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Friday, November 9, 2018

Property Claims in Bankruptcy

Every debt that you have is classified a certain way under the bankruptcy code. Legislators have determined that some debts should be paid off before others because they are deemed more important. Likewise, some debts cannot be discharged at all because they are considered so significant that an individual should not be able to avoid these obligations by filing bankruptcy.

The order in which debts must be paid in bankruptcy is often referred to as “priority.” Some obligations are also explicitly considered priority status debts under the bankruptcy code. These debts must be paid before the debtor can make payments on other debts.

Examples of Priority Debts in Bankruptcy

If you have priority debt, it must be paid before your “general” debt. Examples of priority debt include:

  • Costs to administer the bankruptcy (like legal fees)
  • Domestic support obligations (alimony or child support)
  • Certain newer income tax obligations
  • Some property tax obligations
  • Injury or death claims that are due to a motor vehicle accident or boating accident

When the trustee makes payments in your bankruptcy case, he or she must pay these priority claims first.

Priority claims are also not dischargeable in bankruptcy. That is, they will not be forgiven at the end of your case like general unsecured creditors would be.  

Determining Priority Claims

A creditor must state whether it has a priority claim in its “proof of claim.” The creditor should just check a box to indicate that it thinks it has a priority claim. However, your bankruptcy attorney can often simply look at your debts and determine which claims are going to have priority status.

The trustee overseeing your case may also take it upon himself to inquire with the creditor and debtor as to whether a particular claim should have priority. The trustee can still do this type of investigation even if the creditor does not indicate that it is entitled to a priority.

Creditors in a Chapter 7 case do not always have to file a proof of claim, so it may be up to your lawyer and the trustee to ensure that creditors get paid in the right order based on bankruptcy law. Creditors in a Chapter 13 bankruptcy, on the other hand, are required to file a proof of claim in most circumstances.

Priority Claims and Secured Claims

Although priority claims get special treatment, they do not get paid before secured creditors. Secured creditors are tied to a specific piece of property. They must get paid the value of the property (or make arrangements with you to continue to accept regular payments) if you want to keep the property during and after your bankruptcy. However, money that is not tied to the property should generally go to priority creditors.

General unsecured creditors, like credit card companies and hospitals, can usually only be paid after the secured creditors and priority creditors are paid in full.

Getting the order in which to pay creditors just right can be complicated, but your bankruptcy attorney will be able to walk you through the process.


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Serving Southeastern Wisconsin, with offices in Milwaukee and West Bend, Affliated Attorneys, LLC represent clients throughout Milwaukee County, Washington County, Waukesha County, Dodge County, Ozaukee County, Racine County, Sheboygan County, Jefferson County, Fond du Lac County and Walworth County.



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