Bankruptcy is a debt relief process based in the federal court system. You can use bankruptcy to discharge debt, reorganize debt and repay debt. If your bankruptcy will result in payments to your creditors, your creditors must file claims in order to get paid. An administrative claim is a claim that gets paid before any other claims, and only certain individuals and entities can file an administrative claim.
If you have filed for bankruptcy in order to secure debt relief, it is quite likely that certain creditors will have their claims paid back before others. An administrative claim is a high-priority claim on your debt that will be serviced as quickly as possible.
Understanding Proof of Claim
Creditors don't get paid in some bankruptcy cases, including most Chapter 7 cases. However, in Chapter 7 cases with assets or in Chapter 13 cases, your creditors have a chance to receive some money, either from your property or from Chapter 13 plan payments. In order to receive any payment in any type of bankruptcy, a creditor must file a form with the court called a proof of claim. The proof of claim must list the creditor's name and address, as well as the amount you owe the creditor. The proof of claim must indicate the type of debt the claim is for, and the creditor or its representative must sign and date the claim. The creditor must attach documentation supporting the claim, like a bill or a promissory note. If the creditor files the claim correctly and by the due date, the bankruptcy trustee will pay the claim according to its priority.
Evaluating Priority of Claims
The Bankruptcy Code assigns different payment priority to different types of debt. Priority determines which creditors the trustee will pay first and who will receive more money. For example, domestic support obligations like child support and alimony receive first priority; the trustee will pay these before any other debts. Administrative expense claims are second in priority. Last priority goes to general unsecured debts, like credit cards, which usually only receive a percentage of their total balances.
Identifying Active Creditors
A creditor is anyone or any entity to whom you owe money. Bankruptcy includes debts you owed at the time you filed the case, and those creditors can file claims in your case to receive payment from estate funds. Any debt you incur after you file bankruptcy is generally your responsibility, with the exception of certain debts relating to the estate that the Bankruptcy Code classifies as administrative expense claims.
Administrative Expense Claims
Administrative expense claims are claims for debts that arise post-bankruptcy and that are related in some way to the bankruptcy estate. Administrative expenses include, but are not limited to, taxes the bankruptcy estate incurs, bankruptcy trustee fees, attorney fees, accountants' fees, auctioneers' fees and any wages or benefits owed to the debtor's employees for work performed after the bankruptcy filing. One type of administrative expense claim is not for post-petition debt: if the debtor purchased goods on credit in the ordinary course of business and received the goods within 20 days before the date of the bankruptcy filing, the vendor who sold the goods has an administrative expense claim with administrative priority to receive payment for the goods.
Rebecca K. McDowell is an attorney focused on debts and finance. She has a B.A. in English and a J.D. She has written finance and tax articles for Zacks and eHow.