What Are Bankruptcy Priority Debts?

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When you file for bankruptcy you will be assigned a trustee. Part of his function is to help you prepare 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 need to know the extent of all of these. But, as the debtor, the ones classified as priority debts are the ones that should receive most of your attention.

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 should you care about this? You should care because assuming that the judge approves your bankruptcy case, some of your debts will be, no doubt, be discharged. After all, one of the main reasons that people file for bankruptcy is to have a good portion of their debts discharged.

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.

So what kind of debts fall into the priority category? Probably the most common one is an income tax debt. 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 run a business and your business has a policy of contributing to employee benefit plans, these plans will usually be classified as a priority debt.

As you and the bankruptcy attorney work through your financial records, a clear picture will begin to emerge as to which debts you will still be responsible for if your bankruptcy request is approved.

The customs for determining which debts fall into the priority category varies state by state. 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.

Article Source: http://depositarticles.com/

For additional information on bankruptcies in the U.S. such as claiming bankruptcy and foreclosure bailout, please visit our financial site.

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