When dealing with cases of bankruptcy, it is important to know that the law does not treat all debts the same. This is because debtors have different kinds of creditors that they owe money to for a variety of different reasons. It is because of this that debts fall into three categories: secured, general unsecured, and priority. This determines the order in which debts must be paid when debtors cannot repay them right away, beginning with priority debts. Please read on and reach out to our experienced Rockland County bankruptcy attorney to learn more about priority debts and how our firm can help.
The Bankruptcy Code has a ranking of unsecured claims that determines the order in which they must be paid if the debtor does not have enough money to pay them all in full. Priority debts are a specific category that is treated more significantly than others. This is because bankruptcy law gives them higher priority over other general unsecured debts. Certain debts are made to be a priority because the money is usually owed to the government or because it is required by public policy.
Why Would a Debt Be Priority?
There are reasons as to why each debt is categorized the way it is. It is because of this that they are treated specially. For example, the most common priority debts in consumer bankruptcy cases include the following:
- Child or Spousal Support: This is made special because the state of New York strongly believes that children and former spouses are owed the financial support that is ordered by divorce courts. It is because of this that federal bankruptcy law incorporates the same policy into their practices.
- Income Taxes: These debts are made special because they are a debt to the larger public, not a private person or business. These debts affect all people, which is why it is a higher priority than private debt. However, this is only a priority debt if it meets certain conditions. This usually relates to how old the taxes age. If the tax is newer, the more likely it is to be a priority debt. If the income tax does not meet the required legal conditions, they are considered general unsecured debts.
Paying Priority Debts
All priority debts are required to be paid ahead of all other debts. Under Chapter 13 bankruptcy, priority debts must be paid in full, sometimes with interest, through the individual’s bankruptcy plan. Under Chapter 7 bankruptcy, the priority credits must be paid first. If there is not enough money to repay priority debts, nonpriority debts may not be paid at all.
Contact our Firm
Bankruptcy, for many people, is a frightening endeavor. Fortunately, with the help of an experienced attorney, it does not have to be. If you require the services of an experienced Business Law or Bankruptcy attorney, contact the Law Offices of Allen A. Kolber, Esq. today to schedule a consultation and discuss your options. We will have your back every step of the way.