Filing for bankruptcy may offer relief from financial hardship by allowing individuals or business owners to discharge certain debts and get a fresh start. That said, not all debts are treated equally in bankruptcy proceedings because some types of debt are treated with a greater priority than others.
If you are considering bankruptcy, it’s important to understand which debts are considered priority debts. Below, we provide a brief guide you can use to explore what priority debts are and which types of debt typically fall into this category.
What Are Priority Debts?
Priority debts are debts that are given precedence over other debts in bankruptcy proceedings. These debts are typically considered more important or deserving of repayment due to various reasons, such as public policy considerations or the nature of the debt.
Priority debts must be paid in full before other types of debts receive any payment from the bankruptcy estate.
Types of Priority Debts
Priority debts can vary depending on the type of bankruptcy filing (Chapter 7 or Chapter 13) and specific circumstances. The following are some common types of priority debt.
Domestic Support Obligations
Domestic support obligations, including child support and alimony, are among the highest priority debts in bankruptcy proceedings. Ensuring the financial support of dependents takes precedence over most other debts, reflecting the importance of family obligations.
Certain Tax Debts
Certain tax debts are considered priority debts in bankruptcy, including federal, state, and local income taxes that are due within the last three years. Additionally, tax debts assessed within 240 days before filing for bankruptcy are typically considered priority debts.
Employee Wages & Benefits
Unpaid wages, salaries, commissions, and employee benefits owed to employees are classified as priority debts. This includes wages earned within 180 days before filing for bankruptcy, up to a certain limit established by bankruptcy law.
Certain Government Fines & Penalties
Debts owed to governmental entities for fines, penalties, or restitution orders are typically classified as priority debts. This may include fines for traffic violations, criminal restitution orders, or penalties for violating regulatory requirements.
Some Debts Arising from Bankruptcy Proceedings
Certain debts incurred as a result of the bankruptcy process itself may be considered priority debts. This includes administrative expenses incurred during the bankruptcy proceedings, such as trustee fees and legal fees.
Claims for Personal Injury or Wrongful Death Resulting from Intoxication
Debts arising from personal injury or wrongful death claims resulting from the debtor's operation of a motor vehicle while intoxicated are considered priority debts under bankruptcy law. This reflects public policy considerations aimed at deterring reckless behavior.
Treatment of Priority Debts in Bankruptcy
In a Chapter 7 bankruptcy, priority debts are typically paid first from any available funds or assets in the bankruptcy estate. If there are insufficient funds to pay all priority debts in full, they are usually paid on a pro-rata basis according to their priority status.
In a Chapter 13 bankruptcy, priority debts are incorporated into the debtor's repayment plan and must be paid in full over the course of the plan, which typically lasts three to five years. Priority debts are given precedence over general unsecured debts in the repayment plan.
Contact Us for Help with Bankruptcy
If you're grappling with financial difficulties and considering bankruptcy as a potential solution, don't hesitate to contact Buchalter & Pelphrey Attorneys At Law for legal guidance and support. Our team of seasoned attorneys possesses the knowledge and experience to navigate the complexities of bankruptcy proceedings effectively.
Take the first step toward financial stability by contacting Buchalter & Pelphrey Attorneys At Law today.