In a bankruptcy case, creditors are paid in a fixed order set by federal law. Secured creditors come first, paid from the specific property that backs their loans. After that, Section 507(a) of the Bankruptcy Code sets the claim priority order for unsecured debts, ranking them in ten tiers that must be paid in full one at a time before any money reaches general unsecured creditors at the bottom. In most cases the money runs out long before the ladder does.
Secured Creditors Sit Above the Priority List
Before the priority tiers even come into play, secured creditors take what is theirs. A secured creditor holds a lien on specific property, and that lien survives bankruptcy. If a Chapter 7 trustee sells the collateral, the secured creditor is paid from the sale proceeds first. Only whatever value is left over flows into the pool that funds priority unsecured claims.
Once secured claims are satisfied, the estate pays priority creditors in the order Congress prescribed. After the tenth priority level is fully paid, remaining funds go to general unsecured creditors who filed on time, then to late-filed claims, then to penalty-type claims and interest. That final stretch of the waterfall rarely sees any money at all.
The Ten Priority Tiers, in Order
Section 507(a) establishes ten ranked levels. Each level must be paid in full before the next one receives a dollar. When there is not enough money to pay everyone within a single level, creditors at that level share proportionally, based on the size of their claims.1Office of the Law Revision Counsel. 11 USC 507 – Priorities
- Domestic support obligations (child support and alimony)
- Administrative expenses of the bankruptcy case
- Gap period claims in involuntary cases
- Unpaid wages and commissions, capped at $17,150 per person
- Employee benefit plan contributions, subject to the same $17,150 cap
- Claims by grain farmers and fishermen, capped at $8,450 per person
- Consumer deposits, capped at $3,800 per person
- Tax debts owed to government
- Commitments to maintain the capital of federally insured banks
- Death or injury claims from drunk or drugged driving
The dollar caps reflect the Judicial Conference adjustment effective April 1, 2025, and are updated for inflation every three years.2Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
First: Child Support and Alimony
Domestic support obligations sit at the very top. Section 507(a)(1) gives first priority to any support obligation owed to a spouse, former spouse, or child of the debtor, whether the claim is filed by the family member or by a government child-support agency on their behalf. There is no dollar cap. The full amount owed gets first-priority treatment.1Office of the Law Revision Counsel. 11 USC 507 – Priorities
These debts are also nondischargeable under Section 523(a)(5). Any unpaid support survives the case, and enforcement agencies can continue collecting through wage garnishment, tax refund interception, and other tools regardless of the bankruptcy filing.3Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
Second: Administrative Expenses
Running a bankruptcy case costs money. Trustee compensation, court-approved legal and accounting fees, and costs to preserve estate property (insurance, necessary repairs) all qualify. In Chapter 11 reorganizations, debts the business incurs in the ordinary course of operations after filing also qualify, because the company needs to keep buying supplies and paying employees to stay alive during the case.
One provision catches many vendors off guard: the 20-day goods rule. If a supplier delivered goods to the debtor in the ordinary course of business within 20 days before the bankruptcy filing, the value of those goods qualifies as an administrative expense under Section 503(b)(9).4Office of the Law Revision Counsel. 11 US Code 503 – Allowance of Administrative Expenses Vendors who invoke it can jump ahead of other unsecured creditors who shipped goods months earlier. The vendor must file a request with the court, though. It is not automatic.
Third: Gap Period Claims
This narrow tier applies only in involuntary bankruptcy cases, where creditors force the debtor into bankruptcy rather than the debtor filing voluntarily. Between the involuntary petition and the order for relief, the debtor may continue operating and incurring debts. Those gap-period claims receive third priority. In voluntary filings there is no gap, so this category does not apply.
Fourth: Unpaid Wages and Commissions
Employees who are owed back pay when their employer goes bankrupt get fourth priority, but only up to $17,150 per person for work performed within 180 days before the filing date or the date the business shut down, whichever came first. The $17,150 cap took effect on April 1, 2025, replacing the prior $15,150 figure.2Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
This category covers salaries, commissions, vacation pay, severance, and sick leave. Sales representatives working on commission qualify if they earned at least 75 percent of their income from the debtor during the prior year. Anything above the $17,150 cap becomes a general unsecured claim. A worker owed $30,000 in back wages gets priority treatment on the first $17,150 and joins the end of the line for the remaining $12,850.
