In re Blackwood

Blackwood filed a petition in bankruptcy on April 2, 1954, and was adjudged a bankrupt the same day. He was then indebted to nine employees for wages which had been earned within the three month period preceding the filing of the petition, and a claim for these wages was filed by the Labor Commissioner. Eleven months later a hearing was held and the Referee entered his order settling and allowing the Trustee’s First and Final Report. The estate was only large enough to pay the expenses of administration, and a 52% dividend toward the wage claims filed. These the trustee paid, after first deducting from the wage dividend state and federal taxes of the employees.

The State of California, acting through the Department of Employment, then demanded of the trustee that he pay the tax imposed upon employers by the California Unemployment Insurance Code. This tax is based upon wages paid to employees, and becomes payable when the wages have been actually paid.

Under § 64, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 104 , sub. a, the order of priority for payment of debts is (1) expenses of administration, (2) wages, (3) certain costs incurred by creditors, and (4) taxes. The estate is…