When Are Administrative Chapter 11 Bankruptcy Fees Made Priority?

While in most cases administrative fees for a Chapter 11 bankruptcy cannot be paid ahead of other administrative fees in the bankruptcy case, there are some circumstances where these bankruptcy fees take priority.

  1. When the fees are necessary to insure public health and safety.  For example, if a Chapter 11 bankruptcy trustee needed to hire a company to clear out hazardous waste from a debtor’s property then this cost could take precedence over other fees in the bankruptcy case.
  2. If the bankruptcy trustee had to incur costs because it was essential to protecting the bankruptcy estate, then the fee would take priority over other administrative fees.  For example, if a bankruptcy trustee needed to bring in an appraiser to evaluate the value of bankruptcy estate property then this fee could be made a priority in the case.
  3. If the bankruptcy trustee needed to incur costs to maximize the value of the bankruptcy estate then those fees could take priority.  For example, if a bankruptcy trustee chooses to repair a property in the estate because the repair would significantly increase the value of the asset then it would be an allowable cost.

It’s important to understand that bankruptcy trustees are not allowed to spend extravagantly even if it is for the purpose of protecting or maximizing the value of the estate.  All fees associated with protecting or maximizing the value of the bankruptcy estate must be reasonable and provide the best value.  Also, those providing the service cannot work excessive hours or do anything that would artificially increase costs for the bankruptcy estate.