Bankruptcy cases involve three different categories of debts or claims: secured, unsecured and priority. If you are planning to file bankruptcy, you should have a basic understanding of these types of claims and how each is treated in a bankruptcy proceeding.
Secured Claims
A secured claim is a financial obligation that is backed by collateral as a guarantee for the debt owed. The collateral can consist of almost any type of property, including but not limited to real estate, personal items (such as jewelry and art) and business inventory. For example, when you buy a car and finance it, you allow the lender to hold title to your vehicle until the loan is paid in full. Some loans are secured involuntarily, generally by operation of law. A prime example is government entities having the automatic right to place a lien on real property for payment of real estate taxes by the owner.
Unsecured Claims
Unsecured claims are typically obligations that are not backed by collateral, either pledged or created by operation of law. You simply promise to pay the creditor a specified amount, plus interest or finance charges. Examples of unsecured claims include credit cards, utility payments and medical bills. If you fail to make payments, the creditor can file suit and seek to recover payment from your assets or income. Unsecured creditors are generally the last to be paid in a bankruptcy proceeding and unlikely to get much reimbursement.
Priority Claims
Priority claims are a sub-type of unsecured debts that are usually specially treated. These claims are generally paid in full even though they are collaterally backed. Most types of priority claims reflect obligations that are deemed important as a matter of public policy. Examples include:
- Child support payments
- Alimony payments
- Income taxes
- Employee payroll taxes
Priority claims are paid first under the bankruptcy code, making them more likely to be paid in full.
If you are planning to file bankruptcy as a last resort to your financial issues, you should immediately consult with an experienced Stockton bankruptcy attorney to categorize the different claims you will have as part of your bankruptcy proceeding. Bankruptcy cases can get very complicated and you need the advice, guidance and counsel of an attorney.
Call an Experienced Stockton Bankruptcy Attorney
If you are considering Chapter 7 bankruptcy, it is in your best interest to consult with an experienced bankruptcy attorney to help you learn your legal rights and options, especially with respect to Chapter 7 bankruptcy.
For more information or to schedule a complimentary consultation with Central Valley bankruptcy attorney Gurjit Srai, please call 209-323-5558, or complete our online form.