Key Takeaways

  • Bankruptcy priority claims are debts that must be paid before non-priority claims in bankruptcy proceedings.
  • These claims often include domestic support obligations, certain taxes, wages, and administrative costs.
  • Priority claims are typically unsecured but still get paid ahead of general unsecured creditors.
  • Filing a “proof of claim” is essential for creditors seeking priority status.
  • Chapter 7 and Chapter 13 handle the repayment of priority claims differently.
  • There is a specific statutory order in which priority claims are paid under 11 U.S.C. § 507.
  • Failure to follow priority rules can result in plan denial in Chapter 13 or personal liability in Chapter 7.

A priority claim is a type of claim that, in the event of bankruptcy, is treated differently than other claim types. Bankruptcy has three types of claims: priority, secured, and unsecured.

What Is a Priority Claim?

A priority claim cannot be discharged in a bankruptcy case and receives special treatment. Most priority claims are one of these three:

  • Tax requirements
  • Alimony
  • Child support

In the most common form of bankruptcy, Chapter 7 bankruptcy, priority claims are paid before any other unsecured, general claims. Even after a person has filed for bankruptcy, they are required to pay priority claim debts. Chapter 13 bankruptcy allows priority claims to be paid throughout the repayment plan until they are paid back in full. The repayment plan must include the payoff of priority claims, so if it's a short plan with a lot of priority claims, the payments might need to be fairly high.

All claims are requested by a creditor for debt repayment, but priority claims have preferential treatment over all other types of claims. If someone owes you money for a car you sold them, and they file for bankruptcy, they'll be required to pay any child support or other priority claim types first before paying you for the car.

Statutory Basis and Legal Priority Order

Bankruptcy priority claims are governed by federal law, specifically 11 U.S.C. § 507, which outlines a strict order for claim payments. This order is essential because it determines how limited funds are distributed when a debtor’s assets are liquidated.

The priority order, effective through March 31, 2028, includes:

  1. Domestic Support Obligations – Child support, spousal support, and alimony.
  2. Administrative Expenses – Costs to administer the estate, including trustee fees, legal fees, and accounting services.
  3. Wage Claims – Unpaid wages, salaries, or commissions earned within 180 days prior to filing (up to $17,150).
  4. Employee Benefit Plan Contributions – Also capped at $17,150 per employee.
  5. Deposits for Undelivered Goods/Services – Up to $3,800 for consumer deposits.
  6. Grain/Fisherman Claims – Up to $8,450 for producers owed for products delivered.
  7. Tax Claims – Certain income, property, and employment taxes incurred within three years of filing.
  8. Personal Injury or Death Claims from DUI Incidents – Arising from motor vehicle or boat operation under intoxication.

This order ensures that essential claims are addressed first, reflecting both public policy and the intent to protect vulnerable creditors​.

What Is a Priority Unsecured Claim?

Unsecured claims still take priority over other debts that the person may owe, but they aren't secured with collateral. These claims usually have priority for public policy reasons, where the public would otherwise be harmed by unpaid debts.

A priority unsecured claim is a claim that is not being held with the use of collateral, but it still is more important than other claim types. Non-dischargeable claims are those that a person still owes after bankruptcy. Basically, if you owe taxes, child support, or spousal support, filing for bankruptcy will not get you out of those debts.

Why Priority Unsecured Claims Receive Special Treatment

Priority unsecured claims lack collateral backing but receive special status due to their societal importance. These claims often involve obligations the debtor cannot escape, even in bankruptcy.

Key reasons for prioritizing these claims include:

  • Public Welfare: Child support and alimony provide critical financial support for dependents.
  • Government Interests: Tax collection remains vital for funding public services.
  • Economic Fairness: Wages and benefits protect workers from bearing the burden of employer insolvency.
  • Consumer Confidence: Reimbursing customer deposits promotes trust in future business transactions.

Because of these principles, bankruptcy law ensures these claims are fully repaid in Chapter 13 and prioritized in Chapter 7 when funds exist​​.

How Are Priority Claims Processed?

