Priority Claim

Priority claim summary:

• Priority claims in bankruptcy are unsecured debts that must be paid before other creditors can receive any money. Child support is a priority claim, and so are bankruptcy-related legal fees.

• A bankruptcy trustee reviews the claims of unsecured creditors and groups them into priority and non-priority claims. 

• Money that's available for creditors is first divided among the priority claims. Once those have been repaid, anything left over is divided among the non-priority claimholders. 

Priority claim definition and meaning

A priority claim is an unsecured debt that gets special treatment in a bankruptcy case. It must be fully repaid before holders of non-priority claims can receive any proceeds. 

Key concept: A priority claim is an unsecured debt that takes precedence over others in a bankruptcy case. 

More about priority claims

Many, but not all, priority claims are also non-dischargeable, which means they can't be wiped out in a bankruptcy. Examples include spousal and child support obligations and taxes owed to the government. 

Other priority claims are related to the bankruptcy itself, like accounting and legal fees. 

Some claims are considered priority only up to a specified dollar amount. Or the debt must have been incurred within a certain time of the bankruptcy filing. Additional amounts are treated as non-priority debt. 

Priority claim: A comprehensive breakdown

When you file bankruptcy, a trustee looks at your debts and decides which debts are priority claims to be paid first. 

Most consumers file for Chapter 7 or Chapter 13 bankruptcy protection. In a Chapter 7 bankruptcy, the court could sell some of the things you own and give the money to your creditors. In a Chapter 13 bankruptcy, you’ll make a monthly payment. In both cases, as the money comes in, the priority claims are paid. 

Here are some common priority claims:

• Child support and spousal support

• Certain tax debts

• Payroll taxes and sales taxes

• Personal injury or death award because of drug or alcohol intoxication

• Criminal fines

• Overpayment of government benefits (some can be discharged)

Some priority claims have caps or conditions. These mainly relate to people you've hired, performed services for, or sold things to:

• Up to $15,150 in compensation earned 180 days before bankruptcy

• Up to $3,350 for deposits for personal products, services, or housing

Here's an example of how priority claims might look in a Chapter 7 bankruptcy. 

Michelle files for Chapter 7 bankruptcy. She includes these debts in her filing:

• $13,000 in back taxes to the IRS

• $20,000 in medical bills

• $10,000 in credit card debt

Michelle gives up assets that the bankruptcy trustee sells for $25,000, and she pays $2,000 in fees and costs. 

• The trustee pays the IRS in full ($13,000)

• There is $10,000 left, but $30,000 in non-priority debt. 

• Each medical creditor and credit card issuer gets one-third of what they're owed. The remaining non-priority debt is discharged (forgiven).