If you owe an employee wages or benefits, it’s likely a priority debt. Same if you are owed wages or benefits. More likely to be paid.
Income tax debt may be discharged–legally written off–in a Chapter 7 case. It just needs to meet some conditions.
A bankruptcy trustee would pay your “priority” debts ahead of other debts in an “asset case.” But what happens in a “no asset case”?
Here’s what happens to “priority” debts in an “asset case.”
What makes “priority” debts so special?
To the extent you do not pay off your debts during a Chapter 13 payment plan, the remaining balance is usually legally written off forever.
If you have an “asset” Chapter 7 case, some or all of your debts are partially paid, with most or all of the remaining amounts written off.
In most straightforward Chapter 7 cases all debts not secured by any collateral are discharged–forever written off. You pay nothing on them.
Bankruptcy can’t write off certain kinds of debts. Chapter 7 may give you enough help to avoid liens on your home from those debts.
A support obligation is a very special kind of debt, and the resulting lien on your home has to be dealt with in a very special way.
Chapter 13 forces the IRS/state to accept only partial payment on an income tax debt that is only partially secured by a tax lien.
Your debts can be “secured,” “priority,” or “general unsecured.” How bankruptcy treats your debts depends on which kind they are.
Bankruptcy gives you options for taking charge of your financial life.
Here’s an adjustment in the law that can benefit you if you are owed wages and/or benefits by a person or business filing bankruptcy.
Here are the rest of the important changes affecting Chapter 7 and Chapter 13 bankruptcy cases filed on or after April 1, 2016.