Owner of a subchapter S corp. filed personal bankruptcy. Court sent claims to employees. Are they entitled to "priority"?

Asked 7 months ago - Twinsburg, OH

The Ohio bankruptcy court has allowed the claims, however there is an objection to the "priority" status only, not the claim itself. Yes, it was within the 180 days of the business closing, yes the court sent claims to the filed to the employees, yes the claims are for salary/payroll. Yes the settlement amount of the bankruptcy filing has been been approved. Why would/wouldn't the claims be considered "priority"?

Attorney answers (3)

  1. Richard D. Granvold

    Pro

    Contributor Level 18

    4

    Lawyers agree

    Answered . First, the court sends a claim to ANYONE On the mailing matrix.
    Second you must distinguish if you are a creditor of THIS debtor vs his corporation which is a separate entity.
    Third, absent commingling or piercing the corporate veil as I already advised in my prior answer yesterday, you are not a creditor of his individually. If corporate assets are listed as his you should enquire .read my answer yesterday! I believe absent the above, the trustee should in fact object to your claim as it is a claim of the corporations unless he somehow is personally liable which you list no facts upon which to make a claim. Anyone can file a claim, but you are doing so under penalty of perjury and it lists on it the fines and jail time for filing a false claim!

  2. Matthew Scott Berkus

    Contributor Level 20

    3

    Lawyers agree

    Answered . I am guessing you are hoping 3rd times a charm on this question. No matter what anyone says here, you are still going to need to speak to a local attorney. The only reason you are getting notice is the debtor (not the court) listed you as creditors. That was probably done out of an abundance of caution. When a debtor, especially a business owner, files bankruptcy, you list everyone. Reason being, you want all "possible" claims to come to light. There is a canyon of difference between the ability to assert a claim and having a valid claim. Potential claimants can assert all sorts of frivolous claims.

    Go read the law on priority claims.
    http://www.law.cornell.edu/uscode/text/11/507
    The law in question is bankruptcy code section 507(a)(4). Your claim either meets that definition or it doesn't. No one here can tell you that because we are not on the ground with you with all your information.

    However, you still have the threshold issue. Just because you were listed as a creditor and advised that the owner filed personal bankruptcy doesn't mean you have a valid claim "against the owner, personally." You are really asking the wrong question, you are NOT yet to the question of whether you have a priority or non-priority claim, your real question is whether you have "any" claim that you can assert in the personal bankruptcy of the owner of the s-corp. Maybe you do, maybe you don't, but no one here can say. You will need an attorney on the ground that look at the case, the documents, and the circumstances to tell you. The general rule, you were presumably an employee of the "s-corp," as such, your claim for unpaid wages is against the s-corp. As such, you need some legal basis, either a special statutory basis (state law) that allows you to go after the owner personally, or some sort of "pierce the corporate veil" scenario to get at the owner personally.

  3. Robert A. Stumpf

    Contributor Level 19

    1

    Lawyer agrees

    Answered . I think you asked this question previously. Yes, they might be entitled to priority. Yes, if the Clerk of Court says they should file claims (notice will be sent) than they should. But whether they are priority or not doesn't necessarily mean you will actually get anything, it depends if there is actually anything to distribute.

    When you say "the settlement about of the bankruptcy filing has been approved" i don't know what that means, unless you are saying the amount of wage claims at stake has been approved by the court.

    In short, I would file a claim, and wait and see. Stressing over whether it's a "priority" claim after you have filed a claim isn't going to get you anywhere.

    This is AVVO, a place for users to obtain general legal information to general legal questions. I am glad to help... more

Related Topics

Small business s-corporation

An S corporation does not pay federal income taxes, instead passing its income, losses, deductions, and credits through to its shareholders.

Bankruptcy

Bankruptcy is a legal way for people or businesses who are no longer capable of paying back their bills to clear these debts and start over.

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