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Affiliated Attorneys, LLC Blog

Wednesday, February 27, 2019

What is an Administrative Claim in Bankruptcy?

Bankruptcy is a system of debt relief codified in federal statute with its own bankruptcy court. Filing for bankruptcy is a legal process which allows the filer to reorganize debt, repay debts, and potentially extinguish debts. For individuals, there are two types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7 bankruptcy is the traditional bankruptcy that comes to mind for most – by filing Chapter 7 bankruptcy, an individual may discharge existing debts. For secured property, the individual must either pay off the amount owed for the property or forfeit the property. For dischargeable debt, Chapter 7 bankruptcy is a way to eliminate it.  In essence, Chapter 7 bankruptcy is akin to starting over as you forfeit your non-exempt property (some property is “exempt” in that it is protected from forfeiture in bankruptcy).

Comparatively, Chapter 13 bankruptcy allows an individual to reorganize existing debt and potentially eliminate  some dischargeable debt. In Chapter 13 bankruptcy, the individual is seeking to reduce  monthly payments to a sustainable level.

In addition to personal bankruptcy,  there are several bankruptcy options available to business organizations to help reorganize and repay debts. Regardless of who is filing the bankruptcy, the bankruptcy and following proceedings will incur costs. Administrative claims, more formally known as administrative expense claims, are the expenses incurred after the bankruptcy has been filed but are deemed to be necessary for the bankruptcy, the continuance of the individual’s estate, or the continuance of the business organization, and generally must be approved by the court.

For a Chapter 7 or Chapter 13 bankruptcy filed by an individual, the expenses that could fall under an administrative expense claim could be attorneys’ fees incurred by the attorney while working on the case, fees charged by the trustee to administer the bankruptcy proceeding, and fees incurred by creditors required to protect their interest in an asset (e.g., a creditor may make an administrative expense claim for costs incurred by the repair of the roof on a building that it has a collateral interest in).

In cases of commercial bankruptcy, the possible administrative expense claims are significantly broader and may include:

  • Wages, salaries, and commissions for services rendered after the commencement of the bankruptcy;
  • Any taxes incurred by the organization;
  • Reasonable expenses for professional services; and
  • Reasonable expenses for services rendered by the trustee.

The above list of expenses is a summary of potential expenses which may be claimed as an administrative expense. The full list of expenses that may be claimed can be found in the  the Bankruptcy Code.

The law surrounding which expenses may be claimed as an administrative claim, or an administrative expense claim, is complicated and requires experience in working with the bankruptcy court to have those expenses approved. As a result, it’s important to consult with an experienced bankruptcy attorney.

 


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Serving Southeastern Wisconsin, with offices in Milwaukee and West Bend, Affliated Attorneys, LLC represent clients throughout Milwaukee County, Washington County, Waukesha County, Dodge County, Ozaukee County, Racine County, Sheboygan County, Jefferson County, Fond du Lac County and Walworth County.



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