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Priority Debt Related Questions

Priority debts as the name suggests implies that these debts should be given priority over other debts by the Bankruptcy Code. They must be paid ahead of all other debts usually after the trustee pays administrative claims. Apart from this basic framework, there may be several other aspects which a person needs to be aware of or know how it is applicable in their scenario. This is where online legal Experts can provide useful insights and answers to any questions.

Read below for priority debt questions answered by Experts.

What is a priority debt?

This is a debt which should be paid with preference over other unsecured debts. Priority is granted to a certain debt either because the money is owed to the government or because public policy requires it. Also, the government has determined that giving the debt priority status is for the greater public good. In bankruptcy, they are non-dischargeable, which means that even after one receives a bankruptcy discharge, they are still responsible for remaining balance due. This debt would need to be dealt with as part of a Chapter 7 or 13 plan.

What are the different debts paid off by a trustee in a bankruptcy?

Under Chapter 7 bankruptcy, there are priority and non-priority debts. Generally, when a trustee is in a situation to either seize debtor property or retrieve money from vendors and/or creditors, the debts get paid in the following order: secured debts, priority debts, and non-priority debts. Secured debts are those which come with a security interest in property such as a mortgage or car loan. After these debts are resolved, the trustee needs to pay off priority debts. They include sales, income tax (any unpaid taxes), as well as alimony, among a few other things, and these should be paid by the trustee. Non-priority debts include all the other debts such as credit cards, unsecured loans from private banks, and so on.

Is tax debt included in this?

In most cases, yes, if it was assessed within 240 days prior to the bankruptcy petition or is assessable after the commencement of the case. A priority tax debt would need to be paid in full through the Chapter 13 plan. The tax debt would be priority unless it is more than three years old and if you have filed tax returns at least two years ago. Federal income tax is assessed on the date the IRS notifies the taxpayer of a tax claim or on the earlier date that an assessment officer signs a summary record of assessment.

How soon after these were paid out along with a part of the unsecured creditors, can another Chapter 13 be filed?

Case Details: A Chapter 13 was filed previously.

If a discharge has been received from the first Chapter 13, it is not possible to receive a discharge in the subsequent Chapter 13 unless it is filed at least two years from the date the first case was filed. This is because most Chapter 13 cases take 3-5 years to complete. Usually, people can file for another Chapter 13 immediately after the first case is closed and becomes eligible for discharge.

Does Chapter 13 prioritize debts?

Chapter 13 bankruptcy repayment plans prioritize debts with those creditors with the highest priority receiving repayment first. Secured debts such as taxes and mortgages are priority debts and get paid off before unsecured debts such as credit card debts and payday loans.

Is state sales tax listed as one in a Chapter 7 filing case?

Under Chapter 7 bankruptcy, the state sales taxes would be considered as one.

Is it beneficial to pay IRS tax estimates prior to filing Chapter 13 bankruptcy?

There is a benefit to paying the taxes before filing since income taxes are considered a priority debt and have to be paid during the life of the plan. This implies that if there is any property in the estate for the trustee to sell, the IRS will be paid out of the proceeds first prior to payment to any other unsecured creditors. Usually, unpaid taxes would increase the plan’s payments which implies that there is a higher likelihood that the plan can fail due to lack of funding.

As seen above, the priority debts are one of the most important debts to pay before any others. These are some questions people have had with regard to priority debts and the in-depth information provided by legal Experts. Your question may be different from what has been explained above. To ask specific questions and get customized answers, contact legal Experts online quickly and economically from the comfort of your home.

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