Payment of debts by virtue of a bankruptcy discharge usually means that debts are not paid in full. This makes sense since a bankruptcy petition is filed on the premise that the petitioner’s assets are no longer sufficient to cover their liabilities.
Priority Claims Defined
There are always exceptions to the rules when it comes to bankruptcy. In the case of payments, the law has a list of “Priority Claims” which essentially means that they CANNOT be discharged and must be paid in full. Simply put, even if a bankruptcy petition was granted, these particular debts would still be present and that the debtor must still pay them off at some point.
Inclusions in a Priority Claim
So what are included in the Priority Claim category? Following are the debts that fill follow you even after a discharge.
- Income taxes within a specific period of time;
- Child support and alimony;
- Obligations by an employer to be paid to employees in the form of wages, salaries, contributions to benefit plans, and commissions;
- Any claims arising from drunk driving due to death or physical injury;
- Custom duties and penalties to be paid to government units;
- Any debts owed to farmers and fishermen amounting to $6,150 each
- Any deposit made for the lease, rent, or purchase of property or any services for personal use amounting up to $2,775.
Note that the above list is a combination of Chapter 7 and Chapter 13 Bankruptcy priority claims. It is best to first consider exactly what Chapter you fall in and determine if you have debts that fall within this category.
Payment of These Claims
Generally, Priority Claims are paid off first before the remainder is disbursed to other creditors. This makes sense since non-payment of these debts means that at some point, you will still have to pay for them because they are NOT discharged with the bankruptcy grant. By using your estate to pay off the Priority Claims, you’ll be left with debts that are dischargeable under the law.
Other Types of Claims
Aside from Priority Claims, petitioners may also encounter other types that are treated to different payment systems. Following are the other categories for liabilities during bankruptcy:
- Secured Claims
Secured claims are essentially debts tied to property. This includes car loans and a mortgage to a home. Note that an approval of a bankruptcy discharge simply means you do NOT have to pay the outstanding debt tied to the property. However, the ability of the lender to establish ownership towards said property is not extinguished. Hence, they are still in the position to get back the car, the house, or any other security you might have used to obtain the debt.
- Unsecured Claims
As opposed, unsecured claims are those that are NOT tied to a property for security. A good example would be credit card bills and medical bills. They are non-priority and often discharged upon approval of the bankruptcy petition. Note though that there are exemptions to the rule, one of which is Priority Claims because technically, they have no collateral. Another exception are student loans that, although having no collateral, cannot be discharged with a bankruptcy approval.