Priority debts get paid first in bankruptcy and usually survive it. Nonpriority debts sit last and are often discharged or paid at pennies on the dollar.
Priority debts are specific types of unsecured debt—think child support or certain taxes—that bankruptcy law puts ahead of your other unsecured creditors, and that you'll almost always still owe once your case ends. Nonpriority debts are everything else, and they're the ones bankruptcy is genuinely good at erasing: most get wiped out in Chapter 7, or paid at a fraction of their value in Chapter 13. Once you figure out which bucket your bills land in, you'll have a better idea of what your filing can and can't do for you.
How Bankruptcy Treats Priority vs. Nonpriority Debt
Priority debts are paid before nonpriority debts in Chapter 7 and must be paid in full through your plan in Chapter 13. Nonpriority debts get whatever's left over—which, in a lot of cases, is nothing. Federal law spells out the order for priority debts. ( 11 U.S.C. §§ 507; § 523(a).)
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Key Factor |
Chapter 7 Bankruptcy |
Chapter 13 Bankruptcy |
|
Priority Debt Payment |
Paid before nonpriority debts, but only if the trustee has funds to distribute. Most cases have none. |
Must be paid in full through your repayment plan. |
|
Priority Debt Discharge |
Almost never discharged. You'll still owe it once the case closes. |
Not an issue. You pay it off in full during the plan. |
|
Nonpriority Debt Outcome |
Usually wiped out completely. |
Paid a percentage, often just pennies on the dollar. |
|
Typical Case Length |
Three to four months. |
Three to five years. |
Types of Priority Debt in Bankruptcy
The most common priority debts in consumer bankruptcy cases are:
- Domestic support obligations, such as alimony and child support.
- Administrative expenses of the bankruptcy case, such as trustee and attorneys' fees.
- Wages, salaries, and commissions that an employer owes to employees.
- Contributions to employees' employment benefit plans.
- Debts owed to certain farmers and fishermen.
- Certain consumer deposits for goods or services that were never delivered.
- Certain types of recent taxes.
- Customs, duties, and penalties owed to a government entity.
- Death or personal injury claims caused by intoxication.
(11 U.S.C. § 507.)
Types of Nonpriority Debt in Bankruptcy
Nonpriority debt covers most of your everyday unsecured bills, including:
- credit or charge card debt
- medical debt
- back rent
- utility bills
- older tax debt
- student loans (these are usually not dischargeable, however)
- personal loans
- money judgments for breach of contract or negligence
- health club dues
- church or synagogue dues, and
- union dues.
What Counts as Unsecured Debt in Bankruptcy
Unsecured debt isn't backed by any property or asset serving as collateral. Priority debt is always unsecured; secured debt, like a mortgage or car loan, plays by different rules, and the creditor can take the property if you fall behind. Mortgages and car loans are the two most common types of secured debt. Credit card debt, student loans, medical debt, back rent, and utility bills are among the most common unsecured debts.
Priority vs. Nonpriority Debt
A bankruptcy lawyer is in the best position to help you compare your bill list against the priority categories above and help you understand what Chapter 7 or Chapter 13 can realistically do for you, including which debts will still need to be paid when it's over. If you're considering filing for Chapter 13, you'll want to learn about whether you can choose which debts get paid in the Chapter 13 plan. (11 U.S.C. § 1322(a)(2); 11 U.S.C. § 1325(a)(1)
Take our bankruptcy quiz to identify potential issues and learn how to best proceed with your bankruptcy case.
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