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What Is An Unsecured Priority Debt In A Bankruptcy Case?

When a debtor files a bankruptcy case, he or she must file schedules listing their debts. There are individual schedules for each of the three types of debts that a debtor may list. As many would assume, these schedules apply to secured debts and unsecured debts with the latter considered to be "nonpriority" debts. However, a third schedule also applies to unsecured "priority" debts. So what makes an unsecured debt achieve "priority" status?

To receive some distribution in a bankruptcy case, if any is, in fact, available, creditors must file a proof of claim. A creditor categorizes the debt in the proof of claim by one of the three main classes of debt: secured, unsecured, and priority claims. Ultimately, any payment in a bankruptcy case is dependent on a creditor's type of claim, and whether the case is filed under Chapter 7 or Chapter 13.

Unsecured debts may either be categorized as a priority or nonpriority debt. The Bankruptcy Code specially treats priority debts and claims as unsecured but nondischargeable debts. In Chapter 7 bankruptcy cases, priority debts are paid before general unsecured claims. More importantly, since such debts are nondischargeable, Chapter 7 debtors are still obligated to pay these debts even after receiving a Chapter 7 discharge.

Chapter 13 debtors must pay fully all priority debts and claims through a Chapter 13 plan of reorganization. The longest period of time a Chapter 13 plan may last is five years, thus these priority claims would have to be paid in no more than sixty monthly payments.

A debt achieves priority status typically because it is a debt owed to the government or because of other public policy reasons. The following are the most common type of priority debts:

  • child and spousal support;
  • overpayment of government benefits;
  • most income taxes;
  • payroll and sales taxes;
  • money owed for causing the personal injury or death of another because of intoxication of drugs or alcohol; and
  • criminal fines.
At Loan Lawyers, our South Florida consumer rights and debt defense attorneys help individuals with financial problems that cause hardship. The experienced South Florida defense attorneys at Loan Lawyers are here to review your potential bankruptcy case and determine if it is the right solution for you. Contact our office today by calling (888) FIGHT-13 (344-4813) and see how we can help.