Bankruptcy: Which Debts Qualify as Priority Debts?

When the debts become overwhelming, Ohio consumers may have questions about their options. While bankruptcy is likely the most appropriate way to achieve financial relief, some so-called priority debts are not dischargeable. These include secured debts such as car loans and mortgages that are secured by property that creditors can repossess to cover unpaid amounts. In Chapter 13, payments can continue as part of court-approved restructured payment plan. However, unless a Chapter 7 filer can catch up with unpaid amounts, and maintain payments after completing the bankruptcy, those assets may be liquidated.

Other debts that the liquidation of assets will cover include any fees outstanding to government units such as penalties, speeding fines, vehicle registration and tax penalties. Government funded student loans are not dischargeable, with some exceptions, though if the consumer can prove undue hardship — which is extremely difficult to establish — the loan might be discharged. Also, an individual must repay any overpaid government benefits such as unemployment. If the person cannot pay it back, it will become a debt not subject to discharge. When it comes to a loan from a 401(k), that is actually a debt to the individual, and Chapter 7 does not provide for its forgiveness.

Court-ordered penalties for property damage, drunk driving and more are not dischargeable in Chapter 7, and neither are debts related to child and spousal support. All debts related to taxes — federal, state and local — are priority debts and remain the filer’s responsibility. Liquidation of assets will cover those debts as well. If the person files for Chapter 13 bankruptcy, he or she can include most of these debts in the repayment plan. However, balances remaining at the end of the restructuring period will not be discharged, as in the case of unsecured debts.

Ohio consumers who are struggling to manage debts can seek advice from an experienced bankruptcy attorney. After assessing the client’s circumstances, a lawyer can explain the potential remedies along with the pros and cons of each alternative. Armed with that knowledge, the consumer can make an informed decision about how to proceed. Whatever the choice, a seasoned bankruptcy attorney can provide guidance and support throughout the subsequent proceedings.

Source: moneycrashers.com, “How Different Types of Debt are Treated in Bankruptcy“, Kira Botkin, Accessed on Jan.7, 2017