US Attorneys >
Title 4 >
Civil Resource Manual|
prev | next
Priority for the Payment of Claims Due the Government
The federal priority statute, 31 U.S.C. § 3713,[FN1]
provides that, when a debtor of the United States is insolvent and
not in bankruptcy, it must pay its debts to the government first
before paying any other creditor. Its purpose is "to secure
adequate public revenues to sustain the public burden," United
States v. State Bank of North Carolina, 31 U.S. 29, 35 (1832), and
it is to be construed liberally in order to effectuate that
purpose. United States v. Emory, 314 U.S. 423 (1941); Bramwell v.
U.S. Fidelity & Guaranty Co., supra. Specifically, the statute
FN1. This statute was previously codified at 31 U.S.C. §§ 191 and 192. The revision of the statute has not changed the intent or meaning of the law. See In re Metzger, 709 F.2d 32 (9th Cir. 1983).
(a)(1) A claim of the United States government shall be paid first when:
(A) a person indebted to the government is insolvent; and
(i) the debtor without enough property to pay all debts makes a voluntary assignment of property;
(ii) property of the debtor, if absent, is attached; or
(iii) an act of bankruptcy is committed; or
(B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.
(2) This subsection does not apply to a case under title 11.
(b) A representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the government is liable to the extent of the payment for unpaid claims of the government.
The method of acquisition of a claim is immaterial, and includes claims acquired by the United States through assignment. Lakeshore Apartments, Inc. v. United States, 351 F.2d 349, 353 (9th Cir. 1965). Nor does it matter that the government's loan which gave rise to a claim was made in participation with a private bank. Small Business Administration v. McClellan, 364 U.S. 446 (1960).
For purposes of § 3713(a)(1)(A)(iii), acts of bankruptcy include the following (see Bankruptcy Act, § 3, 11 U.S.C. § 21 (1976)):
a. making a preferential payment to a creditor on an antecedent debt, United States v. Whitney, 654 F.2d 607 (9th Cir. 1981); Lakeshore Apartments, Inc. v. United States, supra;
b. committing a fraudulent conveyance, United States v. Mr. Hamburg Bronx Corp., 228 F. Supp. 115 (S.D.N.Y. 1964);
c. concealing assets with an intent to hinder, delay or defraud creditors;
d. permitting a creditor to obtain judicial lien on property;
e. making a general assignment for the benefit of creditors; or,
f. permitting a receiver or trustee to be appointed over all property;Whether a secured creditor is subject to the priority statute may depend on whether its secured lien is sufficiently perfected and specific to except it from the broad reach of § 3713. The Supreme Court espouses a stringent standard that requires the lienor actually to take title to, or possession of, the property to be exempt from § 3713. United States v. State of Vermont, supra; Cardinal Construction Co. v. Besmec, Inc., 701 F. Supp. 1274, 1280-81 (S.D.W. Va. 1988); Nesbitt v. United States, 445 F. Supp. 824, 830-31 (N.D. Cal. 1978), aff'd, 622 F.2d 433 (9th Cir. 1980), cert. denied, 451 U.S. 984 (1981). The Court explained:
In claims of this type 'specificity' requires that the lien be attached to certain property by reducing it to possession, on the theory that the United States has no claim against property no longer in the possession of the debtor.United States v. State of Vermont, supra, at 353 quoting from United States v. Gilbert Associates, 345 U.S. 361, 363-65 (1953).