When a debtor files for bankruptcy, their debts are listed and claimed by creditors. Some of these claims will be categorized as priority claims that must be paid before all others. In this article, we’ll define the term “priority claim” and explain how they work.
Key Takeaways
- A priority claim is a type of unsecured claim by a creditor that must be paid before other claims
- The bankruptcy trustee oversees the payment of priority claims with funds from the bankruptcy estate
- Examples of common priority claims include unpaid wages, contributions to employee pension plans, child support, and tax obligations
- Priority unsecured debts cannot be discharged so the debtor is still responsible for paying them after their bankruptcy case is over
What Is a Priority Claim?
In bankruptcy, a priority claim is an unsecured claim by a creditor that must be paid before non-priority unsecured claims.
When a debtor files for bankruptcy, they must list all of their debts or creditor claims. Additionally, creditors must submit proof of claims forms to the bankruptcy court. If the creditor believes their claim falls under the priority category, they must indicate as such on their proof of claims form.
The bankruptcy trustee responsible for overseeing the bankruptcy case will review all submitted claims. They will resolve objections and distribute funds to priority creditors. If any money remains, the trustee will pay non-priority claims.
Types of Claims
Creditor claims can be split into a few categories.
- Secured claims - Secured claims are debts secured by collateral such as mortgages and car payments
- Unsecured claims - Unsecured claims are claims with no collateral or liens securing them such as unpaid taxes, child support, credit card debt, medical bills, and personal loans
- Priority claims - Priority claims aren’t dischargeable and must be paid out before other debts
Examples of Priority Claims
Common examples of priority claims include:
- Child support
- Spousal support
- Taxes owed to the government
- Up to $15,150 in contributions to an employee benefit plan
- Up to $15,150 in compensation earned 180 days before bankruptcy
- Debts for personal injury or death claims caused by driving under the influence
- Up to $3,350 for deposits given to the filer to secure personal products, services, or housing in the future
- Up to $7,475 to a fisherman for unpaid fish sold to a storage or processing facility
- Costs to administer the bankruptcy such as accounting or legal fees
Because priority unsecured debts cannot be discharged, if the debtor has not been able to pay off all of their priority debts during their Chapter 7 bankruptcy, they will still have to pay any leftover balance after the case.
All types of bankruptcy claims are due within 30 days of the 341 meeting. Priority claims are paid in order of their importance. Payment is overseen by the bankruptcy trustee.
