Priority claim for customer deposit for a married couple

[SteveEngel]

Under 11 USC 507(a)7, a customer deposit is allowed as a priority claim up to $3,350. I prepaid $12,296 for an Alaska cruise for my wife and me. The company filed for bankruptcy. The invoice for the $12,296 clearly shows my name and my wife's name. The attorney for the bankrupt company is telling me that my claim will be allowed for $3,350. Everything I read tells me it should be $3,350 X 2, i.e. my wife and I should each qualify for the limit. Is this not correct?

 

[Zigner]

It depends. Ask the attorney to explain why they are only allowing $3,350.

 

[LdiJ]

Under 11 USC 507(a)7, a customer deposit is allowed as a priority claim up to $3,350. I prepaid $12,296 for an Alaska cruise for my wife and me. The company filed for bankruptcy. The invoice for the $12,296 clearly shows my name and my wife's name. The attorney for the bankrupt company is telling me that my claim will be allowed for $3,350. Everything I read tells me it should be $3,350 X 2, i.e. my wife and I should each qualify for the limit. Is this not correct?

Did both you and your wife apply, separately, as creditors?

 

[SteveEngel]

There's a little more to the story. After being notified of the bankruptcy, we were eventually told by the cruise line that claims for cancelled cruises would be paid in full by their surety company. I also started getting bankruptcy notices. I did not bother to file a bankruptcy claim because I thought the insurance would pay us in full. I filed all the necessary paperwork to support that claim. I then subsequently learned that the policy covered cruises embarking from U.S. ports only, and ours was to embark from Vancouver (i.e. no coverage for us). This little detail may have been in the fine print somewhere - if it was, I never saw it and it certainly wasn't prominently displayed in the notifications about the insurance coverage. I quickly filed a claim for myself and my wife online in bankruptcy, and sent paperwork to the court to explain my late filing (i.e. my belief it was unnecessary, that we would be paid in full via insurance). In response to this filing, the attorneys for the cruise line informed me not to worry, that I was already scheduled for a priority claim of $3,350. I talked to the attorney today and she would not tip her hand. I will get to state my case to the judge in a hearing scheduled in January.

 

[adjusterjack]

Under 11 USC 507(a)7, a customer deposit is allowed as a priority claim up to $3,350. I prepaid $12,296 for an Alaska cruise for my wife and me. The company filed for bankruptcy. The invoice for the $12,296 clearly shows my name and my wife's name. The attorney for the bankrupt company is telling me that my claim will be allowed for $3,350. Everything I read tells me it should be $3,350 X 2, i.e. my wife and I should each qualify for the limit. Is this not correct?

I don't think so. Note the phrase in bold.

(7)

Seventh, allowed unsecured claims of individuals, to the extent of $3,350 [originally “$1,800”, adjusted effective April 1, 2022]  1 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided.

I think you are allowed only the $3350.

But I'm not a bankruptcy attorney so I could be wrong.

At any rate there are priorities greater than yours, especially secured creditors, that may wipe out your claim even in a Chapter 11.

Did you happen to buy trip cancellation insurance?

 

[SteveEngel]

I don't really get the significance of the bolded phrase.

Here is what I pulled from the internet about my question:
In bankruptcy, a customer deposit priority claim is considered "per person," meaning each individual in a couple would have their own separate limit on the amount of their deposit that is considered a priority claim, not a combined amount for the couple as a whole; this is based on the Bankruptcy Code Section 507(a)(7) which outlines priority for individual consumer deposits.

 

[quincy]

I don't really get the significance of the bolded phrase.

Here is what I pulled from the internet about my question:
In bankruptcy, a customer deposit priority claim is considered "per person," meaning each individual in a couple would have their own separate limit on the amount of their deposit that is considered a priority claim, not a combined amount for the couple as a whole; this is based on the Bankruptcy Code Section 507(a)(7) which outlines priority for individual consumer deposits.

The significance of adjusterjack’s bolding of that section of the Bankruptcy Code - 11 USC §507(a)(7) - is that you did not purchase, lease or rent property but instead you purchased services for personal use or use by your family/household (you and your wife), making you eligible for $3350.

No one who has responded to your question is a bankruptcy attorney, by the way. If you want a bankruptcy attorney’s response, I can tag a forum member who is a bankruptcy attorney or you can consult with one in your area.

 

[despritfreya]

Personally, I believe it is per contract. One contract for H&W therefore one allowed Proof of Claim. Part of the claim is priority and part is a general unsecured claim. The priority portion is limited to one claim under 507(a)(7) but, I could be wrong.

As to payment - If the case remains a chapter 11 the Plan must provide for payment of the (a)(7) claim. Those with such claims will be in a separate class and will be allowed to vote on the Plan. They will also be part of the general unsecured class for amounts owed over the priority limit and be allowed to vote in that class as well.

Des.

 

[SteveEngel]

Thanks everyone for all of the feedback.

I agree - we purchased services and not property, but I still don't see clear delineation of the limit as to whether it is per person or per family, regardless if property or services.

Per contract makes some sense to me but I don't see those words (why couldn't this law have been more clearly defined?!). So, in retrospect if my wife and I had booked and paid separately, we would each get the $3,350? Good grief.

I personally am focusing on the words "1 for each such individual." My wife and I are each individuals. Doesn't that mean $3,350 each?

Quincy - I would gladly take you up on your offer of tagging a bankruptcy attorney!

 

[adjusterjack]

Quincy - I would gladly take you up on your offer of tagging a bankruptcy attorney!

Despritfreya is the bankruptcy attorney referred to by Quincy.

 

[SteveEngel]

...one contract for H&W - what is the meaning of H&W?

 

[Zigner]

Thanks everyone for all of the feedback.

I agree - we purchased services and not property, but I still don't see clear delineation of the limit as to whether it is per person or per family, regardless if property or services.

You had one contract and one deposit.

 

[adjusterjack]

...one contract for H&W - what is the meaning of H&W?

Husband and Wife.

 

[MyAZLawyers]

The $3,350 cap under 11 USC § 507(a)(7) applies per individual, so it’s reasonable to argue that both you and your wife should qualify if both of your names are on the invoice. This provision was designed to protect individual consumer deposits, and many courts allow the limit to be applied separately for joint transactions. However, interpretations can vary. If the attorney for the bankrupt company is denying the second claim, you may need to present additional documentation to support your position, such as proof that both you and your wife were financially involved in the transaction.