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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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Our employees have taken 2 pay cuts; first one 20%. Lets call

Customer Question

Our employees have taken 2 pay cuts; first one 20%. Let's call this from pay rate A to pay rate B.
on the second, the 8 people who were over $100k in compensation were cut to $100k/year; Let's call this from B to C.
company agreed to defer the difference between B and C, accruing this on its books and agreeing to pay when it could, but no later than May, 2014. 100% owner did NOT require a deferral; he is just at $100k.

In bankruptcy, what precedence does unpaid regular payroll have vs. secured lenders? Is the deferred pay different?
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 4 years ago.

cfortunato :

Hi JACustomer,

cfortunato :

Secured creditors take precedence over all unsecured creditors.

cfortunato :

(The employees who are owed compensation are unsecured creditors. The fact that their pay has been deferred does not make a difference.)

cfortunato :

Up to $10,000 deferred compensation per employee earned within 180 days before a Bankruptcy is filed will be classified as priority debt.

cfortunato :

This means that up to $10,000 per employee that is earned less than 180 days before a Bankruptcy is filed will be paid before all other unsecured creditors.

cfortunato :

Any amount earned more than 180 days before filing, and any amount earned over $10,000 will receive no priority - and will be paid along with the rest of the unsecured debts.