What Debts Take Priority When You File Bankruptcy?
Will bankruptcy handle your most pressing debts? This is a major consideration when deciding whether or not to file bankruptcy. By law, not all debts are treated equally. Some take priority over others and get paid first. There are even certain debts that bankruptcy cannot eliminate at all. Suppose that your most pressing debt is a student loan. Bankruptcy generally does not wipe out student loan debt. So, if this debt is your main reason for filing bankruptcy, you may want to reconsider your options. On the other hand, wiping out other debts may enable you to continue paying off your student loan. Then, bankruptcy may be a viable option for you.
Priority debt, secured and unsecured debt
The U.S. Courts website contains definitions of bankruptcy terms and defines priority in terms of bankruptcy debts. Under the U.S. Bankruptcy Code, there are three main types of debts — priority debts, secured debts and unsecured debts. The trustee sells property or assets to pay debts, they are paid in that order – first priority debts and then secured, and last, unsecured debts.
Examples of priority debts are child support, alimony, spousal support, recent tax debts and employee wages. Secured debts are any debt secured by collateral, such as a home mortgage or car loan. Unsecured debts are debts not backed by collateral, only by a promise to pay. Medical bills, utility bills and credit card bills are examples of unsecured debts.
If a large amount of cash proceeds must be distributed during a bankruptcy case, the bankruptcy trustee will decide which creditors to pay and what amounts to pay them.
For legal help with bankruptcy, Harold Shepley & Associates is a full service debt relief law firm based in Pennsylvania that helps clients deal with bankruptcy and other debt solutions. The firm offers a free consultation to discuss your financial issues.
October 25, 2012 Posted in Bankruptcy Tagged debt, filing for bankruptcy, secured debt, unsecured debt Leave a comment
