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  1. Bankruptcy Glossary
  2. Priority Claims

What are Priority Claims?

Under Chapter 13 Bankruptcy a debtor submits a Chapter 13 Bankruptcy repayment schedule with their bankruptcy petition (or within 15 days filing the Chapter 13 bankruptcy petition) which identifies the types of payments and the amounts which will be paid. The payments are made to the trustee (either biweekly or monthly) who distributes the payments to the creditors.

Claims are identified as 1) priority; 2) secured or 3) unsecured. All priority claims are paid first and in full (some exceptions may exist). Priority claims can include most taxes and the administrative costs of the bankruptcy process. Secured claims are paid next and include claims which are collateralized by an asset. Unsecured claims are paid last and can include all other types of debts (credit card debt, medical expense debts and personal loans).

Bankruptcy rules have identified the following criteria for paying debts:

  • Claims which have the same priority class must be paid the same proportionate amount.
  • The payment received for liquidating an asset can be used to repay the secured creditors. If the collateral is sold but is not sufficient to meet the debt obligation, the amount of debt remaining is considered an unsecured claim. If the asset is not sold the plan must provide the creditor with payment which is equal to the value of the collateral. Full payment may be required to retain the asset if the debt was incurred within a specific period before the bankruptcy filing.
  • Claims must be paid in priority order and the higher priority claims are completely paid before the lower claims receive any payments.
  • Unsecured debts do not have to be paid in full, but disposable income will be used to make the payments over the "applicable payment period". Unsecured debt payments must be equal to the payment amount a creditor would have received if a liquidation of the debtor's assets had occurred.

Some debts are not dischargeable by filing personal bankruptcy. These debt payments are not part of the debt repayment schedule (See Exemptions and Non-Dischargeable Debts).