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Understanding Priority Unsecured Debts in Bankruptcy
If you are filing bankruptcy or considering filing in the future, it’s important to understand the difference between priority and non-priority unsecured debts.
Priority and Non-Priority Debts: What’s the Difference?
During a bankruptcy proceeding , the judge (with the help of the bankruptcy trustee) considers the filer’s outstanding debts and puts them in priority order. Outstanding debts refers to any claims by creditors (companies or individuals) the filer owes money. Each of the debts or “claims” is reviewed by the bankruptcy court and ranked according to their priority or significance. Debts determined as priority debts are considered more important according to federal bankruptcy law, and are addressed first before other competing claims are considered.
What Sort of Unsecured Debts are Considered Priority Debts?
- Child support
- Alimony
- Criminal fines or court ordered fees
- Unpaid federal income tax obligations (usually only those less than three years old)
- Federal student loans (cannot be discharged automatically through bankruptcy like non-priority debts, but in rare cases, may be discharged by pursuing a separate procedure called an “adversary proceeding” in conjunction with a bankruptcy filing).
What Sort of Unsecured Debts are Considered Non-Priority Debts?
- Credit card or revolving credit accounts
- Personal loans
- Private debts (to friends or family, etc.)
- Past due bills (rent, utilities, phone, etc.)
How Are Priority Debts Treated Differently During Bankruptcy?
During Chapter 7 bankruptcy, if there are sufficient funds to cover payment of any of the filer’s debts, the creditors holding priority claims are paid first. During Chapter 13 bankruptcy, creditors holding priority claims are typically paid in full while nonpriority debts are usually provided a partial payment in accordance with the Chapter 13 payment plan. When assets are sold (during Chapter 7 bankruptcy), the proceeds are required to first cover priority debts.
If you need are filing bankruptcy and have questions about priority and non-priority debts, call Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney. We help good people through bad times.
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*$0 down to get your Chapter 7 case started applies to clients who choose to file a Chapter 7 bankruptcy with the U.S. Bankruptcy Court through Kenneth C. Rannick, P.C. We will open a Chapter 7 file for a client with as little as $0 down, however, our office will not file a client's Chapter 7 without an affordable down payment on attorney fees.
*$0 down to get your Chapter 13 case started applies to clients who choose to file a Chapter 13 bankruptcy with the U.S. Bankruptcy Court through Kenneth C. Rannick, P.C. Our law office will file a Chapter 13 without requiring any costs or attorney fees paid upfront for qualified clients who 1) have not had a prior chapter 13 dismissed within the past year, and 2) are not trying to stop a foreclosure within 20 days of filling bankruptcy.We are a debt relief agency.
We help people file for bankruptcy relief under the Bankruptcy Code.
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