Pre-petition Liability

A “pre-petition liability” is a liability incurred by a business prior to filing for bankruptcy. In other words, it happens before, or “pre,” our filing of a bankruptcy petition.

So what are these liabilities we speak of? Probably most of us think of loans right off the bat. But pre-petition liabilities can also include any tax debt our company owes, bond payments, pension and retirement plan payments, rent or lease payments…the list goes on.

When a company files for bankruptcy, everything it owes is split into two categories: pre-petition (debts we incurred prior to filing) and post-petition (debts we incurred after filing). This is important because our creditors can’t try and collect on pre-petition liabilities once the bankruptcy is in process. Does this mean we don’t have to pay them at all? Uh...no. But it does mean that we’ll likely end up paying them less than the full amount we owe, and we might even be able to set up a nice little payment plan for the remaining balance.