Free Consultation
The office is open as per the NYS Covid-19 guidelines. We are now doing both in-person and telephone consultations. Please call the office at 718-855-6840 to schedule a time to speak with one of our experienced bankruptcy attorneys.

What Are ‘Priority Claims’?

New York bankruptcy requires debtors to pay some creditors what they are owed before others. These are called “priority claims” or “priorities” in the Bankruptcy Code. In chapter 13, for instance, creditors with priority claims must be repaid in full. Consequently, it’s important for debtors to have an idea of what these kinds of claims are—and their order of payment—so they can plan their bankruptcies accordingly. The list can be found in Section 507 of the Bankruptcy Code and are summarized here:

(1)  Domestic support obligations that are owed to a person

(2)  Domestic support obligations that are either assigned to a governmental unit by the person to whom they are owed, or owed directly to a governmental unit

(3)  Administrative expenses of the trustee and the bankruptcy

(4)  Claims held by Federal Reserve banks for loans made under certain government programs (this is very uncommon in a personal bankruptcy)

(5)  In an involuntary bankruptcy, post-petition debts that are incurred in the normal course of the debtor’s business

(6)  Up to $13,650 earned by each person or business working for the debtor

(7)  Claims for contributions to employee benefit plans amounting to $13,650 for each employee

(8)  Up to $6,725 for each person who either sells grain or fish to a grain storage facility or fish storage or processing facility, respectively

(9)  Deposits to the debtor up to $3,025 each for use of property or services that were not provided

(10)  Taxes owed to governmental units

(11)  Commitments to a Federal depository institutions regulatory agency for maintaining the capital at an insured depository institution (an example is capital adequacy requirements for banks to qualify for protection by the FDIC)

(12)  Claims owed for death or personal injury by the debtor if he or she was intoxicated

An important point is that these claims are not secured by any collateral. This means that even in a chapter 7 bankruptcy, the creditors holding these claims will be paid out of the bankruptcy estate before any creditors with unsecured, non-priority claims—like credit card debts, gambling debts, medical debts, and student loans. Thus, substantial priority claims can create obstacles for debtors for a few reasons. One, in chapter 13 bankruptcies, trustees insist that some distribution go to non-priority, unsecured creditors, which can raise the amounts required in the repayment plan. Two, unsecured, non-priority claims such as student loans might be non-dischargeable, so they will survive the bankruptcy requiring debtors to pay on them.

On the other hand, one of the most common priority claims are tax debts, which can be paid in full without interest in chapter 13. This is one of the advantages of that chapter over chapter 7.

If you have substantial unsecured priority debts, you need the help of an experienced New York bankruptcy lawyer to help you navigate your way through your case.

For answers to more questions about priority claims in bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced landlords rights in bankruptcy Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

Recent Posts

Beware Grace Periods, Debtors

Too often, debtors see grace periods offered by lenders as free benefits. “Grace” makes it sound so innocent. However, debtors who routinely rely on grace periods when making payments will find themselves facing financial difficulties that might lead to bankruptcy. The reason is that although creditors offer grace periods to debtors, they also use them

Read More »

Bankruptcy May Not Rescue You From Vicious Personal Disputes

Bankruptcy is a technical process that assumes everyone working within it is mostly rational. To the extent that it expects parties to deviate from irrational behavior, the Bankruptcy Code and its accompanying rules include incentives to keep parties in line. Creditors are usually large and impersonal, and they rarely care if their debtors file bankruptcy.

Read More »

Non-Lawyers’ Explanations of Bankruptcy May Be Wrong

Do you have financial problems? Do you tend to ask your friends for advice? Is one of your friends an experienced New York bankruptcy lawyer who will explain the process for you? Are your friends otherwise knowledgeable people? The answer to these questions may be, “Yes but you don’t know it.” Although many bankruptcy lawyers

Read More »

6 Steps to Take Before Filing Bankruptcy

Leaving your case to an experienced New York bankruptcy lawyer is not the only step on the to-do list before filing bankruptcy. There are many things debtors should do (and not do) before they file, and the more organized and mindful debtors are, the easier the process will be and the more effective the result.

Read More »

Social Security Number Not Necessary for Bankruptcy

A question that’s commonly asked about New York bankruptcy is whether a debtor needs a Social Security number to file. Debtors ask because they sometimes run across the bankruptcy form title, “Your Statement About Your Social Security Numbers” (B 121), which asks debtors to list their current and prior Social Security numbers. The new bankruptcy

Read More »

How Can a Debtor (or Creditor) Get a New Trustee?

The trustee in a New York bankruptcy case is usually not the debtor’s ally. His or her purpose is mainly to administer the bankruptcy estate or ensure the debtor’s repayment plan goes according to plan. Trustees pursue preference payments, fraudulent conveyances, and other malfeasance committed by debtors. They frequently initiate adversary proceedings against debtors. In

Read More »
Scroll to Top