Under bankruptcy law, certain debts are classified as priority while others are non-priority. The distinction makes a difference in how your debts are treated in Chapter 7 or Chapter 13 bankruptcy filings. Here’s what you should know about your debt types before beginning your path toward financial recovery.   

Why Do Priority & Non-Priority Debts Matter Under Bankruptcy Law?

Priority Debts     

Priority debts are amounts owed that can’t be discharged or wiped out in bankruptcy. Child support, alimony or spousal support, and many tax debts are in the priority category. Other priority debts include bankruptcy case administration fees, past-due government penalties, and personal injury claims arising from driving or boating under the influence of intoxicating substances.

Debts in this category are unsecured, meaning no property interests are attached to them. In this way, they differ from secured obligations, such as home mortgages and new car loans.

Non-Priority Debts

Non-priority debts are lower on the payment scale than priority debts and may be eligible for total or partial discharge. This category of obligations includes past-due rent payments, signature loans, medical bills, old tax debts, and money judgments for negligence or breach of contract.

Student loans fall into this category as well, although in most cases they can’t be discharged. 

Debt Treatment Under Chapter 7 & Chapter 13 

The trustee in a Chapter 7 bankruptcy is responsible for paying priority debts if non-exempt assets are available. If there are no assets, you’re responsible for paying the debts after receiving your bankruptcy discharge for non-priority obligations.

Chapter 13 bankruptcy law requires full payment of priority debts for the court to approve your repayment plan. An approved plan may include non-priority debts.

You can make wiser decisions when you understand how debts are handled in bankruptcy law. At the Law Offices of Harry G. Lasser in Cookeville, TN, an experienced and compassionate bankruptcy lawyer will explain legal and practical details and your options under Chapter 7 and Chapter 13 bankruptcy proceedings. Based in conveniently located offices, this skilled team makes legal advice and representation accessible. For a bankruptcy overview, visit their website or call (931) 372-9988 to schedule a free consultation.