Priority Debts in Chapter 7 Bankruptcy
Priority debts get paid first in Chapter 7 bankruptcy.
In Chapter 7 bankruptcy, priority debts are unsecured debts that are considered sufficiently important to jump to the head of the bankruptcy repayment line.
How Priority Debts Are Paid in Chapter 7
If a Chapter 7 trustee disburses property in the course of the Chapter 7 case, priority debts get paid first. This can be very helpful when the priority debt can’t be discharged in your bankruptcy (which is usually the case). For example, your recent income tax bill is both a priority debt and a debt that can’t be discharged in bankruptcy. Getting the taxes paid off with your property sale proceeds is a lot better than if the money were to go to pay off debts you could discharge in your case.
(To learn more about Chapter 7 bankruptcy, including when the trustee will liquidate your property and what debts are not discharged, see our Chapter 7 Bankruptcy area.)
Common Priority Debts in Chapter 7 Bankruptcy
Priority debts that might come up in consumer bankruptcies include (as of April 2016):
- wages, salaries, and commissions owed by an employer up to $12,850 per person earned within 180 days of your bankruptcy filing
- contributions to your employees’ benefit plans rendered within 180 days of your bankruptcy filing
- debts of up to $6,325 (each) owed to certain farmers and fishermen
- up to $2,850 in deposits made for the purchase, lease, or rental of property or services for personal, family, or household use that were not delivered or provided
- alimony, maintenance, or support
- income taxes that became due within the three-year period before the bankruptcy filing date and taxes that were collected or withheld from an employee (trust fund taxes); also, customs, duties, and penalties owing to federal, state, and local governmental units, and
- claims for death or personal injury (not property damage) that came about because of your driving under the influence of alcohol or drugs.
To learn how other debts are treated in Chapter 7, see Your Debt in Chapter 7 Bankruptcy.