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This memorandum addresses the priority of severance pay claims filed by fourteen former employees of SCT Yarns, Inc., a debtor in a Chapter 11 liquidation case. The court examines whether these claims qualify for third priority under 11 U.S.C. § 507(a)(3) for compensation earned within 90 days pre-petition, or first priority as administrative expenses under 11 U.S.C. § 507(a)(1) for services rendered post-petition. Adopting the majority rule, the court determines that severance pay is an administrative expense only to the extent earned by service during the bankruptcy case and a third priority claim only if earned within the 90-day pre-petition period. The court calculates the amounts entitled to first priority as administrative expenses for eleven employees who continued service post-petition and acknowledges that the pre-petition severance pay for all fourteen employees may qualify for third priority, subject to a $4,000 limit.
In Re Yarn Liquidation, Inc. is a workers' compensation case decided in United States Bankruptcy Court, E.D. Tennessee. This case addresses legal issues related to compensation claims, benefits, and court rulings.
It is commonly referenced in legal research involving workers' compensation laws in United States Bankruptcy Court, E.D. Tennessee.
Full Decision Text1 Pages
This memorandum addresses the priority of severance pay claims filed by fourteen former employees of SCT Yarns, Inc., a debtor in a Chapter 11 liquidation case. The court examines whether these claims qualify for third priority under 11 U.S.C. § 507(a)(3) for compensation earned within 90 days pre-petition, or first priority as administrative expenses under 11 U.S.C. § 507(a)(1) for services rendered post-petition. Adopting the majority rule, the court determines that severance pay is an administrative expense only to the extent earned by service during the bankruptcy case and a third priority claim only if earned within the 90-day pre-petition period. The court calculates the amounts entitled to first priority as administrative expenses for eleven employees who continued service post-petition and acknowledges that the pre-petition severance pay for all fourteen employees may qualify for third priority, subject to a $4,000 limit.
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