In Chapter 13 bankruptcy, you reorganize and pay back a portion of your debts through a repayment plan. Congress has deemed certain debts important enough to receive special treatment in your Chapter 13 plan. These are called “priority claims.” Read on to learn more about what priority claims are and how they affect your Chapter 13 bankruptcy.
(To learn about other types of debts in Chapter 13 bankruptcy, see Your Debts in Chapter 13 Bankruptcy.)
How much a creditor receives through your Chapter 13 plan is determined in part by the type of claim it has. Here are the different types of claims a creditor can have in your Chapter 13, including priority claims.
Creditors with a lien against your property (such as mortgage holders and car lenders) have a secured claim in your bankruptcy. However, these are not considered priority claims. Secured claims have their own special rules regarding how they are treated in your Chapter 13 plan. (To learn more about secured debts, unsecured debts, and how they are paid in Chapter 13, see Your Debts in Chapter 13 Bankruptcy.)
If a debt is not secured by collateral then that creditor has an unsecured claim. There are two types of unsecured claims, priority and nonpriority. Whether an unsecured claim is priority or not makes a big difference in how much you must pay towards the claim in your bankruptcy.
Nonpriority unsecured claims include your credit cards, medical bills, and other unsecured loans or bills that have not been designated in the bankruptcy code as being a priority debt. It is not mandatory to pay these debts back in your Chapter 13 plan. The amount you pay nonpriority unsecured claims depends on your income but these creditors usually receive nothing or pennies on the dollar.
Due to public policy concerns, Congress has decided that certain debts should be paid in full and cannot be discharged (wiped out) through bankruptcy. As a result, these debts are considered priority claims and receive special consideration in your Chapter 13 bankruptcy. However, this does not mean that a bankruptcy can’t help you with them. In fact, most people file a Chapter 13 bankruptcy specifically to reorganize and pay these debts through their repayment plan.
Priority claims have to be paid in full through your Chapter 13 repayment plan (which cannot be longer than five years). As a result, the amount of your monthly plan payment depends both on your income and expenses as well as your priority claims. Since priority claims must be paid in full, if you have a significant amount of them your plan payments will need to be large enough to pay them off within five years.
Below are some of the most common priority claims in Chapter 13 bankruptcy:
Learn more about how debts are handled in Chapter 7 and Chapter 13 bankruptcy in Nolo' section on Bankruptcy Information.