11 U.S.C. § 503 — Allowance of administrative expenses

(a) Filing a request

A person or company can file a request asking the bankruptcy court to pay them an "administrative expense" — a cost tied to running the bankruptcy case. Normally this request must be filed on time. But the court can allow a late filing if there's a good reason.

(b) What counts as an administrative expense

After notice and a court hearing, the court can allow several kinds of administrative expenses, separate from the expenses barred under section 502(f). They include:

(1) The actual, necessary costs of preserving the bankrupt estate (the debtor's property). This covers wages, salaries, and commissions for work done after the bankruptcy case started. It also covers back pay a court or the National Labor Relations Board awards for time after the case started, if the debtor^* broke federal or state law — even if the timing of the wrongdoing or the work involved isn't clear — as long as the court decides paying it won't likely cause layoffs, firings, or missed child-support payments during the case. It also covers certain taxes owed by the estate (except a type listed in section 507(a)(8)), taxes tied to a tentative "carryback" tax refund the estate received, and any fine, penalty, or lost credit connected to those taxes. Importantly, the government does not have to file a request to get these tax-related expenses paid — they're automatically allowed.

(2) Compensation and expense reimbursement approved under section 330(a) — mainly payments to professionals like lawyers hired to help the case.

(3) Actual, necessary expenses of certain people, not counting professional fees covered by paragraph (4): a creditor^* who files the bankruptcy petition itself; a creditor who — with court approval — recovers property the debtor hid or transferred away; a creditor helping prosecute a crime related to the case or the debtor's business; a creditor, indenture trustee, equity holder, or a committee (other than an official creditors' committee) that makes a "substantial contribution" in a Chapter 9 or Chapter 11 case; a custodian^* replaced under section 543, plus pay for that custodian's work; or a member of an official committee under section 1102, for expenses tied to committee duties.

(4) Reasonable pay for a lawyer or accountant^* hired by one of the people listed in paragraph (3)(A)–(E), based on the time spent, the nature and value of the work, and what similar work costs outside bankruptcy — plus reimbursement of their actual necessary expenses.

(5) Reasonable pay for an indenture trustee who makes a "substantial contribution" in a Chapter 9 or 11 case, judged the same way as in paragraph (4).

(6) Fees and mileage that title 28, chapter 119 says must be paid (for example, to witnesses).

(7) If the debtor had assumed a lease of nonresidential real property and then later rejected it, the landlord gets an administrative expense equal to all money owed under the lease for two years after the later of the rejection date or the date the debtor actually gave back the property. This doesn't include amounts tied to a failure to operate the business or to a penalty clause, and it isn't reduced except for money actually received from someone other than the debtor. Any remaining rent owed for the rest of the lease term is a regular claim^* under section 502(b)(6), not an administrative expense.

(8) The actual, necessary costs of closing a health care business, paid to a trustee, a federal agency, or a state or local agency — including costs of properly disposing of patient records under section 351, or of transferring patients to another health care business.

(9) The value of goods the debtor bought in the ordinary course of business and received within 20 days before the bankruptcy case started.

(c) Payments that are NOT allowed

Even though (b) lists what's allowed, subsection (c) blocks three kinds of payments:

(1) A payment or promise made to an "insider" (like an owner or manager) just to convince that person to stay with the company — unless the court finds, based on real evidence, that: (A) the payment is truly needed because that insider has a real job offer elsewhere paying the same or more; (B) that insider's work is essential to the business surviving; and (C) the payment isn't too large — it can't be more than 10 times the average retention payment given to regular (non-management) employees that year, or, if no similar payments were made to regular employees, it can't be more than 25 percent of what a similar payment gave that same insider the year before.

(2) A severance payment to an insider, unless it's part of a severance program that applies to all full-time employees, and the amount isn't more than 10 times the average severance paid to regular employees that year.

(3) Any other payment or promise made outside the normal course of business that isn't justified by the facts of the case — including payments to officers, managers, or consultants hired after the bankruptcy petition was filed.