Priority Unsecured Debts: What You Need to Know Before Filing

You’ve probably heard debts split into two types: secured and unsecured. A debt is secured when lenders can seize property if you don’t pay. But bankruptcy adds another layer. Some unsecured debts get special treatment. You need to understand these distinctions before filing.

What Priority Claim Means in Bankruptcy

Priority unsecured debts receive different treatment in bankruptcy. Creditors holding priority claims get paid before general unsecured creditors. In a Chapter 7 case with assets, priority claims receive payment first. Other unsecured creditors only get what remains after priority claims are satisfied.

Common types of priority unsecured debt include:

• Child support obligations
• Alimony and other domestic support
• Certain income taxes that meet specific requirements
• Some property taxes
• Personal injury claims from DUI incidents

Priority claims are actually ranked among themselves. First-priority creditors get paid before second-priority creditors, and so on. Nonpriority unsecured claims come last in the payment order.

Domestic support obligations rank highest. Administrative costs for the bankruptcy trustee and estate preservation expenses follow. Many other priority debt types rarely apply to consumer bankruptcy cases.

Additional priority debts that typically affect business cases include:

• Unpaid wages and commissions
• Employee benefit plan contributions
• Certain excise taxes
• Customs duties
• Deposits for undelivered services

General unsecured claims include any debts not listed in Section 507 of the U.S. Bankruptcy Code. These debts typically get discharged in Chapter 7. Common examples include:

• Credit card balances
• Medical bills
• Past-due rent and utilities
• Payday loans
• Personal loans without collateral

You’ll list all unsecured debts on Schedule E/F when filing. Priority and nonpriority claims appear in separate sections.

For most Chapter 7 filers, the priority ranking doesn’t matter much. Most cases are “no asset” cases. The bankruptcy trustee has nothing to liquidate and distribute. When no assets exist, unsecured creditors receive nothing through bankruptcy. Priority doesn’t matter when nobody gets paid.

The bigger concern is that most priority unsecured debts are nondischargeable. You’ll still owe them after Chapter 7. In Chapter 13, you must pay them in full through your repayment plan. If you’re struggling with these debts, you should speak with a bankruptcy attorney for free to explore your options.

Priority Debts Survive Bankruptcy Discharge

Chapter 7 bankruptcy discharges most unsecured debt. When debt is discharged, you’re no longer legally required to pay. In no-asset cases, general unsecured creditors receive nothing. The legal obligation disappears completely.

Priority creditors don’t get paid in no-asset cases either. But their claims don’t disappear. General unsecured claims are discharged at the end of Chapter 7. Most priority unsecured debts remain your responsibility.

After your discharge, you still owe any past-due domestic support. Priority tax debt remains collectible. Most other priority claims survive the bankruptcy process.

Priority claims aren’t the only debts that survive bankruptcy. Student loans are nonpriority unsecured debts. They also typically survive the discharge process.

Chapter 13 bankruptcy works through a repayment plan. Some unsecured debt may be discharged after completing the plan. But priority debts must be repaid in full through the Chapter 13 plan.

How Priority Debt Affects Your Bankruptcy Filing

Priority debts don’t change your bankruptcy eligibility. But they affect how much bankruptcy helps you. People with mostly general unsecured debts often choose Chapter 7. Those hoping to resolve priority debts may not benefit from Chapter 7.

Chapter 13 can provide solutions for priority unsecured debts. These debts can’t be discharged in Chapter 13 either. However, you can pay delinquent balances over time through your plan.

Every bankruptcy case requires schedules submitted with your petition. Schedule E/F discloses all unsecured debts. Creditors receive notification and can file proofs of claim.

In no-asset Chapter 7 cases, creditors often don’t file claims. No funds exist for distribution. In Chapter 13, creditors must file claims to receive payment. Some filers benefit when creditors don’t file. But nondischargeable debts are different.

Priority unsecured debts survive bankruptcy without filed claims. Chapter 13 filers should ensure claims are filed. Including these debts in your repayment plan helps you resolve them.

Finding Your Best Debt Relief Option

Priority unsecured debts are one factor determining your best debt solution. Education about your options always comes first.

Different situations require different approaches. If you’re overwhelmed by debt, explore these options:

• Credit counseling provides guidance from nonprofit organizations
• Debt management plans combine debts into single monthly payments
• Debt consolidation loans may lower interest rates and payments
• Debt settlement could reduce what you owe
• Chapter 13 bankruptcy spreads past-due payments over time

Understanding priority debts helps you make informed decisions. Your financial situation is unique. The right solution depends on your specific circumstances and goals.