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Simple English definitions for legal terms
administrative expenses
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A quick definition of administrative expenses:
Administrative expenses are costs that are given the highest priority in bankruptcy cases. These expenses must have arisen from a transaction between the creditor and debtor after the bankruptcy case was filed, and must be necessary to preserve the estate. Examples of administrative expenses include wages, salaries, and commissions for services rendered after the commencement of the bankruptcy case, taxes incurred by the estate, and expenses incurred by a creditor in filing an involuntary petition or making a substantial contribution to the case.A more thorough explanation:
Administrative expenses are costs and expenses that arise after a company files for bankruptcy and are necessary to preserve the company's assets. These expenses have the highest priority among creditor claims in bankruptcy.
For a claim to be considered an administrative expense, it must meet two criteria:
- The expense must have arisen from a post-petition transaction between the creditor and the debtor.
- The expense must have been "actual and necessary" to preserve the estate.
Examples of administrative expenses include:
- Wages, salaries, or commissions for services rendered after the commencement of a bankruptcy case
- Utilities expenses
- Taxes incurred by the estate, except taxes of a kind specified in §507(a)(8)
- Compensation and reimbursement awarded to officers of the bankruptcy case, such as trustees, examiners, and professionals
- Actual, necessary expenses incurred by a creditor in filing an involuntary petition under §303
These examples illustrate how administrative expenses are necessary costs and expenses that arise after a company files for bankruptcy and are required to preserve the company's assets. They also show how administrative expenses have the highest priority among creditor claims in bankruptcy.