Indiana Bankruptcy Blog

Priority debts are certain debts that take a “higher” priority than other debts during a bankruptcy.  These “priority” debts will be repaid first if any funds become available during bankruptcy.   In addition, most priority debts cannot be discharged through bankruptcy.

What types of debts are considered Priority Debts?

The most common sorts of priority debts are certain taxes and child support.  First, child support is always non-dischargeable during bankruptcy.   Child support is one of the most common forms of priority debt.   It is important to determine if a certain type of divorce-related debt is considered by family law and bankruptcy courts to be child support.  Certain debts such as martial settlement agreements and other payments may not be child support even if children are involved in the divorce.

Certain taxes are also a very common form of non-dischargeable debt.  Income tax debt that is less than 3 years old (going by the due date of the return) is a very common form of priority debt.   Therefore, if you have recent tax debt to IRS or your state revenue department, it will likely be non-dischargeable, priority debt during your bankruptcy.  Other forms of tax debt such as payroll taxes or sales tax is also priority debt.   Property taxes and other various forms of tax may likely not fall into priority status.

Other priority debts include criminal fines, criminal fines, injury caused by intoxicated driving, and overpayment of government benefits.  Some debts, including these, could be classified as “non-dischargeable” (which means they cannot be erased by bankruptcy), but they are not “priority” debts.   A good example of a non-dischargeable debt that is not a priority debt are student loan debts.  Student loan debts are non-dischargeable in bankruptcy but are usually only classified as normal, “unsecured” debts.

Priority Debts are Generally Non-Dischargeable in Bankruptcy

For the most part, priority debts cannot be discharged during bankruptcy. This simply means that you will still need to pay the debt after your Chapter 7 case.  If you file a Chapter 13 case, you will likely be required to pay the entirety of the priority debt through your Chapter 13 plan payments.   Priority debts treated differently during bankruptcy because of their “priority” status: they must at some point be paid.  This priority status protects them from being easily discharged by filing bankruptcy.