Question

On June 1, Year 2, Rusk Corp. was petitioned involuntarily into bankruptcy. At the time of the filing, Rusk had the following creditors:

I. The employee salary claims will be paid in full after the payment of any secured party.
II. The employee salary claims up to $13,650 per claimant will be paid before payment of any general creditors' claims.
Which of the following statements is true regarding the payment of employee salary claims in the bankruptcy proceedings?
1) Employee salary claims will be paid in full before any secured party.
2) Employee salary claims up to $13,650 per claimant will be paid before any general creditors' claims.
3) Employee salary claims will be paid after the payment of any secured party.
4) Employee salary claims will be paid after the payment of any general creditors' claims.

Answer 1

Employee salary claims up to $13,650 per claimant are considered priority claims and will be paid before any general creditors' claims in the event of a bankruptcy. Claims above this amount will be treated as unsecured debt and may not be paid in full.

Step-by-step explanation:

In the context of bankruptcy proceedings, there is a specific hierarchy in the repayment of creditors. Generally, secured creditors are paid first because they hold a security interest in the assets of the debtor. Once secured creditors are paid, priority claims, which can include some employee salary claims, are next in line to be paid out of the remaining assets.

According to bankruptcy laws, employee salary claims up to a certain threshold are given priority over unsecured creditors. This means that employee salary claims up to $13,650 per claimant will be paid before any general creditors' claims. This rule ensures that employees are not left completely without compensation for their work in the event of an employer's bankruptcy. However, any salary claims above this threshold typically fall in line with other unsecured creditors and are not guaranteed to be paid in full.

Therefore, the correct statement regarding the payment of employee salary claims in the bankruptcy proceedings is:

• Employee salary claims up to $13,650 per claimant will be paid before any general creditors' claims.