Priority Debts and Chapter 7 Bankruptcy

Debt is broken up into three main categories in bankruptcy. Secured debts are debts that are secured by property. These include car loans or a home mortgage. Unsecured debts are debts that are unsecured. These include credit card debts or loans. The final category is priority claims. These are unsecured debts that the law sees as being so important that if there is a bankruptcy estate to administer, these debts will be paid first.

These priority claims include:

• 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
• Wage claims. Employee claims include wages, salaries, commission, vacation, severance, and sick leave.
• Employee benefit plan claims. These include amounts owed by an employer to an employee benefit plan.
• 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.
• Tax claims. These include income taxes owed within the three years before the bankruptcy filing.
• 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
• Criminal fines. These are fines that are levied because of a criminal conviction.
• Overpayment of Government Benefits. This is overpayment for things like disability of unemployment benefits.
• Federal Backed Student Loans. These are FFEL or loans from the Department of Education.

Most priority debts are non-dischargeable. To the extent they are dischargeable they will be paid first out of the bankruptcy estate. Have no fear, most debts are not priority debts. Nonetheless, If you have priority debts in Chapter 7 asset case (money is available to pay creditors), priority creditors must be paid first. If there isn't enough money to repay priority debts in full, nonpriority debts won't receive anything. If there is money left over after priority debts are paid in full, it will be distributed pro-rata to the nonpriority creditors.