242 MODULE 27 BANKRUPTCY

(7) Landlord's damages for lease termination in excess of specified amounts

(8) Damages for termination of an employment contract in excess of one year's wages
(9) Certain employment tax claims
4. Priority of claims (be sure to know)
5. Property rights (e.g., secured debts)
(1) Technically, they are not a part of the priorities because they never become part of the bank-
rupt estate.
(a) But security interests perfected before the ninety-day period (one year for insiders) can be
thought of as having the highest priority up to the value of the collateral since it
can be re-
possessed
6. Unsecured claims are paid at each level of priority before any lower level is paid
(1) If there are insufficient assets to pay any given level then assets are prorated at that level (the
next levels get $0) .
7. Levels of priority
(1) Claims arising in ordinary course of debtor's business after involuntary bankruptcy petition is
filed but before order for relief is entered
(2) Administration costs
(a) Includes fees to accountants, attorneys, trustees, and appraisers as well as expenses in-
curred only in recovering, preserving, selling, or discovering property that
should be in-
cluded in debtor's estate .
EXAMPLE: Bee, Ware, and Watch, a partnership of CPAs, performed professional services for Dee-
Funct Company before it was forced into bankruptcy by its creditors. These fees are not put in the first
priority but the last because they do not qualify as administration costs.
(b) Also includes reasonable fees, salary, or wages needed for services such as operating the
business after the bankruptcy action begins
(3) Wages, salaries, and commissions, including vacation, severance, and sick leave owing to
bankrupt's employees up to $10,950 per employee earned within ninety days
before the
petition in bankruptcy was filed (or cessation of business, whichever occurred
first)
(a) Any excess is treated as a general claim as explained in (9) below
(b) This priority does not include officers' salaries
(4) Contributions to employee benefit plans within the prior 180 days, limited to $10,950 per em-
ployee, reduced by amount received as wage preference
(5) Claims on raising or storage of grain up to $5,400 for each individual
(6) Consumer deposits for undelivered goods or services limited to $2,425 per individual
(7) Alimony and child support
(8) Taxes (federal, state, and local)
(9) General (unsecured) creditors that filed timely proofs of claims
(a) Includes amounts owed to secured creditors in excess of amount for which security sells
(b) Unsecured claims filed late (unless excused) are paid after timely claims
8. Discharge of a Bankrupt
9. A discharge is the release of a debtor from all his/her debts not paid in bankruptcy except those
not
dischargeable
10. Granting an order of relief to an individual is an automatic application for discharge
11. Corporations and partnerships cannot receive a discharge
12. Debtor must be adjudged an "honest debtor" to be discharged
13. Acts that bar discharge of all debts
14. Improper actions during bankruptcy
proceeding
(1) Making false claims against the estate
(2) Concealing property