Priority vs. Nonpriority Debts in Bankruptcy

Bankruptcy, Chapter 13, Chapter 7 Bankruptcy0 comments

If you decide to file Chapter 7 or Chapter 13 bankruptcy, some of your debts will be classified as “priority debts” while others will be classified as “nonpriority debts.” Which group a debt is categorized into will affect how the debt is treated in bankruptcy. In other words, the “priority debts” will be given preferential treatment when it comes to payment.

Under the Bankruptcy Code, specific types of debts are considered “priority debts,” meaning they are more important than all other types of debts. Usually, a debt is considered a priority because it’s in the public’s interest to pay it, or because the debt is owed to a government entity.

The following are priority debts:

  • Child support;
  • Spousal support (alimony);
  • State and federal taxes, especially recent;
  • Court-ordered fines;
  • Criminal fines;
  • Victim restitution;
  • An overpayment of government benefits; and
  • The money the taxpayer owes to a victim as a personal injury award or a wrongful death award. It can also be money owed for hurting someone in a drunk or drugged driving crash.

The following are nonpriority debts:

  • Credit card debt;
  • Medical bills;
  • Past-due utility bills;
  • Personal loans; and
  • Personal loans.

Priority debts cannot be discharged in bankruptcy. For example, if you owe child support arrears, you cannot reduce or wipe out the debt in bankruptcy. Even after the bankruptcy is discharged, you still have to pay the full amount of arrears owed. You cannot wipe out or reduce priority debts through Chapter 7 or Chapter 13, through a Chapter 13 does make it easier for debtors to catch up on their priority debts.

Nonpriority debts, on the other hand, are usually dischargeable in bankruptcy. Depending on the Chapter that a debtor files, the debtor may be able to greatly reduce or wipe out nonpriority debts through bankruptcy.

Next: Bankruptcy: Secured vs. Unsecured Claims

To learn more about how nonpriority and priority debts are treated in Chapters 7 and 13, contact our Harrisburg bankruptcy firm today.

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