Administrative Expenses in Bankruptcy: Categories, Priority, and Payment

Administrative expenses in bankruptcy are the post-petition costs of running and preserving the bankruptcy estate, and they get paid ahead of nearly every other unsecured claim. Under 11 U.S.C. § 503, an expense qualifies only if it is an actual, necessary cost of preserving the estate.¹ That priority is what makes the category matter: if you are a vendor, landlord, employee, or professional trying to get paid out of a shrinking pool of assets, whether your claim is “administrative” often decides whether you get paid in full or a few cents on the dollar.

What Counts as an Administrative Expense

Two things have to be true. The expense must be actual, meaning a real cost rather than a hypothetical one, and it must be necessary to preserve the estate. Courts look for a direct connection between the money spent and either keeping estate assets intact or generating value for creditors. A cost that mainly benefits the debtor’s owners rather than the creditor body will not qualify.

Timing draws the harder line. Debts owed before the petition date are pre-petition claims and are typically paid at pennies on the dollar, if at all. Costs incurred after the filing date can qualify for administrative priority. The reason is practical: if suppliers, landlords, and professionals could not count on priority for post-petition work, no one would provide services to a debtor already in bankruptcy, and the case would collapse.

The Main Categories That Qualify

Professional Fees

Attorney fees, accountant charges, and trustee compensation usually make up the largest slice of administrative expenses. The court must approve this compensation, and it is limited to reasonable pay for actual, necessary services.² Trustee compensation is also subject to statutory caps under 11 U.S.C. § 326.³

Wages and Operating Costs

Employee wages, salaries, and commissions earned after the filing date qualify. So do back-pay awards tied to labor violations occurring after the case began, though the court must first confirm that paying the award will not force layoffs or push the debtor behind on domestic support obligations. Ongoing operating costs for a business that keeps running — rent, insurance, and taxes on estate property — also receive administrative priority because they directly preserve the estate’s going-concern value.

Goods Delivered in the 20 Days Before Filing

This one is a lifeline for trade creditors. If you shipped goods to the debtor in the ordinary course of business within 20 days before the petition date, the value of those goods qualifies as an administrative expense rather than a general unsecured claim.¹ Without this provision, a supplier who delivered $200,000 in inventory two weeks before the filing would sit with every other unsecured creditor and might recover a small fraction. To use the provision, you need to document delivery dates and show the sale happened in the debtor’s normal business operations.

Lease Obligations

If the debtor occupies commercial real estate under a lease, the estate must keep performing all lease obligations from the filing date until the lease is either assumed or rejected. Rent and related charges during that gap get administrative priority. The court can push the performance deadline for obligations arising within the first 60 days, but not past that window. For personal property leases in a Chapter 11 case (equipment, for example), the same obligation kicks in 60 days after the order for relief.⁴ Once a lease is rejected, damages from the rejection are generally treated as a pre-petition claim, not an administrative expense, because rejection counts as a breach occurring immediately before the petition date.

Utility Deposits

Utility companies can demand security to keep service on. In a Chapter 11 case, the debtor has 30 days from the petition date to provide adequate assurance of payment, which can take the form of a cash deposit, letter of credit, surety bond, or prepayment arrangement. The statute is explicit that administrative expense priority by itself does not count as adequate assurance; the utility can insist on real security.⁵

U.S. Trustee Quarterly Fees

Every Chapter 11 case (other than Subchapter V) owes quarterly fees to the U.S. Trustee.⁶ Effective April 1, 2026, the Bankruptcy Administration Improvement Act of 2025 set a new fee schedule tied to total quarterly disbursements:⁷

$0 to $62,624 in disbursements: $250
$62,625 to $999,999: 0.4% of disbursements
$1,000,000 to $27,777,722: 0.9% of disbursements
$27,777,723 or more: $250,000 (the cap)

Fees are due by the last day of the month following each calendar quarter, and the U.S. Trustee Program now requires electronic payment. The minimum fee applies even in quarters with no disbursements, and fees keep accruing until the case is closed, converted, or dismissed. Failing to pay is grounds for the court to convert or dismiss the case.

Where Administrative Expenses Sit in the Payment Line

Among unsecured claims, administrative expenses hold the second-highest priority, behind only domestic support obligations.⁸ Every dollar of allowed administrative expense must be paid in full before general unsecured creditors receive anything. Old trade debt, credit card balances, and unsecured loans all sit below.

Secured creditors are a different story. They typically get paid ahead of everyone else from the proceeds of their specific collateral. A lender with a lien on equipment gets paid first from the equipment sale. Administrative expenses come out of what is left after secured claims are satisfied from their collateral, and in many cases that unencumbered pool is thin.

Super-Priority Claims

A secured creditor whose collateral lost value during the case despite court-ordered “adequate protection” can be granted super-priority status, which lifts their claim above all other administrative expenses.⁸ The shortfall, in other words, jumps to the front of the administrative line.

