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What are the different types of creditor claims in a Chapter 13?

For Texans, making the decision that the financial challenges they are facing have become too difficult to overcome and filing for Chapter 13 bankruptcy is not taken lightly. However, it is a comforting truth that Chapter 13 is a strategy to get out from under onerous financial issues and move forward. Chapter 13 is for those who earn wages and will repay the debt within three to five years. There are certain terms that must be understood with this filing. That includes the three types of creditor claims on debt. They are priority, secured and unsecured.

A priority claim is that which is granted special status under the law. Included are taxes and the costs of the proceeding. With a priority claim, this must be paid in full except when the priority creditor comes to an agreement for the claim to receive different treatment or, if it is for domestic support, the debtor contributes all of his or her "disposable income" to the five-year plan.

With a secured claim, the creditor will be allowed to take certain property if the debtor fails to pay the underlying debt. An example of this is collateral like a car. The debtor has the right to keep the collateral that is for a secured claim. But if this is the case, the debtor will be required to pay at least the value of the collateral as part of the plan. An unsecured claim is such that the creditor will generally not have any right to collect against property of the debtor. The plan will not have to pay for these provided that debtor uses disposable income over the time period in the Chapter 13 and the creditor will get as much as it would in a Chapter 7 liquidation.

People who are considering filing for Chapter 13 must know that it will be necessary to formulate a plan to pay back what is owed over a certain period of time. Knowing the difference between priority, secured and unsecured claims is key to the process. For assistance with this or any other aspect of the case when deciding to file for bankruptcy, it is imperative to call an attorney.

Source: uscourts.gov, "Chapter 13 -- Bankruptcy Basics -- The Chapter 13 Plan and Confirmation Hearing," accessed on Feb. 14, 2017

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