priority debt

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Priority debt is a phrase referring to the most urgent or important debts that must be paid off in bankruptcy. Listed in the order of priority, these include alimony, child support, trustee fees, bankruptcy attorney fees, court fines, employee wage debt. Such debt is to be paid in accordance to the claim priority of a creditor, which allows some creditors to collect debts before others.

In California, Cal.Prob.Code § 11421 specifies that funeral expenses, last illness expenses, family allowances, and wage claims are to be promptly paid after setting aside enough funds to pay fees for administering an estate or trust. Payment of other debts is only required after a court order has been issued, per Cal.Prob.Code § 11422.

When the doctrine of equitable subordination is applied to corporate entities in bankruptcy, the timeline of when priority debt is to be repaid to creditors fluctuates if claim priority also shifts. This can occur by subordination agreement or by court order when a creditor or claimant unfairly treats other claimants.

[Last updated in August of 2020 by the Wex Definitions Team]