Priority Claim

Priority claim summary: 

• Priority claim is a term used in bankruptcy proceedings.

• It refers to unsecured debt that is given priority over other unsecured debt. 

• Priority claims are paid before non-priority claims receive any payment. 

Priority Claim Definition and Meaning

A priority claim is an unsecured debt given priority during insolvency or bankruptcy proceedings. 

Section 507 of the U.S. Bankruptcy Code establishes claims that have priority. This part of the bankruptcy law also establishes the order in which claims must be paid. Priority claims are paid before nonpriority unsecured claims, and can't be discharged in Chapter 7 bankruptcy. 

Comprehensive Overview of Priority Claim

When filing for bankruptcy, not all claims are paid. There may not be enough money to repay all that you owe.

You'll be expected to disclose information about all of your debt during bankruptcy proceedings. However, bankruptcy impacts your debt in different ways depending on how the debt is categorized or classified under bankruptcy laws. 

Here are the different kinds of debt that you may bring into a bankruptcy proceeding:

• Secured debt: These are debts guaranteed by collateral (something valuable that the lender can sell if you default on the debt). Mortgages are secured by a home. Car loans are secured by a vehicle. Bankruptcy doesn’t remove the creditor’s right to take the collateral. Creditors can foreclose or repossess to get paid back if they are not otherwise repaid. 

• Priority unsecured claims: These are debts that can't be erased in bankruptcy. Creditors that have priority unsecured claims will be paid before any priority unsecured claims. Unpaid child support is an example of a priority unsecured claim.

• Nonpriority unsecured claims: Most, but not all, of these debts can be discharged or erased in bankruptcy. Creditors with nonpriority unsecured claims are the last to be paid and may not be paid at all. Credit card debt, personal loan debt, and payday loan debt are all examples of nonpriority unsecured claims. 

Types of Priority Claims

In individual bankruptcy proceedings, the most common types of priority claims include:

• Domestic support debts: This includes unpaid alimony and child support.

• Administrative expenses: This includes costs and fees incurred during bankruptcy. Examples include bankruptcy trustee fees. 

• Certain types of unsecured tax debts: This can include, among other things, income tax obligations that were incurred within the past year.

• Debts for personal injuries or deaths caused by impaired driving: If you owe someone money from a settlement or court judgment after a fatal accident resulting from impaired driving, that unpaid debt is a priority claim. 

These debts can't be forgiven or discharged in bankruptcy.