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Priority Claims in Bankruptcy

Bankruptcy has a priority for claims. Individuals filing for bankruptcy will have claims that are included in a repayment plan based on where the claim falls on the priority list. Any claims for debts to spouses or children for court ordered support are always the highest priority of a claim. Priority claims in bankruptcy often lead to questions like the ones answered below.

How does an individual determine the priority of a claim against a debtor?

Money held in a bankruptcy estate is used to pay unsecured claims is the bankruptcy case. Priority refers to the order in which they are paid. Higher priority claims are paid in full before lower priority claims receive anything.

The priority of payment as set out in 11USC 507 are as follows:
• Claims for debts to spouse or children for court ordered support
• Administrative expenses of the bankruptcy
• Unsecured, post-petition claims in an involuntary case
• Wage claims of employees and independent salespersons up to $10,000 per claim
• Contributions to employee benefit plans up to $10,000 per employee
• Claims of farmers and fishermen against debtors operating storage or processing facilities
• Layaway claims of individuals who didn't get the item they made the deposit on
• Recent income, sales, employment or gross receipts taxes

There is no indication of a lien placed on any of my assets resulting from a default judgment. Is a default judgment considered a secured claim, a priority claim, or an unsecured claim?

A default judgment is an unsecured claim but can change to a secured claim. The default judgment will become a secured claim once a writ of execution is issued and a lien is attached to property.

If a debt is determined to be dischargeable in a chapter 13 bankruptcy does the debt have to be included in the payment plan or is it simply still owed to the creditor?

Debt is dischargeable when all payments have been made in a Chapter 13 bankruptcy plan. Unsecured debt does not have to be included in the payment plan. It will only be included if there is enough money left in the bankruptcy estate after paying secured debts and priority claims.

In some cases of Chapter 13 bankruptcy unsecured debts are not paid at all. Some cases they are paid only partially and yet in others they are paid in full. But in all cases unsecured debts are discharged if the plan is completed.

Where does a leased vehicle fall in the priority of claims in a bankruptcy?

In most cases, a vehicle lease cannot be included in a Chapter 13 bankruptcy repayment plan. The lease would be paid outside of the plan.

If the decision is made to not keep the vehicle then the creditor will take back possession of the vehicle. The creditor will then sell the vehicle and apply the money to the balance of the loan. Any amount still owed on the balance of the loan is generally discharged as it would then be classified as an unsecured debt.

Having the right information and understanding of priority claims can help when dealing with questions regarding bankruptcy. Experts can help answer questions about the priority of claims or what priority claims are secured or unsecured. Get the answers fast and affordably by asking an Expert online.
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