Determining Your Priority Debts Under Bankruptcy

Anyone who files for bankruptcy is assigned a trustee

. One of the functions of the trustee is to assist you in preparing for the court date in which the judge will determine if you are eligible for bankruptcy protection. As part of this preparation, you will be asked to list all of your debts.

You and the assigned trustee will work together to split all of your debts into 3 main categories - secured debts, unsecured debts, and priority debts. The court will be interested in all of these debts. But the one that you will be particularly interested in are the ones classified as priority debts.

A priority debt is one that takes precedence over other debts. Exactly what constitutes a priority debt is determined by state law and the judge. Why do you care about this? You care because if the judge approves your bankruptcy case, some of your debts will be discharged. In fact this is the main reason why most people file for bankruptcy.

A priority debt, however, will typically not be discharged. So, even after putting yourself through the difficulties of bankruptcy, you will still have to pay those non-dischargeable debts. In most cases, the debts that can't be discharged fall into the priority debt category. Since these debts can't be discharged, you want to ensure that any of your properties that are liquidated to pay off your debts goes first towards paying off your priority debts.

There are a subset of debts that usually are considered to be priority debts. In all likelihood the most common one is a debt that you haven't paid on your income. If you are in arrears in paying your income taxes, it is extremely rare that these will be discharged. Another priority debt is child support. Courts don't want you to be able to evade your responsibilities as a parent by filing for bankruptcy. In a like vein, alimony debts and spousal support are usually not eligible for discharge.

If you own a business and your business makes a habit of contributing to employee benefit plans, these employee benefit plans will normally be classified as a priority debt.

As you and the bankruptcy attorney slog through your financial records, soon a clear picture will begin to emerge regarding your debt situation. You will have a reasonably good idea as to which debts you will still be responsible for if your bankruptcy request is approved.

Each state has its own rules and regulations which determine how debts are to be categorized when someone files bankruptcy. If you want to know which debts are likely to be classified into this category before you file for bankruptcy, talk to a bankruptcy attorney who has experience in your state. He will be able to help you figure out whether bankruptcy is the best financial option for you.

Determining Your Priority Debts Under Bankruptcy

By: David Hoyer

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