Bankruptcy

Secured, Priority and Unsecured Claims ? what?s the difference?

By David Leibowitz, Illinois and Wisconsin Bankruptcy

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.

Full post as published by Bankruptcy Law Network on January 22, 2010 (boomark / email).