Portland Bankruptcy Attorney

Bankruptcy Lawyer Portland Or

Portland Bankruptcy Attorney
CALL 503-380-7822
email-iconmap-marker
  • Home
  • Bankruptcy
    • Personal Bankruptcy
    • Business Bankruptcy
    • Zero Down Bankruptcy
    • Foreclosure
    • Chapter 7 Bankruptcy
    • Chapter 13 Bankruptcy
  • Estate Planning
  • About
  • Contact

What’s So Special About “Priority” Debts?

September 27, 2013 by Chris Kane

“Priority” debts are treated much better than other unsecured debts, but you can use that to your advantage in Chapter 7 bankruptcy.

Different Types of Debts

You may have heard that your debts are not all treated equally under the law in bankruptcy.

Most debts can be “discharged” (legally written-off). But some—such as child and spousal support–can’t be. Others—such as student loans and income taxes—can be discharged only under certain conditions.

Some debts have no collateral—they are said to be unsecured. Others are secured debts—they are legally attached collateral. A secured debt can be treated differently based on the worth of the collateral compared to the amount of the debt. You often have a choice to either retain or surrender the collateral.

Priority Debts

Today’s blog post is about a special type called priority debts. They are a list of debts which Congress has decided deserve special treatment. In most situations they get paid in your bankruptcy case ahead of other debts.

For consumers this priority list only comes into play in “asset” Chapter 7 cases and in Chapter 13 cases. In an “asset” Chapter 7 case the bankruptcy trustee collects and distributes assets, and the priority debt laws help direct how the proceeds of those assets get distributed. In a Chapter 13 case, the plan which directs how the plan payments to the trustee get distributed must comply with the priority debt laws.

This blog post will cover the “asset” Chapter 7 cases; the next one will cover Chapter 13 ones.

The 10 Priority Debts

The ten different priority debts are listed in Section 507 of the Bankruptcy Code in order of priority. Priority debts get paid in a bankruptcy case ahead of debts that are not priority debts. In addition the priority debts themselves get paid in the order that they are listed.

Most priority debts are not applicable to a conventional consumer bankruptcy—by way of example a certain amount of wages owed to an employee earned within a certain period of time would be a priority debt. But two kinds of the priority debts do pertain:

1) child and spousal support arrearage, and

2) tax debts of various kinds.

The support debt is listed as a higher priority than taxes, and indeed is the highest one on the entire list.

Priority Debts in an “Asset” Chapter 7 Case

Most Chapter 7 cases are “no asset” ones—all your assets are protected from creditors through “exemptions.” So you keep everything you own and nothing goes to the Chapter 7 trustee to distribute to your creditors. Therefore, the priority laws do not apply.

But in an “asset” Chapter 7 case, you own something that is not covered by any exemption, so the trustee can take, sell, and distribute its proceeds to your creditors. The priority laws are often crucial in that distribution process, particularly because the common result is that priority debts are the only ones paid.

Using the Priority Laws to Your Benefit in an “Asset” Chapter 7 Case

If you have a particular “non-exempt” asset, perhaps something that you do not mind surrendering to the trustee, and if you owe a priority debt, a Chapter 7 case can be way to turn these circumstances creatively to your benefit.

Most priority debts are also not dischargeable in a Chapter 7 case—examples being recent income taxes and child support arrearage. That means that after when you receive the discharge of your debts, you would continue to owe those two debts. So it would be handy if these taxes and/or support arrearage would be paid off or paid down by the Chapter 7 trustee’s sale, when he or she liquidates your unprotected asset and pays your creditors.

Here’s an illustration to make sense of it. Assume you own a boat free and clear with a marketable value of $5,000 that you really don’t want any more because you’d rather not pay its monthly moorage rent and constant maintenance costs. Also assume that it is not exempt, so you surrender it to your Chapter 7 trustee. You owe $1,350 in last year’s income taxes, plus $2,400 in back child support.  You could have sold the boat before filing bankruptcy and used the proceeds to pay the taxes and support, but it wasn’t the right time of year, plus you could not wait because a creditor was garnishing your paycheck. So here the trustee would sell the boat, pay herself the trustee fee (25% of the first $5,000 collected, so $1,250), pay first the support obligation and then the tax debt.  If the boat sold for $5,000, you would finish your Chapter 7 case owing neither of those priority debts. ($5,000 minus the trustee fee of $1,250 = $3,750 minus $2,400 support = $1,350 leaves just enough to pay off the income tax.) If all your other debts would be discharged, that would leave you current with your support and income tax, and otherwise debt-free.

Filed Under: Bankruptcy Procedure, Child and Spousal Support, Tax Debts

Welcome to the Portland Bankruptcy Law Blog

I'd like to help you overcome your financial problems. One good way to start is to provide you with accurate and timely information about the bankruptcy laws. I do that here through informative blog posts, with a new one published here every week. I've been doing this for years so there is a wealth of information for you here.

But please be aware that since you are unique person you need a highly personalized solution to your challenges. That requires the analysis and advice of a conscientious and highly experienced attorney. That's really the only sensible way to get the benefit of the many powerful and effective remedies that the law provides.

So I hope the information provided here is helpful to you. Please contact me for guidance to a much better place:

503-380-7822

Recent Posts

  • No link found between bankruptcy and employment prospects
  • Creditor found in violation of automatic bankruptcy stay
  • What are the short- and long-term credit impacts of bankruptcy?
  • Bankruptcy Attorney Portland, Or | Bankruptcy Lawyer Oregon | Christopher J. Kane P.C.

Categories of Blog Posts

  • Portland Bankruptcy Attorney
  • Personal Bankruptcy
  • Business Bankruptcy
  • Stop Foreclosure
  • Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy
  • Zero Down Bankruptcy
  • Filing Bankruptcy in Oregon
  • Testimonials
  • FAQ
  • Blog

FREE CONSULTATION

GET A FREE CONFIDENTIAL CONSULTATION THIS MONTH.
*Please see below.

CONTACT

Christopher J. Kane, P.C.

Address: 2207 NE Broadway, Suite 100, Portland OR 97232

Phone: 503-380-7822

Email: chris@ckanelaw.com


We are a debt relief agency.

We proudly help people understand their options and, if appropriate, help them file for bankruptcy relief under the Bankruptcy Code.

DIRECTIONS

CONNECT

  • Email
  • Facebook
  • LinkedIn
  • Twitter
Avvo - Rate your Lawyer. Get Free Legal Advice.
Best Bankruptcy lawyers in Portland
Best Bankruptcy Lawyers in Portland

* Using this form, or email, for communicating with us does not establish an attorney-client relationship, until we do that in writing. So please do not send confidential or time-sensitive information through this form or by email. You affirm that you have read and understand this disclaimer.
CAUTION: This website is to provide visitors with basic information about our firm, and information about how to contact us. Every situation is different, and no information on this website is legal advice on any specific question. You should not act on any of the information without first conferring with an attorney licensed in your jurisdiction. No attorney-client relationship or privilege is formed by visiting this site or by unsolicited email. Therefore, initial emails should not contain any confidential information. We may already represent parties adverse to you and cannot advise or represent you until we check for conflicts. We are licensed only in Oregon and offer our services only to those doing business in Oregon, unless we are associated with local counsel in accordance with other states laws. The applicable laws may have changed after the information on this website was published. While effort is made to keep the information current, you should not presume that all information is up to date. You must confer with an attorney to be sure you have current information.
Copyright © 2021 · Christopher J. Kane Attorney at Law · 503-380-7822 · Designed by Artizon Digital