $100,000 in unpaid payroll taxes, which had to be paid in full before any of the debtor's general unsecured creditors received a single dollar from the estate.