Debtors are more frequently filing chapter 11 cases with significant secured indebtedness, few unencumbered assets and insufficient liquidity to even satisfy administrative claims. Pursuant to § 503 (b) of the Bankruptcy Code, administrative claims are “the actual, necessary costs and expenses of preserving the estate.” Examples include trade claims arising from post-petition sales of goods and/or provisions of services to debtors, post-petition rent, employee claims, taxes, and professional fees. Administrative claims rank below secured claims and above lower-priority claims (e.g., general unsecured claims) in the Code’s claims-priority waterfall.

A debtor that is unable to fully pay administrative claims is considered “administratively insolvent.” A debtor’s administrative insolvency has historically been the death knell for its chapter 11 case because according to § 1129 (a) (9) (A) of the Bankruptcy Code, unless an administrative claimant “has agreed to a different treatment of such claim ... on the effective date of the plan, the holder of such claim will receive on account of such claim cash equal to the allowed amount of such claim.” Accordingly, administratively insolvent debtors are frequently moved to convert their cases to chapter 7 or dismiss their cases.

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