Priority Claims in Chapter 7 Bankruptcy

A priority claim is a debt the bankruptcy trustee will pay in full before paying less important nonpriority debts. For instance, suppose you filed for Chapter 7 bankruptcy, and the bankruptcy trustee appointed to your case sold one of your cars for $10,000. The trustee wouldn't divide the money equally between your creditors.

Instead, if you owed $4,000 for a domestic support obligation, $3,000 in income taxes, and $29,000 in credit card debt, the trustee would pay off the domestic support obligation and taxes because they would be priority claims. Anything left would go to the credit card company's nonpriority claim.

In this article, you'll learn which debts creditors and debtors can expect the bankruptcy trustee appointed to your case to pay in Chapters 7 and 13.

What Is a Bankruptcy Priority Claim?

When money is available to pay creditors in bankruptcy, creditors rarely fight between themselves, although it can happen. When bankruptcy funds are available, a creditor who would like payment starts the process by filing a "proof of claim" form with the bankruptcy court.

The completed proof of claim form tells the trustee how much the debtor owes and the type of claim involved. The creditor attaches evidence of the claim's validity, usually a copy of the contract.

The payment process goes smoothly because the trustee evaluates all claim forms before determining how to disperse the funds. The trustee then pays the "proof of claims" filed by creditors according to the priority claim payment law.

What Are the Priority Claim Categories?

The following lists the most common priority claims an individual filer can expect to encounter. Business bankruptcy filers might have more priority obligations and should consult with a bankruptcy lawyer.

All amounts apply to cases filed between April 1, 2022, and March 31, 2025.

• Domestic support obligations. Child and spousal support fall into this category.
• Administrative expenses. This category includes the costs, fees, and expenses of administering the bankruptcy case. Learn how bankruptcy trustees get paid.
• Wage claims. Employee claims include wages, salaries, commission, vacation, severance, and sick leave. The claim is limited to $15,150 earned within 180 days of the bankruptcy filing date or within 180 days of the business closure if the business closed before filing for bankruptcy.
• Employee benefit plan claims. These include amounts owed by an employer to an employee benefit plan. They have the same time and amount limitations as the wage claims and are only available when wage claim limits aren't exhausted. For example, an employee with a $15,150 wage claim couldn't receive additional funds to compensate for a benefit plan loss.
• Grain farmer and fisherman claims. This specialized category includes claims by a grain farmer against a grain storage facility and claims by a fisherman for the proceeds from the sale of fish. The grain and fish claims are limited to $7,475 per individual.
• Customer deposit claims. Claims for lease deposits or undelivered personal or household services are limited to $3,350 per claim. Examples include rental and home repair deposits and funds paid to a travel agency.
• Tax claims. These include income taxes owed within the three years before the bankruptcy filing. Learn more about tax debts in Chapter 7 bankruptcy.
• DUI claims. These include judgments and monetary claims for personal injury and death due to driving a motor vehicle or boat while intoxicated due to alcohol, drugs, or another substance.

Paying Priority Claims in Chapter 7 and Chapter 13 Bankruptcy

In Chapter 7, most filers will pay priority debts after bankruptcy. In Chapter 13, you'll pay them off during the Chapter 13 case. Here are more details.

• Chapter 7 bankruptcy. Some claims that fall into priority categories aren't "dischargeable" debts that are erased in bankruptcy. These debts include certain taxes and domestic support obligations. If these claims aren't paid in full in Chapter 7 bankruptcy, you'll continue to owe them after receiving your "discharge," the order that wipes out qualifying debt.
• Chapter 13 bankruptcy. In this chapter, all priority claims must get paid in full through the plan. For instance, your plan payment will have to be sufficient to pay all of your back child support, taxes, and other priority claims. If the proposed payment won't cover these claims, the bankruptcy court won't confirm your Chapter 13 plan and will dismiss your bankruptcy case.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

Updated April 23, 2022