While bankruptcy provides a viable way out of overwhelming debt, the courts don't recognize all debts as equal. This results in some balances receiving a priority status while others are considered less important. What does this mean for a Chapter 7 or Chapter 13 bankruptcy filing? Here’s an overview of how priority and nonpriority debts differ and their impact on your type of filing.
Priority debts are always unsecured, meaning they’re not connected to any kind of collateral. Examples of priority debts include child and spousal support, non-dischargeable taxes, and certain types of wrongful death or personal injury judgments, such as those caused by intoxication.
In a Chapter 7 bankruptcy, priority debts are paid before all others, even if their balances are outweighed by other bills. In Chapter 13, these debts must be repaid in full through the Chapter 13 repayment plan, and they typically can’t be negotiated to a lower amount or eliminated entirely.
Nonpriority debts are also unsecured, but they don’t take precedence over the types of debt discussed above. The majority of debts in bankruptcy are nonpriority and encompass everything from credit card bills and medical expenses to back rent and past-due utilities.
In a Chapter 7 filing, nonpriority balances are almost always discharged in full by the courts. With Chapter 13, these debts can often be renegotiated so the filer only has to repay a portion of them as part of their payment plan.
To better understand how the courts will classify your debts, consult a bankruptcy lawyer. Since 2000, Attorney Rafael Gil III of The Gil Law Firm has been serving clients in Alabama, Georgia, and Florida. He and his partners offer personal and comprehensive representation to help you reclaim your future. Start on the path to a debt-free life with an initial consultation by calling (334) 673-0100 today. Visit their website to learn more about the firm.