Before they can collect any payments, a creditor has to submit a form called "proof of claim" to the court. If the creditor believes their claim to be a priority, they'll need to indicate that in the priority status box on the form. The trustee will review the claim as the bankruptcy court's court-appointed overseer of the case.

All types of bankruptcy claims, no matter the chapter type, are due within 30 days after the meeting of creditors required by section 341 of the Bankruptcy Code. The priority claims filed must be paid in order of their importance. Payment of these claims is carried out by the bankruptcy trustee assigned to the case.

In the case of Chapter 7 bankruptcy, any priority claims not paid before the discharge will still need to paid by the debtor. Chapter 13 bankruptcy requires full repayment within the time set out by the repayment plan. The only way a Chapter 13 repayment plan will be approved is if all priority claims are paid back before the end of the plan.

Filing and Objecting to Priority Claims

To receive priority treatment, creditors must submit a Proof of Claim (Form B410) and indicate priority status in Box 12. Trustees review claims to verify their accuracy and validity. If a claim is misclassified or disputed, the debtor or trustee can file an objection, triggering a hearing.

Common reasons a claim might be challenged:

  • Incorrect classification as a priority
  • Unsupported documentation
  • Statute of limitations expiration
  • Duplicate or inflated claims

Claims deemed valid are paid in statutory order. In Chapter 13, courts won't confirm a repayment plan unless all priority claims are addressed. In Chapter 7, unpaid priority claims survive the discharge and remain collectible​​.

Other Types of Priority Claims

Alimony and child support claims are some of the most common priority claims, but there are other types of priority claims in bankruptcy, including:

  • Gap claims
  • Wage claims
  • Employee benefit claims
  • Grain farmer and fisherman claims
  • Customer deposit claims
  • Tax claims
  • Capital requirement claims

If the individual filing for bankruptcy incurs any additional debt after they file, but before the court approves the filing, these debts fall under gap claims. Wage claims come into play when a business files for bankruptcy. This is usually categorized under Chapter 11 bankruptcy. Any wages, salaries, vacation pay, sick leave pay, commissions, or severance earned by employees must be paid if earned 180 days before or after the business closed or filed for bankruptcy.

Employee benefit claims are similar to wage claims. If an employer owes payment to employee benefit plans when they file for bankruptcy, these debts are categorized as employee benefit claims, but they're only paid if the limit wasn't reached in paying off the wage claims.

Any taxes due before an individual or business files for bankruptcy are considered priority claims. This is limited to taxes due within a certain time period set to three years before the filing.

Impact of Priority Claims on Other Creditors

Bankruptcy priority claims significantly impact how remaining creditors are treated. Because these claims must be paid first, they often consume a large portion of the debtor’s available assets.

This means:

  • General unsecured creditors (e.g., credit card companies, medical bills) may receive little or no payment.
  • Secured creditors (e.g., mortgage or car lenders) are unaffected unless collateral value is insufficient, in which case their unsecured balance may be subordinated to priority claims.
  • In Chapter 11 reorganization plans, the debtor must still fully satisfy priority claims before general creditors receive anything.

For creditors considering filing claims, understanding where their debt stands in this hierarchy can help manage expectations and inform strategic decisions​​.

Frequently Asked Questions

  1. What determines whether a claim is given priority in bankruptcy?
    Priority is determined by federal bankruptcy law under 11 U.S.C. § 507, which outlines specific categories eligible for priority treatment.
  2. Can priority claims be discharged in bankruptcy?
    Most priority claims, such as taxes and domestic support obligations, are non-dischargeable and must be paid even after bankruptcy.
  3. Are all taxes considered priority claims?
    No. Only specific types of taxes—like recent income or payroll taxes—qualify. Older or improperly filed taxes may not be prioritized.
  4. What happens if a debtor doesn’t pay priority claims in Chapter 13?
    The court will not confirm the repayment plan, and the case may be dismissed if the debtor cannot demonstrate the ability to fully repay priority claims.
  5. Can a creditor dispute the priority status of another creditor’s claim?
    Yes. A creditor, trustee, or debtor can file an objection if they believe another claim is improperly categorized as a priority.

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