Of the Enforcement of LiensCertain Liens and Priorities for Salaries, Wages and Consumer Debts

Section § 1204

Explanation

This California law outlines how certain debts are paid off when someone or a business can't pay their bills and must assign assets to creditors. It prioritizes paying wages, salaries, and certain commissions up to $4,300 earned in the 90 days before financial trouble, as well as contributions to employee benefit plans. If there's not enough money to cover these claims completely, the available funds are shared proportionally among claimants. The person managing the assets can demand proof of these claims and can contest them if they seem invalid. It's mandatory for courts to ensure these specific claims are paid quickly from the funds available.

When any assignment, whether voluntary or involuntary, and whether formal or informal, is made for the benefit of creditors of the assignor, or results from any proceeding in insolvency or receivership commenced against him or her, or when any property is turned over to the creditors of a person, firm, association or corporation, or to a receiver or trustee for the benefit of creditors, the following claims have priority in the following order:
(a)CA Civil Procedure Code § 1204(a) Allowed unsecured claims, but only to the extent of four thousand three hundred dollars ($4,300) for each individual or corporation, as the case may be, earned within 90 days before the date of the making of such assignment or the taking over of the property or the commencement of the court proceeding or the date of the cessation of the debtor’s business, whichever occurs first, for either of the following:
(1)CA Civil Procedure Code § 1204(a)(1) Wages, salaries, or commissions, including vacation, severance and sick leave pay earned by an individual.
(2)CA Civil Procedure Code § 1204(a)(2) Sales commissions earned by an individual, or by a corporation with only one employee, acting as an independent contractor in the sale of goods or services of the debtor in the ordinary course of the debtor’s business if, and only if, during the 12 months preceding the date of the making of the assignment or the taking over of the property or the commencement of the proceeding or the date of the cessation of the debtor’s business, whichever occurs first, at least 75 percent of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor.
(b)CA Civil Procedure Code § 1204(b) Allowed unsecured claims for contributions to employee benefit plans arising from services rendered within 180 days before the date of the making of the assignment or the taking over of the property or the commencement of the court proceeding or the date of the cessation of the debtor’s business, whichever occurs first; but only for each employee benefit plan, to the extent of the number of employees covered by the plan multiplied by four thousand three hundred dollars ($4,300), less the aggregate amount paid to the employees under subdivision (a), plus the aggregate amount paid by the estate on behalf of the employees to any other employee benefit plan.
(c)CA Civil Procedure Code § 1204(c) The above claims shall be paid by the trustee, assignee or receiver before the claim of any other creditor of the assignor, insolvent, or debtor whose property is so turned over, and shall be paid as soon as the money with which to pay same becomes available. If there is insufficient money to pay all the labor claims in full, the money available shall be distributed among the claimants in proportion to the amount of their respective claims. The trustee, receiver or assignee for the benefit of creditors shall have the right to require sworn claims to be presented and shall have the right to refuse to pay any such preferred claim, either in whole or in part, if he or she has reasonable cause to believe that a claim is not valid but shall pay any part thereof that is not disputed, without prejudice to the claimant’s rights, as to the balance of his or her claim, and withhold sufficient money to cover the disputed portion until the claimant in question has a reasonable opportunity to establish the validity of his or her claim by court action, either in his or her own name or through an assignee.
(d)CA Civil Procedure Code § 1204(d) This section is binding upon all the courts of this state and in all receivership actions the court shall order the receiver to pay promptly out of the first receipts and earnings of the receivership, after paying the current operating expenses, such preferred labor claims.
assignment for benefit of creditors insolvency receivership ...

Section § 1204.5

Explanation

If someone files for general debt repayment to benefit their creditors, certain claims get special attention. Specifically, money up to $900 given by individuals for personal or family purchases that were never delivered is given priority. However, this comes after labor claims but before other claims. This priority is still below certain tax-related claims.

In any general assignment for the benefit of creditors, the following claims shall have priority, subordinate to the priorities for labor claims under Section 1204, but prior to all other unsecured claims: allowed unsecured claims of individuals, to the extent of nine hundred dollars ($900) 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. The priority granted by this section shall be subordinate to that granted by Sections 18933 and 26312 of the Revenue and Taxation Code.
general assignment benefit of creditors priority claims ...

Section § 1205

Explanation

If a business or a large part of its goods is sold outside of normal business activities, any wages owed to employees from the past 90 days become a priority claim. These unpaid wages must be paid first out of the money from the sale or transfer before other creditors.

