When filing for Chapter 13 bankruptcy, a term your bankruptcy attorney might throw out is “priority debts.” While you might be tempted to nod along like you know what he or she is referring to, it’s essential to understand what this is, and how it can impact your bankruptcy proceedings – and your repayment plan.
What Are Priority Debts in Bankruptcy?
During bankruptcy proceedings, your attorney and the court will review ALL of your finances and debts. From medical bills to credit card bills, car payments, mortgage payments, and more, everything will be taken into consideration, especially when creating your repayment plan for your Chapter 13 bankruptcy.
Priority debts are what the bankruptcy laws deem as being the most important debts, and in most cases, they cannot be discharged. That means these must be paid, and they must be addressed first before looking at your other bills. Priority debts can vary based on your situation, but some common ones include child support, alimony, and recent federal and state taxes.
What Are Non-Priority Debts?
In addition to priority debts, non-priority debts will also be handled during bankruptcy. Some common examples of non-priority debts include:
- Credit card balances.
- Personal loans.
- Rent and utility bills.
While car loans and mortgage payments are considered secured debts, these are also treated as non-priority debts during a Chapter 13 bankruptcy. What does that mean? Your lender will keep a claim on the property while your loan exists. Any late payments you owe the lender might be discharged during the bankruptcy process, but the lender can still take your car or house, depending on the terms of the loan. However, you might still be able to keep the property if you pay off your past-due payments through your repayment plan and make all future payments. You will need to work with your lender and your attorney to figure out the details and demands.
There are also debts that are considered non-priority but non-dischargeable debts. These debts are included in the bankruptcy and are not necessarily paid in full in a Chapter 13 bankruptcy. These debts remain after a discharge in bankruptcy and include debts like student loans and certain criminal fines and fees.
How Are Unsecured Debts Paid in Chapter 13 Bankruptcy?
During Chapter 13 bankruptcy proceedings, there could be a large list of unsecured debts that need to be addressed. These are typically accounted for in a repayment plan. In this plan, you will repay debts throughout 3 to 5 years. A court-appointed trustee collects your monthly payments for the duration of the plan and distributes money to creditors.
How this money gets distributed depends on the strength of the claim from the creditors. Priority debts will get repaid first and may be repaid in full. The non-priority debts may get paid last, and only partial repayments may be made, depending on the bankruptcy proceedings.
Any remaining non-priority debts at the end of the bankruptcy proceedings (when the repayment plan is completed), may be discharged and the remaining debts can be erased.
If you have questions about how this process works, it’s essential to work with your bankruptcy attorney.
Let Us Help You
Navigating a Chapter 13 bankruptcy and priority debts can be complicated. Let our lawyers at the Law Offices of Alexzander C.J. Adams, P.C. help. We will help you through the ins and outs of your bankruptcy and ensure you know what to expect. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.
