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Chapter 11 Proof of Claim Filing---Am I "Priority" or "Unsecured"?

Asked almost 3 years ago - Los Angeles, CA

Last year I worked as a freelance designer for a company that filed chapter 11. I filed a proof of claim with the bankruptcy court citing a "priority" claim as they still owe me around $2,000.00 in unpaid wages. I recently received a "Notice of Debtors' Fifth Omnibus Objection to Claims (Substantive) and Motion to Reduce and/or Reclassify Such Claims" packet in the mail telling me my claim has been reclassified from "priority" to "unsecured." They aren't objecting the amount owed, just the classification. Do I need to object to this change (as it states I must do in writing by a certain date in order to have the objection seen by the court), or will my claim still be considered with out it?

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Additionally, I submitted as proof of my employment my initial contract and all signed unpaid invoices. All wages were earned within 180 days of the company filing for bankruptcy as stated on the proof of claim form under #5 Amount of Claim Entitled to Priority under 11 U.S.C. 507(a). I checked the box as stated.
I am concerned that changing my status from "priority" to "unsecured" with lessen the chances I ever get paid the money they still owe me.
Their reason listed for modification is "Claimant improperly filed in the incorrect class." However, I believe wages fall into the "priority" category.
Should I object to the change?

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Attorney answers (1)

Stephen C. Hunt

Reputation Level 4

Answered almost 3 years ago. Bankruptcy Attorney in Fort Lauderdale, FL.

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Bankruptcy Code Section 507(a)(4)(A) authorizes payment of priority claims for wages earned within 180-days of the bankruptcy petition date, or cessation of the debtor's business, whichever is first, capped at $10,950. However, as you indicated you were a freelance worker, you also need to examine Section 507(a)(4)(B), which authorizes an independent contractor to file a priority claim for ordinary course goods or services, provided that at least 75% of the amount earned by the individual during the preceding 12-months was earned from the debtor. If you satisfy these requirements, you can attempt to defend your priority wage claim.

You are correct that priority claims have a better chance of receiving a dividend than general unsecured claims.

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