Upon the sale or transfer of any business or the stock in trade, in bulk, or a substantial part thereof, not in the ordinary and regular course of business or trade, unpaid wages of employees of the seller or transferor earned within ninety (90) days prior to the sale, transfer, or opening of an escrow for the sale thereof, shall constitute preferred claims and liens thereon as between creditors of the seller or transferor and must be paid first from the proceeds of the sale or transfer.
business sale stock transfer unpaid wages ...

Section § 1206

Explanation

This law allows people who have worked for someone and are owed payment to claim a part of the money seized by the court through a writ of attachment or execution. If you've worked for someone and they're being legally required to pay debts, you can claim up to $900 of what you're owed from their seized money, as long as you file a claim within 90 days of the money being seized. If your claim is disputed, you must petition the court within 10 days to decide on it. There are no costs for filing or hearings, and any valid claims get prioritized for payment out of the seized funds.

(a)CA Civil Procedure Code § 1206(a) Upon the levy under a writ of attachment or execution not founded upon a claim for labor, any miner, mechanic, salesman, servant, clerk, laborer or other person who has performed work or rendered personal services for the defendant within 90 days prior to the levy may file a verified statement of the claim with the officer executing the writ, file a copy with the court that issued the writ, and give copies, containing his or her address, to the plaintiff and the defendant, or any attorney, clerk or agent representing them, or mail copies to them by registered mail at their last known address, return of which by the post office undelivered shall be deemed a sufficient service if no better address is available, and that claim, not exceeding nine hundred dollars ($900), unless disputed, shall be paid by the officer, immediately upon the expiration of the time for dispute of the claim as prescribed in Section 1207, from the proceeds of the levy remaining in the officer’s hands at the time of the filing of the statement or collectible by the officer on the basis of the writ.
(b)CA Civil Procedure Code § 1206(b) The court issuing the writ shall make a notation in the register of actions of every preferred labor claim of which it receives a copy and shall endorse on any writ of execution or abstract of judgment issued subsequently in the case that it is issued subject to the rights of a preferred labor claimant or claimants and giving the names and amounts of all preferred labor claims of which it has notice. In levying under any writ of execution the officer making the levy shall include in the amount due under the execution all preferred labor claims that have been filed in the action and of which the officer has notice, except any claims that may have been finally disallowed by the court under this procedure and of which disallowance the officer has actual notice. The amount due on preferred labor claims that have not been finally disallowed by the court shall be considered a part of the sum due under any writ of attachment or execution in augmentation of that amount and any person, firm, association, or corporation on whom a writ of attachment or execution is levied shall immediately pay to the levying officer the amount of the preferred labor claims, out of any money belonging to the defendant in the action, before paying the principal sum called for in the writ.
(c)CA Civil Procedure Code § 1206(c) If any claim is disputed within the time, and in the manner prescribed in Section 1207, and a copy of the dispute is mailed by registered mail to the claimant or the claimant’s attorney at the address given in the statement of claim and the registry receipt is attached to the original of the dispute when it is filed with the levying officer, or is handed to the claimant or the claimant’s attorney, the claimant, or the claimant’s assignee, must within 10 days after the copy is deposited in the mail or is handed to the claimant or the claimant’s attorney, petition the court having jurisdiction of the action on which the writ is based, for a hearing before it to determine the claim for priority, or the claim to priority is barred. If more than one attachment or execution is involved, the petition shall be filed in the court having jurisdiction over the senior attachment or execution. The hearing shall be held within 20 days from the filing of the petition, unless the court continues it for good cause. Ten days’ notice of the hearing shall be given by the petitioner to the plaintiff, the defendant, and all parties claiming an interest in the property, or their attorneys. The notice may be informal and need specify only the name of the court, the names of the principal parties to the senior attachment or execution, and the name of the wage claimant or claimants on whose behalf it is filed but shall specify that the hearing is for the purpose of determining the claim for priority. The plaintiff, the defendant, or any other party claiming an interest may contest the amount or validity of the claim in spite of any confession of judgment or failure to appear or to contest the claim on the part of any other person.
(d)CA Civil Procedure Code § 1206(d) There shall be no cost for filing or hearing the petition. The hearing on the petition shall be informal but all parties testifying shall be sworn. Any claimant may appear on the claimant’s own behalf at the hearing and may call and examine witnesses to substantiate his or her claim. An appeal may be taken from a judgment in a proceeding under this section in the manner provided for appeals from judgments of the court where the proceeding occurred, in an action of the same jurisdictional classification.
(e)CA Civil Procedure Code § 1206(e) The officer shall keep, until the determination of the claim for priority, any amount of the proceeds of the writ necessary to satisfy the claim. If the claim for priority is allowed, the officer shall pay the amount due, including the claimant’s cost of suit, from those proceeds, immediately after the order allowing the claim becomes final.
writ of attachment personal services labor claim ...

