Secured, Priority and Unsecured Claims – what’s the difference?

22 Jan Secured, Priority and Unsecured Claims – what’s the difference?

Your bankruptcy lawyer will ask you to identify your creditors. Not all creditors are created equally.

There are three types of creditors in bankruptcy:

  • Secured creditors
  • Priority creditors
  • Unsecured creditors

Secured creditors are those who have a lien or security interest in collateral. Examples of this include:

  • Mortgage lenders
  • Automobile finance companies
  • Certain furniture dealers
  • Certain jewelry dealers
  • Car title lenders

Priority creditors get paid first from whatever is left in your estate after exemptions and secured creditors. Priority creditors include:

  • Domestic support claimants (usually ex-spouses for alimony or support)
  • Wage claims
  • Tax claims within 3 years (it’s more complicated than that but this is what you need to know to start)
  • Non-dischargeable tax claims – for example sales or withholding tax claims.

All other creditors are unsecured.

It’s not such a bad idea to pay off your priority creditors in a bankruptcy case, especially in a chapter 13. You’ll pay off debts which you otherwise can’t discharge. You’ll get the benefit of the automatic stay. And you’ll end up getting a discharge which will wipe out all your other secured debt.

I like to recommend chapter 13 to people who have a lot of priority debt.

Each case is different. Yours is too. Don’t rely on a “one size fits all” bankruptcy firm. You might find that your case has unique aspects. You should look for a lawyer who will treat you like the unique person you are.

Lakelaw represents people and businesses in bankruptcy in Illinois and Wisconsin.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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