Carve-Outs From Secured Collateral

In larger Chapter 11 cases, professionals often negotiate a carve-out with the primary secured lender. The secured creditor agrees to set aside a portion of its collateral proceeds specifically to cover professional fees. Because that money comes from the secured creditor’s collateral rather than from unencumbered estate property, it is generally protected even if the estate cannot pay all administrative claims. Carve-outs need court approval and only work when the secured creditor’s liens are valid. Separately, when the estate spends money to preserve or sell a secured creditor’s collateral, the trustee can recover those reasonable and necessary costs directly from the proceeds of that collateral under 11 U.S.C. § 506(c).⁹

How to File a Request for Payment

Administrative expenses do not use the standard Proof of Claim (Official Form 410), which covers pre-petition debts.¹⁰ Instead, you file a document usually titled Request for Payment of Administrative Expense or Motion for Allowance of Administrative Expense. Many courts have local forms for it.

Whatever form your jurisdiction requires, include:

The total dollar amount claimed
A clear description of the goods or services provided
Documentation showing the expense benefited the estate: invoices with post-petition dates, contracts authorized after filing, or delivery records within the 20-day window for goods

The more specific your documentation, the fewer objections you will draw from the trustee or competing creditors. Once filed with the clerk, serve copies on the debtor, the trustee, and the U.S. Trustee. For professional fee applications exceeding $1,000, the court provides at least 21 days’ notice before a hearing.¹¹ If no one objects, the court often approves payment without oral argument. If someone does — the trustee might argue the expense was not necessary, or another creditor might dispute the amount — a hearing follows.

Watch the Bar Date

Bankruptcy courts set bar dates, meaning hard deadlines for filing administrative expense claims. Miss it and you generally lose the right to vote on a plan and to receive distributions. The statute does allow late filing “for cause,” but it is an uphill fight.¹ Courts weigh the prejudice to the debtor, the length of the delay, whether the claimant had a good reason, and whether the claimant acted in good faith. Tracking the docket for bar date orders is tedious work that can cost you the entire claim if you skip it.

Some claims are typically exempt from a general bar date: expenses already approved by court order, claims with separately fixed deadlines, claims already paid in full, and expenses that arise after the bar date cutoff.

When Payment Actually Arrives

Court approval is not the same as a check. When you actually get paid depends on the chapter and the estate’s cash position.

Chapter 7 liquidation: payment comes at the end, after the trustee sells all assets and the court approves final distributions. No ongoing business means no interim revenue to pay from.
Chapter 11 reorganization: a confirmed plan must pay all administrative expenses in cash on the plan’s effective date, unless the holder agrees to different treatment. Some operating expenses and professional fees may be paid periodically during the case.¹²
Subchapter V small-business cases: a debtor confirmed under the cramdown provisions can spread administrative expense payments over the life of the plan rather than paying everything at once on the effective date. That includes professional fees and 20-day goods claims. For a small business reorganizing precisely because it is short on cash, that flexibility can be the difference between a viable plan and a forced liquidation.
Chapter 13: the trustee’s compensation is built into plan payments and cannot exceed 5 percent of total distributions. Attorney fees are also commonly paid through the plan over time.³

When the Estate Cannot Pay Everyone

Administrative insolvency happens when the estate does not have enough to pay all administrative expenses in full. It is more common than most people expect, especially in Chapter 7 cases where assets are already depleted. When it happens, administrative expense holders share pro rata, each receiving a proportional slice of their allowed claim.¹³ If only 40 cents on the dollar is available, every administrative claimant gets 40 percent.

In cases converted from Chapter 11 to Chapter 7, the statute creates a sub-hierarchy: administrative expenses incurred after conversion take priority over those incurred before conversion. That protects the Chapter 7 trustee and any post-conversion professionals from bearing the risk of a failed reorganization’s accumulated costs.

1
Office of the Law Revision Counsel. 11 USC 503 – Allowance of Administrative Expenses
2
Office of the Law Revision Counsel. 11 USC 330 – Compensation of Officers
3
Office of the Law Revision Counsel. 11 USC 326 – Limitation on Compensation of Trustee
4
Office of the Law Revision Counsel. 11 USC 365 – Executory Contracts and Unexpired Leases
5
Office of the Law Revision Counsel. 11 USC 366 – Utility Service
6
Office of the Law Revision Counsel. 28 USC 1930 – Bankruptcy Fees
7
United States Department of Justice. Chapter 11 Quarterly Fees
8
Office of the Law Revision Counsel. 11 USC 507 – Priorities
9
Office of the Law Revision Counsel. 11 USC 506 – Determination of Secured Status
10
United States Courts. Official Form 410 – Proof of Claim
11
Legal Information Institute. Federal Rules of Bankruptcy Procedure Rule 2002
12
Office of the Law Revision Counsel. 11 USC 1129 – Confirmation of Plan
13
Office of the Law Revision Counsel. 11 USC 726 – Distribution of Property of the Estate