Not all creditors are treated equally when you file for Chapter 7 bankruptcy. Bankruptcy law sets out the order in which creditors get paid and prioritize certain claims over others. This article explains how priority claims get paid in Chapter 7 and 13 bankruptcy cases.
Bankruptcy law lists priority claims by category. Not all are used regularly, however. Some are so specialized that it's unlikely that they'll be a part of your case. By contrast, frequently used priority claims include domestic support obligations and non-dischargeable tax debt. You'll likely find a wage and customer deposit claim in a small business bankruptcy.
Priority claims get paid according to their order of importance. The bankruptcy trustee, the official responsible for managing your case, will pay higher-ranking claims completely before paying debts in the next lower-ranking claim category.
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.
The following is a list of the ten categories of priority claims and a brief explanation of each type.
Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.
The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.
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We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.
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 consulting with a local bankruptcy lawyer.
April 23, 2022
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