Section § 1207

Explanation

If someone disputes what they owe, they have five days to file a sworn statement arguing that they're not responsible for part of a claim, specifically wages from services rendered within the last 90 days. This has to be based on actual knowledge, not just belief, and they need to explain where their information comes from. If part of the claim is admitted but a hearing is still requested and it doesn't exceed what's admitted, the person filing won't get their legal costs covered and might have to pay them out of the amount awarded to them.

Within five days after receiving a copy of the statement provided for in the next preceding section, either the plaintiff or the defendant in the action in which the writ issued may file with the officer a sworn statement denying that any part of such claim is due for services rendered within ninety days next preceding the levy of the writ, or denying that any part of such claim, beyond a sum specified, is so due. Such sworn statement can not be made on information and belief unless the party swearing to same has actual information and belief that the wage claim, or the portion thereof that is contested, is not justly due, and in such case the nature and source of the information must be given. If a part of the claim is admitted to be due, and the claimant nevertheless files a petition for hearing and the court does not allow more than the amount so admitted, he can not recover costs but the costs must be adjudged against him, and the amount thereof deducted from the sum found due him.
wage dispute sworn statement services rendered ...

Section § 1208

Explanation

This law explains what happens when multiple claims are made against the money collected from a court order. If the total amount of valid claims is more than the money available, the money is divided among the claimants based on their claims size. If there isn't enough money to pay labor claims fully, those claimants can take direct legal action to recover what they're owed. The law also outlines procedures for releasing property from legal claims, requiring notifications to be sent to labor claimants if a release is requested. Labor claimants then have five days to act before the release can happen. The law protects the rights of labor claimants to collect their due before a release or while ensuring other court fees are settled first.

If the claims presented under Section 1206 and not disputed, or, if disputed, established by judgment, exceed the proceeds of the writ not disposed of before their presentation, such proceeds shall be distributed among the claimants in proportion to the amount of their respective claims after the costs incurred by the senior attaching plaintiff or judgment creditor in such action have first been taken care of.
If sufficient money to pay in full all preferred labor claims filed under an attachment or execution does not become available immediately upon the expiration of the time for dispute of such claims under Section 1207, any of the claimants, or their assignees, have the right to proceed directly against the money or other property levied on in individual or joint actions by themselves or their assignees against the defendant, and the attachment or execution under which the preferred claims were filed shall be considered set aside as far as such claimants, or their assignees, are concerned so as to enable them, or any of them, or any of their assignees, to proceed directly against any or all of the money or other property in question by means of their own attachments or executions; provided, however, that any money collected on behalf of any such labor claimant, or his or her assignee, on the basis of such new attachment or execution shall be shared in by the other preferred labor claimants who have filed claims that have not been disputed, or, if disputed, established by judgment, in proportion to the amount of their respective claims, deducting only the costs in the action brought by the said labor claimant, or his or her assignee, and the costs in the original action brought by the senior attaching plaintiff or judgment creditor.
If such senior attaching plaintiff or judgment creditor requests a release of his or her original attachment or execution, and the preferred labor claims filed under same are not released, the officer who levied the writ must first mail notices of such request to release to each of the labor claimants who have filed claims, or their attorneys, which notices must specify that unless the claimants bring attachment actions of their own and levy on the money or property in question within five days from the date thereof the money or property will be released from the attachment or execution; provided, however, that such officer may instead collect sufficient money on the basis of the original writ to pay off the preferred labor claims in full and then release the attachment or execution, but in no case shall the officer release the attachment or execution without first taking care of the labor claims until the five-day period has expired, unless the officer’s costs, keepers’ fees or storage charges have not been immediately taken care of by some of the parties involved. In any case it shall be lawful for a garnishee to pay over to the officer levying the writ any money held by the garnishee without waiting for execution to be levied and the officer’s receipt for the money shall be a sufficient quittance, and the officer shall collect such money and immediately pay off the established preferred labor claims in all cases where it is possible to do so without additional court proceedings on the officer’s part.
claim distribution proceeds of the writ preferred labor claims ...