Chicago Bankruptcy Question: What is a priority creditor and how are they treated in a Chapter 7?

Chicago Bankruptcy Question of the Day: What is a priority creditor and how are they treated in a Chapter 7 bankruptcy?  When you file for Chapter 7 bankruptcy protection you are required to disclose and schedule all of your creditors.  Some specific creditors are afforded special treatment under section 507 of the U.S. Bankruptcy Code.  These are termed "priority creditors" and have their own schedule within your Chapter 7 bankruptcy petition.

There are several types of priority creditors in a Chapter 7 bankruptcy, some of which are very common in consumer bankruptcy cases.  Past due domestic support obligations, such as child support, alimony, spousal maintenance and guardian ad litem fees, are generally priority claims.  Claims for the deposit of money up to $2,225 for the purchase, lease or rental of property or for undelivered or unprovided household goods and/or services are generally entitled to priority treatment.  Recent income tax liability, usually that which came due within the past three years or was reassessed within 240 days prior to the bankruptcy filing, are priority claims.  Claims for debt that arose from a death or personal injury caused by operation a motor vehicle, vessel or aircraft while under the influence of alcohol or drugs are also priority claims.  Employment taxes, excise taxes, recent property taxes and customs duties owed are all entitled to priority treatment.  There are several others, mostly involving businesses owing employees, salesmen and benefits plans, but these are not terribly common in consumer Chapter 7 cases.

Once the creditor's claim is determined to be a priority claim, they are generally treated as non-dischargeable debts under section 523 of the U.S. Bankruptcy Code.  As such, when the Chapter 7 case is completed and the court issues a discharge, the filer's liability on these specific debts remains.  From the date of filing of the case, the creditors are still enjoined from taking any collection actions against the filer until the discharge is granted; then they are free to resume their collection actions.

If you have priority creditors and are considering filing for Chapter 7 bankruptcy protection, it is essential that you have the representation of an experienced Chicago bankruptcy lawyer.  A good bankruptcy attorney will be able to identify those creditors who will be deemed to have priority status early in the process, discuss your options with you regarding these creditors and schedule them properly within your bankruptcy petition.  The Chicago bankruptcy attorneys at Ledford & Wu are happy to offer you a free consultation to advise you of your bankruptcy options and recommend an effective course of action regarding your specific situation.

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