Priority Claims Vs. Non-Priority Claims in Bankruptcy

In any type of bankruptcy proceedings, there will be a hierarchy of debts. Debts are also classified based on the liens they are holding or the absence of any security. If you are a creditor in a bankruptcy proceeding it is better for you to know your status right away so that you are prepared for the bankruptcy's outcome.

Debts Based on Security

Debts are classified as secured or unsecured. A secured liability means that the creditor has a lien on a property. For instance, a bank holding a house's mortgage is a secured creditor because he has a security for the loan. On the other hand, a creditor who loans money without any collateral is called an unsecured creditor because he has nothing to secure the debt. In case of bankruptcy, there is likelihood that he may not get payment.

Priority Claims vs. Non-Priority Claims

Debts are also classified based on priority. This means that aside from being secured or unsecured, debts can also be called priority claims or non-priority claims in bankruptcy. What is the difference between priority claims and non priority claims in a bankruptcy? Priority claims are debts that are considered more important than others. For secured creditors, they do not need to worry about getting paid because they have they liens securing their interests. But for unsecured creditors, their claims can become unpaid if they are considered as non-priority.

In the bankruptcy liquidation plan, the first set of creditors who get paid are administrative claims, which include lawyer’s fees, followed by the secured creditors. What remains of the estate's proceeds will be divided among the unsecured creditors. The priority claims get paid first before the unsecured ones. Priority claims include delinquent taxes, rent, utility, child support, spousal support and fines or restitutions. These are prioritized over other debts because they are considered essential. For instance, a father cannot just walk away from his obligation to his children and wife. But this same person may possibly walk away from his credit card debts. Non-priority claims include credit card debts, store cards, personal loans, and other types of unsecured loans. If you are filing for a claim in bankruptcy proceeding, brace yourself for the possibility of not getting anything if your claim is unsecured and non-priority.

Getting a Lawyer

Being represented by a lawyer in a bankruptcy proceeding is the best option you can make. Alternatively, you can just pay for legal consultation to know if it’s worth filing for a claim in a bankruptcy proceeding.