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.
