Does bankruptcy make sense if most of your debt is priority debt?

Priority debt is a type of debt that is unable to be discharged through bankruptcy. This type of debt includes taxes owed to the government, student loan debt or other types of debt. It is not secured debt (which is backed by assets) or unsecured debt (such as credit cards). If you have a great deal of priority debt, it may or may not make sense to file bankruptcy. The key is to understand what bankruptcy can offer to you.

Understanding Bankruptcy Benefits

In situations where most of the debt you have is priority debt, it may not seem like you have a reason to file bankruptcy. However, there could be some benefits depending on the situation.

• In some cases, discharging even a small amount of unsecured debt, which is not priority debt, can provide you with some financial relief and make paying back other debt easier.
• If you are behind on repaying your debt or have excessive fees on that debt, the bankruptcy process may reorganize the debt to make it easier to repay. In some cases, fees may be dropped.
• Filing bankruptcy will freeze all legal action being taken against you until a solution can be reworked. If a student loan lender is coming after your home, for example, the bankruptcy filing will free the process until the court helps you to rework the debt.

Discuss your options with your attorney before filing bankruptcy. Determine if your priority debt will benefit from this process or from other debt solutions, such as debt settlement.