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
Priority debts are paid first if a Chapter 7 trustee disburses property in the course of the Chapter 7 case. This can be very helpful when the priority debt can’t be discharged in your bankruptcy (which is usually the case). For example, liability for a recent income tax is both a priority debt and a debt that can’t be discharged in bankruptcy. Having your property pay off the tax debt—which you will have to pay anyway—is a lot better than having your property go to pay off debts that would otherwise be discharged in your bankruptcy.
(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 may come up in consumer bankruptcies include:
- wages, salaries, and commissions owed by an employer up to $12,475 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 $6,150 (each) owed to certain farmers and fishermen
- up to $2,775 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.