Fifth: Employee Benefit Plan Contributions
When an employer fails to make required contributions to pension plans, health insurance, or other benefit plans, those unpaid amounts get fifth priority. The cap uses the same $17,150 figure but works per plan: the total priority amount equals the number of covered employees times $17,150, minus whatever those employees already received under the fourth-priority wage claim.5Office of the Law Revision Counsel. 11 US Code 507 – Priorities Wages and benefit contributions share a single pool of priority dollars per employee. Contributions must relate to services performed within the same 180-day window that applies to wages.
Sixth and Seventh: Farmers, Fishermen, and Consumer Deposits
Grain farmers who stored their crop at a debtor’s grain storage facility, and fishermen who sold their catch to a debtor’s fish processing operation, can claim up to $8,450 each in sixth-priority treatment.
Seventh priority covers consumers who paid a deposit for goods or services that were never delivered. Put money down on furniture, prepaid for a membership, made a layaway payment, and the business went bankrupt? Up to $3,800 of that deposit gets priority treatment. The deposit must have been for personal or household purposes, not business purchases. Anything above $3,800 falls into the general unsecured pool.
Eighth: Tax Claims
Government tax debts make up one of the more complex priority categories. Section 507(a)(8) grants eighth priority to several types of tax obligations, each with its own qualifying rules.
Federal and state income taxes qualify if the return was last due (including extensions) within three years before the bankruptcy filing, or if the tax was assessed within 240 days before the filing. Older income tax debts that fall outside these windows lose their priority status and become general unsecured claims.
Trust fund taxes — payroll withholding for income tax and Social Security, collected sales taxes, and similar amounts a business holds on behalf of others — get priority regardless of age. There is no lookback period for these.5Office of the Law Revision Counsel. 11 US Code 507 – Priorities
Only tax penalties that compensate the government for an actual financial loss share the priority; purely punitive penalties are subordinated below general unsecured claims. Priority tax debts are also nondischargeable under Section 523(a)(1), so the individual debtor remains personally liable after the case closes.6Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge
Ninth and Tenth
Ninth priority covers commitments a debtor made to a federal banking regulator to maintain the capital of an insured bank. It applies almost exclusively to bank holding companies and financial institutions.
Tenth priority covers claims for death or personal injury from the debtor driving a motor vehicle or operating a vessel while intoxicated. The tier sits at the bottom of the priority list, but it still ranks above every general unsecured creditor, and many of these debts are separately nondischargeable.
How the Order Works in Chapter 13 and Chapter 11
The priority ladder is not only a Chapter 7 concept. Reorganization plans have to account for every priority dollar too.
A Chapter 13 plan must provide for full payment of all priority claims in deferred cash payments, unless a specific creditor agrees to different treatment.7Office of the Law Revision Counsel. 11 US Code 1322 – Contents of Plan The debtor can spread payments over the three-to-five-year plan, but the total must equal 100 percent of the allowed priority amount. A plan that pays priority creditors less will not be confirmed.
Chapter 11 plans layer the requirement. Administrative expenses and gap period claims must be paid in cash on the plan’s effective date. Wage and benefit priority claims can be paid in deferred installments if the creditor class accepts the plan; if the class rejects it, those creditors must be paid in full in cash on the effective date. Priority tax claims can be paid in regular installments over up to five years, but the present value must equal the full allowed amount.8Office of the Law Revision Counsel. 11 US Code 1129 – Confirmation of Plan
Filing to Protect Your Place in Line
Priority status is worth nothing without a properly filed claim. Creditors submit a proof of claim on Official Bankruptcy Form 410, which requires the amount owed, the basis for priority treatment, and supporting documentation such as pay stubs, tax records, or court orders for support.9United States Courts. Instructions for Official Bankruptcy Form 410 Weak documentation is one of the fastest ways to have a priority claim reclassified as general unsecured.
Deadlines vary by chapter. In voluntary Chapter 7 cases and in Chapter 12 and 13 cases, creditors have 70 days from the order for relief to file. In involuntary Chapter 7 cases the deadline is 90 days. Government agencies get 180 days.10Legal Information Institute. Federal Rules of Bankruptcy Procedure Rule 3002 – Filing Proof of Claim or Interest Chapter 11 cases have a bar date set by the court. A creditor who received inadequate notice of the filing can ask for up to a 60-day extension, and claims arising from a court judgment or rejected contract may be filed under separate court-set deadlines.
Once a claim is filed, the trustee, the debtor, or other creditors can object. The claimant then bears the burden of proving the claim qualifies for priority. If the court sustains the objection, the claim gets reclassified as general unsecured, which in most Chapter 7 cases means little or nothing will be paid.